IDFC First Bank’s Q3 results: What happened?
IDFC First Bank’s stock price dropped by 7% on Monday, reaching a 21-month low of Rs 57.46 on the BSE. The steep decline was triggered by the bank’s Q3 FY25 earnings, which showed a 53% YoY decline in net profit, primarily due to a surge in bad loan provisions within its microfinance business.
The microfinance drag on IDFC First Bank
The bank’s microfinance segment was a significant concern, with gross slippages surging 49% QoQ to Rs 4.37 billion. Analysts have pointed out that the pain in this segment is expected to persist for at least the next 3-4 quarters. This has impacted the bank’s overall financial performance, despite 14% YoY growth in net interest income (NII) to Rs 4,902 crore.
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IDFC First Bank’s financial snapshot
| Metric | Q3 FY25 | Q3 FY24 | QoQ Change | YoY Change |
| Net Profit (PAT) | Rs 339 Cr | Rs 716 Cr | -53% | -53% |
| Net Interest Income (NII) | Rs 4,902 Cr | Rs 4,294 Cr | 0.14 | 0.14 |
| Net Interest Margin (NIM) | 6.04% | 6.18% | -14 bps | -14 bps |
| Gross NPA | 1.94% | 2.04% | Improved | Improved |
| Net NPA | 0.52% | 0.68% | Improved | Improved |
| Microfinance Loans (YoY) | -19.30% | — | Declined | Declined |
While the bank improved its gross NPA and net NPA ratios, the microfinance stress led to elevated credit costs, weighing on its bottom line.
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IDFC First Bank’s stock performance
| Stock Movement | Value |
| Current Stock Price (BSE) | Rs 57.46 |
| Intraday Low | Rs 57.46 |
| One-Month Decline | 9% |
| 2024 Stock Performance | -29% |
| 52-Week High | Rs 83.50 |
| 52-Week Low | Rs 56.70 |
Why did the stock slump?
- Microfinance bad loans: Gross slippages in microfinance surged 49% QoQ, raising concerns about asset quality.
- Declining profit: PAT dropped 53% YoY, failing to meet market expectations.
- High operational expenses: The bank faces elevated credit costs and expenses, restricting profit growth.
- Slowing loan growth: While total loans grew 22% YoY, microfinance loans fell 19.3% YoY.
- Broker downgrades: JP Morgan downgraded IDFC First Bank to ‘underweight’ from ‘neutral’.
Broker views on IDFC First Bank
| Brokerage | Rating | Target Price | Key Comments |
| Jefferies | Buy | Rs 73 | Stronger credit quality but microfinance pain persists. |
| JP Morgan | Underweight | — | Downgraded due to asset quality concerns. |
| Centrum Broking | Reduce | Rs 61 | High expenses and credit costs remain a concern. |
Should you invest in IDFC First Bank?
Pros of investing
- Net interest income (NII) growth: Increased by 14% YoY, showing strong revenue generation.
- Improved asset quality: Gross and Net NPA ratios have declined YoY, indicating better financial health.
- Brokerage support: Jefferies has a ‘Buy’ rating with a Rs 73 target, implying a potential upside.
Risks to watch out for
- Microfinance stress continues: Slippages are rising, and the segment will take time to stabilise.
- Declining profit margins: High credit costs and reduced PAT put pressure on growth.
- Stock underperformance: The stock is down 9% in January and 29% in 2024, showing weak investor confidence.
Bottomline
IDFC First Bank’s Q3 FY25 results reflect short-term headwinds due to stress in its microfinance business. While NII growth and asset quality show resilience, profitability concerns and elevated credit costs weigh on the stock. Investors should watch how the bank manages its loan book and expenses in the next few quarters before making a long-term decision.
