Idfc First Bank: India

Equity Research INDIA
June 1, 2021
BSE Sensex: 51937
IDFC FIRST Bank BUY
ICICI Securities Limited
is the author and
distributor of this report Superior incremental unit economics
demonstrates business potential Rs59
Initiating coverage We initiate coverage on IDFC FIRST Bank (IDFCFB) with BUY recommendation and
target price of Rs73 (assigning 1.9x multiple to FY23E book). The bank’s evolution is
Banking unique in a sense: on getting license, it was created out of demerger of infrastructure
financing business followed by merger of erstwhile Capital First. Stress build-up and
franchise investment resulted in a weak return profile (net worth erosion) during the
transition phase. However, the new bank, with a new Board, new management and
Target price Rs73
renewed focus, has made significant strides in retailisation and granularisation of its
business. Current return profile is dragged by high-cost structure, low fee income and
Shareholding pattern elevated credit cost. Nonetheless, its marginal unit economics is superior and
Sep Dec Mar incremental retail disbursements have potential RoE of >20%. Going forward, key
'20 '20 '21 triggers for RoE improvement would be normalisation of cost to income ratio, retail
Promoters 40.0 40.0 40.0
Institutional
fee income scale-up, and steady improvement in NIM trajectory. Key risks would be
investors 22.3 22.9 23.1 sustenance of cutting edge execution of stated strategy and elevated ‘cost to income’.
MFs and others 2.7 2.9 2.9  Remarkable transition in asset and liability profile post the merger: IDFC FIRST
FIs/Banks 0.0 0.0 0.0
Insurance 8.4 8.4 8.3 Bank followed a structural path towards retailisation of assets as well as liabilities. After
FIIs 11.2 11.6 11.9 having rolled out a 5-year strategic roadmap towards targeted RoA and RoE of 1.4-1.6%
Others 37.7 37.1 36.9 and 13-15% respectively, it has made significant strides on most operating parameters:
Source: Company
1) retailisation of assets (>30% CAGR over FY19-FY21, now constituting 63% of assets);
2) granularity of deposits – average CASA deposits surged to ~50% and deposits of
<Rs10mn are at 62%; 3) sharp spike in NIM from <2% in FY18 to ~5% in FY21 and very
Price chart much on track towards targeted levels of 5.0-5.5%.
80  Retail GNPAs rise amidst disruption; wholesale portfolio adequately covered: With
70 FY21 slippage run-rate of >5% (>7% for retail), GNPAs rose to 4.15% (from 2.6% in
60 FY20). Retail GNPAs at 4.01% are higher by 175bps from the pre-covid average.
50 Restructured pool is equivalent to 1.3% of retail assets. Despite the incremental stress in
(Rs)
40 FY21, credit cost was contained at 250bps for FY21 supported from adequately covered
30
20
and write-back in wholesale portfolio. Coming from a high-growth phase in retail (>25%
10 in FY21), the impact of covid second wave disruption needs to be closely monitored.
0  Investment in franchise comes at a cost; efficiency key to drive RoAs: Bank has
Nov-20
Nov-18
Nov-19
May-19
May-18
May-20
May-21
actively invested in people, processes, products, infrastructure and technology to put

together all the necessary building blocks towards a stronger foundation essential for a
long-term sustainable growth engine. However, this has come at a cost, and the cost
structure hovers much higher compared to peers (IDFCFB’s ‘cost to income’ at >70%).
However, cost efficiency and containment will be a key RoA driver going forward.
 RoE profile currently low; incremental unit economics superior: IDFC FIRST Bank’s
current return profile is dragged by higher ‘cost to income’, lower fee income, and
elevated credit cost. Nonetheless, its far superior incremental unit economics is
encouraging (incremental retail disbursements have potential RoE profile of >20%). As
we see a steady and sustainable transition in favour of retail assets/liabilities, we expect
return profile to improve (to >8%/11% by FY23E/FY24E) on the back of normalisation of
‘cost to income’, retail fee income scale-up, and steady improvement in NIM trajectory.
Market Cap Rs363bn/US$5bn Year to Mar FY21P FY22E FY23E FY24E
Research Analysts:
Reuters/Bloomberg IDFCFB IN NII (Rs mn) 69,898 95,159 1,18,265 1,43,041
Kunal Shah Shares Outstanding (mn) 6,201.9 Net Income (Rs mn) 4,523 5,213 18,318 27,665
kunal.shah@icicisecurities.com
+91 22 6637 7572 52-week Range (Rs) 68/23 EPS (Rs) 0.8 0.8 3.0 4.5
Renish Bhuva Free Float (%) 60.0 % Chg YoY NM 6% 251% 51%
renish.bhuva@icicisecurities.com FII (%) 11.9 P/E (x) 74.1 70.2 20.0 13.2
+91 22 6637 7465
Daily Volume (US$'000) 37,212 P/BV (x) 1.8 1.7 1.5 1.4
Chintan Shah
chintan.shah@icicisecurities.com Absolute Return 3m (%) (7.8) Net NPA (%) 1.9 1.8 1.6 1.5
+91 22 6637 7658 Absolute Return 12m (%) 164.7 Dividend Yield (%) 4.2 5.0 4.3 4.0
Piyush Kherdikar Sensex Return 3m (%) 6.0 RoA (%) 0.3 0.3 0.9 1.2
piyush.kherdikar@icicisecurities.com
+91 22 6637 7465 Sensex Return 12m (%) 62.1 RoE (%) 2.7 2.7 8.4 11.6
Please refer to important disclosures at the end of this report
IDFC FIRST Bank, June 1, 2021 ICICI Securities
TABLE OF CONTENT
Investment thesis ............................................................................................................. 3

Significant strides in retailisation and granularisation of business .................................. 3
Consistently rising NIM trajectory nearing targeted levels .............................................. 9
Retail GNPAs rise amidst disruption; wholesale portfolio adequately covered ............ 13
Cost efficiency and retail fee enhancers – triggers to RoA improvement ..................... 16
Incremental RoA/RoE economics far better than reported ........................................... 17
Building digital and data analytical capabilities ............................................................. 18
Valuations ....................................................................................................................... 20
Key risk factors .............................................................................................................. 24
About IDFC FIRST Bank ................................................................................................ 25
Board of directors .......................................................................................................... 28
Key managerial personnel ............................................................................................ 29
Financial summary ........................................................................................................ 30
Annexures....................................................................................................................... 32
Index of Tables and Charts ........................................................................................... 33
*BSE Sensex and CMP are as on May 31, 2021
2
Investment thesis
Significant strides in retailisation and granularisation of business
Post the merger of erstwhile IDFC Bank and Capital First, IDFC FIRST Bank is
following a structural path towards retailisation of assets as well as liabilities. After
having rolled out a 5-year strategic roadmap towards targeted RoA and RoE of 1.4-
1.6% and 13-15% respectively, it has made significant strides on most operating
parameters (be in retailisation of assets, granularity of deposits, improving NIM
trajectory, etc.). It has actively invested in people, processes, products, infrastructure
and technology to put together all the necessary building blocks towards a stronger
foundation that is essential for a long-term sustainable growth engine.
Evolving into a high-yielding retail bank; targeted retail mix at 70-75%

Post becoming a bank, the erstwhile IDFC Bank took early steps to diversify away
from infrastructure into corporate and retail banking. After merger of erstwhile Capital
First, with Mr. V. Vaidyanathan at the helm, management is focused on building a
high-yielding retail banking franchise (average retail yield at >15%). On its guided
strategy, over the past 24 months, it has built strong capabilities in meeting financing
needs of consumers, small businesses and MSMEs – through a bouquet of loan
products namely home loans, LAP, business loans, personal loans, wheels (2-
wheelers, car, CV financing), micro loans, etc. Bank has also launched gold loans,
primarily targeted at rural customers and credit cards with variants offering lifetime
free, dynamic interest rate, highly rewarding programs, interest-free cash withdrawal,
etc. Also, after having tapped the affordable housing segment (yields of 8-9%), now
with reduced savings and term deposit rates, it plans to participate in the prime home
loan market as well (with competitive rates starting at 6.9%). Besides newly launched
products, the bank plans to effectively scale-up its entire bouquet of retail portfolio.
Retail assets after compounding at 34% CAGR over FY19-FY21 to Rs737bn now
constitutes 63% of customer assets (including inorganic buyouts). Quarterly run-rate
accretion of Rs50bn-70bn of retail assets suggests it is on track towards the targeted
Rs1trn of retail assets by FY23/FY24. On overall loan base of Rs1.4trn -1.7trn by then,
it would contribute 70-75% to the overall AUM.
3
Chart 1: Retail assets have more than doubled since merger in Dec’18
Retail funded assets
800
700 737
600 667
599
573
500 537
(Rs bn)
400
392 408
300 362
323
200
100
-
4QFY18 2QFY19 3QFY19 4QFY19 3QFY20 4QFY20 2QFY21 3QFY21 4QFY21
Source: Company data, I-Sec research
Table 1: Portfolio growth led by retail; corporate run-down continues

