India`s IDFC First Bank hits 21-month low as microfinance stress hits Q3 profit
Shares of IDFC First Bank fell as much as 8% on Monday to their lowest in 21 months after the private lender said its third-quarter profit more than halved, hurt by delinquencies in microfinance loans.
The stock was on track for its biggest one-day percentage decline since June 4.
On Saturday, the Mumbai-based mid-sized private lender said gross slippages, or the loans classified as non-performing for the first time, in the microfinance segment jumped nearly 49% on-quarter to 4.37 billion rupees.
Provisions and contingencies more than doubled, dragging profit.
The bank's net profit fell 53% on-year to 3.39 billion rupees ($39.26 million) in the fiscal third quarter.
Net interest income, or the difference between interest earned on loans and paid in deposits, rose 14% on year to 49.02 billion rupees. The bank's loans increased by 22% from the year-ago quarter.
"The microfinance industry continues to drag earnings and we see the pain continuing for three-four quarters," analysts at Jefferies said in a note.
Microfinance loans, which are typically high-yielding assets, fell 19.3% on-year during the quarter and were down 12.2% sequentially.
"In the backdrop of lower growth in microfinance and some unsecured segments, topline growth will stay softer at 14-15% even as loans grow by 18-20%," Jefferies said.
The credit issues in the microfinance segment are "transitionary" and are likely to be resolved within a few quarters, CEO V Vaidyanathan said in a statement.
The stock is down about 9% so far this month, after losing nearly 29% last year.
IDFC First Bank continues to face challenges in managing high operating expenses and elevated credit cost, particularly in the microfinance segment, Centrum Broking said in a note.
The bank's asset quality will continue to remain an overhang due to the microfinance segment, JP Morgan said in a note, downgrading the stock to "underweight" rating from neutral.
($1 = 86.3470 Indian rupees)
