IDFC First Bank poised to outpace Indian banks on NIM and loan growth

The bank has the highest NIM of all India-based banks rated by S&P.

IDFC First Bank is expected to maintain strong capitalisation over the next 18 to 24 months, as well as improved profitability, said S&P Global Ratings.

The India-based bank’s loan book is expected to grow at 20% per anime over the period, faster than the rest of India’s banking industry, the credit rating company said in a 13 August report.

It also has the highest net interest margin (NIM) amongst Indian banks rated by S&P, which estimates that IDFC First Bank’s NIM will improve by 5 basis points (bps) to 10 bps in fiscal 2027 and stabilise.

“The bank has by far the highest net interest margins among Indian banks we rate. This is due to a larger share of higher yielding products in its portfolio, such as unsecured retail loans, microfinance, two-wheeler loans, and loans provided for the purchase of consumer durables,” it said.

Cost-to-income ratio and credit costs are expected to decline over the next two years.

“Sustainable improvement in IDFC First Bank's profitability will hinge on lowering its cost-to-income ratio. In our view, investment in branches, employees, and technology has kept the bank's operating expenses higher than those of peers, weighing on its profitability,” S&P said.

IDFC First Bank’s corporate lending is expected to grow farther than other sectors, and its microfinance portfolio could rebound after two years of decline, S&P said.

“IDFC First Bank targets higher growth in lower credit cost segments, such as prime mortgages, loans against property, and safer commercial vehicle segments like large fleet operators if the risk-reward balance is good,” S&P said.

Risk-adjusted capital (RAC) ratio will stay between 10% to 10.5%, it said.