Mar-20 Dec-20 Mar-21 YoY % QoQ %
Home Loans 77 94 106 37% 13%
Loan against property 126 138 153 22% 11%
SME loans 89 94 108 22% 15%
Wheels 89 102 108 21% 6%
Consumer loans 117 132 139 19% 6%
Credit Card - 1 4 NA 398%
Rural 67 72 77 15% 6%
Others 8 17 24 190% 43%
ECLGS portfolio - 17 17 NA -1%
Total Retail Funded Assets (A) 573 667 737 29% 11%
Corporates 245 232 231 -6% 0%
Conglomerates 8 14 13 60% -4%
Large Corporates 15 18 19 23% 7%
Emerging Large Corporates 66 69 71 7% 4%
Financial Institutional Group 126 109 110 -13% 1%
Others 29 23 18 -38% -21%
Infrastructure 148 116 108 -27% -7%
Total Wholesale Funded Assets (B) 394 348 339 -14% -3%
PSL Inorganic (C) 80 67 74 -7% 11%
SRs and Loan Converted into Equity (D) 24 23 21 -11% -9%
Total Funded Assets (A+B+C+D) 1,070 1,105 1,171 9% 6%
Infrastructure loans to be completely run down; selective lending in

non-infra corporate segment
Bank is committed to reduce concentration risk and is steadily running off wholesale
exposure – down by more than a third in two years to Rs339bn (from a peak of
Rs570bn just prior to the merger). Of the wholesale exposure, infra book has been
almost halved since merger to Rs108bn and will be further rationalized to a very
negligible proportion in 3-5 years. With regard to the non-infrastructure credit portfolio,
it will continue to adopt a selective stance based on the opportunity and risks involved,
on a case-by-case basis.
4
Chart 2: Running down wholesale portfolio Chart 3: Reducing concentration risk is key focus
effectively area
Wholesale funded assets Exposure to Top 10 borrowers as a % of total funded assets
700 20%
600 18%
18.8%
616
16%
585
571
568
566
556
555
500
538
536
14%
516
400 12%
443
12.8%
(Rs bn)
402
10%
394
379
370
300
348
339
9.8%
8%
9.1%
8.3%
264
6%
7.4%
7.3%
200
7.2%
7.1%
6.3%
5.9%
4%
100
2%
- 0%
4QFY18
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
2QFY21
3QFY21
4QFY21
1QFY21
4QFY11
4QFY12
4QFY13
4QFY14
4QFY15
4QFY17
4QFY17
4QFY18
2QFY19
3QFY19
4QFY19
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
4QFY10
Source: Company data, I-Sec research Source: Company data, I-Sec research
Chart 4: On track with plan to rationalise infra Chart 5: Infra book as % of total assets has shrunk
portfolio to a negligible level in 3-5 years considerably since merger
Infrastructure funded assets Infrastructure financing portfolio as a % of total funded assets
300 40%
250 35%
268
266
36.7%
236
30%
227
200
215
203
25%
(Rs bn)
172
150
156
148
20% 21.7%
134
125
100
19.4%
116
108
15%
50
13.9%
10%
9.2%
- 5%
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
2QFY21
3QFY21
4QFY21
1QFY21
0%
4QFY18 3QFY19 4QFY19 4QFY20 4QFY21
5
Rapid progress in retailisation of liabilities
Bank is making rapid progress in retailisation of liabilities reaching the targeted levels,
articulated in a 5-year roadmap, almost 2-3 years earlier. Focusing on reach, pricing
and services, it has devised a strategy to build CASA deposit franchise that has scaled
up more than 5x since FY19. Average CASA deposits in FY21 surged to ~50% (from
less than 10% in FY19); this compares with the target of 30% set for FY24 and 50% a
couple of years later.
Having offered the best rates in the industry that helped significant ramp-up in CASA
deposits, the bank after reducing the peak savings rate from 7% to 6% in Feb’21, has
further reduced it to 5% in May’21 (4% for accounts with balance of <Rs0.1mn). The
intention is to drain out the excess liquidity and to save the negative carry cost
currently being incurred. The behaviour in savings deposits post reduction will be
critical and momentum of accretion, if sustained, will impart a lot of confidence that
reach and service (beside pricing) are also key determinants in driving liability growth.
Chart 6: CASA ratio up >5x in past two years Chart 7: …with sharp surge in CASA deposits
60.0 Average CASA 500.0 CASA Deposits
450.0
459
50.0
400.0
50.2
406
350.0
44.7
40.0
300.0
(Rs mn)
36.5
(%)
302
30.0 250.0
32.0
27.7
235
200.0
20.0
207
150.0
20.9
162
15.8
100.0
125
10.0
12.1
9.5
9.4
96
61
64
53
79
55
50.0
0.0 0.0
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
1QFY21
2QFY21
3QFY21
4QFY21
4QFY20
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
1QFY21
3QFY21
4QFY21
4QFY20
2QFY21
Chart 8: CASA proportion of deposits compares Chart 9: SA productivity per branch also amongst
better than private banks the best in class
70.0 CASA - FY21 800.0 SA/branch - FY21
60.0 700.0
731
720
60
686
50.0 600.0
52
500.0
(Rs mn)
46
40.0
45
43
(%)
42
400.0
445
30.0
300.0
32
353
315
26
20.0 200.0
255
220
10.0 100.0
0.0 0.0
HDFCBANK
HDFCBANK
INDUSINDBK
RBLBANK
INDUSINDBK
RBLBANK
BANDHANBNK
BANDHANBNK
KOTAKBANK
KOTAKBANK
YESBANK
YESBANK
AXISBANK
AXISBANK
IDFCFB
IDFCFB
6
Reduced concentration of bulk deposits/borrowings
Bank has successfully replaced wholesale deposits/borrowings with retail customer
deposits – proportion of core retail deposits is now up to 77% (targeted to breach
target of 80% by FY24). Consequently, concentration of the top-10 depositors is down
to mere 6% (from almost 29% during merger) as wholesale deposits have contracted
more than 25% in a single year.
Bank is still carrying a legacy long-term / infra and other bonds of Rs240bn at a higher
cost of 8.5-9.0%. Replacement of the same with low-cost retail deposits will itself
support reduction in the cost of funding lower even from the current level.
Chart 10: Concentration of deposit base Chart 11: …with much lower reliance on certificate
substantially reduced… of deposits than earlier
Top 10 depositors as a % of customer deposits 350.0 Certificate of Deposits
0.4
300.0
0.3
288
250.0
28.7%
28.6%
0.3
25.2%
(Rs mn)
223
200.0
0.2
201
(%)
150.0
0.2
153
14.5%
127
0.1 100.0
5.5%
50.0
72
71
0.1
67
54
60
0.0 0.0
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
4QFY18
3QFY19
4QFY19
4QFY20
4QFY21
Chart 12: Acceleration in CASA deposits has led to Chart 13: Granular and low-ticket size suggest
granularity in deposits better stickiness of deposits
Deposits less than Rs 50mn as a % of total customer deposits Deposits with balance of less than Rs 10mn as a % of total
0.9 customer deposits
0.7
0.8
82%
0.6
78%
0.7
62%
74%
0.6 0.5
65%
59%
0.5 0.4
55%
(%)
(%)
41%
49%
0.4
0.3
41%
37%
0.3
31%
0.2
30%
25%
28%
28%
0.2
21%
18%
0.1 0.1
0.0 0.0
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
2QFY20
4QFY18
3QFY19
4QFY19
4QFY20
4QFY21
7
Table 2: Potential to replace high-cost borrowings with deposits on maturity
Infrastructure Long-term Other
(Rs bn) Refinance Total
Bonds Legacy Bonds Bonds
Up to FY21 - 16 4 1 21
FY22 - 11 11 23 45
FY23 15 - 19 31 65
FY24 14 17 8 19 58
FY25 57 13 2 9 81
Beyond FY25 9 38 7 - 54
Total 95 95 50 83 333
Rate of Interest per Annum (%) 8.87% 8.98% 8.76% 7.77% 8.60%
Weighted Residual Tenure
3.36 3.97 7.32 1.72 3.74
(years)
Table 3: Borrowing profile incrementally skewed towards deposits

Deposits & Borrowing Profile (Rs bn) Q4FY20 Q3FY21 Q4FY21 Y/Y % Q/Q %
Legacy Long-term Bonds 120 95 79 -34% -17%
Infra Bonds 104 95 95 -9% 0%
Refinance 147 83 154 5% 86%
Other Borrowings 130 90 76 -41% -15%
Total Borrowings (A) 502 363 405 -19% 12%
CASA 207 406 459 122% 13%
Term Deposits 371 367 368 -1% 0%
Total Customer Deposits (B) 577 773 827 43% 7%
Certificate of Deposits (C) 71 67 60 -16% -11%
Money Market Borrowings (D) 72 45 53 -26% 17%
Borrowings + Deposits (A)+(B)+(C)+(D) 1,222 1,248 1,345 10% 8%
CASA % of Deposits 32% 48% 52%
Customer Deposits as % of Borrowings + Deposits 47% 62% 62%
Branch expansion upfronted; now may go a tad slow

Bank added more than 350 branches in past 24 months taking the total tally to 596
branches. The medium-term plan is to take it to 800-900 branches in 3-4 years.
However, it seems, with rapid expansion, it will now allow churning and productivity
ramp-up of the existing network before aggressively adding more branches. The
network serves more than 8mn customers and has 134 asset servicing branches and
655 business correspondent (BC) branches. Of this, 384 business correspondent
branches are through the wholly-owned subsidiary, IDFC FIRST Bharat, which acts as
a BC for sourcing loans from rural areas, primarily in southern India.
Table 4: Maharashtra with ~15% of branch network constitutes >25% of loans…

Advances (Rs bn) % of total
Total Funded Assets as of FY21 1,171 100%
Maharashtra 313 27%
Karnataka 85 7%
Gujarat 77 7%
Tamil Nadu 99 8%
Others 598 51%
Source: SLBC, Company data, I-Sec research
Table 5: …and has same concentration in deposits as well

Deposits (Rs bn) % of total
Total Deposits as of FY21 887 100%
Maharashtra 215 24%
Karnataka 74 8%
Gujarat 58 7%
Tamil Nadu 31 3%
Others 508 57%
Note: Maharashtra, Gujarat data is as of Dec'20, Karnataka as of Sep'20 and Tamil Nadu as of Mar’20
Source: SLBC, Company data, I-Sec research
8
Consistently rising NIM trajectory nearing targeted levels

