Ladies and gentlemen, good day and welcome to IDFC First Bank Q4 and FY 2026 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Saptarshi Bapari, Head of Investor Relations and ESG. Thank you, and over to you, sir.
Thanks, Danish. Thanks a lot for calling, and thanks everyone for joining the call. We have today with us Vaidya, our MD and CEO, and Sudhanshu, our CFO. We'll start the call with a brief note about the financials for the period ending 31st March 2026 by Sudhanshu. Post that, we'll have some words from Vaidya, and then we can open the call for the participants for the questions. Okay? Now I'll hand over the call to Sudhanshu. Sudhanshu.
Yeah. Thanks, Sapta. Good evening, everyone. Thank you for participating on Saturday. What I will do is I will quickly outline some key financial numbers for the quarter. My sequence would be to start with assets, then I'll talk about liabilities, and then asset quality, and finally some numbers around profitability and capital. Let me go first with loans and advances. We saw a healthy growth in loans and advances, including credit substitutes during the quarter. It has grown by 20% on a YOY basis, and it has now reached about INR 2.9 lakh crore. We saw a healthy traction across mortgages, vehicle loans, consumer loans, wholesale loans, business banking loans. Collectively, these segments accounted for almost about 87% of the total growth. MFI, we all have been talking.
The good part is, after many quarters, we have seen that the decline has got arrested. MFI book is about INR 6,662 crores at March 2026, and now 89% of the book is covered through CGFMU. We saw also an increase in MFI loan disbursements that was higher by almost 27% on a sequential basis. Even into the next year, we see MFI book now again starting contributing to the overall growth and P&L of the bank. Another, I think milestone I would want to call out is credit cards have now crossed 4.5 million during the quarter, and that book has grown strongly at about 21% on a YOY basis. On wealth management side, AUM continues to grow at a steady pace.
It has increased by about 23% to about INR 57,000 crore. Now, I have to call out few numbers on the deposit side. We saw an increase in total deposits by about 16.8% on a YOY basis to INR 2.94 lakh crore. If I talk of customer deposits within that, then that stood at about INR 2.84 lakh crore, and there the growth was about 17%. The growth was a modest 1% during the quarter, but that is on account of various factors which played out during the quarter. If I have to call out about two, three factors, we did reduce our interest on savings accounts in certain buckets. There was also an impact of the one-off fraud incident which occurred during the quarter.
There was also a tight liquidity which prevailed through the quarter. There was advance tax outflows and also of course the West Asia crisis. These all, I think, in conjunction, had some impact on the deposit flows. Having said that, I want to again state that, the start of Q1 we are seeing strong traction in deposit growth and hence we feel that we will have a normalized growth or a better growth going forward. If I talk of the CASA ratio, the CASA ratio was at 49.8%, which itself is quite strong for the quarter. On an EOP basis, we saw an outflow of about INR 3,700 crores for some factors which I just mentioned before. On an average basis, CASA ratio increased from 50.0% in the previous quarter to 50.4%.
Very quickly, if I move to the asset quality. We, I think, had a good set of numbers across various parameters. To start with, the gross NPA ratio of the bank improved by 8 basis points from 1.69% to 1.61%. Similarly, the net NPA ratio of the bank improved from 0.53% to 0.48% in the current quarter. If I talk of the retail, rural and MSME segment, here also the gross NPA ratio improved by 8 basis points to 1.47%. Similarly, net NPA improved by 7 basis points to 0.56%. If I talk about gross slippages, here the decline has been about 15% on a QOQ basis.
If you look at net slippages, that declined by about 27% on a sequential basis. Even for MFI slippages, that came down to, I would say, sub INR 100 crores. It was at INR 96 crores from INR 153 crores in the previous quarter. The gross slippage ratio, ex MFI for the quarter, was lower 49 basis points at 2.6%. Moving on, if I talk about collection efficiency that for early bucket, that was quite strong, Ex of MFI at 99.6%. Previous quarter, this was 99.5%. For MFI, we saw considerable improvement. Collection efficiency improved from 99.4% to 99.7%.
This is now almost touching the pre-crisis levels, what we used to see. As a result of all of this, the SMA 1 and 2 across the retail, rural, and MSME portfolio then improve by 10 basis points from 0.88% to 0.78%. We have given far more detail in the presentation, which sort of highlights that we have seen a stable to improving trend across all the key products. In microfinance portfolio itself, the SMA came down by 70 basis points, and it stood at 0.79%. Now, if I move on to the profitability. For the quarter, we have reported profit after tax of INR 319 crores, which includes certain one-time items which we have called out in the presentation.
Let me first tell what are a few of these one-time line items which I meant. One is we have taken an upfront impact of the fraud incident which has happened in Q4. We have paid claims over INR 646 crore of principal. On a post-tax basis, that impact is about INR 480 crore. If I just gross up before the fraud impact, then the PAT for the quarter would be about INR 800 crore. However, to further add, we had two more impacts which we are saying are one-time, on a core basis. One is we had a trading loss of about INR 159 crore on a pre-tax basis, which on a post-tax translates to about INR 118 crore.
The loss here was largely because of the widening of yields which we saw during the current quarter. Like, for instance, the five-year G-Secs widened by about 40 basis points. The 10-year G-Secs also widened by about 32 basis points and so on. We, while for the full year, if you see the treasury gains have been quite strong. This quarter, of course, we ended up having some loss. We also took a small loss on account of the guidelines which came around the MOP policy. Another one time which I want to call out, which is in fact a positive to the P&L. We got some income tax order which gave us a tax refund of about INR 173 crores.
