IDFC First Bank managing director and CEO V Vaidyanathan indicated that the stress in microfinance book should bottom out in the next two quarters and lending margins would likely be better in the second half of the current financial year.

The private sector bank’s fiscal first-quarter net profit fell 32% year-on-year to Rs 463 crore due to rise in provisions against the microfinance book.

Provisions rose 67% to Rs 1,659 crore in the quarter ended June compared to Rs 994 crore a year ago, led by slippages in the micro loan book.  

Vaidyanathan said on all other fronts of the business, barring microfinance, the bank performed well in the first quarter.

“On asset quality, all our businesses, other than microfinance, continue to perform well… By H2 FY26, MFI issue should largely be behind us. Our customer franchise is strong. So all-in-all, we are well positioned for the future,” he said in a statement. 

The lender’s net interest margin (NIM) reduced by 24 basis points to 5.71% as of 30 June from 5.95% in the previous three months, due to the cut in repo rate and reduction of microfinance share in the bank’s loan book.

“Our margins reduced because we passed on the benefit of repo rate to eligible borrowers and asset mix change, but term deposits broadly would take a year to reprice downwards. So, by H2 FY26 margins is likely to be better,” Vaidyanathan said.

Net interest income (NII), or the difference between interest earned and paid, grew 5% to Rs 4,933 crore in the June quarter compared to Rs 4,695 crore in the earlier-year.

Asset quality 

The bank’s gross non-performing assets (NPA) ratio stood at 1.97% at the end of June, higher than 1.87% in the previous three months and 1.90% a year ago.

Net NPA rose to 0.55% from 0.53% in the preceding quarter. 

Due to higher slippages, the bank shed its microfinance book by 37% year-on-year to Rs 8,354 crore as on 30 June 2025. The microfinance segment constitutes 3.3% of the overall loan book compared to 6.3% a year ago. 

Deposits  

Customer deposits jumped 25.5% year-on-year to Rs 2.57 lakh crore as of 30 June. 

The bank maintained its low-cost CASA (current account savings account) deposits ratio at 48.08% as of 30 June 2025, with this segment growing 30.2% year-on-year to Rs 1.27 lakh crore.

Loan book

The loan book grew 21% year-on-year to Rs 2.53 lakh crore, driven mainly by mortgage, vehicle, business banking, MSME and wholesale loans, which contributed 82% of the overall growth.