NIM for the full year FY21 settled at 4.98% as compared to 3.91% in FY20. It is very
much on track towards targeted sustainable levels of 5.0-5.5%. NIM on incremental
disbursements are substantially higher than the reported NIM. Exit quarter NIM has
improved to 5.09% in Q4FY21 vs 4.61% in Q4FY20. Gross yield, which was expected
to be >12% in five years post the merger, seems to be scaling even higher than the
targeted levels at ~13.5%. Consistent rising trajectory of NIM from sub-2% pre-merger
to as high as 5% recently is aided by:
 Gradual shift towards high-yielding retail banking businesses – yields in retail have
been upwards of 15% and the bank has been carefully selecting retail products
where it has proven capabilities.
 Significantly lower incremental average deposit cost at 5.2% that is steadily
replacing high-cost borrowings.
Two consecutive savings rate cut of 100bps each (in Feb ’21 and May’21) to 5% will
further cushion average savings deposit cost that hovered high at 6.8% in 9MFY21.
Passing the benefit of this lowered cost, the bank is planning to participate in the prime
home loan market at competitive rates – though this will not entirely offset the benefit
and reflect in an uptick in NIM.
Chart 14: Net interest margins have been on an upward trajectory since merger
6.0 NIMs (%)
5.0
5.1
5.0
4.9
4.9
4.6
4.0
4.2
3.7
3.0
3.2
3.2
(%)
3.1
2.0
1.8
1.0
-
2QFY19
3QFY19
4QFY19
1QFY20
4QFY20
1QFY21
2QFY21
2QFY20
3QFY20
3QFY21
4QFY21
9
Chart 15: High-yielding retail assets driving yield Chart 16: Cost of deposits too has fallen
improvement considerably since FY19
Yield on overall funded assets (%) Cost of deposits (%) Cost of funds (%)
7.8
Yield on retail funded assets (%)
18.0 7.6
7.6
16.0
17.0
7.4
16.3
16.3
15.9
7.4
14.0 7.2
7.3
12.0
13.1
7.0
12.5
7.0
7.0
10.0 6.8
10.6
6.8
9.2
8.0 6.6
6.0 6.4
6.4
6.4
4.0 6.2
2.0 6.0
- 5.8
FY18 FY19 FY20 9MFY21 FY18 FY19 FY20 9MFY21
Chart 17: Cost of deposits comparable to peers Chart 18: Yields relatively higher compared to
offering premium rates peers
7.0 16.0
Cost of deposits - FY21 Yield on advances - FY21
6.0 14.0
14.7
6.0
5.9
5.8
12.0
13.2
5.7
5.7
5.0
11.5
10.0
11.2
4.0
(%)
9.8
4.2
8.0
(%)
3.9
8.9
3.8
8.4
3.0
8.0
6.0
2.0
4.0
1.0 2.0
0.0 0.0
HDFCBANK
INDUSINDBK
RBLBANK
BANDHANBNK
KOTAKBANK
YESBANK
AXISBANK
IDFCFB
HDFCBANK
RBLBANK
INDUSINDBK
BANDHANBNK
KOTAKBANK
AXISBANK
YESBANK
IDFCFB
10
Table 6: Interest income growth led by high-yielding retail assets
(Rs bn)
FY18 FY19 FY20 9MFY21
Yields
Retail 13.17% 14.55% 15.72% 15.12%
Wholesale 9.61% 10.06% 10.63% 10.84%
Total 9.92% 11.57% 13.41% 13.66%
Table 7: Deposit cost down 63bps to 6.41% vs 7.04% for FY20

(Rs bn) FY18 FY19 FY20 9MFY21
Savings Deposits 5.36% 5.77% 7.07% 6.83%
CASA Deposits 3.10% 3.89% 5.67% 6.05%
Term Deposits 6.84% 7.51% 7.59% 6.95%
Total Customer Deposits 6.45% 6.96% 7.07% 6.57%
Certificate of Deposits 6.40% 7.16% 6.94% 4.82%
Total Deposits 6.43% 7.03% 7.04% 6.41%
Chart 19: IDFCFB has cut TD rates by 230bps from peak compared to 130-
160bps by peers…
Mar-Jun'19 peak Mar'21 Down from peak
9.0 2.3 2.5
8.0 2.0
1.9 1.9 1.9
7.0 2.0
1.6 1.6 1.6 1.6 1.6
1.5
6.0
1.3 1.3 1.3 1.5
5.0
4.0
1.0
3.0
2.0 0.5
1.0
- -
HDFCBANK
RBLBANK
AUBANK
KARURVYSYA
INDUSINDBK
BANDHANBNK
KOTAKBANK
SBIN
FEDERALBNK
IDFCFB
CUB
AXISBANK
SOUTHBANK
DCBBANK
11
Chart 20: …and MCLR by 85 bps
Jan-Apr'19 peak Apr'21 Down from peak
1.8 1.9
12.0 2.0
1.5 1.6 1.6 1.6 1.8
10.0 1.5
1.4 1.4 1.6
1.3 1.3
8.0 1.2 1.4
1.0 1.2
0.9
6.0 1.0
0.8
4.0
0.6
2.0 0.4
0.2
- -
HDFCBANK
RBLBANK
KARURVYSYA
INDUSINDBK
BANDHANBNK
KOTAKBANK
SBIN
FEDERALBNK
YESBANK
IDFCFB
SOUTHBANK
AXISBANK
CUB
DCBBANK
Source: I-Sec research, RBI
Table 8: Second consecutive cut in savings rate in past two quarters – aligning lower than peers
South
AU Axis Bandhan DCB Federal HDFC IDFC IndusInd Kotak RBL
SA rates CUB KVB SBI Indian
Bank Bank Bank Bank Bank Bank Bank Bank Bank Bank
Bank
Up to
3.50 2.00 3.00 3.50 3.25 2.50 3.00 4.00 4.00 2.75 3.50 4.50 2.70 2.35
Rs 0.1mn
Rs 0.1mn -
5.00 3.00 6.00 3.75 4.00 2.50 3.00 4.50 5.00 3.00 4.00 6.00 2.70 2.75
Rs 1mn
Above
6.00 3.00 6.00 4.00 4.00 2.50 3.00 5.00 6.00 3.25 4.00 6.25 2.70 2.75
Rs 1mn
Rs 5mn -
7.00 3.50 6.00 4.00 4.00 2.50 3.50 5.00 6.00 3.25 4.00 6.25 2.70 2.75
Rs 10mn
12
Retail GNPAs rise amidst disruption; wholesale portfolio

adequately covered
With rationalisation of the wholesale book and upfront recognition and provisioning of
the stress pool in this segment, non-retail NPAs have not seen any significant spike in
FY21. Of the FY21 slippage run-rate of >5%, we anticipate 70-75% have flown from
the retail segment and ~30% from wholesale segment. This was offset by average
write-offs of 2% and recoveries/upgrades of 1.6%, while overall GNPAs rose to 4.15%
(from 2.6% in FY20). These run-rates suggest almost 7% slippage on the lagged FY20
retail portfolio. Retail GNPA has actually risen to 4.01% from proforma levels of
3.88%. Retail GNPA and NNPA as of FY21 are higher by 175bps and 77bps
respectively from the pre-covid average GNPA and NNPA.
Chart 21: GNPA amidst the disruption has risen over the past two quarters
GNPA (%) NNPA (%)
4.50 4.2
4.2
4.00
3.2
3.50
2.8
3.00 2.7 2.6 2.6
2.4
2.50
Title
2.0 2.0
2.00 1.6 1.6
1.50 2.0
1.9
1.6
1.00 1.3 1.4
1.2 1.2
0.50 1.0 0.9
0.6 0.5 0.4
-
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
Table 9: Retail GNPA is higher by almost 175bps over pre-covid average

