Lower Slippages And Credit Costs On The Horizon, Says IDFC FIRST Bank CEO
Vaidyanathan notes that while margins have been impacted by the reduced micro-finance share, the full effect of recent repo rate cuts is yet to come into the system.
IDFC FIRST Bank in the first quarter especially was in a period of margin contraction, primarily due to a shift in its loan book composition away from micro-finance. V. Vaidyanathan, managing director and chief executive officer, in a conversation with NDTV Profit, on Monday talked about the bank's measures and outlook despite recent financial adjustments.
Vaidyanathan notes that while margins have been impacted by the reduced micro-finance share, the full effect of recent repo rate cuts is yet to come into the system. He expects a positive repricing of fixed deposits starting in the third quarter, with a more significant impact by the fourth quarter, which should help with margin pressures.
The bank is also experiencing strong customer response, according to Vaidyanathan, which he credits back to the notable franchise. "We are getting a positive response from customers as we have built a really good franchise. Our branches are also getting more productive," he said.
Slippages And Rural Wage Growth
On the asset quality front, non-micro-finance slippages are largely seasonal, aligning with a broader system-wide trend.
"In the non-micro finance side, there is nothing specific that stands out in the slippages, it's more like a seasonal slippage. There is a broader increase of slippages in the system. Other numbers like credit costs and NPA look stable," he noted.
Credit costs are projected to decrease in the latter half of the fiscal year, despite higher costs in the initial quarters.
Vaidyanathan also highlights the strong trend of rising wage growth in rural India, a positive indicator for the bank's operations.
Mixed Outlook From Jefferies And Morgan Stanley
This commentary follows IDFC FIRST Bank's Q1 results, which saw a 32% year-on-year dip in standalone net profit to Rs 463 crore, primarily due to a 67% surge in provisions and contingencies, largely attributed to slippages in the micro-finance book.
Brokerage firms offered varied perspectives. Morgan Stanley maintained an "Equal-weight" rating, trimming its target price, citing the muted Q1 but acknowledging strong loan and deposit growth.
Jefferies, on the other hand, maintained a "Buy" rating and increased its target price, noting that a significant reduction in the Special Mention Account book of micro-finance could pave the way for lower slippages and credit costs in the future.
