IDFC FIRST Bank: Navigating Growth and Profitability in Q2 FY26

IDFC FIRST Bank has released its performance for the second quarter of Fiscal Year 2026, showcasing a period of strategic consolidation and growth amidst evolving market dynamics. The bank reported a Profit After Tax (PAT) of INR 352 crore for Q2 FY26, contributing to a half-yearly PAT of INR 815 crore for H1 FY26. While the quarterly PAT saw a sequential decline of 23.8% due to higher trading gains in the previous quarter, the year-on-year growth remained robust at 75.6%, underscoring the underlying strength of its core operations.

The bank's total customer deposits demonstrated impressive growth, increasing by 23.4% year-on-year to reach INR 2,69,094 crore. Retail deposits, a strategic focus for the bank, grew by 21.4% year-on-year, while CASA (Current Account Savings Account) deposits surged by 26.8% year-on-year, reaching INR 1,38,583 crore. The CASA ratio stood at a healthy 50.1% at the end of the quarter, reflecting the bank's success in building a stable and diversified liability franchise. The loan book also expanded significantly, growing by 19.7% year-on-year to INR 2,66,579 crore, driven by broad-based growth across retail, rural, MSME, and corporate segments.

Financial Highlights: A Snapshot

Asset Quality and Strategic Shifts

Asset quality showed notable improvement, with Gross NPA (GNPA) reducing by 11 basis points sequentially to 1.86% and Net NPA (NNPA) improving to 0.52%. The SMA-1 & SMA-2 (Special Mention Accounts) for the Retail, Rural, and MSME book also improved by 11 basis points quarter-on-quarter, standing at 0.90%. This indicates effective risk management and a healthier loan book. The microfinance portfolio, which had previously impacted profitability, saw a significant reduction in stress, with SMA pool declining by 34% since June-25. The bank has also increased its CGFMU (Credit Guarantee Fund for Micro Units) cover to 77% of its MFI portfolio, further mitigating risk.

One of the most significant strategic shifts for IDFC FIRST Bank has been the transformation of its loan book. From a predominantly wholesale credit book (86% at merger), the portfolio is now well-diversified, with 80% in retail, rural, and MSME segments. Mortgage-backed loans have increased from 5% to 29%, demonstrating a conscious effort to reduce concentration risk and build a more granular, stable asset base. The bank's cost of funds has also seen a substantial reduction of 157 basis points since the merger, now at 6.23%, reflecting improved liability management.

Digital Prowess and Future Outlook

IDFC FIRST Bank continues to lead with its digital capabilities. Its mobile banking app is rated #1 in India and features among the top 5 globally, driving significant digital transactions and customer engagement. The bank's focus on fully digital onboarding, analytics-led renewals, and branch-embedded sourcing in business banking highlights its commitment to technology-driven efficiency. New product launches, such as the Indigo IDFC FIRST Dual Credit Card, and enhancements in NRI services, including international UPI payments, further strengthen its competitive edge.

Looking ahead, management expressed optimism about improving profitability. They anticipate Net Interest Margins (NIMs) to improve in the coming quarters, reaching upwards of 5.8% by Q4 FY26. The microfinance book is expected to stabilize and resume growth from next year, while credit costs are projected to be lower in H2 FY26. The bank aims to bring down its overall Cost to Income ratio to approximately 65% by FY27, leveraging economies of scale and its robust digital infrastructure. This disciplined approach, coupled with strategic investments in technology and diversified business lines, positions IDFC FIRST Bank for sustained growth and enhanced shareholder value in the long term.