Long-term avg Covid impact
4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 3QFY21 4QFY21
(pre-covid) (bps)
Mar-19 to Mar-21 vs
Dec-19 long-term avg
GNPA - Retail (%) 2.19 2.33 2.31 2.26 1.77 3.88 4.01 2.27 175
NNPA - Retail (%) 1.25 1.15 1.08 1.06 0.67 2.35 1.90 1.13 77
Provision coverage (%) 43% 51% 54% 54% 62% 41% 53% 51% 300
In addition to the above, the bank restructured loans worth Rs10.7bn of which,
Rs9.6bn was in retail segment and Rs1bn in corporate. This is equivalent to 1.3% of
retail assets and 0.9% of the overall AUM. There are a few accounts in corporate
segment where restructuring was approved, but not implemented by Mar ’21 and were
categorised as NPA. This in coming quarters will move from NPA to standard
restructured assets.
Bank has also disbursed Rs16.9bn under ECLGS (2.3% of retail book, suggesting 11-
13% of existing retail portfolio would have taken benefit of this.
13
Chart 22: Identified wholesale stress pool consistently declining with
recognition or resolution
45 52% 51% 60%
50% 49% 48% 48%
40 47% 47%
41 50%
35 38
35 35
30 32 32 40%
(Rs bn)
25 27
23% 25 30%
20 23
15 18 18 20%
17 16 17
10 13 13
10 11 10%
5
- 4QFY19 0%
2QFY20
3QFY20
2QFY21
3QFY21
1QFY20
4QFY20
1QFY21
4QFY21
O/s exposure Provision Provision coverage (RHS)
Table 10: Identified wholesale stress pool covered to the extent of 48%
Q4FY21
O/s
Client Description (Rs bn) Provision PCR (%) Comments
Exposure
Repayment has been consistently delayed (SMA2), but account is
Toll Road Projects in MH 8.7 1.5 18%
regular as of date.
Account suffers from delayed payments from discoms. The account is
regular as the account is benefiting from the RBI covid
Thermal Power Project in Orissa 5.3 5.3 100%
schemes. Bank expects the account to be resolved leading to a positive
economic value, as the account is fully provided for.
This is an operating project; toll is being collected, account is being
Toll Road (BOT) project in MH 2.5 0.1 5%
serviced. <5% of project work is unfinished.
Exposure is to a housing finance company belonging to this distressed
Diversified Financial Conglomerate group. Lending banks are running a process for management change.
2.2 2.2 100%
in Mumbai Bank expects partial recovery, which will be PnL accretive, as the
account is fully provided.
Account servicing was earlier delayed. The project is now showing
Wind Power Projects in AP, GJ, improved financial performance and is servicing debt regularly from
1.6 0.4 25%
KN, RJ cashflows from the project, with DSRA getting built up. However, the
sponsor is still undergoing a resolution process.
The group is a Bengaluru-based coffee group, and has been under
Logistics Company in Karnataka 1.0 1.0 100%
financial stress. Bank has initiated legal proceedings against it.
Financial Institution in MH - - -
The projects are performing well and have serviced debt regularly.
However, the sponsor entity is undergoing resolution process leading to
Solar Projects in RJ 0.8 - 0%
a deteriorating maintenance of the project. Lenders are putting together
a maintenance plan.
Coal beneficiation & thermal power
- - -
in Chhattisgarh
The account has been servicing debt. However, the sponsor entity is
Toll Road Projects in TN 0.3 0.1 29% undergoing resolution process and the project requires
additional cashflows for pending maintenance work.
The project is generating required cashflows and is servicing debt.
Wind Power Projects in KN and RJ 0.2 0.2 100% However, the parent entity is undergoing resolution. Repayments have
been regular so far.
Microfinance Institution in Orissa - - -
Toll Road Project in Punjab - - -
Total stress pool identified 22.6 10.8 48%
Slippage run-rate, restructuring and ECLGS pool reflect the vulnerability of retail pool.
Further, with one-third of retail assets being secured (either home or LAP), it reflects
relatively higher stress in other part of the portfolio. In Mar’21, the collection efficiency
for early buckets reached 100% of the pre-covid collection efficiency levels. Cheque
14
bounce instances have been dropping consistently and it reached 1.2x pre-covid level
in Mar’21 (compared to the peak of 2.5x). In the context of covid second wave and
coming from a high-growth phase in retail (>25% in FY21), the impact of disruption
needs to be closely monitored.
Amidst uncertainty and disruption, the bank has implemented tightened underwriting
standards: 1) sector restrictions for covid affected sectors, 2) reduced authority limits
for credit appraisals, 3) implemented additional caps on individual ticket sizes on
incremental loans, 4) reduced the LTV limits in certain categories, 5) revised
restrictions on collaterals, 6) revised criteria for bureau score cut-offs and tightened
the criteria for number of credit enquiries on the bureau. The quality of customer
profile has improved with ‘new to credit’ customers constituting 10% of the disbursals
(by value) in Q4FY21 vs 18% in Q4FY19. Also, 83% of the customers sourced (by
value) in Q4FY21 had credit bureau score above 700 as compared to 61% in Q4FY19.
Chart 23: Lending is concentrated on customers Chart 24: >80% of customers have high bureau
with credit history scores of more than 700
Retail Loan Disbursal: Customers (by Value) with Credit Bureau Retail Loan Disbursal: Customers (by Value) with Credit Bureau
Record as a % of total Retail Disbursals Record of more than 700 as a % of total Retail Disbursals
95% 90%
80%
83%
81%
90%
78%
70%
90%
68%
89%
60%
65%
62%
87%
85%
60%
60%
60%
50%
85%
85%
84%
40%
83%
82%
80%
30%
20%
77%
75%
10%
70% 0%
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
4QFY19
Despite the incremental stress in FY21, credit cost was contained at 250bps for FY21.
We believe this was entirely towards retail stress while there would have been write-
back in wholesale stress provisioning. Bank has proactively identified a few wholesale
accounts with exposure of Rs22.6bn as stressed or potential NPAs, and has
conservatively created 48% provisioning on the same. This pool has been consistently
coming off (from Rs41bn in FY19 and Rs32bn in FY20) and, even with slippage into
NPA, has not led to any significant rise in non-retail net NPA as they were adequately
provided.
Bank is carrying a cumulative covid buffer of Rs3.75bn, including which provisioning

coverage stands at 64%. As far as retail stress is concerned, it is covered to the extent
of 53%. We expect GNPAs to rise to 5.0% by FY22E and are building-in credit cost of
3.2%/2.5% for FY22E/FY23E.
15
Table 11: BB & below corporate investment portfolio will be vulnerable
As at Mar 31, 2018 As at Mar 31, 2019 As at Mar 31, 2020 As at Dec 31, 2020
External rating
Gross % of Gross Gross Gross
(Rs bn) % of total % of total % of total
book total book book book
AAA 619 51% 609 47% 208 33% 32 7%
AA 563 46% 565 44% 135 21% 104 22%
A 29 2% 111 9% 27 4% 85 18%
BBB 10 1% 10 1% 26 4% 26 6%
BB & below - 0% - 0% 240 38% 223 47%
Total 1,221 100% 1,295 100% 636 100% 470 100%
Cost efficiency and retail fee enhancers – triggers to RoA

improvement
Investment in franchise and better than targeted scale-up of retail assets/liabilities has
come with a cost – ‘cost to income’ is still hovering higher just shy of 80%. This is
elevated much above the targeted level of 55%; however, cost efficiency and
containment will be a key RoA driver going forward.
Fee income (excluding investment profits) profile is almost equivalent to 20-25% of

core NII. Larger part of fee income is led by transaction banking, retail asset
processing fees, etc. Third party distribution, retail liabilities, forex, etc. is now
expected to provide incremental delta to fee income. Bank has developed capabilities
to grow its fee income at significantly higher (2-4x) than balance sheet growth and, if it
gains scale, it should be able to take care of operating expenses.
Chart 25: Investment in franchise has come at a Chart 26: ‘Cost to income’ ratio elevated, but
cost operating efficiencies to result in gradual cool-off
5.0 80.0
Opex/assets - FY21 Cost to Income - FY21
4.5 70.0
72.5
4.0
4.3
60.0
3.5
3.0 50.0
53.8
(%)
(%)
47.1
2.5 40.0
2.9
41.7
41.2
40.7
2.5
2.4
2.0
2.3
30.0
36.3
2.2
2.0
1.9
1.5
29.1
20.0
1.0
0.5 10.0
0.0 0.0
HDFCBANK
HDFCBANK
RBLBANK
RBLBANK
INDUSINDBK
INDUSINDBK
BANDHANBNK
BANDHANBNK
KOTAKBANK
KOTAKBANK
AXISBANK
AXISBANK
IDFCFB
IDFCFB
YESBANK
YESBANK
16
Chart 27: Focus on granularity of profile reflected Chart 28: …and higher opex per branch as well
in higher employees per branch…
50.0 Em ployee/branch - FY20 120.0 Opex/branch - FY21
45.0
112.5
40.0 100.0
43.6
35.0 39.0
80.0
30.0
(Rs mn)
31.3
(%)
25.0 60.0
64.2
20.0
58.3
54.1
22.3
53.5
40.0
20.2
15.0
18.7
40.5
40.0
16.3
16.1
10.0
22.9
20.0
5.0
0.0 0.0
HDFCBANK
HDFCBANK
RBLBANK
RBLBANK
INDUSINDBK
INDUSINDBK
BANDHANBNK
BANDHANBNK
KOTAKBANK
KOTAKBANK
AXISBANK
AXISBANK
IDFCFB
IDFCFB
YESBANK
YESBANK
Chart 29: Contrary to cost, core fee is much lower

relative to peers for IDFCFB
2.5 Core fee to assets - FY21
2.0
2.0
1.9
1.5
(%)
1.4
1.3
1.3
1.3
1.0
0.5
0.7
0.7
0.0
HDFCBANK
RBLBANK
INDUSINDBK
BANDHANBNK
KOTAKBANK
AXISBANK
IDFCFB
YESBANK
Incremental RoA/RoE economics far better than reported

Since the merger in Dec ’18, net worth cumulatively has been knocked down by 5%
and the bank recently raised Rs30bn of fresh equity shoring the CET-1 capital to
15.6% (compared to 13.3% pre-money). During the transitioning phase post the
merger, return profile was dragged by higher ‘cost to income’ (75-80%), lower fee
income (20-25% of NII) and elevated credit cost.
Nonetheless, what is encouraging is the far superior incremental unit economics.

Incremental retail disbursements have potential RoE profile of >20% -- albeit currently
retail liabilities (due to huge investments) and corporate centre (due to legacy
borrowings) are dragging it down. As we expect a steady and sustainable transition in
favour of retail assets/liabilities, the return profile is likely to improve on the back of
normalisation of ‘cost to income’, retail fee income scale-up, and steady improvement
17
in NIM trajectory. What can disappoint is elevated credit cost continuing in the interim
due to covid resurgence, especially when the bank has grown its retail portfolio
aggressively in past 18 months.
Building digital and data analytical capabilities

Bank strives to provide digital solutions at each stage of the customer loan lifecycle,
namely origination, underwriting, disbursements, monitoring, and collections. It uses
underwriting platforms and automated credit scorecards driven by artificial intelligence
and machine learning to provide almost instant decisions at the point of sale for retail
products, such as consumer durable loans and two-wheeler loans. Such automated
credit scorecards go through numerous iterations and rigorous testing, encompassing
various facets of the retail applicant’s background, including credit history, fraud
probability, and demographic parameters. It also uses advanced analytical capabilities
and scorecards to screen for eligible customers for upselling and cross-selling of
loans. It has made progress in creating a customer platform that serves as a one-stop
shop for account opening, deposit applications, purchase of loan and investment
products, funds transfer, and conducting of transaction banking.
18
Financial Outlook – High NII and fee income to drive RoE higher for IDFCFB
Chart 30: Retail to drive portfolio growth of 15-20% Chart 31: …mix moving towards targeted 70-75%
Loan book Y/Y % chg Retail Wholesale
1,800 25%
20% 100%
20%
1,600 90%
20% 30 26
1,400 16% 37 33
17% 80%
46
1,200 15% 70% 63
(Rs bn)
1,000 60%
10%
800 50%
600 5% 40%
70 74
400 -1% 63 67
30%
1,006
1,166
1,405
1,690
0% 54
856
200 20% 37
0 -5% 10%
FY20
FY21P
FY22E
FY23E
FY24E
0%
FY19 FY20 FY21P FY22E FY23E FY24E
Chart 32: Cut in deposit rate to support NIM rise Chart 33: Fee income – potential RoA driver
Yield on advances (calc.) Cost of deposits (calc.) Fee Income / Avg Assets (%)
NIMs 1.8
16.0 7.0
1.6 1.7
14.0 6.0
1.4 1.5
12.0
5.0 1.2 1.3
10.0
(%)
4.0 1.0
(%)
8.0 1.0
3.0 0.8 0.9
6.0
7.0
6.6
2.0 0.6
5.7
5.3
5.3
5.2
4.0
0.4 0.5
11.3
13.5
13.2
13.5
13.9
13.9
2.0 1.0
0.2
- -
FY19
FY20
FY21P
FY22E
FY23E
FY24E
-
Chart 34: ‘Cost to income’ ratio to fall considerably Chart 35: RoE to touch 11% by FY24E
Cost-Income Ratio Operating Cost / Avg Assets RoAE (%) RoAA (%)
15.0 1.2 1.5
160 6.0 0.9
4.9 4.9 10.0 1.0
140 4.7
4.3 5.0
120 4.0 0.3 0.3
5.0 0.5
4.0 8.4 11.6
100
3.4 - -
(%)
(%)
80 3.0 (11.6) (17.1) 2.7

