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Given the recent sharp correction in the stock due to alleged state government fraud, which we believe is largely behind and also involved a few other banks, we retain ADD, with an upside of 12% to our revised TP of Rs75. IDFCB reported a slight moderation in its credit growth trajectory, while NIM improved 10bps QoQ to 5.9%. Opex was relatively high and remains a drag, while lower other income led to lower PPoP. However, lower-than-expected loan loss provisions, including the impact of fraud related to Haryana State government deposits and a tax reversal, led to better-than-expected PAT at Rs3.2bn. The management expects credit growth to remain healthy, with continued shift toward secured retail assets, keeping margins range-bound. Though higher operational costs remain a drag, the bank expects them to moderate as the C/I ratio for cards and the liability business tend to moderate. Easing retail stress should also drive credit costs down to 1.8%, thereby supporting a gradual RoA improvement. We cut our earnings estimates for FY27-28E by 7-12%, factoring in moderation in margins and the treasury business, while trimming TP by ~6% to Rs75 from Rs80 (based on 1.2x FY28E ABV).

Growth moderates slightly, but margins improve further

IDFCB Advances growth slightly moderated to 20% YoY/4% QoQ. Deposit growth was also moderate at 17% YoY/1% QoQ. In retail, the bank saw healthy traction in LAP, vehicle loans, consumer loans, gold loans, and credit cards, while the MFI segment continues to consolidate. NIM expanded further by 17bps to ~5.8%, of which ~12bps was driven by a reduction in the cost of funds, aided by recent SA rate cuts, CRR cuts, and TD repricing. The management expects CoF to trend down further, but portfolio recalibration toward retail assets could limit margin upside.

Easing stress to moderate credit costs, going ahead

GNPA ratio improved 8bps QoQ to 1.6%, due to lower slippages and continued higher write-offs. The management expects further easing in unsecured loan stress and guides for credit costs at 1.8%. The bank has made net provisions of Rs4.8bn toward employee fraud related to Haryana State government deposits, while management is in the process of strengthening internal controls. Notably, the fraud also involved some other banks and was not specific to IDFC, though the amount involved for IDFC was higher

We retain ADD on IDFCB with TP of Rs75

We cut our estimates for FY27-28E by 7-12% on factoring in moderation in margins and the treasury business, and trim TP by ~6% to Rs75 (based on 1.2x FY28E ABV). However, given recent sharp correction in the stock due to the state government fraud, which we believe is largely behind, we retain ADD while reducing the TP to Rs75 from Rs80

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