IDFC First Q2: Profit Triples, Margin Slips to 5.58%

IDFC First Bank made a profit of ₹1,045 crore in the September quarter, up 196.5% from ₹352 crore a year ago and its second quarter in a row above ₹1,000 crore. Higher interest income and lower provisions against a weak year-ago quarter drove the jump. The bank also raised ₹34,390 crore of FCNR(B) deposits, about US$3.6 billion, and its net interest margin fell to 5.58% from 5.90% in June (the bank's figure, which excludes interest on an income-tax refund). Profit was 2.8% lower than in June.

The quarter in numbers

The June-quarter figures include interest on an income-tax refund; excluding it, the bank says net interest income rose 4.5% from June ([P]).

Deposits grew 25.9% to ₹3,48,583 crore (customer deposits excluding FCNR(B) grew 14.1% year on year and 2.5% from June, per [P]), and loans, including credit substitutes and FCNR(B)-backed loans, grew 30.1% to ₹3,46,913 crore ([PR]). Gross NPA was 1.32% and net NPA 0.40% ([PR]). Return on assets was 0.93% ([PR]) and return on equity 8.45% ([P]).

The FCNR(B) effect

The bank raised the FCNR(B) money "despite having no branch, subsidiary or representative office outside India" and says the deposits "are largely of 3-to-5-year tenor" ([PR]). It puts their fully loaded cost at about 1% below the cost of raising domestic fixed deposits, including priority-sector benefits ([PR]).

On the margin it is direct: FCNR(B) "should benefit NII, PAT, EPS and RoE, although it is optically NIM-dilutive" because the balance sheet grew by ₹24,885 crore of loans made against those deposits ([PR]). The presentation gives the size: "Net interest margin moderated by ~32 basis points, from 5.90% in Q1FY27 (excluding interest on income tax refund) to 5.58% in Q2FY27" ([P]). The bank's bridge splits the 32 basis points into 16 from the denominator effect of the FCNR(B)-backed loans, 7 from excess liquidity, 4 from the day count and 5 from asset mix, and its best estimate for Q4 FY27 is 5.80%, a projection that includes a repo-rate hike benefit ([P]).

Two adjustments the bank itself makes:

• Loan growth was 22.2% excluding loans secured by FCNR(B) deposits (gross of IBPC), against 30.1% headline ([PR]).
• CASA: the period-end CASA ratio was 47.6%, but 52.8% excluding the FCNR(B) deposits ([P]); the average CASA ratio was 48.4% against 50.1% in the June quarter ([PR]).

Moat and margin

Focus moat: retail deposits. The presentation's table shows CASA deposits of ₹5,274 crore at the December 2018 merger, when the balance sheet still carried ₹26,819 crore of legacy long-term and infrastructure bonds, against ₹1,65,963 crore of CASA now ([P]). Average CASA deposits grew 23.3% year on year in Q2 FY27, with average current accounts up 30.0% year on year ([P]). That is the moat the bank is building (our reading), and the bank says the FCNR(B) raise, done without overseas branches, "demonstrates the Bank's digital capabilities" ([PR]).

Margin and costs. The bank says operating expenses have grown about 500 basis points slower than income for consecutive quarters, and that its core cost-to-income ratio improved to 70.16% from 70.73% in June ([PR]). At that ratio about 70 rupees of every 100 of core income goes on costs (our arithmetic).

Credit. Credit cost fell to 1.01% of average assets ([PR]). Provisions include ₹100 crore of standard-asset provisions on the FCNR(B)-backed loans; without them, the bank says, credit cost "would have been 1.30% on Average Funded Assets and 0.94% of Average Total Assets" ([P]). It says 97% of its microfinance book is covered by the CGFMU guarantee scheme ([P]).

MoatSCORE: 5.91 (AMBER, first pass) on the Moat Screener ([MS]).

The bear case

• Profit fell from June, by 2.8%, and pre-provision profit was flat quarter on quarter ([P]). The June quarter included interest on an income-tax refund; the bank's core profit after tax, which excludes it and trading gains, rose 15.5% from June to ₹1,036 crore ([P]).
• The margin fell 32 basis points in a quarter, from a June base that excludes tax-refund interest ([P]).
• Return on equity was 8.45% in the quarter ([P]), against the bank's stated aim of a consistent ROE of 16%+ ([PR]); return on assets was 0.93% ([PR]).
• A core cost-to-income ratio of about 70% ([PR]) leaves little room if credit costs rise again (our reading).
• The big year-on-year growth rests on a low base: provisions of ₹1,452 crore in Q2 FY26 against ₹1,137 crore now ([P]).

The case for

• NII up 21% and pre-provision profit up 35% year on year ([P]).
• Deposits up 25.9% (customer deposits excluding FCNR(B) up 14.1%) and CASA of 52.8% excluding FCNR(B) ([PR], [P]).
• Asset quality steady: gross NPA 1.32%, net 0.40% ([PR]).
• A debut investment-grade rating of BBB- from S&P ([PR]).

What to watch

1. The margin in the December quarter, with and without FCNR(B).
2. Whether the cost-to-income ratio keeps falling.
3. Microfinance and other unsecured credit costs.

Sources

• [PR] IDFC First Bank, Q2 FY27 press release (NSE)
• [P] IDFC First Bank, Q2 FY27 investor presentation (NSE)
• [MS] Moat & Margin, Moat Screener and How MoatSCORE works

Educational research, not investment advice. Every figure above is drawn from IDFC First Bank's own filings, read from the primary documents on 25 October 2026; derived figures are our arithmetic, labelled as such. MoatSCORE read live from the Moat Screener on 25 October 2026. No buy/sell recommendations, no price targets, no share prices. Moat & Margin is not a SEBI-registered Research Analyst or Investment Adviser.