That has contributed to the positive side of the P&L. If we take into account all three aspects, which is the fraud incident, which is the treasury income or the loss which we posted, and third is this gain on income tax, then if you exclude all these three, then the normalized profit after tax was about INR 746 crore. Vis-à-vis the INR 319 crore which we have reported taking those impacts. This INR 746 crore translates to about a 145% increase in PAT growth on a YOY basis. For the full year, taking into account all the impacts, which includes the fraud incident, the reported PAT is INR 1,636 crore.
If we adjust for the fraud incident, then on a post-tax basis, this went up by 39% to INR 2,119 crores. We saw an improvement across all operating metrics. Like for example, NII growth further improved during the quarter to 15.7% on a YOY basis. This was about 12% in the previous quarter, and you would have noted that trend for last now many quarters where this has started inching up. We had guided the market for a NIM of 5.85% for Q4, but happy to state that we have come with a NIM of 5.93% on an AUM basis.
This of course includes some benefit because of a day convention, largely because February has lesser number of days, and also because we took some cautious approach on investments, and we brought down the average investment book, which also gave some lift. NIM for the full year was at 5.75%, and that is expected to be stable into the next year. Fee and other income for the quarter again grew strongly by 21.3% compared to 15.5% in Q3. Trading gains, I already spoke about that. There was a loss of about INR 159 crores. OpEx for the quarter stood at INR 6,249 crores. This includes the impact of the fraud incident of INR 646 crores on the principal side.
If we adjust for this, the OpEx for the quarter was INR 5,603 crore, which was a modest increase of 0.3% sequentially and about 12.3% on a YOY basis. For the full year, the OpEx growth was at 12.3% if we exclude the fraud incident. Moving on to provisions. This has reduced QoQ by 18% from INR 1,398 crore to INR 1,143 crore. Overall credit cost for the quarter came at 1.60%, which is an improvement about 42 basis points from the previous quarter. Excluding microfinance, the credit cost for the overall loan book was at 1.61% in the quarter, and roughly 38 basis points better than Q3.
What this has meant is for the full year, the credit cost has come at 213 basis points. We had guided the market for 2.10%, but another data point to note here is that we have not fully utilized the contingency provision on MFI. After usage of INR 35 crore in the current quarter, we are carrying forward INR 130 crore into the next year. If we were to adjust all of it off, including that INR 130 crore, then the credit cost would have been 2.08% instead of 2.13%, which are the reported numbers. I'll quickly talk about my last section, which is on capital adequacy and liquidity. The capital adequacy ratio is at 15.60%, with CET1 ratio at 13.70%.
This has been calculated after considering dividend of INR 0.25 per share. Of course, this is subject to approval of the shareholders. Average LCR deposits we have maintained at 114% for the quarter. As you would have noted that we generally maintain this along the trajectory of 114%-115%. With this, I have broadly outlined the key financial numbers. Maybe I will refer it to Vaidya for his opening comments.
Good evening, everybody. First of all, very happy to speak to all of you this Saturday evening. Now, in this presentation this time, we have actually shared with you the broad strategy of the bank, which becomes important, which eventually the strategy translates to the numbers. If you see, you know, page nine, the first opening slide, we have actually shared with you that, you know, initially this bank's strategy was to borrow money at maybe 12%-13% and lend at maybe 20%-22%. Now, that is a very unique specialization the bank built over a long period of time. It's like 15 years we've been in that business.
We have developed specialization in terms of within that, which segments to go after, what is the credit performance of each micro segment, within segment. For example, we don't say MSME. It's too blunt a term. We, for example, have a defined program for salons, for chemists and so on and so forth, and kirana stores and all that. That is a unique model built by the bank and that, you know, the lending is anywhere about, maybe 20%-22%, and that credit cost could be 4% or 5%. You come up the curve, you know. That is where we started. Over a period of time, of course, our cost of funds came down. At the NBFC itself, it came down to about maybe 9.5%.
We started lending to more, you know, products which are medium yield, medium credit cost. Where your yield is about, let me say 13%, 14% and credit cost is at 2% or 3%. Now over time, of course, we are a bank. Our cost of funds have further come down to 6%. We are now able to give prime home loan, prime car loan and prime loan against property, prime business banking. The transition of the bank has moved from the first category I talked about, lending at high yield and high credit cost to medium yield, medium credit cost to now low yield, low credit cost. The important thing is that the bank has not let go of the original capabilities.
It's very important because it's been honed and built over 15 years. We have no intention of letting go of that. That is one of the reason why our yield of the book at the bank level is 13%+. That includes even corporate banking, 13%+. You will be surprised to know that the credit cost of the book is only 2%. In fact, you know, I don't exactly remember if Sudhanshu she called out the number for fourth quarter of this year's or not. It's come down to below 2%.
In fact, if you've taken a five-year through the period, like this is five-year, like 2022, 2023, 2024, 2025, 2026 or maybe a block of five years, I think one year prior to that, you'll find that credit cost of the bank is only 1.95%. That includes COVID, that includes microfinance, everything. This number, when we say that we'll keep a credit cost less than 2% is not academic. We have been delivering it for the last five years. Of course, last year was higher because of microfinance, but that's, you know, that is already talked about enough earlier.
The point is that our ability to have a book that yields 13%+, and having credit cost less than 2%, which gives a risk-adjusted yield of 11%+, is a very unique specialization. As far as we are concerned, by the way, it is also. You have to also add 2% as fee income. You can see how profitable that business is.
What the bank has been doing for the last seven years or say five years is that using this business, which makes just a lot of money and then using it to invest in the deposit side branches of the bank, which is the technology, the people, the branches, the ATMs, many products on the corporate banking side, like cash management, products like FASTag, wealth management, NRI businesses. Let me say even on the lending side, our product suite is not entirely complete. In the sense we're still building a rural banking business because we started as a micro, as a DFI, and we did not have any priority sector capability in this bank. For the last seven years, we've been building that.