2.7
60 (5.0) (0.5)
2.0
40 (10.0) (1.3) (1.0)
1.0
20
(15.0) (1.8) (1.5)
- -
FY19
FY20
FY21P
FY22E
FY23E
FY24E
(20.0) (2.0)
19
Valuations
Unique evolution – historical valuations not an appropriate indicator
IDFC FIRST Bank has a unique evolution – the erstwhile IDFC Bank came into
existence as a universal bank in 2015 through demerger of infrastructure lending
business of IDFC Ltd to the bank. IDFC Bank post creation launched corporate
banking, treasury operations, retail and rural business and started to scale retail
deposits. However, progress was far from satisfactory with net worth accretion of mere
9% over FY16 to H1FY19, retail portfolio being mere 15% and retail deposits sub-
10%. Consequently, IDFC Bank was trading at 1.2-1.5x 1-year forward P/B multiple
during this phase.
Chart 36: Erstwhile IDFC Bank traded at ~1.2-1.5x 1-year forward P/B over FY16-
FY18
2.00
1.80
1.60
1.40
1.20
1.00
0.80
May-16
Jun-16
Jan-17
May-17
Jun-17
Jan-18
Mar-16
Mar-17
Feb-17
Feb-18
Oct-16
Apr-17
Oct-17
Apr-16
Jul-16
Jul-17
Nov-16
Nov-17
Dec-16
Dec-17
Sep-16
Sep-17
Aug-16
Aug-17
1Yr Fwd PABV Avg -1SD +1SD -2SD +2SD
Source: Company data, Bloomberg, I-Sec research
As part of its strategy to diversify its loanbook, IDFC Bank was looking for merger with
a retail finance institution with adequate scale, profitability and specialised skills.
Meanwhile, erstwhile Capital First, having scaled up its MSME and consumer
financing at the pace of 30% CAGR over FY14-H1FY19 was on lookout for a
commercial banking license to access stable and low-cost deposits. During the high
growth phase, erstwhile Capital First was trading at 2.0-3.0x 1-year P/B multiple.
20
Chart 37: Capital First traded at an average of ~2.0-3.0x 1-year forward P/B over
FY13-FY18
3.50
3.00
2.50
2.00
1.50
1.00
0.50
-
May-13
May-15
May-16
May-14
May-17
Jan-14
Jan-16
Jan-17
Jan-15
Jan-18
Mar-14
Mar-15
Mar-17
Mar-18
Mar-13
Mar-16
Jul-13
Jul-14
Jul-16
Jul-17
Jul-15
Sep-13
Sep-14
Sep-16
Sep-17
Sep-15
Nov-14
Nov-15
Nov-17
Nov-13
Nov-16
Remarkable transition in asset and liability profile post-merger

Post the merger of erstwhile IDFC Bank and Capital First, IDFC FIRST Bank is
following a structural path towards retailisation of assets as well as liabilities. After
having rolled out a 5-year strategic roadmap towards targeted RoA and RoE of 1.4-
1.6% and 13-15% respectively, it has made significant strides on most operating
parameters (be it retailisation of assets, granularity of deposits, improving NIM
trajectory, etc.).
Retail assets after compounding at the pace of more than 30% CAGR over FY19-
FY21 to Rs737bn now constitutes 63% of customer assets (including inorganic
buyouts). It is on track towards its targeted Rs1trn of retail assets by FY24-FY25. On
an overall loan base of Rs1.4trn by then, it would contribute 70-75% of AUM.
Meanwhile, it has reduced its wholesale portfolio (including infra) at a CAGR of 29%
over FY19-FY21 – infra financing portfolio is down to sub-10%.
Bank during the same period made rapid progress in retailisation of liabilities reaching
the targeted levels (articulated in its 5-year roadmap) almost 2-3 years earlier.
Average CASA deposits in FY21 surged to ~50% (from less than 10% in FY19); this
compares with the target of 30% set for FY24 and 50% couple of years later.
Changing profile of assets and liabilities has supported sharp spike in NIM from <2%
in FY18 to ~5% and it is very much on track towards targeted sustainable levels of 5.0-
5.5%. Two consecutive savings rate cut of 100bps each (in Feb ’21 and May’21) to 5%
will further cushion average savings deposit cost that hovered high at 6.8% in
9MFY21. Passing the benefit of this lowered cost, the bank is planning to participate in
the prime home loan market at competitive rates – though it will not entirely offset the
benefit and reflect in an uptick in NIM.
With FY21 slippage run-rate of >5%, GNPAs rose to 4.15% (from 2.6% in FY20).
Retail GNPA has risen to 4.01% from proforma levels of 3.88%. Retail GNPA and
NNPA as of FY21 are higher by 175bps and 77bps respectively from the pre-covid
average GNPA and NNPA. Restructured pool is equivalent to 1.3% of retail assets
and 0.9% of the overall AUM. Slippage run-rate, restructuring and ECLGS pool reflect
21
the vulnerability of retail pool. Despite the incremental stress in FY21, credit cost was
contained at 250bps for FY21. In the context of covid second wave and coming from a
high growth phase in retail (>25% in FY21), the impact of disruption needs to be
closely monitored.
Investment in franchise and better than targeted scale-up of retail assets/liabilities has
come with a cost – ‘cost to income’ ratio is still hovering higher and is just shy of 80%.
RoE profile still low; incremental unit economics superior

Current return profile of IDFC FIRST Bank is dragged by higher ‘cost to income’, lower
fee income and elevated credit cost. Nonetheless, what is encouraging is far more
superior incremental unit economics. Incremental retail disbursements have potential
RoE profile of >20% -- albeit currently retail liabilities (due to huge investments),
corporate centre cost (due to legacy borrowings) are dragging it down. As we see a
steady and sustainable transition in favour of retail assets/liabilities, the return profile
would improve on the back of normalisation of ‘cost to income’, retail fee income
scale-up, and steady improvement in NIM trajectory.
Using Gordon Growth model, factoring in RoEs of 17.5% in the medium term and
subsequently steady RoE profile of 18.5% till the terminal stage, we assign 1.9x P/B
multiple to its FY23E book. This translates to target price of Rs73 per share – implying
>20% upside from the current level. We initiate coverage on IDFCFB with a BUY
recommendation.
Chart 38: IDFC FIRST Bank moved out of sub-1.5x P/B band
2.50
2.00
1.50
1.00
0.50
-
May-18
May-19
May-20
Jan-19
Jan-20
Jan-21
Mar-21
Mar-18
Mar-19
Mar-20
Jul-18
Jul-19
Jul-20
Nov-18
Nov-19
Nov-20
Sep-18
Sep-19
Sep-20

Table 12: Bank currently trading at 1.6x P/B; business transition and improving
RoE profile to drive further rerating
Price to Book Workings Capital First IDFC Bank IDFC FIRST Bank
High 3.2 1.8 2.0
Low 0.8 1.0 0.4
Average 1.9 1.3 1.0
Median 2.0 1.3 0.9
5th Percentile 0.9 1.1 0.5
95th Percentile 2.9 1.7 1.7
5-95 Percentile Avg. 1.9 1.4 1.1
Source: SLBC, I-Sec research
22
Table 13: Relative valuation metrics
P/E (x) P/BV (x) P/ABV (x)
Particulars CMP
FY21P FY22E FY23E FY21P FY22E FY23E FY21P FY22E FY23E
IDFC FIRST Bank 59 73.4 69.6 19.8 1.8 1.7 1.5 1.9 1.8 1.6
HDFC Bank 1,516 25.7 21.2 17.5 3.9 3.4 3.0 4.0 3.5 3.0
Axis Bank 751 32.2 13.6 11.4 2.1 1.9 1.6 2.2 1.9 1.7
SBI 424 11.4 8.1 5.7 1.0 0.9 0.8 1.2 1.1 0.9
Bandhan Bank 307 22.4 14.4 9.2 2.8 2.4 1.9 3.2 2.7 2.1
Federal Bank 87 11.1 9.3 7.7 1.2 1.0 0.9 1.2 1.1 1.0
City Union Bank 172 21.5 18.7 14.4 2.2 2.0 1.7 2.5 2.2 1.9
DCB Bank 105 9.7 8.8 6.4 0.9 0.9 0.8 1.0 0.9 0.8
Karur Vysya Bank 57 12.7 6.7 5.5 0.7 0.6 0.6 0.8 0.8 0.7
IIB Bank 1,013 26.7 12.9 10.3 1.8 1.6 1.4 1.9 1.7 1.4
Kotak Mahindra Bank 1,808 39.2 31.7 26.3 4.3 3.8 3.3 4.4 3.9 3.4
AU SFB 989 26.4 36.3 26.3 4.9 4.4 3.8 5.4 4.7 4.0
RBL Bank 214 25.2 11.1 7.4 1.0 0.9 0.8 1.1 1.0 0.9
Yes Bank 14 N/A 40.0 17.0 1.0 1.0 0.9 1.3 1.2 1.1
South Indian Bank 10 N/A 13.0 6.1 0.4 0.4 0.4 0.6 0.6 0.5
EPS (Rs) BV (Rs) ABV (Rs) RoAA (%) RoAE (%)

