Shares of IDFC First Bank Drop 5% After Net Profit Falls on Higher Provisions

IDFC First Bank operates in the banking services sector, offering a wide range of financial products and services to its customers. It was established in 2018, as a result of the merger between the erstwhile IDFC Bank and Capital First.  Recently, Q4 results were announced by the bank and the investors seem to be not so confident about the financials of the company.

Financial  Performance 

The share price of IDFC First Bank dropped by as much as 5.64% and came down  to Rs.80.05 following the announcement of Q4 results. IDFC First Bank reported a 10% decrease in net profit, which fell to Rs.724 crore from Rs.803 crore in the corresponding quarter of the previous year. The bank attributed this decline to a 50% increase in provisions(expenses), rising from Rs.482 crore in Q4FY23 to Rs.722 crore in Q4FY24. 

However, net interest income (NII) for the quarter showed a positive growth of 24%, reaching Rs.4,469 crore, while the core Pre-Provisioning Operating Profit (PPOP) for the quarter increased by 22% year-on-year to Rs.1,632 crore. Over a year, IDFC First Bank shares have experienced a gain of more than 26%, outpacing the Nifty50 index, which has risen by over 24% during the same period.

CEO’s Comments

Vaidyanathan, the CEO of IDFC First Bank, mentioned the key factors driving the deposit growth of over 40% in Q4. He mentioned that the deposits saw a remarkable 42% year-on-year increase, reaching Rs.1.9 trillion by March’s end, indicating robust growth. Alongside, they’ve transformed the bank into a trusted institution, ensuring customers feel at ease. Their focus on customer service has led them to train branches to be exceptionally customer-friendly and design products with the customer in mind.

Investing in modern digital capabilities is a priority. Now, with strong profits, nearly Rs.3,000 crore in net profit in FY24, they are benefiting. Further he mentioned that as they are still in the early stages, current deposits primarily come from new customers. However, looking ahead, IDFC First Bank anticipates two significant growth drivers: acquiring new customers and increasing balances of existing customers through interest credit and other means, a common practice for all banks.

Conclusion: IDFC First Bank faced a 5% decline in share price after Q4 results, with a 10% decrease in net profit attributed to increased provisions. Despite this, NII and PPOP showed positive growth. CEO V. Vaidyanathan highlighted factors driving over 40% deposit growth, emphasizing customer trust, service, and digital capabilities. Looking ahead, the bank aims to leverage new customer acquisition and increased balances to drive further growth.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.