IDFC First Bank Limited analyst Q&A

Our first question comes from the line of Akshay Jain from Autonomous.

Starting with margins. As you mentioned that margins have bottomed out this quarter. But how should we see margins moving in the next 2 quarters? Like should we place 4Q '26 margins to somewhere near the 6% number of 4Q '25?

Yes. Thanks, Akshay, for the question. So in the last call also, we had said that we expect margins to definitely improve in Q3 and Q4. And my sense is by the end of Q4, the margin should be definitely upwards of 5.8%. We are also penciling in one more repo cut when we are giving this guidance.

Understood. Okay. And number two, CASA ratio has now touched like around 50% odd. Like should we expect you to use the lever of SA rate cut? Like kind of highest amongst the larger banks on SA, is the SA rate cut on the cards, which should also improve the NIMs?

See, that is one lever we can press any day. It's in our hands. Question is I want to press it now, press it 1 year from now, 2 years from now. The reason why I'm using this kind of horizon to you is that our credit deposit ratio is still 94%. So we don't want to jump it on too fast. We want to raise the deposits. I know if we did it, if we cut the SA rates, we'll get some straightaway benefit to the P&L and everybody will be happy. But I can give you happiness a little later also when we do it. But for now, we are more focused about building , I told you one of the key things at the top of the mind is always building it right. And one of the items of building it right is bringing credit deposit ratio to mid-80s. So we'll take it as it comes.

On asset quality, while the MFI slippages have halved this quarter, but the non -MFI slippages continue to be around like, what, INR20 billion-odd number? Like any sectoral color on where is this slippages coming from? And how should we look at the non -MFI slippages going ahead? And even on the MFI, like should we assume that this was the last quarter of pain, everything will be back to normal from next quarter, and we should start seeing growth in the book? And resultantly, like how should we look at credit costs for H2 and FY27?

Akshay, as you rightly said, MFI slippages have drastically come down. And for other than MFI, if you see in terms of slippage ratio, that has, in fact, reduced to 3.39% from 3.54% in the previous quarter. So definitely as you would have noted, the SMA positions have improved at September. So we definitely feel that this would be on a downward trajectory into Q3, Q4. And our overall guidance on credit cost still stays around that 2.05%, 2.1%, which we had guided in the previous quarter. H1 credit cost, if you put together, it's about 2.45%. So definitely, because we are anticipating a lower stress going forward, the credit cost in H2 will be much lower to that number of 2.05% to 2.1%.

And that is one thing. And sometimes just take this number of 2.1% we say and we say that second half, we are seeing will be better. And frankly, last quarter itself, we told you that our numbers will be better this quarter and which they are. Now we are saying it will be even better next quarter. We watch the numbers. It will be. So rather we feel confident about that. And we feel Q4 also it will be good. So we are feeling it quite, because at the end of the day, it's very simple, very mathematical. If our SMA is good, credit cost will be low , as simple as that. And our SMA is low. SMA is a feeder bucket for NPA. Now I just want to make one important point here that we -- when we call out the numbers, we take it as a percentage of loans and advances , okay? Because some institutions report as a percentage of assets. So we feel that if you did that, then our number will come down to maybe 1.4% or 1.5%. Just want to flag it so that you are comparing the right thing. So when we divide the assets, it’s the whole assets, the loans, it's loans and advances. We feel that loans and advances are more representative way because you lose on loans, you don't lose on assets. So just keep a picture in mind when you put the number.

Okay. And on ECL impact, have you done any impact analysis for IDFC? Larger banks have a big provision buffer, which they can use, but IDFC doesn't have that big provision buffer. Like how do we look at ECL implementation?

While I would say it's early to sort of quantify any impact here. But in my view, on quick assessment is that there would be a provisioning increase, which will happen for Stage 1 and Stage 2 assets vis -a-vis the current standard asset provisioning norms. RBI has also suggested certain floors. But this could get partly offset by the lower provisioning requirement on Stage 3 assets. As you know, because the bank has been following a very conservative provisioning norms, right? Our PCR is at 72%. Hence, while on an overall basis, there could be some increase on overall provisioning levels on transition, but that, as I said, the quantification we still need some time to sort of give some guidance on that front. The bank has already started working on transitioning to the ECL framework through, I would say, 3 work streams because it involves data management, it involves model development, it requires finally a system implementation. One more thing I would want to bring to your notice is along with ECL, there would also be an application of effective interest rate, which comes into force where acquisition costs net of processing fee will be amortized over the residual life of loans. So this would be, I would say, slightly a positive benefit for us. So we have to see both of these things in conjunction. So that's how we are currently looking at the ECL framework.

