IDFC First Bank's deposit growth slowed in Q4, but CEO V Vaidyanathan says it's temporary and already reversing

IDFC First Bank's deposit growth slowed in the March quarter, but CEO V Vaidyanathan says the dip was deliberate, temporary, and already reversing. In an interview with ET Now following the bank's Q4 results, Vaidyanathan laid out a confident outlook for FY27 — stronger deposits, lower credit costs, and a balance sheet growing well ahead of expenses.

Why deposit growth slowed and why it was planned

The bank posted 17% year-on-year deposit growth in Q4, down from its usual 20%-plus run rate, with sequential growth coming in flat. Vaidyanathan was direct about the reason: IDFC First Bank cut its deposit rates during the quarter, bringing them down from 7% to 6.5%, with some buckets seeing cuts of up to 200 basis points. "Customers who kept money with us only for rates probably took some of it out — and we were prepared for that," he said, adding that the bank anticipated the flat quarter when it announced the rate reduction. A fraud incident during the quarter added some uncertainty, but Vaidyanathan highlighted a key positive: the bank's 7–8 million existing customers did not withdraw funds. "That is something really good," he said. On the recovery, he was unequivocal. April data is already showing strong deposit momentum and the bank expects to return to 20% annual deposit growth in FY27 — consistent with seven consecutive years of that performance.

NIMs solid, but read the fine print

The bank reported a net interest margin of 5.93% for the quarter, up from 5.76% the previous quarter. Vaidyanathan, however, offered a candid correction: due to quarterly technicalities, the effective NIM should be read closer to 5.8%. Still a healthy number, and directionally positive.

Opex growing at half the rate of income

On operating expenses, Vaidyanathan painted a picture of strong operating leverage. The bank's opex grew at just 12.5% while the balance sheet expanded by approximately 19%. Over the last five quarters, opex growth has held around 13% while income and book growth have run at 18–19%. He acknowledged that Q1 FY27 may see slightly higher opex due to salary increments and seasonal factors, but maintained the full-year guidance of 13–14% opex growth — well below the pace of revenue expansion.

Credit costs: Target hit, guidance getting better

The bank had guided for a full-year credit cost of 2.1%, including the impact of its microfinance book. It landed at that level, with Q4 credit costs coming in at a low 1.65%, bringing the annual blend within the guided zone. For FY27, Vaidyanathan expects credit costs to fall further. The microfinance stress that weighed on the book has largely played out. The rest of the portfolio — which carries a yield of over 13% — is performing cleanly, with credit costs of around 1.8% of loans or 1.3% of assets. "It is very difficult to normally find a bank with that yield and this credit cost," he noted.

West Asia Watch: No impact yet, but the bank is running scenarios

On the macro front, Vaidyanathan addressed the potential second-order effects of the West Asia crisis on SME and microfinance borrowers — higher input costs, raw material price pressure, and working capital strain. His assessment: no visible impact as of Q4, and early Q1 FY27 numbers look equally clean. That said, the bank is not being complacent. Internal stress-testing and board-level scenario simulations are underway, with decisions already being made on which sectors to slow down and which to grow. "As of now there is no impact — not even in the quarter that is going on," he said. "But this is something we should watch very carefully."