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Where this quarter sits.
Quarter read
What the record says.
IDFC First Bank reported a strong Q3 FY26 with PAT of ₹533 crore (up 48% YoY) driven by margin expansion and lower credit costs. Net interest margin improved 17 bps QoQ to 5.76% on the back of a 12 bps reduction in cost of funds to 6.11%. Asset quality improved with gross NPA down 17 bps to 1.69% and MFI stress receding. Management guided NIM to 5.85% in Q4 and expects credit costs to normalize toward the through-cycle average of ~1.95%. The bank is investing in liability franchise build-out, with retail liability cost-to-income at 149% expected to improve with scale. Key risk: elevated opex growth could delay RoA improvement if income growth does not keep pace.
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Guidance to track
- Management expects net interest margin to improve to 5.85% in Q4, driven by SA rate cuts and lower cost of funds.
- Management expects credit cost to trend down toward the through-cycle average of 1.95% as MFI stress abates.
- With recent SA rate cuts fully impacting, cost of funds is expected to decline below 6% in the current quarter.
- Management expects retail liability cost-to-income ratio to decline from 149% to ~100% as balance sheet scales to ₹6 lakh crore over 4-5 years.
Risks flagged
- Opex grew 13.4% YoY (12.1% ex-labor code impact); if income growth does not accelerate, operating leverage may be slower than expected.
- Management acknowledged that expected credit loss norms may lead to higher credit costs on a steady-state basis, though impact is uncertain.
- Management noted that the full impact of SA rate cuts on deposit mobilization will be visible only in coming quarters; a sharper-than-expected slowdown could pressure funding.
- SMA in credit cards increased marginally QoQ; while management downplayed it, continued deterioration could raise credit costs.
Key quotes
- We treat credit cost is a bit like a research and development cost. It's not something for us to zero at that's not what we striving for.
- The transition to a low cost of funds is a journey that had to be done but you can see from the numbers that we are firmly on that path.
- We would slightly want to revise that guidance upwards to 5.85%.
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