As you know, 40% of the book needs to be priority sector. We're building all that. I mean, as a new bank, you got to build all that. The point I'm trying to just leave with you is that the lending machine makes all the money. The deposit side is as of today loss-making, but it will come to profitability. The other thing is that therefore we believe that the bank is coming along very strong. Most of you will probably add it all up and say, "Hey guys, Vaidya, end of the day bank is making return on assets only 0.5%." That's true. It's only 0.5%, but 0.5% is not 0.5%.
0.5% is something making 1%+, which is the asset side, and the lending money side is, deposit side is taking away 0.5%. The day you properly sit and disaggregate this and then understand that the deposit side is not going to make a loss forever. Sometimes it takes 10 years to build a deposit side of a bank to scale. You can give it maybe three or four more, maybe I can say three or four, let me say four or , just to be safe. You give that amount of time, and then that deposit side loss will become zero. Asset by the time will keep compounding at 20%+ is our opinion, and profit should compound faster than that. You can see where the part of the bank will head.
Honestly, I feel that the bank is perfectly on track. It's coming along very nicely. This microfinance incident, you know, of course, disturbed the optics of the trajectory of the bank. You know, this quarter also, we feel very good about the results. But for the incident that happened, but that we factored in the quarter's results. You will see for most of you who will observe the result, quarter two, quarter three, quarter four, you will get to see that the trajectory is back strong in this bank. That's our broad belief. You can see it as it plays out. Now, the other thing about the bank is that we've been consistent with one story. You know, we started with INR 94 crores in 2010.
Today it's INR 2.32 lakh crores straight in 15 years straight. We've been consistent with one business model, which is the model we, you know, the lending side, INR 2.32 lakh crores. Well, I don't see any doubt why INR 3.2 lakh crores should not become INR 5 lakh crore, should not become INR 10 lakh crore. It's a well-set machine by now. We only have to get the deposit side right, and once you get that right, then the machinery will move. The good thing is also the corporate banking side, frankly, the bank is doing well now. You know, after the initial phase when we slowed down the book, now we started growing it again. Not slowed down. Actually, we de-grew the book, to be fair.
We brought it down from INR 68,000 crore to INR 36,000 crore. We de-grew it by INR 22,000 crore. We took out all the project financing infrastructure loans. Now all that is done. There's no more reform to be done there. It's on a growth path, and that will grow as well. You know, we find our own niche. Last seven years, no meaningful credit loss, in fact, if anything at all. We are quite happy with the way that book is coming along. Now, the overall loan book of the bank has now touched about INR 2.9 lakh crore or INR 3 lakh crore. I think it's of INR 2.9 lakh crore. That story is also playing itself, really quite well.
It's quite diversified across 25 lines of businesses, so really no concern there. On the deposit side, if you notice the deposit growth of this quarter was flat. Really it's kind of, you know, mixed up with three or four signals that came together. Like Sudhanshu said, you know, we dropped the rates, the incident happened. It's hard to pick what affected what. In the end, I just want to say that when this incident happened, not that we want it to happen to us, we want to make sure this never happens again to us.
I can just tell you that the positive of this is that the bank has also happened to identify the specific issues, has already implemented at very quick pace the necessary system changes to be done for fixing those issues so that they don't happen again. You know, we kick the tires around and figure out any other part of the system with an issue. For example, even in retail customers, and there's no issue also, we went and tightened some extra norms. So we've done those things. So maybe these kind of tightening and strictures we've done will probably, not probably, will certainly do us good in the longer run.
Now, therefore, when we grow the deposit base, which is currently touching like INR 2.9 lakh crore, when this grows to, you know, INR 5 lakh crore, INR 6 lakh crore, INR 10 lakh crore, we will feel that it will come on even stronger guardrails, and we just look forward to that. In fact, I remember in, you know, in 2021, 2022, that time also we dropped rates once. The first time when you drop the rates from 7%. For one year there was a slight, you know, flat. It was a flat year. If you see FY 2022, it's a flat year in terms of deposits. Then it starts growing again. Like that, this quarter was flat. It'll come back. We feel quite confident of that.
I do want to finally say that the kind of goodwill we got during this crisis, you know, there was just so much of bad news overnight in a flash across, you know, social media channels and YouTubers and Twitter and all over the place. Really something amazing I must point at all of you for all the, you know, for all that happened. As investors, we should really take note of this, that, you know, we have like 7-8 million customers leaving deposits with us. You should really, in fact, we are also quite, let me say, happy to note or pleased to note that money did not leave the bank.
You know, some marginal customers at the very high ticket size who are with high interest rates, some of them left. Frankly, when we dropped the rate from 7% to 6.5%, people with high interest rates or who had come to us for high interest rates are expected to leave. Barring that, you know, we got like thousands of emails. If you go and see LinkedIn, you know, either see my LinkedIn account or you go and see maybe IDFC Bank LinkedIn account, you will see the number of people who posted their videos and reports saying that, "Look, we trust this bank and we support this bank." I really think that some good brand the bank has built, good trust the bank has built in people's, you know, minds and hearts.
Somewhere it has helped us. We just want to take this opportunity of investor call to say very you know very sincerely to say thank you to every person who helped us and said some good motivating words to our employees. It kept us happy and going. Of course, it is a culture of the bank to move very fast. We moved very quick. You know, this incident happened on Saturday. Afternoon is when I happened to be in Delhi, and someone called me and told me that you know this incident is this and this is quite big. You know, that night we reported the exchange straight on. Monday morning, we took the investor call.
