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Motilal Oswal Report
IDFC First Bank Ltd. has strengthened its balance sheet over the past few years as it consciously increased the mix of retail business. The bank reported five times growth in retail deposits over the past three years and simultaneously improved current account and savings account mix to 50%.
Further, the retail loan book posted an impressive 31% compound annual growth rate over FY19-22.
IDFC First Bank is well positioned to benefit from gradual run-down of its high-cost legacy borrowings over FY23-26E (Rs 224 billion at 8-9% cost) and replace them with deposits (at ~5.5% cost). ~77% of such bonds will be refinanced by FY25E. This will potentially add ~Rs 7.5-8.0 billion to net interest income (FY22 NII: Rs 97 billion) in due course.
IDFC First Bank has made substantial investments in building the franchise, which has resulted in sub-optimal cost metrics. However, we expect the operating leverage to improve (cost/income ratio at 66% by FY25 versus 75% in FY22) thereby aiding earnings.
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