Here's why IDFC, IDFC First Bank shares jumped up to 5% on Wednesday

Shares of IDFC Group companies, IDFC and IDFC First Bank, gained up to 5 per cent each on the BSE in Wednesday's intra-day trade.

Of these, IDFC hit a 52-week high of Rs 76.35 as it rallied 5 per cent on the BSE. In the past three months, stock of the holding company has surged 45 per cent after the Competition Commission of India (CCI) approved the divestment of IDFC Asset Management Company (IDFC AMC) on August 1, 2022.

In April this year, a consortium of Bandhan Bank's parent, Bandhan Financial Holdings (BFHL), private equity firm ChrysCapital, and Singapore's sovereign fund GIC had announced the acquisition of IDFC Asset Management Company for Rs 4,500 crore.

The Boards of IDFC, IDFC FHCL, and IDFC FIRST Bank at their respective meetings, held on December 30, 2021, had accorded in-principle approval to merge IDFC and IDFC Financial Holding Company (IDFC FHCL) with IDFC FIRST Bank post further simplification of corporate structure, and divestment of IDFC AMC.

Meanwhile, shares of IDFC First Bank gained 3 per cent to Rs 54.60, as compared to 0.50 per cent rise in the S&P BSE Sensex at 57,424 points at 01:41 PM. The stock of the private sector lender is trading close to its 52-week high level of Rs 55.15, which it had touched on October 6.

In the past three months, the market price of IDFC First Bank has appreciated 60 per cent on improved assets quality. The Bank's strong momentum in deposits continued in September quarter (Q2FY23), with customer deposits up 35.9 per cent year-on-year (YoY), and 10.8 per cent quarter-on-quarter (QoQ) to Rs 1.14 trillion, within which CASA deposits grew 37 per cent YoY, and 11.7 per cent QoQ to Rs 63,380 crore. The CASA ratio improved to 51.34 per cent v/s 50.04 per cent in Q1FY23.

"Key input parameters of asset quality such as cheque/ NACH bounces on presentation, which are indicators of future asset quality of advances continued to improve. Asset quality of the loans booked during last 1 year, on a like-to-like vintage comparison basis, is performing better than prior vintage periods, indicating improvement in asset quality going forward," IDFC Bank said in Q2 business update.

According to CARE Ratings, the bank has comfortable capitalisation levels due to regular capital raising undertaken to support its asset growth. "An increasing diversification and granularisation of advances post the merger with a shift towards retail lending with gradual reduction of the legacy infrastructure lending book within the wholesale portfolio, diversified resources profile with increased proportion of retail term and current account savings account (CASA) deposits; albeit its cost of funds remained higher due to legacy borrowings which continues to still form a significant proportion of its funding profile, albeit on a decreasing trend," the rating agency said in rationale.

Sustained improvement in cost would further enable the Bank to become more competitive in secured and price sensitive retail loan segments like Home Loans and LAP as well as large corporate segments keeping ticket sizes under check.

"The Bank’s profitability is expected to improve over the medium term as the bank establishes its retail franchise and the economies of scale help improve operational efficiency as well as the stabilisation of the depositor base with a reduction in credit costs with improvement in asset quality and would be a key monitorable," CARE Ratings said.