Monday afternoon, we called up the other party and said, "We're gonna pay you right now." Then Monday night we paid them. Tuesday morning we met them in person. Tuesday afternoon we called up the, you know, the newspapers and said we want a front page ad. That day we prepared the ad. Next morning it was out. We just moved like blindingly fast. With very quick, decisive way, saying that the customer's money, customer should get it. That's the end of the matter. We did not apply any of the principles to it. We did not think of litigation. We didn't think of anything. We didn't even think that your employer is also involved. Your responsibility, my responsibility. We didn't think anything.
We just said, "Customer's money, pay back." I think that our you know, DNA to move in pro customer, to be decisive and just move. I think it did help us somewhere along the way, you know, customers did trust us, and we want to thank them for that. I also want to again, I want to close that point by saying I want to thank everybody for that and to all of you who helped us in that very crucial moment, and there are many. I want to just quickly move to cost of funds. I'm happy to share the cost of funds have come down to 6%. In the last one year, cost of funds have come down by over 50 basis points, wasn't it, Shu?
Yeah.
50 basis points. We are now down to 6% and honestly, I don't think any of you would have guessed when we started this bank or when we took over this bank in 2019 at 7.8% that we're going to cut it down by 180 basis points cost of funds and bring it down to the line of our peer banks. You know, at that time we were paying 150 basis points over mid-tier peer banks. 150 basis points. We bridged that gap and brought it down and grew deposits despite this cut of rate. I just want to say that the deposit function is coming well for the bank. You know, as I always say, I don't tell the market whether I will increase it, I will reduce it.
I you know, I just say that it's unlikely we will touch the rates, you know, but still, I keep all my options open depending on what the market conditions are. Chances are the rates will probably be somewhere in the zone as the year progresses. You know, could be 10 basis points up also. I can't tell for sure. Depends on how the market plays out. Now, let me just say that on the asset quality front, I'm happy to share.
If you notice, all of you may remember that every single quarter for now, like, you know, let me say, five, seven years, and particularly last two years when the microfinance crisis was raging, and credit cost numbers were going up, we kept insisting and sharing with you, product by product, vintage by vintage, SMA 1 and 2, SMA, you know, NPA, credit cost, everything. We shared everything with you, and we always maintained to you that except microfinance, this book is super clean.
I am happy to say that it has turned out to be so because when the microfinance crisis is gone, suddenly our credit cost has come down to 1.6% or 1.7% of the average loan book, which is probably the lowest we have seen in a long, long time. Anyway, Gross NPA is always less and Net NPA is always low. I'm just happy to share that we give a lot of disclosure. If you notice, we give the collection efficiency of the overall book, excluding microfinance. We give it, including microfinance. We also show you know, the SMA 1 and SMA 2 for the whole book. We show you know, the Gross NPA and Net NPA for the whole book.
Frankly, every one of the numbers are stable. Really, I can tell you as of now, the last it's been seven years now as a bank avatar, and it's been eight years before that as Capital First avatar, our Gross NPA, Net NPA credit cost is just fine. It is behaving very stable. No issue at all. Microfinance came, microfinance went. That did cause us trouble, but that is, I assume that we have called it out openly all the time. Let me share with you there was never any acquisition against our bank that we never touched the books. We never gleaned anything. We just paid clean. If it was a delinquency, we took it, and that was the end of the matter, but that's only for microfinance. Anyway, that stands for it, right?
On the corporate side, of course, I'm happy to tell you that everything's cleaned out. As I speak to you know, I just stumbled upon this page where we talked about credit cost. I'm happy to tell you that credit cost for the full year is actually 2.13%. What is the number here? It's 2.13% for FY 2026, which is basically 1.5% of the average assets. But that 2.13% is broken up as follows. It's 2.69% for Q1 FY 2026, 2.24% for Q2, 2.05% for Q3, and 1.63% for Q4. You can see that our credit cost is coming down. We are rather happy about that.
That actually gave us a space. Frankly, the beginning of the quarter we knew it's going to be low. We, even when the crisis came, if you remember, I came out to the press, and I gave public interviews, including with the leading channels like CNBC. I came and said that this, we expect this to be a profitable quarter because we knew that credit cost of the quarter is going to be quite low, because the book is turning out so well. That's that. I'm happy to share that overall the bank is doing well. We're expecting growth. From now on, we're expecting deposit to grow, loans to grow, you know, and Q1, you know, should expect the bank to report reasonably good numbers.
Coming back to the opening point that I started, I must say that please always look, see this book. You know, all of you are investors. You might say, "Look, why are we gonna just total it up and say we have one number?" That's what your ROE is, what somebody else's ROE is, and you want to compare. Well, you could do that, but I can tell you that a bank that is running for 30 years or 40 years, you know, for them everything is amortized and everything is booked, built 15, 20 years ago and they're only running on marginal costing. Our bank is not running on marginal costing. Our bank is running on full costing. And that's a big difference.
When you look at this bank, think clearly that this bank is borrowing money at 6%, is lending money at 13%, so that gives a spread of 5%. They have a credit cost on top of two, only 2%. Then there's fees of 2%. You can see for yourself it's profitable. Just split up the two. See assets as assets. It's a growing machine. You see liabilities as something that is loss-making. I don't deny. Credit cost is loss-making. I don't deny. Gold loans is loss-making. I don't deny. Home loans, new book is, prime book is loss-making. I don't deny. Because these are things which are building for the future. Some of the rural book we're also building is also loss-making.
I don't deny it. This is all toils of life, but frankly, anybody who's got to build a bank someday in life, someone has to sit and build these things. Eventually when these all become profitable at scale, then you will see the true bloom of the bank's profitability come about. You watch out. You just watch 27, watch 28, watch 29. Many of you have doubts today. I'm 100% sure your doubts will blow away. It's just a matter of time. Thanks so much, everybody, and we'll open to questions.