Understood. And lastly, again, on the draft credit risk, so have you done any analysis on the benefits which you'll get from that framework?

This should marginally be positive.

Yes. So I'm saying like all of these are expected to kick in from April 1, FY27, right? So I just spoke about ECL, even on credit risk RWA, there will be a positive, net positive to our capital ratios. Third thing which I want to bring to the notice is in the RBI Governor's statement, he also did made a mention that the final guidelines, while they have been sort of there for the revised operational risk capital charge, right, that still needs to be notified. If we go by the maths or the formulas which were given in that proposal, that could be quite positive for us in terms of implementation. And my sense is that could also sort of come in around the same time. So, taking all of this together, maybe ECL and the credit risk RWA and operational risk RWA, I think we will be broadly neutral on the capital front on transition.

The next question comes from the line of Param Subramanian from Investec.

Just to go back to how we are looking at the exit for this year. So what are we broadly looking at in terms of, so you mentioned on NIM, 5.8% plus. We were talking about 0.9% to 1% ROA by Q4. Does that still stand broadly? And in terms of credit cost, if you could just broadly talk about where we will be looking at by Q4?

I'm not sure we can exactly pin 0.9% or 0.1%. We got to see as it comes because there are so many moving parts. But directionally, we can say that the credit cost should come down, margins should go up. So, we are feeling like more positive about next quarter and quarter after that. Sequentially, we feel that Q-o-Q next 2, 3 quarters should look good.

Sure. Fair. So broadly, you're saying that in terms of credit cost, since you're holding on to that guidance of 2.05% to 2.1%, so which means credit cost in second half should be, say, 1.6%, 1.7% is what you're talking, right, and more or less that level in Q4?

Yes, you take it at 2.1%. Yes, even last call, we talked about 2.1%. When we do our modeling for Q3 and Q4, we do expect the credit cost to come down. So such that blend -blend it should come down to this number we're talking about. Again, I want to just caution it's percentage of loans and not assets. So yes, I mean, I guess maybe second half should be like 1.8% or so. And I don't know if the blend takes you to 2.1% or so, we can do the math again.

Fair enough. Very helpful. So now coming back to that point on...

Which basically means that the credit cost of next quarter should trend downwards, Sudhanshu.

Yes, yes.

And then maybe Q4 will flatten out from there. That's where our eyes are when we do the modeling. I just want to put a word of caution so that you do your modeling correctly. Sometimes models can go a little bit off by some basis points here or there. But broadly, what we talked about in that zone, we should be in the zone. I've done business long enough to just say to put that caveat into it to know that because life does throw surprises here or there, some 10 basis points here or there, anything can happen generally speaking.

Fair enough, Vaidya. So all things being equal, you would think because that's a comment I picked up earlier that you would think that the non -MFI slippage, which actually picked up in Q1 and that is clear, right. That absolute number should start declining from Q3, Q4, right, basis what your SMA...?

I think you should not focus so much on slippage, etcetera, you should focus more on credit cost because end of the day, it all comes down to credit cost because something slips, something comes back, right, you have a gross, you have a net and all that. So net-net, 3 numbers are the best numbers, actually 4, I'd say, SMA, gross NPA, net NPA, credit cost. Within this 4, literally, you will see the credit quality of any book, I guess, and for us also. So you track us for credit cost because end of the day, that's what the profit and loss account. And overall, see, because the thing is that we don't exactly know how much the repo will come. Who knows how much will come down, maybe 25, maybe 50, God knows. So therefore, there are so many moving parts. So what you should expect from us, though, is that quarter -on-quarter, our profitability should look better like into next quarter as well into Q4 as well. Just think about it directionally than picking a specific number.

Fair enough. So now coming back to that question on...

And also let me add that we still have not , Sudhanshu, I don't know if you mentioned or not, we have not fully utilized this INR315 crores provision that we have created. We used only INR75 crores. So balance is still with us. So we plan to use that up because now microfinance issue is behind us. So that also will give us that kind of cushion for us going forward. And that's factored in the numbers you were talking about.

