Microfinance provisions peaked in Q4, says IDFC First Bank MD and CEO

Provisions against microfinance segment have peaked in Q4FY25

Net profit will improve from this quarter of 2025-26 because provisions in the microfinance segment have peaked, V Vaidyanathan, managing director and chief executive officer, IDFC First Bank, tells Anupreksha Jain in a video interview. Edited excerpts.

 

Net profit has fallen year-on-year in another quarter. When can we see a reversal in the trend?

 

Provisions against microfinance peaked in Q4FY25. We had said this would happen. Provisions should start coming down, and hence profit will start reflecting it. We expect that in Q1FY26 and onwards we should start seeing an improvement in profit after tax (PAT). This segment is sensitive, and there are state regulations, etc. We need to be watchful.

 

You have been reducing microfinance loans. With risk weightings on loans to non-banking financial companies reversing from April 1, will you again grow microfinance loans?

 

We have implemented the new MFIN norms, which will probably keep disbursements moderate. Therefore, we are not expecting any big liftoff. After such a big incident over the past one year it would not be wise to rush into the segment again in a big way. We will be careful about that. By the end of next year, microfinance will come down to about 3 per cent of the books. We will figure out ways to meet priority-sector lending.

 

Since interest rates are coming down, where do you see the current account and savings account (Casa) ratio and the credit/deposit ratio in FY26?

 

We will make efforts to retain the Casa ratio at 47-48 per cent. The credit/deposit ratio has come down from 137 per cent to 94 per cent in six years, which is good progress on a structural basis. On an incremental basis we lend only 75-78 per cent of deposits. We want to stay the course and end this financial year like, say, the late 1980s.  Operational costs have come down. What steps has the bank taken to contain costs?

 

The growth rate in operational costs year-on-year has come down to 12.2 per cent. It was 21 per cent in Q1, 17 per cent in Q2, and 16 per cent in Q3. It has been curtailed through many means. The bank has reduced travel costs, courier costs, and SMS costs. We are doing transformation projects like making our journeys digital, using less paper, etc. We work like a tech bank.

 

Plans to raise capital?

 

We have no equity plans now but may raise funds through Tier-II bonds.  We are waiting for interest rates to cool. Hopefully the bank will be upgraded once profit starts going up and the capital buffers come in. We will wait for better times.

 

What is the guidance on loans to the retail sector, agriculture, MSMEs (micro, small and medium enterprises), and big companies?

 

Our RAM (retail, agriculture, and MSME) books are about ₹1.9 trillion, The MSME sector is an important component in this. Corporate is about ₹45,000 crore. We will grow all five engines — retail, agri, MSME, commercial and corporate. We are planning to grow in commercial, ie have a turnover of, say, ₹100 crore to ₹750-800 crore. We are looking to build a team with which we will grow this. We will be watchful on quality.