Regret not insuring MFI business from start: IDFC Bank CEO Vaidyanathan

IDFC First Bank chief says not insuring the microfinance portfolio earlier worsened FY25 losses but confirms that 66 per cent of the book is now covered under CGFMU

V Vaidyanathan, managing director (MD) and chief executive officer (CEO), IDFC First Bank, has told shareholders that he regrets not insuring the bank’s microfinance (MFI) portfolio from start as the business has been prone to crisis every 5-8 years.

 

“In hindsight, the reasons for doing this business are still intact. What I regret most was not insuring the MFI portfolio from the start. This business has been prone to some crisis or the other — Andhra Pradesh, Assam or Tamil Nadu (floods) are some examples. Insurance would have significantly cushioned the blow by 72 per cent,” Vaidyanathan said in the bank’s annual report for FY25.

 

 

“Going forward, we will fully insure the portfolio, monitor it closely, keep track of industry practices, and keep it within certain limits of the bank’s overall portfolio,” he said.

 

The bank, from January 2024 onwards, started insuring the disbursements of microfinance loans under Credit Guarantee Fund for Micro Units (CGFMU). Currently, 66 per cent of the bank’s overall microfinance portfolio is insured under the CGFMU coverage. As a result, in the event of default, the bank will be paid 72 per cent of the default.

 

In FY25, the bank’s net profit dropped over 48 per cent year-on-year (Y-o-Y) to ₹1,525 crore compared to ₹2,957 crore. It was mainly due to higher provisions of ₹5,515 crore (2.46 per cent of loan book) driven by stress in the microfinance book.

 

In FY24, the bank’s provisions stood at ₹2,382 crore. 

 

The MFI sector has been grappling with stress due to over-leveraging of borrowers, resulting in lenders curtailing disbursements. This led to borrowers defaulting and a rise in non-performing assets (NPAs) for lenders engaged in the system.

 

As of March 2025, gross NPA of the bank in the MFI portfolio was 1.63 per cent, compared to 1.81 per cent in December 2024. 

 

Following stress in its MFI portfolio, the bank has shrunk its MFI book by 28 per cent from ₹13,344 crore as on March 31, 2024, to ₹9,571 crore as on March 31, 2025.

 

Explaining the impact of stress in the MFI portfolio, Vaidyanathan said there were two impacts – NPA provisioning increased in MFI loans. Also, there was a reduction in book size.

 

This led to a fall in income as compared to earlier years.

 

“We expect improvement in MFI to start reflecting from Q2FY26 onwards,” he said.

 

He added the bank has built a well-oiled machinery of 6,500 staff members dedicated to lending and collections, supported by robust systems and protocols.

 

“Over eight years, we have financed 4 million customers through multiple repayment cycles, bringing them into the formal credit system and transforming lives. This has helped us meet the priority sector lending (PSL) norms, avoid penalties, and also run a profitable business. Given these capabilities, it makes little sense to exit due to this one-off crisis. Instead, we must reflect on what could have been done better to reduce the profit and loss (P&L) impact,” he said on MFI lending.

 

Vaidyanathan added, “I take full responsibility for the MFI issue. We see the MFI book in its entirety with the positives and negatives it gave us and will insure the portfolio, going forward.”