Fair enough. Vaidya, so now coming back to that question on SA rate cuts. So potentially, so if you see most of your peers, the larger balance sheets, right, like names like IndusInd Bank, YES Bank have actually cut very aggressively on their savings rate, right? Even some of the smaller balance sheets have cut on the savings rate, I'm talking about the midsized banks. So why can we not use the lever at least to the extent of where the market is, which is at least 50 basis points below you? You would still be a market share gaining entity, which you are very aggressively at this point in time on CASA. So if you could give us a sense around when you will really use this lever because we appreciate the LDR comment that you need to bring it down, but CASA can still grow even at a lower rate, right? So if you could give some color around that?

See, listen, you're giving...you are Param, right? You are Param, right?

Yes, yes.

Yes, Param, I said you're giving Sudhanshu unnecessary handle to beat me up all the time because he's told all the time to cut it. And I'm the only one who is holding up this rate, okay? So let me give you my logic because Sudhanshu will be more in your camp, okay? So my logic, and I'm quite firm about this now. The reason is very simple. At end of the day, if we do this, let's remember that SA rate is even now coming down , coming to us at like 5 -point something, let me call it 5.8% or something, 5.6%.

5.8% Vaidya.

Yes. Now that's still cheaper than fixed deposits. It's coming at, say, 7%. So if you cut this and you need money, where will you go, you'll go and raise it on fixed deposit. So you will get a temporary joy because profitability will look up straight away and there will be cheers all around. But you'll go around back to the market and start raising a fixed deposit at higher rates. So I have a choice to make, whether I make everybody happy today or make people happy tomorrow. So I choose to make people happy tomorrow. So this is how I think about it. And therefore, we are holding back this card. I can use the card any day. What happens if we take 1 year forward, right? If we did cut the same thing 1 year forward, that joy will appear then, why use up all the cards today. So that's my thinking. My thinking is that you keep the CASA here, fix our loan -to- deposit ratio, the credit deposit ratio under control, b ring it to mid -80s. And then when everything is aligned and pay off all the bonds. So at that point of time, there will come a time today or tomorrow, maybe tomorrow, when our all the bonds will be paid off, the only need for growth will be to fund loans. So that's when the pressure will be less on us to raise money, the credit deposit ratio would be fixed. Maybe some more branches also would have come that will give us , if you notice, we don't have enough branches today, okay? We have 1,000 branches. And for the kind of deposits we're raising 1,000 is a really high productivity branches for the bank. So maybe we'd like to have some more footprint in the country so that we are much more broad -based in terms of reach. So in all these things come, then it's the time to cut the rates so that we can do it with peace of mind. Today, if we cut SA rates, I'll be a little on the edge, not knowing which new problem will come next 6 months from then. I just want to be safe and conservative about this short answer.

Our next question comes from the line of Sameer Bhise from Dymon Asia.

Congrats on a steady quarter. Just had an observation that if you kind of look at some of the peer banks and where we started this quarter around the previous earnings call, obviously, the margin performance has been quite better than what we thought at that point in time. But some of the peer banks probably have kind of even reported expansion in margins. So I think how would you kind of look at it on a comparative basis? Obviously, we haven't cut SA rates, but that just gives us additional ammunition. But have we kind of seen relatively slower decline in cost of funds? If you could elaborate on that?

It's very simple, Sameer, very simple. Now we have , for example, we had a choice like many other institutions have done of cutting SA rates by 50 basis points straight off, okay? And cutting term deposit by 50 basis points, they have done that. Many have done that. So what does that do? That gives straight cash to the P&L. And of course, they go and they fund themselves subsequently through maybe other means in the sense that maybe they fund themselves through term deposits and savings or whatever they do. Now in our case, instead of exercising that choice of going 50 bps and 50 bps, we have chosen to go 100 bps into term deposit, so if you wake up 1 year from now, the net effect to the P&L is the same because CASA is 50%. So therefore, net effect to the P&L 1 year from now will net-net be the same. But I would still be sitting on this huge, let me say, this lever, which we can press, it is like Indradhanush. I can use it any day I want. Why should use it today only. So I'm playing the long game. As you know, everything decision you've taken for 5, 8 years have been long, why suddenly become a short -term play. So we are playing long. We say, okay, let the benefit come to the P&L over quarter after quarter, let it take 4 quarters, let it take it? No problem. But at least it will be more firm, I mean, we'll be on steady footing. So the way others have done it, they've got some upfront , not upfront, sorry, they've done it in the best judgment and in the right way. But they have taken it the SA route, I have taken the FD route. Mine takes 1 year to get new results. They're giving instant benefits. So it's a choice different people have made.

