CARE Improved IDFC First Bank Ratings

7th Oct 2024 Mumbai, Maharashtra, India IDFC First Bank declared to exchange that Under Regulation 30 of the SEBI Listing Regulations, we wish to inform you that CARE Ratings Limited (“CARE”) has re-affirmed the existing rating of the Bank’s long-term debt instruments amounting to Rs. 1,307.38 crore at ‘CARE AA+ / Stable.

Reaffirmation of the rating assigned to the long-term debt instruments of IDFC First Bank Limited (IDFC First) factors in comfortable capitalization levels supported by periodic capital infusion with the latest rounds of equity of Rs. 3,000 crore in October 2023 and Rs. 3,200 crore in July 2024 to fund its asset growth. The rating also continues to factor in the improvement in the bank’s scale of operations and diversification and granularization of the advances book with a shift towards retail lending and gradual reduction in legacy infrastructure lending and growth of liabilities franchise with an increase in the proportion of retail customer deposits and comfortable current account savings account (CASA) deposits. Cost of funds of the bank is relatively moderate due to the higher cost of deposits as compared to larger private banks and high-cost legacy borrowings in its funding profile, the majority of which will be matured by FY26 and will be eventually replaced by deposits increasing the overall liability book’s deposit proportion, bringing down its cost of funds and improving the credit to deposit ratio which stands at 98% as on June 30, 2024.

However, these rating strengths are partially offset by relatively moderate profitability driven by a high cost-to-income ratio as the bank continues the expansion of retail book, investment in technology, branch expansion and people, although this is on a decreasing trend with an increase in revenue. Return ratios are expected to improve gradually as the bank attains scale leading to improvement in the cost-to-income ratio. Furthermore, the rating is also constrained considering challenges in asset quality of its legacy infrastructure advances which has reduced significantly to 1% of advances over some time and the recent stress witnessed primarily in the micro-finance segment. The bank’s ability to control asset quality and credit cost remains monitorable.