IDFC First Bank's Other Income Drove Q1 Earnings, Says Motilal Oswal Maintaining 'Neutral' Rating

IDFC First Bank reported a Q1 FY26 PAT of Rs 4.6 billion (-32% YoY), a significant beat driven by one-off bond gains. Net interest income was up 5% YoY/ flat QoQ at Rs 49.3 billion (in line). Net interest margin moderated 24 bp QoQ to 5.71% (in line), largely due to the repo impact, asset mix change (including a sharp dip in the MFI business), and decline in investment yields.

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Motilal Oswal Report

IDFC First Bank Ltd. reported an earnings beat driven by healthy other income (due to one-off bond gains). However, net interest margin moderated 24 bp QoQ due to repo cut and asset mix change, and the bank expects this to further go down in Q2 but remain ~5.8% in Q4 FY26.

On the business front, deposit traction continued to remain robust, with the current account-savings account mix increasing to 48%. The growth in advances also remained healthy, led by steady traction across retail and business finance.

Asset quality deteriorated while the SMA book was under control at 1.01%. We estimate the cost/income ratio will remain at 69.6% by FY26 and at 66.4% by FY27, primarily as the bank will continue to mobilize deposits at a healthy run rate.

We raise our earnings estimate by 11% for FY26E and estimate FY27 return on asset/return on equity at 1.2%/14.4%. Reiterate Neutral with a target price of Rs 80 (premised on 1.7x FY27E adjusted book value).

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