Home / Markets / Mark To Market /  IDFC First Bank spot on with retail; asset quality risks loom

IDFC First Bank’s March quarter update has given some credence to the hopes of investors of stronger business growth from the bank. On Wednesday, the lender reported that its loan book grew at a brisk 10.09% for FY21, much higher than the industry’s growth.

That much of this was driven by retail is another positive for investors.

Retail assets formed 67% of total assets for the bank as of March. Some of this increase is also through the purchase of priority sector portfolios from other lenders.

Since the merger with Capital First Ltd in 2018, IDFC First Bank has morphed itself into a retail lender from a legacy infrastructure financier.

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The coronavirus pandemic put paid to some of its efforts, given the increase in stress in retail loans.

However, the bank seems to be on track to fortify its retail business.

Another sign of its growing retail footprint is the surge in low-cost current and savings account (CASA) deposits. CASA rose to 51.95% as of March from 31.87% a year ago. The bank reaped the benefit of forced savings following the coronavirus outbreak.

The pandemic forced households to save and much of these savings found their way into bank deposits as they are viewed as the safest and most liquid.

Overall deposits have also grown at a stellar 43.15% year-on-year for the lender.

The bank has also raised 3,000 crore through a qualified institutional placement (QIP) earlier this month.

The lender priced its issue at 57.35 per share, which values the bank at 35,550 crore. The additional funds would boost its capital ratios and help in improving the balance sheet.

However, beyond this lies the troubling fact that stress for most lenders has increased because of the second wave of the pandemic.

Mobility restrictions and regional lockdowns have become more rampant now given that the infection curve is steep.

IDFC First Bank is no exception and analysts, therefore, have flagged worries over asset quality.

In March, bank shares had underperformed the broad market on such worries, giving up much of the outperformance since February.

Shares of IDFC First Bank have slipped 15% over the past one month, far more than the 8% fall in the sector index.

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