IDFC First Bank Ltd. continued to draw bearish sentiment from Goldman Sachs as the brokerage retiterated its 'sell' call for the company on account of factors like elevated credit costs, and low Net Income Margins, among other things. Credit costs will remain elevated in the first half of fiscal 2026, "with microfinance recovery as a key variable", the firm stated.
IDFC reiterated its long term goal of attaining a 15% Return on Equity led by moderation in credit costs and improved cost-to-income.
Net Interest Margins have decreased in the first half owing to "rate-cut backdrop and slower growth in higher-yielding book particularly MFI", and will only stabilise by the third quarter.
Elevated cost-to-income, and slower growth at 20% in FY26, depending on the evolving macro environment, are two more factors contributing to the headwinds.
The firm expects Return on Assets to be strained in the first half of fiscal 2026, "at an average of 0.4%, followed by an improvement to 0.7% in 2HFY26 driven by better credit costs. This translates into an ROE of 5% in FY26E, followed by 9% in FY27 vs management's medium- to long-term guidance of 15%," Goldman Sachs said.
The management has acknowledged near-term headwinds impacting its performance, which aligns with the firm's outlook. However, Goldman Sachs added that investors should view IDFC positively, "if the bank can effectively manage credit costs and drive efficiency gains."
The brokerage concluded that in the near term, headwinds from asset quality are likely to persist, even though the recent capital gain made by the bank will keep its balance sheet protected.
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