Microfinance Portfolio To Shrink To 3% Of Total Loan Book By FY26: IDFC First Bank MD

IDFC First Bank expects its microfinance portfolio to shrink to around 3% of its total book by the end of the next financial year, as the lender continues to experience stress in the environment in Q3, according to the company’s Managing Director and Chief Executive Officer V. Vaidyanathan.

IDFC First Bank Ltd. posted a 53% year-on-year decline in its profit, which fell to Rs 716 crore for the quarter ending December 2024. The drop was primarily attributed to a significant increase in provisions, particularly for the microfinance institutions segment. The increase in provisions comes as the microfinance institutions (MFI) segment has been experiencing stress, contributing to a slowdown in loan disbursements.

Talking to NDTV Profit, Vaidyanathan said that while there is no “appropriate ratio” for a loan book, the MFI segment ratio has declined for the bank.

“There is nothing called an appropriate ratio. When we started it (MFI), it was maybe 7% about a couple of years ago. We are a domestic financial institution that was recently converted to a bank, unlike many of the banks that have been around for years,” he said.

“This was the way for us to meet the priority sector loan, particularly weaker section priority sector loans,” the top executive added. The 7% MFI book that IDFC First Bank started with has already come down to about 5% this quarter, he mentioned.

“So there is nothing to write as a good number, but this 7% as we speak has come down to 5% (of our total book). By the end of next financial year, we expect this (MFI) book to be about 3% or 3.5%,” Vaidyanathan said.

“I think that change will be quite stable because by that time, remember, the new norms of the industry also would have come in and the portfolio will be hopefully safer,” he added.

Talking about the lender’s Q3 performance, Vaidyanathan noted that the MFI segment is continuing to face stress across the industry, which has affected IDFC First Bank.

“What has changed is the MFI business, which is about 5 point something percent of the total book, continues to have issues in the industry as you might have seen and for us also. So, we have taken an increase in provisions on the microfinance book,” he said.

Shares of IDFC First Bank plunged 7.74% on the NSE on Monday to clock an intraday low of Rs 57.45 apiece. The shares were in red at Rs 57.76 apiece at 11:38 am, while benchmark Nifty 50 was down 0.92% at 22,879.20 points.