Got it. Got it. And secondly, just to pick your brains on the ECL plus EIR combined impact. Would it be fair to assume even if the net outcome is, say, marginally negative, it should not be meaningfully impactful on the ROA, maybe say single -digit basis points. Would that be a fair assumption?

Sudhanshu just explained, it's marginally positive for us. That's our assessment on it.

Including the EIR impact.

Let Sudhanshu explain.

Yes. So as I say, I explained from a capital point of view on transition, it should be marginally positive. In terms of flow, of course, there could be some impact. But as I said, it would, to a great extent, get negative by the year, which sort of comes in.

And to your previous point, just to make one comment, Sameer, just to close to put a proper lid to it. The thing is that other organizations , we should remember this very clearly, there are many other organizations have been banks for 20, 30 years or even if they become an NBFC, there are some NBFCs which became banks, but they did not start with a huge book to deal with on the corporate side, infrastructure side. They just became a bank overnight, and then they dealt with it. Our story is different. So therefore, for us, this loan deposit ratio is a big issue. Number two, having to pay off bonds, even if an NBFC became a bank, they did not have huge bonds to repay off some legacy of somebody -- some other institution. So therefore, I request all shareholders to be patient because this is a different starting point. You're sitting at INR 56,000 or INR60,000 crores of borrowings, which the bank starts with at merger. Nobody else that I know started with that. So I have to pay off every of that INR56,000 crores and I have to pay off few deposits. I still have to pay INR25,000 crores. So therefore, the strategies that anybody who thinks long, we have to factor for this, we have to pay it off, and that's why we're playing this game differently, saying that bring the deposits in. And again, so because of this reason that we got to pay off, again, loan deposit ratio, I told you mentioned earlier, we got to bring it to the 80s. Maybe others don't have these issues. That's why they SA cuts rate and went ahead with the breathe through it. We'll take our time, but that's how we build institutions.

Our next question comes from the line of Zhixuan Gao with Schonfeld.

Congratulations for the quarter. Just want to understand on the vehicle loans. This quarter, we have done very well, almost 12% quarter -on-quarter growth. What's driving that growth? We buy some portfolio previous quarters is more high single-digit sequential growth?

So of course, on 2 -wheelers, as you would have seen in the past also, we have been gaining market share there. We have been expanding in that business. So that is definitely giving us more volumes. During the last, I would say, last part of the quarter, we also saw some pent -up demand typically in the last 10 days because of the GST announcements which came in, and that has given us this lift. We expect some bit of this traction could continue in Q3 as well.

Sudhanshu uses this word market share by the way. Just to make it clear to you, I tell everybody in the bank never to use these words called market share and all that stuff. We are small players. So small players don't use these big words , rather not big words, but we don't use these terms internally. But broadly, I'm commenting because Sudhanshu used that term market share. The reason I don't normally look at that is that we feel that we are relatively a small player and whether on savings or current account or loans also for that matter. So we think more in terms of the opportunity that is there and the capabilities we build, the digitization we build, the journeys we build, the assisted capabilities we build, we believe that we build all these things, then whatever share comes, comes. That's how we think about it.

That's very clear. And just a data keeping question. What's our MFI credit cost before the buffer reversal in rupee crores this quarter?

Yes, give or take, like I said, our experience through the cycle was like something like about 10-odd percent after the crisis started. Before that, it used to be 1.9%.

No, sorry, this quarter, the rupee credit cost.

We are not calling any, I would say, portfolio specific numbers here.

Because then we'll have to go down the path of calling out every account and that involves another level of detail. Frankly, our level of detail is already quite high. But I told you roughly in percentage sense, depending on quarter -to-quarter, sometimes 6%, sometimes 10%, but that is the kind of zone that we experienced in this whole episode.

Got it. Understand. Sorry I may have missed that for the non-MFI credit cost in percentage this quarter, you were saying how much was that?

Yes. So it was broadly stable around the 2% mark, which was even there in the previous quarter. So for H1, the credit cost ex MFI is about 2.03%.