Da nish, please open the floor for the questions.
Sure. Thank you so much, sir. Ladies and gentlemen, we will now begin with the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question comes from the line of Param Subramanian from Investec. Please go ahead.
Yeah, hi, sir. Thanks for taking my question, and congrats on a resilient performance in in what would have been a tough quarter. Sir, if you could comment a bit about the monthly deposit accretion since it's been two months since the, you know, we had that event, and of course, you know, we've also cut down our SA rates. So how are we looking in terms of our monthly deposit accretion, customer additions, et cetera? And are we back to a normal run rate and do you think we will get back to our normal growth pace from, say, first half of next year on deposits?
See, we have generally seen that when people go through this kind of crisis, et cetera, it takes about a year or so for things to stabilize. You might have seen it elsewhere. We are quite confident that this matter is behind us. Q1, FY 2027 itself, you will see a strong growth in the bank. The year that went by, we already described it's been flat, but flat is also good news, you know, for the quarter that went by, you know, like I said, we also cut the rates. You should see, I mean, we're already seeing last year, last quarter, last month, you know, that's quite amazing.
I already talked of goodwill of customers to us, and I don't know where we're getting such goodwill from, but thanks to everybody. We, if you see the last year also, last month also, in the month of March, when crisis only, when the news has broken out, you know, February end the news broke, so all of March the news was hot. Number of accounts opened was as high as the previous month of February, was equal to January. So new accounts opening is coming perfectly strong. You know, once customers who took out money because of the high interest rates, you know, when we cut the rates, this quarter onwards you should see growth right now itself.
Sir, we should get back to our, say, normal 20%?
5%. Yeah. 5%. You know, 5%.
Yeah.
Yeah, 5% QOQ, that kind of growth, yeah.
Okay, sir. Fair enough. On NCR, 114%, it's a bit low, so from next year onward we will be looking at a max loan and deposit growth? Or will this start coming?
No, no, we are comfortable. We always maintain it comfortable at that kind of numbers because then, you know, NCR of 100 itself is a conservative number. You know, on top of it, we don't need to keep too much of margin on top of it. It's a good number. It's quite stable.
Okay. Okay.
Frankly, even during the crisis it stayed strong.
Yeah. Yeah. Sir, and how do you think about margins going into next year? There is an uptick going into this quarter, but should it largely be steady at these levels?
Yeah. Param, thanks for the question. Margin for the full year is at, was at 5.75%, and going into the next year also we expect it to be stable around these levels.
Okay. 5.93% is what we reported this quarter.
No, no. For the full year, I said, was 5.75%.
Okay.
I also mentioned earlier that Q4 also had certain impact because of technical reasons, like I spoke about the stay convention logic and so on. For the full year, the margin was at 5.75%, and into the next year we feel we'll be broadly able to hold around those levels.
Okay. Thanks, Sudhanshu. On OpEx, we are still holding on to what we've talked about, 13%-14% for next year?
Yeah. That stays in terms of guidance.
Though please note that Q1 could be a little higher, and then Q2, Q3 onwards it should come down. For the full year, that's it, but Q1 could be a bit higher because of a couple of reasons.
Because we have put out some branches, you would have noted about 80 branches in Q4. Q1 also has impact of increments and so on. These are some of those factors which could play out.
When you see Q1 and see compared to Q1 of last year, you'll see a little higher than 13%, 14% that we're talking about. By Q2, Q3, Q4, it should come down, and by year-end we should be landing the same way we landed this year.
Got it. Very useful. Sudhanshu, I think I heard you mention initially that, you know, the profit for the quarter adjusted for the treasury loss and the fraud impact was INR 750 crore. That comes to about 75 basis points of ROE in this quarter. Again, I want to check with, you know, you all, is there any, say, timeline one should look at for, say, broadly reaching 1% ROE? Because clearly your core ROE is improving.
Definitely the core performance is improving. If, as you rightly said, if we isolate some of these one-time impacts within Q4. I don't want to sort of put out a number as such. We all know, right, there is this West Asia crisis is still going on. There are still some moving parts, right? I would not want to guide on a particular number at the moment. Definitely from an operational parameter, we would note that the performance is improving quarter-on-quarter. Even on the credit cost, we feel that the credit cost would be lower than the current year.
Yeah. What credit cost should we probably work with? Yeah, that's my last question. Thank you. For next year.
I feel that it could be in the range of 170-180 basis points. This includes some benefit which we may get because of the CGFMU cover which we have taken for MFI.
Perfect. Very useful. Thank you so much. Congratulations once again on the quarter. Thank you.
Thanks, Param.
Thank you so much. Our next question comes from the line of Akshay Jain from Autonomous. Please go ahead.
Thank you, sir, for the opportunity. I have three questions. One on asset quality. What is driving your the strength this quarter? While you have utilized contingent provisions, your write-offs are significantly lower. Any other factor you'd like to highlight? Again, on write-offs, they are down to, like, around 1,200 levels. Like, what is the sustainability of these levels going ahead? Related question on asset quality. It's been, like, almost two months since the war started, and we keep getting news on, you know, supply chain disruptions, raw material cost increases. While March was still fine, how are you seeing trends playing in April, especially on the MSME front? How are you thinking, you know, on growth and asset quality in the light of these disruptions? Maybe the last.
Yeah.
Yeah.
Sorry. Go ahead.
Maybe the last question on the rates. You have changed rates this week. Can you know, let us know the impact on, you know, your cost of SA due to this change?
You meant the recent change?
