“IDFC First Bank is entering a phase of strong loan growth as the drag from wholesale book moderates, and we estimate loans to report 21% CAGR during FY22-25E,” Motilal Oswal said.
“The bank has scaled up retail deposits (CASA/retail TD) at a robust 73% CAGR over FY19-22 with a solid CASA mix of 50%. It has invested well in digital capabilities, branch and product expansion and has a presence across retail products,” it added.
Motilal further stated, “We estimate 35% CAGR in PPoP during FY22-25E while controlled credit costs will drive 199% CAGR in PAT over a similar period. We thus estimate RoA/RoE to reach 1.3%/13.9% in FY25E, respectively. ”
IDFC First Bank is well positioned to benefit from a gradual run-down of its high-cost legacy borrowings over FY23-26E (Rs 224 billion at 8-9% cost) and replace them with deposits (at 5.5% cost). 77% of such bonds will be refinanced by FY25E.
This will potentially add Rs 7.5-8.0 billion to NII (FY22 NII: Rs 97 billion) in due course, the brokerage said in its report.
The brokerage also said that the bank made substantial investments in building the franchise, which resulted in sub-optimal cost metrics. However, the brokerage expects the operating leverage to improve (C/I ratio at 66% by FY25 vs 75% in FY22) , thereby aiding earnings.
The bank’s asset quality is likely to be robust with its incremental focus on building a granular, retail portfolio where it has sharp underwriting expertise. It is gradually heading back towards its long-term trend of 2% GNPA and 1% NNPA in retail and commercial finance books (74% of overall loans). The restructured book stands controlled at 1.3% in 1QFY23, the brokerage said in its report.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)