And we have been in the zone now for like 13, 14 years. You go back and pull all the records of capital costs also on credit cost and divide the average book of those days, you'll find roughly the same , it used to be more like 2.5 -ish percent because those you were lending at 18%. When we were lending at 24 -odd percent used to be like 2.5 -ish percent and 18% was about 2.5%. Now of course, our lending yields have come down quite a lot, but we're running at about 2%. That's why we always guide the market like not now, if you remember, if you pick up the first annual report of IDFC First Bank after the merger first 2 in both times and even the latest one, I have again reiterated that we are running a formula of 2 -1-2. We run a guardrails in a way that we run a gross of 2, net of 1 and credit cost of 2. That's the broad number we shoot for broadly in the bank. Current numbers are a little less than that you know.

Our next question comes from the line of Jai Mundhra from ICICI Securities.

I have a couple of questions. First is on MFI book, right? So I think we have the disbursement is higher format versus last quarter, but the book has run down by around INR1,000 crores. So how do you see this book shaping up in terms of would you believe this will keep running down? Or you think there is, at some point of time, it will start growing in rupees crores and in percentage of loans?

Our own guess is that by end of this year, it should stabilize, like it should taper off on the low bottom side by end of this year and then grow from there. We want to grow it, just to be clear, we want to grow it because it has many benefits like we talked about. So there should be no doubt, it has private sector, it has weaker section private sector requirement. It makes money. The industry has learned its lesson. So hopefully, it will -- this lesson will stay learned at least for 5, 6, 8 years more before where the next crisis comes, we don't know. But at least for a reasonable period of time, the members stay on people. So, we think that we'll want to grow it again once this -- actually, we want to grow it already, except that since the runoff is so fast, it should taper during end of the year and pick up from there.

And just to add, we see the pace of decline to be much lower in Q3 and Q4 and the book to start growing from next year.

Right. And sir, secondly, on MSME, right? So in your entire INR2.66 lakh crores loan book, I mean, you have given Consumer loan, then there is a Business loan, then there is a Wholesale loan. How -- if you have done any sensitivity of how much could be the SME into export and particularly to US, if you have any ? A lot of banks have quantified the absolute crores portfolio, which is there predominantly to US . If you, or you will not be very , or this will be very negligible for you?

See there are two types of businesses we have. One is the Corporate business. And we've seen a list. We have about 5 or 6 clients to whom we have , who do export to the US and are affected. But we saw the list. They are like rated well. We talk to those clients, and they are like they're like fine. So, and the largest kind of corporates who have cash flow and have a name and have a brand and who also have some amount of domestic markets. So that's on the corporate side. We are fine there. On the rest is some of our customers on the loan against property could also be exposed there. But our loan against propert y is like people have security, we have the security there. And we have done the analysis. We feel things are comfortable as of now. We'll have to wait and see. I mean I have to be very careful when I use the word comfortable because the truth will tell after 1 quarter, 2 quarters, 3 quarters, any of our customers are affected. But for now, as far as our eyes can see from whatever we've talked to some of our clients in that segment, sample, etcetera, we've done our work, looks okay. That leaves the third segment, which is the unsecured MSME segment, like there is a category called BIL business installment loans, where we give EMI -based loans to corporates. We are tracking that segment also closely. Maybe by next quarter, we will have better color to give you because if any of those customers return their checks more because one of the numbers we track, as you know, is the first EMI bounce, right? On the presentation, how many checks return. And we call out the number also it's 4.5% for the bank. If that number starts going up, let me call it 5% or 5.5% or something like that, I hope not, then you can also see for yourself that what are the numbers -- I mean, the impact, if any. It is in the numbers but we're hoping for now that things are broadly in zone 3.

No, the SMA 1 plus 2 portfolio that we show that has mortgage vehicle MSME. This MSME corresponds to which line item in Slide 39, which have Retail, Mortgage, Vehicle, Consumer because there is no MSME, just to pardon my ignorance. I mean how should , which is the rupees crores for this MSME corresponding number?

No, I think if you see the small print of that , if you read below, it is actually calls out what is , I think it must be calling out what the numbers are. I mean, what the business is attached to that business.

And just to further sort of clarify this. So this will essentially include Business Banking segment. This would include business installment loans, which Vaidya talked about. And in our disclosure, it largely corresponds Business Banking, we have given out separately. And there is an other component in the Business finance, which would include largely bill and some of these loans.

