India Ratings and Research (Ind-Ra) has affirmed IDFC FIRST Bank’s debt instruments, including Basel III Tier 2 Bonds, Infrastructure Bonds, and Non-Convertible Debt Instruments, amounting to ₹17,928 crore at ‘IND AA+/Stable’. The affirmation reflects the bank’s continued franchise expansion, experienced management, stable liability franchise, diversified product portfolio, and improved capital buffers.
Rating Rationale
India Ratings and Research (Ind-Ra) has affirmed IDFC FIRST Bank Limited’s (IDFCFB) debt instruments’ ratings.
The rating affirmation considers IDFCFB’s franchise expansion, management experience, liability franchise stability, diversified product lines, and improved capital reserves. However, the ratings are affected by higher operating expenses and credit costs affecting internal accruals, placing them lower than similar rated entities.
Key Rating Drivers
Strengths:
- Sizeable retail franchise with diversified product lines.
- Improved funding profile due to retailisation.
- Improved Capital buffers with recent capital raise.
Weaknesses:
- High operating expense impacting internal accruals.
- Asset quality needs monitoring, with existing challenges in unsecured segments.
Detailed Drivers
IDFCFB’s retail, rural, and SME book comprises 80% of its funded exposure as of Q2 FY26. The bank aims to maintain this mix, focusing on granular loan portfolio growth. This retailisation supports margin maintenance, despite higher funding costs compared to larger banks. Net Interest Margin (NIM) for IDFCFB stood at 5.59% in Q2 FY26. The share of microfinance (MFI) loans in the overall book has moderated to 2.7% in Q2 FY26.
The bank’s top 20 deposits have increased to 8.34% in Q2 FY26, improving granularity. The CASA ratio remains stable at 50.1% as of Q2 FY25. IDFCFB’s CASA deposits comprised 43.6% of its total liabilities. The bank intends to maintain a higher savings rate to moderate borrowing costs.
Capital buffers improved in Q2 FY26, with the CET1 ratio rising to 14.75%. The bank raised INR75 billion in Q2 FY26. Also, the recent merger of IDFC Limited led to an accretion of INR6.18 billion to the overall capital base, giving adequate cushion.
Return on assets stood at 0.4% in H1 FY26. The bank’s cost-to-income ratio (H1 FY26: 70.9%) remains high compared to peers. Gross NPAs remained stable at 1.86% in H1 FY26. The credit cost of average funded assets remained elevated at 246bp for H1 FY26.
The share of top 20 borrowers in total advances fell to 4.47% as of Q2 FY25. The restructured book reduced to INR4.02 billion in Q2 FY26, representing 0.15% of the funded exposure.
Liquidity
IDFCFB’s liquidity remained stable in Q2 FY26, with a quarterly liquidity coverage ratio of 115%.
Rating Sensitivities
Positive triggers include substantial franchise growth, retail funding, and stable profitability and return ratios.
Negative triggers include increased credit costs, weakening provision coverage, decreased capitalisation buffers, and declining deposit granularisation.
Source: BSE