IDFC FIRST Bank Q4 FY26: Growth steady, asset quality improves, and a one-off fraud hits optics

IDFC FIRST Bank closed Q4 FY26 with continued balance sheet growth and improving asset quality, but reported profitability was distorted by a one-time operational incident and weaker treasury performance. As of March 31, 2026, gross loans and advances including credit substitutes were Rs. 2,90,278 crore, up 20% YoY. Total deposits were Rs. 2,94,475 crore, up 16.8% YoY. Asset quality improved, with gross NPA at 1.61% and net NPA at 0.48%.

For Q4 FY26, the bank reported PAT of Rs. 319 crore, down sequentially, largely due to an upfront expense linked to a fraud incident at a branch and a trading loss in treasury. Management also presented a normalized view, with normalized PAT of Rs. 746 crore for Q4, excluding the fraud impact, treasury loss and an income tax refund.

A balance sheet still compounding

The quarter’s loan growth was broad-based. In the investor presentation, the bank highlighted that mortgages, vehicle loans, consumer loans, MSME loans and wholesale loans together contributed 87% of incremental growth. Retail finance stood at Rs. 1,71,459 crore at March 2026, up 21.3% YoY, supported by consumer loans and vehicle finance. Business finance stood at Rs. 94,673 crore, up 25.0% YoY, and the wholesale book grew to Rs. 57,884 crore, up 30.5% YoY.

On the liability side, customer deposits excluding certificates of deposits were Rs. 2,84,453 crore, up 17.3% YoY. CASA deposits were Rs. 1,46,650 crore, up 24% YoY, translating into a CASA ratio of 49.8% at end-March. The bank acknowledged that end-of-period CASA dipped sequentially, and attributed the softness to savings rate cuts, the one-off fraud incident, and tight liquidity through the quarter. Management stated that inflows normalized in April 2026 and expects normalized deposit growth from Q1 FY27.

Asset quality trends remain supportive

The quarter reinforced the bank’s improving asset quality trajectory. Gross slippages reduced 15% QoQ and net slippages reduced 27% QoQ. The bank’s SMA-1 and SMA-2 in the RAM portfolio improved to 0.78% at March 2026. Collection efficiency excluding microfinance remained strong at 99.6%.

Microfinance, which had been a drag in the prior year, showed further stabilization. MFI collection efficiency improved to 99.7% in Q4 FY26, and management stated that 89% of the microfinance book is covered by CGFMU as of March 31, 2026. The bank also disclosed that it carried forward contingency provision on the microfinance book into FY27.

At the wholesale level, the presentation highlighted continued clean-up versus the legacy infrastructure-heavy portfolio. The bank stated it unwound about Rs. 20,700 crore of project financing infrastructure exposure post-merger and reduced it to nearly nil, while building a corporate funded book with tighter underwriting.

Profitability: reported versus normalized

Operating performance on core lines remained healthy. Net interest income in Q4 FY26 was Rs. 5,677 crore, up 15.7% YoY, while fee and other income was Rs. 2,063 crore, up 21.3% YoY. However, operating expenses rose sharply due to the fraud impact recorded within the quarter.

The standalone financial results and auditor’s report disclosed an Emphasis of Matter related to a fraud identified at a Chandigarh branch, involving unauthorized and fraudulent activities by certain employees in collusion with external parties. The bank paid principal claims of Rs. 645.59 crore and recognized it as an expense for the quarter and year ended March 31, 2026. The matter is under investigation and subject to a forensic review by an external firm.

Management also called out a trading loss of Rs. 159 crore in Q4 FY26, attributing it to yield widening and other market factors. In addition, the tax line included an income tax refund of about Rs. 174 crore, due to a favorable tax order.

To help investors interpret underlying performance, the presentation provided a normalized income statement for Q4 FY26. Under this view, normalized operating profit was Rs. 2,137 crore and normalized PAT was Rs. 746 crore.

What management guided for FY27

Management commentary in the earnings call offered several explicit guideposts. The CFO stated that full-year NIM was 5.75% in FY26 and is expected to remain broadly stable around these levels in FY27. Operating expense growth guidance for FY27 remains 13% to 14%, though management cautioned Q1 could be higher due to branch additions and annual increments.

On credit cost, the CFO indicated a possible range of 170 to 180 bps for FY27, citing expected benefit from CGFMU coverage on microfinance. Management also stated deposits had begun to normalize in April 2026 and expects normalized deposit growth from Q1 FY27.

Finally, the CEO indicated the bank would likely need additional capital as it continues to grow, though no quantified plan or timing was disclosed in the transcript.

Takeaways

IDFC FIRST Bank’s Q4 FY26 numbers reflected two stories at once. The structural franchise metrics continued to trend well, with 20% loan growth, deposit scaling, a near-50% CASA ratio, and improving GNPA and NNPA. But reported profitability was materially affected by a one-off fraud expense and a quarter of treasury losses.

For investors tracking the bank’s longer arc, the key monitoring points remain deposit momentum after the Q4 softness, the pace of operating leverage as the liabilities business scales, and whether credit costs sustainably trend lower as microfinance stabilizes under CGFMU coverage. Management’s stated expectation is that normalized growth resumes from Q1 FY27, with stable margins and improving credit costs supporting a better profitability trajectory.