Normally, we don't take -- just to be clear, normally, we don't take loan against property as part of MSME, though I guess a large part of that business will be our small entrepreneurs. But just as a convention, convention that they say, convention in the industry, if you notice, everybody -- every bank has something called mortgages, where they combine home loan and loan against property as one family as a convention. So that goes away as mortgages. This MSME is largely something called business banking where the business banking basically give working capital to small entrepreneurs, typically with properties collateral, that's business banking. Then we give something called business installment loans where we give some unsecured credit to our installment based, EMI -based to small entrepreneurs and then some similar connected businesses.

And just to add, on the MSME pack per se, we are seeing a credit cost, which is broadly similar to the overall portfolio. So while as Vaidya rightly said, we are watchful of this portfolio, but we would see if any second order impact would come in. On the primary front, most of these MSME more domestic oriented and hence, our assessment is the impact may not be that much.

Sure, sir. And sir, if you have the number separate for current account and savings account, I mean that will give a clear picture because, of course, the CASA as a block is doing very well. But if you have the number separately for current account and savings account?

We can share now also; our current account is not great. It's one of our weak points. So one of our area for improvement. We have about INR130,000 crores of CASA, right? So how much is CA?

Current account would be about, I would say, 14% of the total CASA deposits. And as I said, on an average basis, CASA did grow by 32% on a Y -o-Y basis. We have seen even our CA growth to be about 30%. Of course, in terms of the total proportion, our endeavor is to improve the CA in the overall pack.

And last question, sir, how much of the business is driven by, let us say, what do you say, partners, right partnership because it looks like that the new guideline, there may be some disruption, not disruption, but you may have to change something when you source business from some other partners under CLP 1 and 2. Is that any risk in terms of the origination or the way you acquire loans through partners? Or that is you are already in compliance with -- I mean, you are already, let us say, up to date with the CLP 1, 2 regulations?

What CLP?

Co-lending, sir.

No, no, we don't do much of co-lending and all.

Sure sir.

But to your previous question on current account, like I said that we are growing that. And basically building a current account proposition requires lots of builds, lots of solutions, working capital solutions and all that. I'd imagine that we are about INR20- odd thousand crores of current accounts on our book or something like that, somewhere in that zone but it's growing by the way, it's growing, but we'd like it to grow more.

Right. And you mentioned that the blended cost of savings account is around 5.8%, right, for this quarter?

Yes, yes. Is that so?

Yes, about 5.85%.

5.8% something. But still, remember, people who are chasing me down to cut the rate on something remember that this is still cheaper than fixed deposits, by the way. If I cut this, listen, there's no free money in earth, okay? If I cut this, then I would raise money to fixed deposit, and that will come at a higher rate. So we are using an optimal mix. And we need to grow our distribution. Like I said, we are very -- I feel we are a little thin on distribution. We need more distribution and then it will give us more confidence, particularly after fixed deposit ratio.

Or sir, maybe you can do some hybrid, right, like sweep -in, sweep-out, maybe you can lower the threshold for savings and then have a sweep in product, which is in between types.

Yes. We'll think about it also. If we do it, we'll call -- you can take some credit for it. But we're thinking about those lines by the way.

The next question is from the line of Farhaan Wadia from HDFC Securities.

I have one question. If other than the microfinance sector, is there stress in any other sector?

No, the short answer is no. We are not seeing any. And in this business, we ask ourselves this question all the time, even within internally. So we are very watchful. We are seeing every business trends and signals like we just saw , if you saw the numbers of every product on the SMA, broadly, I think they're all holding up well. So we're not seeing any significant amount, but we'll watch if we see any signal, we'll share with you. And any case, you see it immediately in the check bounce percentage in any case. And by the way, just to be clear and honest with everybody here, when we're running a large business of 25 businesses, there are some business where something goes up also, okay? Some credit cost goes up in one business or NP goes up. After running so many businesses, so many cities, villages, locations, scorecards. So something goes up also, but something comes down also. But since we're running a large portfolio of 25 business lines, so many cities and all that, they usually tend to knock up with each other. So we share the net number with you. And on the net front, we are directionally looking okay.

Okay fine. So, nothing in any specific factor, right?

It doesn't mean that in no business credit delinquency goes up. That's not the way. That wouldn't be true. Something goes up, something comes down.

Our next question comes from the line of Shailesh Kanani from Centrum Broking.

