IDFC First Bank Q2 Profit Nearly Triples to Rs 1,045 Crore as Rs 34,390 Crore NRI Deposit Haul Squeezes Margins

IDFC First Bank on Saturday reported a profit after tax of Rs 1,045 crore for the July-September quarter of FY27, up 196.5% from roughly Rs 352 crore a year earlier. On a consolidated basis, profit came in at Rs 1,049 crore against Rs 348 crore in the same quarter last year. For the first half of the year, the lender has now earned Rs 2,120 crore.

The headline jump looks dramatic, but much of it reflects how weak the base was. A year ago the bank was still absorbing heavy credit costs from its microfinance book. The more useful question is whether the underlying engine has improved, and on that score the numbers are encouraging, with one important catch.

Core earnings are doing the heavy lifting

Trading gains contributed only about Rs 11 crore this quarter, so the profit was not flattered by bond-market windfalls. Operating income excluding those gains rose about 22% to Rs 8,469 crore, while operating expenses grew 16% to Rs 5,942 crore. That gap pushed core operating profit up 38.5% year-on-year to Rs 2,527 crore.

Provisions also helped, falling about 22% to Rs 1,137 crore even after the bank set aside Rs 100 crore of standard-asset provisions on a new loan book (more on that below). Net interest income grew 21% to Rs 6,184 crore and fee income rose about 25% to Rs 2,285 crore.

For a bank that has spent years arguing that heavy spending on branches and deposit-gathering would eventually pay off, this is the clearest sign yet of operating leverage. Its cost-to-income ratio, excluding trading gains, improved to around 70% from nearly 74% a year earlier.

The $3.6 billion NRI deposit drive

The standout event of the quarter was the mobilisation of Rs 34,390 crore, roughly $3.6 billion, in FCNR(B) deposits. These are foreign-currency term deposits held by non-resident Indians, mostly with three-to-five-year tenors. The bank raised them without operating any international branches, relying on digital channels instead.

Management says the money costs about one percentage point less than domestic fixed deposits once priority-sector benefits are counted. About Rs 24,885 crore of it was lent back out as deposit-backed loans through the bank's International Banking Unit.

Kotak Mahindra Bank, which also reported on Saturday, ran a similar playbook, raising about Rs 55,344 crore through FCNR(B) deposits. The pattern suggests private lenders are actively tapping NRI money to fund growth while domestic deposit competition stays intense.

The catch: margins took a hit

Those deposit-backed loans are low-yielding, so they inflate the bank's earning assets faster than its interest income. As a result, net interest margin fell to 5.58% from 5.90% in the previous quarter. Management attributed about half the decline to the FCNR(B) loans, with surplus liquidity, fewer days in the quarter and loan mix explaining the rest. It expects margins to recover toward 5.80% by the fourth quarter, though that assumes liquidity normalises and the rate environment cooperates.

Capital is the other number to watch. The common equity tier-1 ratio slipped to 13.0% from 14.75% a year ago, and total capital adequacy fell to 14.67%. Loans grew 30.1% to Rs 3.47 lakh crore, and growth at that pace consumes capital quickly.

Asset quality keeps improving

Gross NPAs fell to 1.32% from 1.86% a year earlier, and net NPAs eased to 0.40% from 0.52%. The microfinance book, once the bank's biggest worry, saw its gross NPA ratio drop to 2.54% from 3.61% in June. Total deposits rose about 26% to Rs 3.49 lakh crore, though the CASA ratio dipped to 47.6% as the foreign-currency deposits swelled the term-deposit base.

The bank also picked up its first international credit rating during the quarter, an investment-grade BBB- from S&P Global Ratings.

What it means for investors

The shares will react to these numbers when markets reopen on Monday. Bulls will point to rising core profit, cleaner books and a cheaper funding source. Bears will focus on the thinner margin and shrinking capital buffer. The next two quarters should show whether the margin recovery management is promising actually arrives.

This is an original summary based on public reporting. See our editorial policy for how we source, write, and correct our stories.