Particulars
FY21P FY22E FY23E FY21P FY22E FY23E FY21P FY22E FY23E FY21P FY22E FY23E FY21P FY22E FY23E
IDFC FIRST
1 1 3 33 35 38 30 33 36 0.3 0.3 0.9 2.7 2.7 8.4
Bank
HDFC Bank 56 68 83 370 423 487 363 416 479 1.9 2.0 2.1 16.6 17.3 18.2
Axis Bank 22 51 61 332 373 423 315 358 409 0.7 1.5 1.6 7.1 14.4 15.2
SBI 23 32 45 252 284 329 209 243 292 0.5 0.6 0.8 9.5 12.0 14.8
Bandhan Bank 14 21 33 108 127 159 95 113 148 2.1 2.8 3.8 13.5 18.2 23.4
Federal Bank 8 9 11 73 81 91 68 74 85 0.8 0.9 1.0 10.4 11.8 12.7
City Union Bank 8 9 12 79 88 100 68 78 91 1.2 1.2 1.5 10.6 11.0 12.8
DCB Bank 11 12 16 113 123 137 100 113 131 0.9 0.9 1.1 10.1 10.1 12.6
Karur Vysya 5 9 10 87 95 104 71 76 88 0.5 0.9 1.0 5.3 9.3 10.5
IIB Bank 38 78 99 559 627 712 544 613 699 0.9 1.6 1.9 7.6 13.2 14.7
Kotak Mahindra 35 43 52 322 364 414 311 353 404 1.9 2.1 2.2 12.4 12.7 13.5
AU SFB 38 27 38 201 226 261 183 212 245 2.5 1.5 1.7 22.0 12.8 15.4
RBL Bank 8 19 29 212 229 255 196 214 241 0.5 1.1 1.5 4.4 8.8 12.0
Yes Bank (1) 0 1 13 14 14 10 11 12 (1.3) 0.3 0.7 (12.6) 2.5 5.7
South Indian 0 1 2 27 27 29 17 18 21 0.1 0.2 0.3 1.1 2.9 6.2
Source: Company data, NSE, I-Sec research
23
Key risk factors

 Strategy execution: Over the past 24-30 months since merger, the bank has
witnessed significant progress in the aforementioned direction. Sustenance of
similar improvement in franchise with cutting edge execution will be key.
 Retailisation of liabilities has been possible through higher rate offering. After
having reached 50% average CASA, the bank has effected two consecutive
100bps savings rate cuts (in Feb’21 and May’21). Behaviour of SA deposits in the
coming deposits will be key to garner confidence on the strength of the liability
franchise foundation it has built over past 2-3 years.
 ‘Cost to income’ has been hovering higher: Investment in franchise and better
than targeted scale-up of retail assets/liabilities has come with a cost – the ‘cost to
income’ ratio is still hovering higher just shy of 80%. This is elevated compared to
the targeted level of 55%. Operating levers and containment of cost will be key to
increase RoA hereon.
 In the context of covid second wave and coming from a high-growth phase in
retail (>25% in FY21), the behaviour of retail portfolio (that witnessed inch-up in
GNPAs this quarter) will be key monitorable for anticipated normalisation of credit
cost.
24
About IDFC FIRST Bank

The erstwhile IDFC Bank was launched through the demerger of IDFC Limited in
Nov’15 while IDFCFB was founded by the merger of erstwhile IDFC Bank and
erstwhile Capital First on 18th Dec’18.
Post the merger, during the last two years, the bank has invested in people, products,
processes, infrastructure and technology to put together all the necessary building
blocks of a stronger foundation, which is essential for a long-term sustainable growth
engine. As a result, it now has a strong retail and CASA deposits franchise (CASA
52% as of Mar’21), and looks forward to steady growth hereon. Further, it raised
additional equity capital of Rs30bn through QIP in Apr’21.
IDFCFB offers a wide spread of banking products to meet the needs of retail
customers in the MSME and consumer sectors in both urban and rural geographies,
as well as its wholesale customers, such as large corporates and NBFCs.
Bank delivers a wide range of banking products and services to its customers through
a variety of channels, including bank branches, call centres, ATMs, internet and
mobile phones. As at 31st Mar’21, the bank had more than 8mn customers and a
network of 596 branches, 134 asset servicing branches, 655 business correspondent
branches (consisting of 384 business correspondent branches through its wholly-
owned subsidiary, IDFC FIRST Bharat Limited, and 271 other business correspondent
branches), 592 ATMs and 85 recyclers across the country.
In wholesale banking, IDFCFB is offering corporate customers a range of financial
products and services, including project financing, corporate deposit products and
transaction banking services, such as cash management and escrow services. It also
provides business loans and working capital loans for large corporates, emerging
large corporates, NBFCs and financial institutions.
Bank is constantly working to develop new technology and improve the digital aspects
of its business. It has developed a mobile banking app, IDFC FIRST Bank Mobile
Banking, to serve as a one-stop platform offering numerous services, including funds
transfer, account opening, loan application and application for investment products. It
also provides ‘watch banking’ to customers, allowing them the ease and convenience
of accessing their bank accounts on smart watches. Moreover, it also provides SMS
and WhatsApp banking to allow customers to, amongst others, enquire about their
account balances and make request for cheque books.
In addition, the bank uses underwriting platforms and automated credit scorecards
driven by artificial intelligence and machine learning to provide almost instant
decisions at the point of sale for retail products, such as consumer durable loans and
two-wheeler loans.
IDFCFB offers a bouquet of loan products across varied customer segments including
consumers and MSMEs – LAP, business loans, consumer durable loans, 2-wheeler
loans, home loans, micro enterprise loans, CV loans, new and pre-owned car loans,
JLG, personal loans. Apart from these products, the bank also offers working capital
loans, corporate loans to business banking and corporate customers in India.
25
Chart 39: Retail has a bouquet of retail loan offerings
LAP Business Consumer durable 2 wheeler
JLG loan for

Home loans Micro enterprise Commercial vehicle
Women
Pre-owned car loan Personal loans
Chart 40: Credit card offerings attractive across the industry
Lifetime free (No annual fees ever)
No charges for spends upto 10%
Dynamic Interest rate (9% to 36%)
Upto 10x reward points
Interest-free cash withdrawal
26
Chart 41: Promoter holding at 36%; also backed by marquee institutional
investors
Non-Institutions, IDFC Financial

28.0 Holding Co. Ltd.
(Promoter), 36.6
Central Govt, 4.6

Insurance Cos,
7.7
Mutual Funds,
2.9 Overseas Foreign Portfolio
Corporate Bodies, Investors, 11.9
8.3
Source: Company, I-Sec research
Note: Shareholding as of 6th April 2021, post QIP issuance of Rs 30bn
Note: On a fully diluted basis, including shares and options, Mr. Vaidyanathan holds >2% of the equity of the bank
including shares held in his social welfare trust.
27
Board of directors
Name & Designation Experience
Mr. V. Vaidyanathan: He was earlier the Chairman and Managing Director of Capital First Limited. He built Capital First Limited into a
Managing Director & Chief retail financing player in India, focused on financing small entrepreneurs and Indian consumers. In 2018, he
Executive Officer steered the merger of Capital First Limited with IDFC Bank Limited and took over as Managing Director and
CEO of the merged entity, IDFC FIRST Bank Limited, in Dec’18. He earlier worked with ICICI Bank as
executive director (2006–2009) and with ICICI Prudential Life Insurance Company Limited as managing
director and CEO (2009-2010). Prior to this, he has worked with Citibank. He has several years of experience
in the Indian banking sector.
Mr. Aashish Kamat: Non- He holds a bachelor’s degree in Arts from the Franklin and Marshall College, and is also a member of the
Executive Independent Pennsylvania Institute of Certified Public Accountants. He was previously the CEO, UBS AG Mumbai branch,
Director India. In the past, he has been a director on the Board of UBS Securities India Private Limited and UBS
Business Solutions (India) Private Limited.
Dr. (Mrs.) Brinda Jagirdar: She holds a bachelor’s degree in Arts from Fergusson College, University of Pune. She also holds a master’s
Non-Executive Independent degree in Arts from the same university and a master’s degree in agricultural economics from the University of
Director California. She retired as General Manager (Economics), State Bank of India. She also holds a doctoral degree
in economics from the Department of Economics, University of Mumbai. She has attended an Executive
Programme at the John F. Kennedy School of Government, Harvard University.
Mr. Hemang Raja: Non- He holds a bachelor’s degree in commerce from the University of Mumbai, and a master’s degree in business
Executive Independent administration from Abeline Christian University, Texas. Additionally, he has also received a certificate of
Director recognition from the Agency for International Development for participating in a technical cooperation program.
He was previously associated with Asia Growth Capital Advisors and as Managing Director in the private
equity, asset management division at Credit Suisse Consulting (India) Private Limited. He is also a director on
the Board of Multi Commodity Exchange of India Limited.
Mr. Pravir Vohra: Non- He holds a master’s degree in Arts from the University of Delhi, and is an associate of the Indian Institute of
Executive Independent Bankers. He was previously the Vice President at Times Bank Limited, and President at ICICI Bank Limited.
Director He is also a director on the board of Thomas Cook (India) Limited, 3i Infotech Limited, and National Collateral
Management Services Limited.
Mr. Sanjeeb Chaudhuri: He holds a bachelor’s degree in science and a master’s degree in management studies from the University of
Non-Executive Independent Mumbai. He was previously the Regional Head, South Asia, at Standard Chartered Bank. In the past, he has
Director been a director on the boards of Aditya Birla Fashion and Retail Limited, and Standard Chartered Securities
(India) Limited.
Mr. Sunil Kakar: Non- He holds a bachelor’s degree in chemical engineering from the Indian Institute of Technology, Kanpur, and has
Executive Non-Independent successfully completed the postgraduate diploma course in business management from XLRI, Jamshedpur.
Director (Representing IDFC He is the Managing Director of IDFC Limited.
Limited)
Mr. Vishal Mahadevia: Non- He holds bachelor’s degrees in economics and electrical engineering from the University of Pennsylvania. He
Executive, Non-Independent is the Managing Director of Warburg Pincus India Private Limited.
Director
Mr. S Ganesh Kumar – He was the Executive Director of the Reserve Bank of India. His most recent responsibilities included the entire
Independent Director. gamut of Payment and Settlement Systems, creation and development of strategic plans for the Bank and to
take care of the external investments and manage the foreign exchange reserves with the central bank. He has
rich experience in the Information Technology area and has honed skills in this area of specialization.
28
Key managerial personnel