Sir, my question was on Slide 65, where the cost -of-income ratio on the asset side has been a little sticky. So for last 3 years, it is on the upward trajectory. So just wanted to understand reasons for that and any levers for improvement on that front? And on the second part of my question was on credit cards. Credit cards has seen a very sharp improvement in terms of cost to income. So what drives that, if you can highlight that?

Sudhanshu, you take a first shot, I'll come back.

Yes. So on the asset side, I would say the cost to income has gone up in the near term because of the income impact which we have seen, right, because of the sharp decline in the MFI book because of, I would say, the repo transmission, which has happened, while on the FD, the benefit will come with some lag. So directionally, while this may move slightly further into next 1 or 2 quarters, but directionally, we definitely see operating leverage playing out and this to bend down, right, into the next year.

Basically, once the microfinance book stops degrowing because the more microfinance degrows, that amount of income goes away because let's break this up. When you say cost to income, it is cost divided by income. So people often think of cost income as cost. No, its cost by income. So when you divide that by income, income shrank. So that is we know is a well -known issue. So we can't say any more time this microfinance book shrank. So it is not the cost went up, but the income came down.

Sir just to clarify that. But that is fine for first half FY '26. But what I was trying to understand is that since FY '23, if you see that number, it has been kind of inching up from 52.7% to say, around 56% in FY '25 as well. So just wanted to understand in general.

No, no. No, no, let's take very specific take the number. So FY '24 is 53.2%. Right, correct.

Right.

Now in FY '25 is when the microfinance item hit us. So that's when you saw the number jump up from 53.2% to 56.1%. And even in this year, you've been seeing shrink microfinance book shrinking, and that's why the mix is shrinking. So you've seen it go up from 56.1% to 59.1%. So we put out the numbers publicly. So, we don't leave anything to imagination. So now we believe that once this microfinance issue should be behind us and like Sudhanshu correctly pointed out that 1 year from now or maybe 6, 9 months from now, etcetera, 1 year from now, the fixed deposit would have helped us reprice all the fixed deposit downwards meaningfully. So interest cost should come down. Number two, the income line , will stop degrowing, rather will start growing. And anyway, it will be a strong operating leverage coming because we are very digitized. So you may not be aware that we are like 98% or 99% , we have e-KYC, 99% is e -mandate, 99% is e -stamping registration. So we are highly digitized. So when we scale from there, the operating leverage does come to us. So these are 3 factors at play. The repo hopefully will taper off at that stage. Like I said, the other 2 factors I talked about, which is the microfinance degrowth and all that. On credit card front, well, it's coming very well. It's been like our super successful launch. We are very, very, very happy when we look at the rollout of this business. And frankly, every single product that we have launched in the bank, I mean, it's just amazing to even think like that, that every single launch at the bank, we've launched just so many products like 25 to 30 since the time the merger happened and every one of them have landed well. Every one of them. Credit card is one of them. Credit card, it's a jewel of the crown, but every product has landed well for us. This has also landed well. That's why the cost income has come down to below 100% in just 4 years. And we believe it will come down to now from 95%, which is what it is today or 96%, it will come down to 75%, we believe, in the next 2 years. I hope it gets there, plus/minus some few hundred basis points.

Okay. Fair enough.

By the way, friends, it's only 745, would you really want to continue or we can sign off? Last question okay.

Thank you. Ladies and gentlemen, we will take that as the last question for today. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments. Over to you, sir.

We've said enough, so I have nothing more to add. I just want to say that thank you for your support over many years. Our return on equity has been low over the last 5 or 6 years. Our book value per share addition has largely come from a fresh capital raise at a premium to the book rather than by internal accrual of capital. But nevertheless, it did come. That's how book value per share has gone to 54. So you've been patient with us this while and provided us capital at a good price whenever we raised it. So thanks for that. We think that the same zing and feel that you got about the bank when we were turning around between 2020 to '24, that 3 or 4 years, you've got zing -- that things are turning around. I believe we'll begin to get the same feeling again once you see this quarter, next quarter, quarter after that, next year. I think next 2, 3 years, you will get the same feeling again. But I can fully understand if you want to watch us for a few more quarters before you get that confidence, but I do believe you'll get it. But thanks so much for being with us all through this.

Thank you.

Thank you, everyone. Happy Diwali and happy festivities. Thanks, everyone, for joining.

Happy, happy festivities, everybody. And thanks once again from all of us at IDFC First Bank from best wishes to all. Thank you.

Thank you. Ladies and gentlemen, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.