IDFC First's Low-cost Deposits Swell Despite Rate Cut From 7 Percentage To 4 Percentage

By Consultants Review Team Monday, 23 January 2023


Consultants Review Team

Formed by the merging of the erstwhile IDFC Bank and Capital First, IDFC has reported improved performance from the entity that came into being in December 2018. CASA (current, account, savings account) deposits, which is the biggest source of cheap funds for banks, it has touched an all-time high of INR 66,498 crore of December 2022, a remarkable CAGR of 88 percent, which is the merger four years back. The bank’s aggregate customer deposits that stood at INR 1,23,578 crore as of December 2022. 

Its CASA ratio has been stable for the past two years despite the bank reducing the interest rate on savings accounts to the current 4% from a record 7% when CASA deposits was a mere ₹5,274 crore. The growth has altered the company's dependence on wholesale (corporate) deposits, which has come off from 73% at the time of the merger to 23%, while retail deposits spiked from 27% to 77% over the same period. The bank currently has legacy high cost borrowings of around ₹18,762 crore but expects to bolster its net interest income on an annualised basis by ₹530 crore as it replaces them at an incremental cost of 6%. The management wants to reduce the dependence as the high-cost borrowings are proving to be a drag (2%) on the bank's return on equity which stands at 10.72%. 

Despite a turbulent four years of macroeconomic challenges and once-in-generation pandemic, the bank has been able to show an impressive growth on the business front as well with a diversified portfolio of ₹1.52 lakh crore, with home loans, consumer loans, loan against property and rural finance making for a chunk of the book. The bank has significantly wound down its infrastructure loan exposure to 3.7% of total funded assets as of December 31, 2022 from 22% as of December 2018, even as exposure to top 20 single borrowers has come down to 7% from 11% as of December 31, 2021. The bank has managed to lower its gross bad loans to 2.96% and NNPA to 1.03% as of December 31, 2022 and excluding the infrastructure book, the gross and net bad loans would have been 2.11% and 0.60% respectively as of December 31, 2022. 

In terms of profitability, the bank swung back to profit of ₹1,635 crore in 9MFY23 against a loss of Rs 197 crore in the comparative year-ago period even as annualised credit cost was 1.1% against the provided guidance of 1.5% for the whole of FY23. Including profits for 9M FY23, the capital adequacy of the bank was strong at 16.06% with CET-1 Ratio at 13.49% as on December 31, 2022.

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