Name & Designation Experience
Mr. V. Vaidyanathan: He was earlier the Chairman and Managing Director of Capital First Limited. He built Capital First Limited into a
Managing Director & Chief retail financing player in India, focused on financing small entrepreneurs and Indian consumers. In 2018, he
Executive Officer steered the merger of Capital First Limited with IDFC Bank Limited and took over as Managing Director and
CEO of the merged entity, IDFC FIRST Bank Limited, in Dec’18. He earlier worked with ICICI Bank as
executive director (2006–2009) and with ICICI Prudential Life Insurance Company Limited as managing
director and CEO (2009-2010). Prior to this, he has worked with Citibank. He has several years of experience
in the Indian banking sector.
Mr. Satish Gaikwad: Head - Post amalgamation with Capital First Limited, he was appointed as Company Secretary of the Bank with effect
Legal and Company from 19th Dec’18. He is a fellow member of the Institute of Company Secretaries of India, and an associate
Secretary member of the Institute of Cost and Works Accountants of India as well as the Insurance Institute of India. He
also holds a bachelor’s degree in law and a bachelor’s degree in commerce from the University of Mumbai. He
has approximately 20 years of experience in the area of secretarial, legal and compliance functions. He was
previously Head – Legal, Compliance and the Company Secretary of Capital First Limited. He has been
associated with Capital First Limited (formerly known as Future Capital Holdings Limited) since May’12.
Mr. Sudhanshu Jain: Chief He was appointed Chief Financial Officer of the bank with effect from 27th Mar’20. He is a qualified chartered
Financial Officer and Head accountant and company secretary and has approximately 17 years of experience in the fields of finance and
- Corporate Centre. accounts. Prior to joining IDFC FIRST Bank, he was associated with Paytm E-Commerce Private Limited and
Paytm Payments Bank Limited, as the deputy chief financial officer and Vice President, respectively. In the
past, he has also been associated with ICICI Bank.
29
Financial summary
Table 14: Profit and Loss statement
(Rs mn, year ending Mar 31)
FY20 FY21P FY22E FY23E FY24E
Profit & Loss Account
Net Interest Income 56,353 69,898 95,159 1,18,265 1,43,041
% Growth 76 24 36 24 21
Fee income 14,201 16,210 22,694 30,637 39,828
Add: Other income 3,020 6,327 4,559 5,352 5,794
Total Net Income 73,575 92,435 1,22,412 1,54,253 1,88,663
% Growth 78 26 32 26 22
Less: Operating Expenses (54,207) (67,028) (81,090) (97,183) (1,14,190)
Pre-provision operting profit 19,367 25,407 41,322 57,071 74,473
NPA Provisions (8,277) (20,649) (34,353) (32,581) (37,489)
Other provisions (34,875) - - - -
PBT (23,785) 4,758 6,969 24,489 36,985
Less: taxes (4,857) (235) (1,756) (6,171) (9,320)
PAT (28,642) 4,523 5,213 18,318 27,665
% Growth 47 (116) 15 251 51
Table 15: Balance sheet

(Rs mn, year ending Mar 31)
Capital 48,099 56,759 61,991 61,991 61,991
Reserve & Surplus 1,05,327 1,21,319 1,49,131 1,64,660 1,87,365
Deposits 6,51,080 8,86,884 11,25,001 14,28,317 18,14,943
Borrowings 5,73,972 4,57,861 4,06,945 3,63,667 3,26,881
Other liabilities 1,13,526 1,08,615 1,02,825 1,37,215 1,39,837
Total liabilities 14,92,004 16,31,439 18,45,894 21,55,849 25,31,017
Cash & Bank Balances 41,908 58,280 61,278 67,199 74,964

Investment 4,54,046 4,54,117 4,98,491 5,55,327 6,27,625
Advances 8,55,954 10,05,501 11,65,961 14,04,931 16,90,111
Fixed Assets 10,377 12,664 11,611 11,981 12,983
Other Assets 1,29,719 1,00,876 1,08,553 1,16,411 1,25,335
Total Assets 14,92,004 16,31,439 18,45,894 21,55,849 25,31,017
Table 16: Key ratios

(Year ending Mar 31)
Per share data
EPS – Diluted (Rs) -6.0 0.8 0.8 3.0 4.5
% Growth 26% -113% 6% 251% 51%
DPS (Rs) 0.0 0.0 0.4 0.5 0.8
Book Value per share (BVPS) (Rs) 33.6 32.7 35.4 38.2 42.2
% Growth -26% -3% 8% 8% 10%
Adjusted BVPS (Rs) 32.5 30.5 33.2 35.9 39.6
% Growth -26% -6% 9% 8% 10%
Valuations (x)
Price / Earnings (x) -9.9 74.1 70.2 20.0 13.2
Price / Book (x) 1.8 1.8 1.7 1.5 1.4
Price / Adjusted BV (x) 1.8 1.9 1.8 1.6 1.5
Asset Quality
Gross NPA (Rs mn) 22,796 43,030 59,672 62,716 68,809
Gross NPA (%) 2.6 4.2 5.0 4.3 4.0
Net NPA (Rs mn) 8,086 18,833 20,885 21,951 24,083
Net NPA (%) 0.9 1.9 1.8 1.6 1.4
NPA Coverage ratio (%) 65 56 65 65 65
Gross Slippages (%) 3.1 5.5 4.5 3.0 2.8
Credit Cost (%) 5.0 2.2 3.2 2.5 2.4
Net NPL/Networth 5.3% 10.6% 9.9% 9.7% 9.7%
30
Business ratios (%)
RoAA (1.8) 0.3 0.3 0.9 1.2
RoAE (17.1) 2.7 2.7 8.4 11.6
Credit Growth (0.8) 17.5 16.0 20.5 20.3
Deposits Growth (7.6) 36.2 26.8 27.0 27.1
CASA 32.2 51.7 50.6 49.4 48.2
Credit / Deposit Ratio 131 113 104 98 93
Cost-Income ratio 74 73 66 63 61
Operating Cost / Avg. Assets 3.4 4.3 4.7 4.9 4.9
Fee Income / Avg. Assets 0.9 1.0 1.3 1.5 1.7
Earning ratios (%)

Yield on Advances 13.5 13.2 13.5 13.9 13.9
Yield on Earning Assets 11.0 11.0 11.4 11.7 11.8
Cost of Deposits 7.0 5.7 5.2 5.3 5.3
Cost of Funds 7.8 6.7 6.1 5.9 5.9
NIM 3.9 4.9 5.9 6.4 6.5
Capital Adequacy (%)

RWA (Rs mn) 11,04,815 12,79,440 14,47,624 16,90,704 19,84,926
Tier I 13.3 15.6 14.6 13.4 12.6
CAR 13.4 16.3 15.2 13.9 13.0
Table 17: DuPont analysis (on average assets)

(%, year ending Mar 31)
Interest income 10.0 10.0 10.5 10.8 11.0
Interest expense 6.5 5.5 5.0 4.9 4.9
NII 3.6 4.5 5.5 5.9 6.1
Other income 0.2 0.4 0.3 0.3 0.2
Fee income 0.9 1.0 1.3 1.5 1.7
Total income 4.7 5.9 7.0 7.7 8.1
Operating expenses 3.4 4.3 4.7 4.9 4.9
Operating profit 1.2 1.6 2.4 2.9 3.2
Total provisions 2.7 1.3 2.0 1.6 1.6
PBT (1.5) 0.3 0.4 1.2 1.6
Tax 0.3 0.0 0.1 0.3 0.4
PAT (RoA) (1.8) 0.3 0.3 0.9 1.2
Leverage (x) 9.4 9.4 8.9 9.1 9.8
RoE -17.1 2.7 2.7 8.4 11.6
31
Annexures
Table 18: Trend in savings deposit rates – cut by 200-250 bps
Balance (Rs) 31-Mar-19 31-Mar-20 31-Mar-21 01-May-21
<=0.1mn 6.00% 6.00% 6.00% 4.00%
> 0.1mn <= 1mn 7.00% 7.00% 6.00% 4.50%
> 1mn <= 5mn 7.00% 7.00% 6.00% 5.00%
> 5mn <=10mn 7.00% 7.00% 6.00% 5.00%
>10mn <=20mn 7.00% 7.00% 5.00% 5.00%
>20mn <=50mn 7.00% 7.00% 5.00% 4.00%
>50mn <=100mn 7.25% 7.25% 4.00% 4.00%
>100mn <= 500mn 7.25% 7.25% 3.50% 3.50%
>500mn <= 1bn 7.25% 7.25% 3.50% 3.50%
>1bn <= 2.5bn 7.00% 7.00% 3.50% 3.00%
> 2.5bn <= 7.5bn 8.50% 8.50% 3.50% 3.00%
> 7.5bn 8.50% 8.50% 3.50% 3.00%
Table 19: Term Deposit Rates – peak rates cut by 200-225 bps
Tenor Bucket 31-Mar-19 31-Mar-20 31-Mar-21 01-May-21
7 - 14 days 4.00% 4.00% 2.75% 2.75%
15 - 29 days 5.00% 5.00% 3.00% 3.00%
30 - 45 days 6.25% 6.25% 3.50% 3.50%
46 - 90 days 6.50% 6.50% 4.00% 4.00%
91 - 180 days 6.75% 6.75% 4.50% 4.50%
181 days – less than 1 year 7.00% 7.00% 5.25% 5.25%
1 year – 499 days 7.75% 7.25% 5.75% 5.50%
500 days 7.75% 7.50% 6.00% 5.50%
501 days – less than 2 years 7.75% 7.25% 5.75% 5.50%
731 Days 8.25% 7.25% 5.75% 5.50%
2 years 1 day – 3 years 7.50% 7.25% 5.75% 5.75%
3 years 1 day – 5 years 7.50% 7.25% 5.75% 6.00%
5 year 1 day - 10 years 7.25% 7.25% 5.75% 5.75%
Tax Saver Deposits 7.25% 7.25% 5.75% 5.75%
Table 20: Cut in MCLR is restricted to less than 100 bps

