IDFC First Bank expects NIM to be stable from here on

With money moving into fixed deposits for higher returns, IDFC First Bank expects net interest margin (NIM) to trend down and stay between 5-5.5 per cent band in this financial year and next. Its margins stood at 6.05 per cent in the fourth quarter of FY23 (Q4FY23).

V Vaidyanathan, IDFC First’s managing director and chief executive, told Business Standard cost will catch up on the re-pricing of deposits. After repo rate hikes, costs were passed on to customers in FY23. However, the cost to banks did not go up correspondingly. It takes about a year for costs to catch up. The private lender had reported a NIM of 5.96 per cent for Fy22.

 

As for the impact of shifting of money to term deposits, he said the financial year, generally speaking, is going to be tight for CASA. Money could shift from CASA to fixed deposits because interest rates are high. “We think we could stay in the band of 45-50 per cent (of total deposits) in FY24,” he said.

In FY23, IDFC First bucked the industry trend of a decline in CASA share in total deposits. Its CASA share rose from 48.44 per cent at end of March 2022 to 49.77 per cent at end-March 2023.

Private sector lenders like HDFC Bank saw CASA share declining to 44 per cent in March 2022, from 48 per cent a year ago. For Kotak Mahindra Bank CASA share dipped to 52.8 per cent in March 2023 from 60.7 per cent a year ago.

There is confidence in bank due to high levels of corporate governance. This helps to get deposits including CASA when the bank expands in new locations. Bank has been adding 100 branches each year. Its branches were at 809 in March 2023, up from 641 branches in March 2022 and 596 in March 2021.

As for Cost to Income (C\I) Ratio, partly reflecting expenditure on new business and branch expansion, bank reduced C\I from 95 per cent to 72 per cent in four years. “So we are in the right direction. It is expected to drop further going ahead as the Credit card business turns positive (breakeven) by FY25. That will change the dynamics of Cost to Income Ratio” Vaidyanathan said.

There is Rs 18,000 crore of legacy borrowing, which is at nine per cent. These will be replaced with deposits at current rates so it will add about Rs 500 crore to IDFC First’s income and improve cost to income, he said.