Synopsis: Q1 FY27 profit more than doubled year-on-year, gross NPA hit a record low, and the market rewarded it with a double-digit rally but a lot of this quarter’s shine comes from a weak base a year ago. The bigger test now is whether the bank can hold onto these numbers once the comparisons get tougher.
Private banks have spent the last two years working through the microfinance stress that hit unsecured retail lending across the industry. This quarter is the clearest sign yet that the worst of it is over. Whether that relief sticks around once easier comparisons wear off is the more interesting question.
With a market capitalisation of roughly Rs. 76,567.56 crore, IDFC FIRST Bank shares were trading at Rs. 88.61, up 10 percent from the previous close of Rs. 80.79. That puts the stock at about 33.06x on TTM basis.
What’s the news?
Profit after tax came in at Rs. 1,075 crore for the quarter ended June 30, 2026 up 132.4 percent from a year ago and 237 percent from the March quarter’s Rs. 319 crore. It’s the first time the bank has crossed Rs. 1,000 crore in quarterly profit since the 2018 merger that created it.
Net interest income grew 21.1 percent to Rs. 5,972 crore, with margins at 5.96 percent. Core operating profit, stripped of trading gains, grew 36 percent to Rs. 2,371 crore. Gross NPA fell to 1.51 percent and net NPA to 0.44 percent both the lowest since the bank was formed.
Provisions dropped 31 percent to Rs. 1,144 crore, even after the bank set aside a fresh Rs. 515 crore contingency for macro and geopolitical risk, largely funded by a Rs. 514.8 crore claim it received under the government’s microfinance credit guarantee scheme.
Other Financial Metrics
Return on assets rose to 1.06 percent and return on equity to 8.98 percent, both climbing off a low base FY25 and FY26 profits had been running at roughly a third of FY24 levels while the microfinance book got sorted out. Cost-to-income (ex-trading gains) improved 310 basis points to 70.7 percent, the first quarter in a while where income growth (21.5 percent) has clearly outpaced expense growth (16.4 percent).
Deposits grew 17.7 percent to Rs. 3,11,892 crore. CASA ratio sits at 50.8 percent, one of the better ratios among private banks. Cost of funds has come down 184 basis points since the merger even as customer deposits grew almost eightfold a combination that should keep supporting margins as long as rates stay where they are.
Numbers to be read carefully
Here’s the thing worth sitting with before getting too excited: FY26 profit was dragged down by a Rs. 646 crore fraud hit in Q4, so this quarter’s 237 percent sequential jump is measured against an artificially low bar. Take out the one-offs on both sides and the improvement is real but a good deal less dramatic than the headline number suggests.
That said, the underlying trend does look genuine, not just base-effect math. Gross slippages eased from 2.68 percent to 2.49 percent quarter-on-quarter, and gross NPA in the microfinance book specifically fell from 9.73 percent a year ago to 3.61 percent now. That’s actual credit quality improving, not an accounting artifact.
On price, the stock isn’t cheap anymore. At roughly 33.06x earnings and 1.57x book value, the market has already priced in the microfinance recovery story this isn’t a turnaround bet at a discount. Whether the current 5.96 percent margin holds depends on how fast the bank lets the microfinance book regrow (it still carries the highest yields in the portfolio, and it’s shrunk from Rs. 13,344 crore in FY24 to Rs. 6,698 crore now). Management is targeting a cost-to-income ratio near 50 percent, but by their own admission that’s still four to five years away.
The parts still being built
The retail deposit business built from scratch since the 2018 merger is still losing money on an internal transfer-pricing basis, though the loss has narrowed from -4.2 percent of average liabilities in FY20 to -0.8 percent now. Credit cards show the same arc: cost-to-income has come down from 431.5 percent at launch to 83.6 percent. Both are being carried by the lending business for now, which is fairly normal for a bank building a deposit franchise from nothing, but it also means group profitability still depends on how fast these newer arms get to breakeven, not just on how well the loan book performs.
What to watch
Corporate concentration has come down a lot exposure to the top 20 borrowers fell from 16 percent in March 2019 to 5 percent now, and to the top 5 industries from 41 percent to 20 percent. That’s a real de-risking. The bigger question is how disciplined the microfinance regrowth turns out to be. Management says the book has “bottomed out” and is growing again under tighter guardrails that’s the number to watch next quarter, because it’s the one most likely to swing both margins and asset quality from here.
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