Yeah, the recent change. 20%.
Yeah. I'm saying that change would not translate over too much from the current levels, maybe a few basis points. That's on SA. Moving on to asset quality. In this quarter, of course, many things have played out. I have told that SMA 1 and 2 numbers improved by 10 basis points. Then the slippage, which also led to a lower addition to slippages. Of course, MFI drag has been coming down. The slippages have been coming down there. The collection efficiency was quite strong in Q4, which typically happens every year. The collection comes in quite strongly at the end of the year for some reason, I think across the banking system. All of these trends have been quite healthy.
Finally, all of this has to translate into a credit cost, which I just answered in, to the previous speaker. Net/net we feel that the asset quality trends would be quite stable. Now, if I talk about the crisis, the West Asia crisis, which is currently going on, what we have done is we have undertaken a comprehensive review of portfolio to assess exposure to potentially impacted sectors, including demand disruption, fuel-related risk and supply chain challenges and so on. We have clearly identified some sectors where we could slightly be more conservative. We don't intend to stop anything, but we are adopting a conscious, cautious approach. Accordingly, the immediate impact on the overall portfolio is expected to remain limited at current levels. However, if there's any escalation which could lead to further material supply disruptions, we will continue to monitor. We need to see how this plays out.
Thank you, sir. Just a follow-up on the margin points. Even if I adjust your margins for the Q4 seasonality, it is still around 5.85% odd levels. Why are you giving the guidance of, you know, 5.75% for the full year? Like, why should margins come down from this?
See, we continue to grow certain portions of the portfolio at a faster pace, right? Like you have noted, wholesale banking book is growing at a fast pace, right? The business banking is growing. Some of these are dilutive from a margin point of view, but we ultimately want to see what is the contribution to profitability. Even a 5.75% for that matter is quite a healthy number, right? It's one of the highest in the banking system. You can assume that it's quite range bound in that sense.
Understood, sir. Thank you, sir. Thank you for the answer.
Thank you. Our next question comes from the line of Piran Engineer from CLSA. Please go ahead.
Yeah. Hi, team. Congrats on the quarter. A couple of my questions have been asked and answered, but I need some clarification. Firstly, this treasury impact, the loss of INR 160 crores. Now, if I adjust for the stake sale in that stressed power company, we'd have actually made a profit of INR 115 crores. Is that correct?
No, that's not the way. In fact, in the investor presentation we have clarified that we have sold certain equity in a particular group that gave us a loss of INR 274 crore. At the same time, we were holding provision against that. While, when we reported the annual financials, we have reported a INR 274 crore loss on top of INR 159 crore in treasury line item. We have also reported a lower provision. Right comparison, what we have done in the investor presentation is we have grossed up this impact. The actual loss for treasury for the quarter is about INR 159 crore. This is an old case, legacy case, where I said that this was fully provided, so this has no impact to the P&L. For the right comparison, we did this.
The real credit cost for the quarter is INR 870 crores or INR 870 + crore this INR 270 crore?
Plus this INR 274 crore. That's how, when we have quoted credit cost numbers, it has been baked in. This case was a much older case, pre-merger, dated to the pre-merger time, and this was fully provided. This was in fact one of the infra exposure which we had.
Okay, fair enough. I think I might, I'll reach out separately.
Did it answer the question, or I will be happy to further clarify.
No, no. I'll get back to you separately. I was a bit confused on my numbers, but this clarifies it. Just secondly.
Binod, if you refer to the investor presentation, you'll get the clarity on that, on the P&L front.
Take it. Fair enough. Just secondly on, is there any further TD repricing left or are we done with most of it?
We may get some residual impact in Q1, but it's largely done.
Got it. Fine. Just thirdly, in terms of CASA ratio. Now, we cut SA rate last quarter. We've not seen any impact on CASA. In fact, our CASA ratio has improved 40 basis points. Do we take this as a more steady-state CASA number, like CASA ratio number?
We'll wait and see because, you know, even term deposits are also coming strong. We'll wait and see because the CASA, SA rate cut is quite harsh, is a bit raw, you know, just three months. Let's just wait it out.
Got it. Okay. Yeah. That's it from my end. Thanks and all the best.
Yeah. Thank you.
Thank you. Our next question comes from the line of Jayant Kharote from Axis Capital. Please go ahead.
Thank you for the opportunity. My question is also similar to I think what Param was asking, on the ROE for the next year. If I understand correctly, at these NIM levels and at 1.8% credit cost, at 5.75% NIMs, it adds up to maybe around 75-80 basis points, correct me if I'm wrong. Which means we are expecting almost 20 basis points of operating leverage translating to ROE through the next year. Also simultaneously that jaw is slightly slower, which it seems that our growth is now going to be around 20%, not 22% or 21%. I go. I mean, even if I keep stretching this beyond one or two years, if 20% is the growth range, are these numbers sounding correct or am I off by anything? Which means that we'll have to extract 20-25 basis points on operating leverage this year, Sudhanshu.
No, no, definitely operating leverage improves into the next year. I'm saying, as we would have mentioned, I think in the last call also. Next year, we expect the top line to be much better than what we saw in this year. Like this year, top line grew by just 11.2%. Now if you see Q4, the NII grew by about 16%, fee has grown at 21%. Into the next year we feel that now the MFI drag is over. The MFI book is expected to grow and positively contribute to the top line. On the top line itself, I see it growing at about 18%-18.5%. OpEx, as we have guided for 13%-14%, still the jaw would sizably look better, right? Which definitely contributes to the ROE.
On top of it, I also sort of elucidated on that even credit cost is expected to come down from 213 basis points in this year to about 170-180 basis points. All of this in conjunction is expected to positively contribute to the ROE. It's across all the parameters, I would say, we are expecting some improvement.
