IDFC First Bank's micro loan stress may bottom out in 2 quarters: MD & CEO

The bank expects its microfinance stress to ease in the next couple of quarters, after which it plans to grow its book in a measured way, while also putting a proposal to vote at the upcoming AGM

IDFC First Bank expects stress in its microfinance (MFI) book to bottom out in the next couple of quarters, after which it will start growing its book, albeit in a measured way, said V Vaidyanathan, managing director and chief executive officer (MD&CEO), IDFC First Bank.

 

He added that the bank will put the proposal for board seat to US-based private equity (PE) giant Warburg Pincus’s arm Currant Sea Investments B V in the upcoming annual general meeting (AGM), after reworking the terms to make it acceptable to the shareholders, and that the bank is confident that it will secure the required votes this time.

 

“In microfinance, the environment was not friendly for disbursements. But we feel that in the next couple of quarters, we will see the back of the crisis — credit costs should bottom out, and provisions would completely bottom out,” Vaidyanathan said in an interaction with Business Standard, adding that the bank will grow the book because it is a very important sector and it meets priority sector requirements.

 

“It is profitable, and it is also an essential part of India after all. But we will do it in a very measured way, by keeping it fully covered by Credit Guarantee Fund for Micro Units (CGFMU) insurance”, he said. 

 

Earlier, in his message to shareholders, Vaidyanathan had expressed regret that he had not insured the bank’s microfinance portfolio from the start as the business has been prone to crisis every five-eight years in some state or the other. The bank, from January 2024 onwards, started insuring the disbursements of microfinance loans under CGFMU.

 

Commenting on the issue of board seat to Currant Sea Investments B V, which was denied by the shareholders back in May, Vaidyanathan said, “We feel it will be sorted because we have clarified the issues and also reworked terms where necessary. And, we are putting it to vote by the shareholders in the AGM by July 29. We are quite confident we will secure the votes. So, that is a very big positive.”

 

In May, shareholders rejected a special resolution seeking approval for Currant Sea Investments B V to nominate a non-retiring, non-executive director to the bank’s board. The special resolution received 64.1 per cent of votes, falling short of the required 75 per cent threshold needed for it to pass.

 

Warburg Pincus and the Abu Dhabi Investment Authority (ADIA) had collectively invested ₹7,500 crore in the bank through a preferential equity issue, aimed at supporting its next phase of growth. Warburg Pincus, through Currant Sea Investments B V, has invested ₹4,876 crore while ADIA put ₹2,624 crore via its wholly owned subsidiary Platinum Invictus B 2025 RSC.

 

With this fundraise, the bank has raised ₹21,000 crore in the last five years. The bank will look to do capital-raise going forward. 

 

“The good news is that the market has always given us capital at a fair price, well above book value per share. Once our own return on equity (RoE) crosses 15 per cent, we can become self-sufficient. That’s the only way to build a lasting institution, raise capital, build a good business, build RoE, and become self-sufficient,” Vaidyanathan said, adding that to convert a Development Financial Institution (DFI) into a bank, it does consume a lot of capital. This happened earlier even with ICICI in its early days when converting from a DFI to a bank, he further added.

 

The bank reported a 32 per cent year-on-year (Y-o-Y) decline in net profit to ₹463 crore in the first quarter of 2025-26 (Q1FY26) due to rise in provisions. Provisions and contingencies of the bank jumped 67 per cent to ₹1,659 crore, impacted by slippages in its microfinance book. The bank’s loan book grew 21 per cent Y-o-Y to ₹2.53 trillion, led by mortgages (home loans and loan against property, or LAP), vehicle, business banking, and corporate loans.

 

“The market is large and we are a relatively smaller player, hence we are able to grow at over 20 per cent Y-o-Y. We want to grow in a steady manner, and for us, this is a reasonably steady manner. In areas like mortgages, LAP, and business banking, we have developed specialisation. We are really good at cash-flow financing. The specialisation in cash-flow lending is helping us a lot,” he said.