A similar impact was felt on the liabilities side too, with the share of low-cost current account–savings account (CASA) deposits rising to 18.7 per cent in Q2 from about eight per cent last year. While the bank has a long way to go before it reaches the average 30 per cent mark that many private banks maintain, the Q2 numbers show that it is in the right direction. Likewise, the increase in the share of retail deposits (CASA plus retail term-deposits) to overall liabilities to 34 per cent in Q2, is also a positive.
With retail banking having begun to play an important role, profitability also improved sharply from 1.6 per cent a year ago to 3.4 per cent in Q2. At these levels, the net interest margin (NIM) of IDFC
First Bank matches the average of the top private banks. Asset quality too was stable, but one needs to keep a tab on the Rs 5,400 crore exposure, including non-funded exposure (five per cent of gross loans), that the bank has to the telecom sector.
For now, Q2 being the first quarter in which the bank has posted a profit before tax, it does instil some confidence that the merger is yielding results. But whether or not the bank can touch the 13–15 per cent projected return on equity by FY24 needs to be seen.
Analysts at Prabhudas Lilladher say continued retailisation of loans, traction in liabilities, upward NIM trajectory and steady asset quality provide comfort in the medium- to long-term. Valuations at 1.1 times the FY21 estimated book, also the lowest among private banks, makes for an attractive bet.