One important insight which many may have missed actually is the how the ROE of the asset side is and liability side is. Okay. I made this point in my earlier talk, but I'll just say it again. Now, by our own internal estimates, we feel that the ROE of the lending business for the next year will look quite strong. Sudhanshu mentioned the reason we expect credit cost to be lower than this year, even in absolute terms. You know, NIM to grow naturally, not in a percentage number, right, in absolute terms. NII, sorry. NII to grow, and you see how it will come. Now, basically, we expect the profitability of the lending business to further improve next year.
When we do our internal estimates, we look like it'll be like 1.5, 1.6% of the loans. That is the ROE of the lending business to be somewhere in the zone, like 1.5, 1.6% of the loans. Now, but of course, the liability side will still be a drag. The good news is that the loan side is like rock solid. Even if you make 1.5% at this stage of the bank itself of loans, it's pretty good. Obviously in the next three, four years after that, we'll still get operating leverage. We should just watch out the liability drag to go away. Liability drag for information has come down to 1% now.
You know, last year it was how much, Sudhanshu?
1.2%.
1.2% has come down to 1%. Prior year was even higher. The trend line is clean, clear, you know, that 1% should become like 0.8%, 0.2%. 0.8%, 0.6%, 0.4%, 0.2%. That direction should play out properly. I mean, we have, we see no doubt in the liability drag coming down to 0% in the next two years. It is just playing out exactly per the plan.
Actually, thank you for that. Actually, I was comparing with the 4 Q numbers, Sudhanshu. 4Q credit cost and 4Q NIMs are better than what we are guiding for next full year credit cost and next full year NIMs, right?
4Q credit cost is at 1.63%, right? Our guidance is slightly higher for the full year into the next year on credit cost.
4Q NIM is also higher than what you're guiding for the next year?
Q4 NIMs is higher, but I said for the full year it's at 5.75%, and next year the NIM should stay put broadly, right?
Yeah.
Q4 NIM is not the right comparison because of the day convention and some of these things which I mentioned earlier.
No, no. Of course. I was just comparing to the 4Q.
From an ROE, you may assume NIM broadly stays stable. Fee, we could see some improvement because the traction has been there in terms of fee to average total assets. Of course, the larger break is expected to come out from the operating leverage itself, and then on top of it, the credit cost improvements. All of this should come up to an improvement of the ROE.
No, I think you've not answered this such a question. Even the prior gentleman asked. I think that's why you're currently running even adjusting for this quarter. You're like 280 or something for this quarter.
Which one?
Sorry, INR 580. You have reported INR 590.
INR 5,580.
Yeah. Adjusted for.
Yeah, I'm guiding for INR 575.
Exactly. If you explain why. That's basically because you're coming to a little more, safer segment.
We answered. I did answer.
Okay.
Maybe I'll take this offline, Sudhanshu, but just sort of to cover it, you guys are still confident on hitting 1% ROE by the end of this year. Is that a takeaway we can work with?
As I said, Jayant, I don't want to guide to a particular number currently, because there are a few moving parts, right? But definitely the operating trajectory is improving quarter-on-quarter, and we expect that Q4 trend broadly to continue into the next year in terms of an improvement in top line.
We'll be in a kissing distance, if I would call it so.
Yeah.
We'll get to kissing distance.
We try to be in the kissing distance.
Kissing distance of that. I can tell you that, you know, many people ask us about this ROE of 1%, and many have said that, "Look, this is a benchmark we must cross," and we must. I can only say that our bank will not stop at 1%. Just watch it play out because from there on also the full juices yet to be taken out. I mean, the full value is yet to come out because operating leverage will improve for the next four, five years at a stretch now. It will not stop at 1%. That much I can tell you whenever it comes there.
Oh, definitely. One last question, Vaidya to you on the capital. Given that our growth trajectory, I mean, clearly the liability side is not going to stop with this event and we are going to start growing again. How does the capital adequacy look like and you think you will need more capital by the end of this year starting next year?
Yes, yes. We definitely think so and we will raise it.
Great. All the best and congratulations for holding up during a very tough quarter.
Thank you very much.
Thank you.
Thanks, Jayant.
Thank you. Our next question comes from the line of Ankit Bihani from Nomura Holdings. Please go ahead.
Yeah. Thank you for the opportunity and congrats on the quarter. Most of my questions have been answered. I just wanted to ask, how do you see, you know, deposit competition, playing out going ahead? While we did cut our SA rates, at the start of the fourth quarter, but we have raised our TD rates also round about by 25 odd basis, right? TD rates. Do we see the competition going ahead becoming more intense given that even PSU banks, even the large private banks would have to fight for deposits so you could sustain the credit growth momentum? Yeah.
Maybe I'll ask Vaidya to answer that question.
No. I think I said that before. I'll not take much time. I think that our bank has developed a good, you know, technology capabilities, good app. Our branches are scaling up. You know, there's a lot of hyper-personalization happening. There's a lot of tech involved in raising deposits, which is a strength for us. Those strengths we really believe are like, you know, they're invisible strengths. You don't see them because what you see is rates and you see branches. This is a very conventional way of, you know, most people talk that. There is a third factor which we are running behind the scenes, which is culture and technology, which are invisibles, and we are strong on those invisibles. We think that, you know, not to worry much.
Our deposits will grow strong this quarter. This quarter also, this year also, we'll be very strong. I can only tell you that this month has started off very well. April has started off well. We are not disturbed.
Okay. Thank you.
Thank you. Our next question comes from the line of Jai Mundhra from ICICI Securities. Please go ahead.