MCLR Rate
Date
12-Month 6-Month 3-Month 1-Month
08-Dec-19 9.30% 9.20% 9.10% 9.00%
08-Jan-20 9.30% 9.20% 9.10% 9.00%
08-Feb-20 9.30% 9.20% 9.10% 9.05%
08-Mar-20 9.35% 9.25% 9.15% 9.10%
08-Apr-20 9.35% 9.25% 9.15% 9.05%
08-May-20 9.35% 9.25% 9.15% 9.05%
08-Jun-20 9.20% 9.10% 9.00% 8.90%
08-Jul-20 9.15% 9.05% 8.90% 8.80%
08-Aug-20 8.95% 8.85% 8.70% 8.65%
08-Sep-20 8.95% 8.85% 8.70% 8.65%
08-Oct-20 8.70% 8.65% 8.50% 8.40%
08-Nov-20 8.60% 8.50% 8.40% 8.30%
08-Dec-20 8.55% 8.50% 8.35% 8.25%
08-May-21 8.50% 8.35% 8.20% 8.10%
32
Index of Tables and Charts

Tables
Table 1: Portfolio growth led by retail; corporate run-down continues.................................. 4
Table 2: Potential to replace high-cost borrowings with deposits on maturity ...................... 8
Table 3: Borrowing profile incrementally skewed towards deposits ..................................... 8
Table 4: Maharashtra with ~15% of branch network constitutes >25% of loans… .............. 8
Table 5: …and has same concentration in deposits as well................................................. 8
Table 6: Interest income growth led by high-yielding retail assets ..................................... 11
Table 7: Deposit cost down 63bps to 6.41% vs 7.04% for FY20........................................ 11
Table 8: Second consecutive cut in savings rate in past two quarters – aligning lower than
peers ............................................................................................................................. 12
Table 9: Retail GNPA is higher by almost 175bps over pre-covid average ....................... 13
Table 10: Identified wholesale stress pool covered to the extent of 48%........................... 14
Table 11: BB & below corporate investment portfolio will be vulnerable ............................ 16
Table 12: Bank currently trading at 1.6x P/B; business transition and improving RoE profile
to drive further rerating .................................................................................................. 22
Table 13: Relative valuation metrics ................................................................................... 23
Table 14: Profit and Loss statement ................................................................................... 30
Table 15: Balance sheet ..................................................................................................... 30
Table 16: Key ratios ............................................................................................................ 30
Table 17: DuPont analysis (on average assets) ................................................................. 31
Table 18: Trend in savings deposit rates – cut by 200-250 bps ......................................... 32
Table 19: Term Deposit Rates – peak rates cut by 200-225 bps ....................................... 32
Table 20: Cut in MCLR is restricted to less than 100 bps .................................................. 32
Charts
Chart 1: Retail assets have more than doubled since merger in Dec’18 ............................. 4
Chart 2: Running down wholesale portfolio effectively ......................................................... 5
Chart 3: Reducing concentration risk is key focus area ....................................................... 5
Chart 4: On track with plan to rationalise infra portfolio to a negligible level in 3-5 years .... 5
Chart 5: Infra book as % of total assets has shrunk considerably since merger .................. 5
Chart 6: CASA ratio up >5x in past two years ...................................................................... 6
Chart 7: …with sharp surge in CASA deposits ..................................................................... 6
Chart 8: CASA proportion of deposits compares better than private banks ......................... 6
Chart 9: SA productivity per branch also amongst the best in class .................................... 6
Chart 10: Concentration of deposit base substantially reduced…........................................ 7
Chart 11: …with much lower reliance on certificate of deposits than earlier ........................ 7
Chart 12: Acceleration in CASA deposits has led to granularity in deposits ........................ 7
Chart 13: Granular and low-ticket size suggest better stickiness of deposits ...................... 7
Chart 14: Net interest margins have been on an upward trajectory since merger ............... 9
Chart 15: High-yielding retail assets driving yield improvement ......................................... 10
Chart 16: Cost of deposits too has fallen considerably since FY19 ................................... 10
Chart 17: Cost of deposits comparable to peers offering premium rates ........................... 10
Chart 18: Yields relatively higher compared to peers ......................................................... 10
Chart 19: IDFCFB has cut TD rates by 230bps from peak compared to 130-160bps by
peers… .......................................................................................................................... 11
Chart 20: …and MCLR by 85 bps ....................................................................................... 12
Chart 21: GNPA amidst the disruption has risen over the past two quarters ..................... 13
Chart 22: Identified wholesale stress pool consistently declining with recognition or
resolution ....................................................................................................................... 14
Chart 23: Lending is concentrated on customers with credit history .................................. 15
Chart 24: >80% of customers have high bureau scores of more than 700 ........................ 15
Chart 25: Investment in franchise has come at a cost ........................................................ 16
Chart 26: ‘Cost to income’ ratio elevated, but operating efficiencies to result in gradual
cool-off........................................................................................................................... 16
33
Chart 27: Focus on granularity of profile reflected in higher employees per branch… ...... 17
Chart 28: …and higher opex per branch as well ................................................................ 17
Chart 29: Contrary to cost, core fee is much lower relative to peers for IDFCFB .............. 17
Chart 30: Retail to drive portfolio growth of 15-20% ........................................................... 19
Chart 31: …mix moving towards targeted 70-75% ............................................................. 19
Chart 32: Cut in deposit rate to support NIM rise ............................................................... 19
Chart 33: Fee income – potential RoA driver...................................................................... 19
Chart 34: ‘Cost to income’ ratio to fall considerably ........................................................... 19
Chart 35: RoE to touch 11% by FY24E .............................................................................. 19
Chart 36: Erstwhile IDFC Bank traded at ~1.2-1.5x 1-year forward P/B over FY16-FY18. 20
Chart 37: Capital First traded at an average of ~2.0-3.0x 1-year forward P/B over FY13-
FY18 .............................................................................................................................. 21
Chart 38: IDFC FIRST Bank moved out of sub-1.5x P/B band .......................................... 22
Chart 39: Retail has a bouquet of retail loan offerings ....................................................... 26
Chart 40: Credit card offerings attractive across the industry............................................. 26
Chart 41: Promoter holding at 36%; also backed by marquee institutional investors ........ 27
34
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Equity Research INDIA

actively invested in people, processes, products, infrastructure and technology to put

Investment thesis ............................................................................................................. 3

*BSE Sensex and CMP are as on May 31, 2021

Evolving into a high-yielding retail bank; targeted retail mix at 70-75%

Table 1: Portfolio growth led by retail; corporate run-down continues

Infrastructure loans to be completely run down; selective lending in

Table 3: Borrowing profile incrementally skewed towards deposits

Branch expansion upfronted; now may go a tad slow

Table 4: Maharashtra with ~15% of branch network constitutes >25% of loans…

Table 5: …and has same concentration in deposits as well

Consistently rising NIM trajectory nearing targeted levels

Source: Company data, I-Sec research

Table 7: Deposit cost down 63bps to 6.41% vs 7.04% for FY20

Source: Company data, I-Sec research

Retail GNPAs rise amidst disruption; wholesale portfolio

Table 9: Retail GNPA is higher by almost 175bps over pre-covid average

Bank is carrying a cumulative covid buffer of Rs3.75bn, including which provisioning

Cost efficiency and retail fee enhancers – triggers to RoA

Fee income (excluding investment profits) profile is almost equivalent to 20-25% of

Chart 29: Contrary to cost, core fee is much lower

Source: Company data, I-Sec research

Incremental RoA/RoE economics far better than reported

Nonetheless, what is encouraging is the far superior incremental unit economics.

Building digital and data analytical capabilities

80 3.0 (11.6) (17.1) 2.7

Remarkable transition in asset and liability profile post-merger

RoE profile still low; incremental unit economics superior

1Yr Fwd PABV Avg -1SD +1SD -2SD +2SD

EPS (Rs) BV (Rs) ABV (Rs) RoAA (%) RoAE (%)

Key risk factors

About IDFC FIRST Bank

LAP Business Consumer durable 2 wheeler

JLG loan for

Pre-owned car loan Personal loans

Source: Company data, I-Sec research

Chart 40: Credit card offerings attractive across the industry

Lifetime free (No annual fees ever)

No charges for spends upto 10%

Dynamic Interest rate (9% to 36%)

Upto 10x reward points

Interest-free cash withdrawal

Source: Company data, I-Sec research

Non-Institutions, IDFC Financial

Central Govt, 4.6

Key managerial personnel

Table 15: Balance sheet

Cash & Bank Balances 41,908 58,280 61,278 67,199 74,964

Table 16: Key ratios

Earning ratios (%)

Capital Adequacy (%)

Table 17: DuPont analysis (on average assets)

Table 20: Cut in MCLR is restricted to less than 100 bps

Index of Tables and Charts

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