Microfinance stress under control, deposit rates likely to remain unchanged: V Vaidyanathan, IDFC First Bank

IDFC First Bank does not plan to raise deposit rates in the near term after meaningfully cutting them across all buckets last quarter, MD and CEO V Vaidyanathan said in an interview with Saloni Shukla. He added that stress in the microfinance book is now under control, with the bank having put in place several guardrails around the number of loans a borrower can hold concurrently.

Could you share the reasons for the tepid PAT growth?

The representative core profit for this quarter is ₹746 crore, which is 145% over the corresponding period of last year. But we took the impact of the fraud at our Chandigarh branch this quarter itself. There were certain one-time income tax refunds, so we reduced them from normal profits. Our provisions came down because the JLG or MFI portfolio collections normalised to pre-crisis levels of over 99.5%.

Has the Chandigarh episode been fully accounted for?
Yes, fully accounted for. The recovery process is on. Investigations and court processes are involved. We are working on it.

Do you believe the current level of NIM is sustainable? What would be your target range for FY27?

Our net interest margin was about 10 bps lower than shown due to fewer days in Q4FY26, so it is 5.83 bps only and not 5.93 bps. In FY27, we expect our NIM to be stable around the FY17 level of about 5.75%. We are also moving toward low-yield, low-credit-cost segments as a bank.
Loan growth has been strong. What will be the key growth drivers?
In the last year, our growth mainly came from mortgage loans, vehicle loans, consumer loans, wholesale loans and business banking. Together, these segments contributed 87% of the incremental growth last year. Going forward, we will also need to grow our rural banking business because we are short of priority sector loans. Because we are an infrastructure wholesale DFI bank, we have been short on many subcategories of priority sector loans since our origin. So, we need to grow the rural and PSL book. Also, we are a relatively small player in the Indian system, we can grow 19-20%, but we don’t want to play pre-determined shots.Deposit growth has also been robust. What will be your strategy to sustain this momentum?
For us, we build ourselves as an institution that lives into eternity. Secondly, we tell our employees that every product we make we design ethics into the product construct. We also focus on use of tech. Over time, people will hopefully experience these things with our bank, and this may help. Also, we are trying to make a good app with in-house skills. We will go more app than the branch route, branches are not the future.

Given the competition for deposits in the system, do you anticipate raising rates?
We just reduced rates meaningfully across all buckets last quarter, so we don’t intend to increase them anytime soon, except for some marginal tinkering if required.