Yeah. Hi, good evening, and thanks for taking my question. Sir, first a small clarification. This, you mentioned that 170-180 credit cost is including the CGFMU recovery, if any. Would you have a number as to how much you are going to claim for this financial year?
No. We don't want to call out that number. As we noted, we have taken losses on MFI in last one or two years. We expect reasonable recovery to happen on that front in the next year.
Okay. Sure. Secondly, on MFI book now. This quarter the book has been flattish. If I were to maybe include the write-off, then it may have grown. How are you looking at this book incrementally? I mean, when do you think it will hit double digit and maybe similar to overall bank or how are you looking at this book?
Definitely we want to grow this book. We like this book. It contributes to PSL, comes with a good yield and so on. Now, with the MFIN guidelines coming in, I think some of those, guardrails have also been put into place. We are adopting a cautious approach, on the ground. Also, collection efficiency trends have improved, disbursements are picking up. We would certainly. Of course, it's coming from a lower base. We would certainly want to grow this by 15%-20% into the next year. We will see how sort of the trend sort of pans out. We want to grow this book.
Sure. Any thoughts on creating ECL transitional provisioning? I mean, so far the asset quality has been holding up very well. I mean, it has been holding up very well for the last five years. Any thoughts on we have small INR 130 crore of contingent provisions, but I mean, any working, rough working that you can share as to, you know, what could be the transitional provision required, if at all?
We still await the final guidelines, and this was expected to come in from April 27, but the final guidelines have not yet come. While most of the banks gave comments somewhere in November, December last year. As I had talked about it in my earlier calls, definitely as when the final guidance comes, this could mean that we need to park some more capital on the ECL front itself on transition, but we may also get some benefit on account of the EIR approach, because today the sourcing OpEx is more than the processing fees. Plus there are also announcements around the change in the credit risk guidelines which come in from April 1, 2027. There is also guideline awaited in operational risk.
I think taking all of this together, of course contingent on the guideline itself which comes, we feel that a transition capital should be largely taken care of. We'll see how some of these, this ECL guideline itself sort of comes out.
Okay, sure. Last question. While was there any impact of this CLM transition, co-lending model? You know, RBI had introduced from January 1st, the broad breakup does not suggest anything, but just wanted to check, did you had any changes in your IT or the way you partner with partners for co-lending or was it immaterial sort of an event?
I think we have a very small book here. In fact, if I recollect, I think we have this arrangement with only one counterparty and number is very insignificant.
Okay. Thanks, Sudhanshu, and all the very best. Thank you.
Thank you so much. Ladies and gentlemen, due to the time constraint, that was the last question for today. I would now like to hand the conference over to Mr. V. Vaidyanathan for closing comments. Thank you and over to you, sir.
Thank you. Since we closed shop exactly one hour, let me say that if anybody has any last question to sneak in, we just want to give it a last opportunity. Just in case.
Danish, we can take a last question.
I mean, in case. If there's none, I don't want to hold it up.
There are, sir. We'll take the last question from Mr. Suraj Das from Sundaram Mutual Fund. Please go ahead.
Let's take one or two more just to be fair to everybody. Yeah. Yeah. Yeah. [crosstalk]
Hi. Am I audible?
Yes, please.
Yeah. Sir, just one, I think, data.
It got cut.
Sir, please proceed ahead with your question. Okay, we'll take the next question from Vikas Kasturi from Focus Capital. Please go ahead.
Good evening, sir. I'm also a shareholder of the company and a long time listener and a first time speaker here. Please pardon my nervousness. Sir, I just wanted to ask you a question which I've been wanting to ask for last few years maybe. One is about this, you know, financialization of savings because of which a lot of money is going towards, let's say, mutual funds. In such a scenario, how does the bank plan to continue raising CASA? This is my only question, sir.
Thanks. I'll keep it. First of all, Vikas, feel welcome to talk to any of us in the bank, so feel comfortable. Now we understand the financial savings and people are moving to investments. You know, that's a well-known theme. We think that, you know, this is a very large market. We are relatively a younger bank, and our book is relatively small and, as I said to one of the earlier questions, we built good capabilities, good digital capabilities, good brand, good culture. Employees are very motivated. You can go to any branch and talk to a staff, you'll get a sense. There are many things in our favor. Well, no doubt the markets are tight. You know, end of the day, we are part of the system.
We are not outside the system. Anything, any broad tightness of industry affects everybody, affects us also. Overall, we are confident, Vikas, things will be fine. I mean, we do strong in this front. We have no doubt on that front. If you're an individual shareholder, let me tell you that, you should assume the bank will grow well on deposits YOY, bank will grow loans YOY, bank has good margin on an incremental basis. You have to only count on one thing. You have to only look out for one thing, that our cost income ratio should come down because our liability side cost income should come down. Our liability side cost income ratio is 145%. It should, that is what is bringing up overall to 73-74-ish types.
That will come down. You take it from me, it will come down 145-100 over the next few years. When that comes down, bank cost income will come down. Bank cost income down, PAT will go up. Things will all play out to plan. It's playing out to plan even now. That's the thing to watch out for. Don't worry too much about liabilities. It's coming well.
Sure, sir. I've been an investor since 2019. Nothing can scare me.
Thank you, Vikas. Really grateful to you for that kind of confidence in us. We won't let you down.
Yes, sir. Thank you, sir.
Okay.
Wish you all the best.
Thank you and everybody, thanks all the investors for participating within this call today. From Sudhanshu, Saptarshi, myself and everybody in the bank, thanks a lot for your help and support. Thank you.
Yes. Thank you everyone.
Thanks everyone for joining the call. Thanks.
Thank you so much, sir. Ladies and gentlemen, on behalf of IDFC First Bank Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.