Recommendation from Banking Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon[EasyDNNnews:PaidContentStart]

IDFC First Bank : FROM TRANSITION TO SUSTAINABLE GROWTH IDFC

HERE IS WHY
✓  Improving profitability and margins
✓  Strengthening asset quality trends
✓  Attractive valuation versus growth

The Indian banking sector’s shift towards retail-led and digitally driven models has created opportunities beyond traditional incumbents. IDFC First Bank (IDBK), a relatively young private sector bank, has undergone a meaningful transformation in recent years. The bank has built scale across deposits and advances while strengthening its earnings profile, with current valuations still underestimating its long-term growth potential. IDBK operates a retail-led universal banking model across retail, MSME, rural and selective wholesale segments. The bank follows a cash-flow-based lending approach, supported by technologydriven underwriting, analytics and digital customer acquisition. Its digitalfirst operating framework enables scalable growth, faster credit decisioning and effective cost control, while strengthening underwriting discipline and monitoring capabilities. A well-diversified loan mix across multiple retail and business categories helps balance risk exposure across economic cycles, reduces concentration risk and supports long-term balance sheet resilience.

IDBK delivered steady performance in Q2 FY26. Net Interest Income grew 6.8 per cent year-on-year, aided by healthy loan growth and improving funding costs. Net profit rose sharply to ₹352 crore, up 76 per cent year-on-year, driven by stronger core income and lower provisioning. Net Interest Margins stood at 5.59 per cent, reflecting a gradually improving profitability trajectory. Asset quality continued to improve sequentially during Q2 FY26. Gross NPAs declined to 1.86 per cent from 1.97 per cent in the previous quarter, while Net NPAs improved to 0.52 per cent from 0.55 per cent. This reflects tighter underwriting standards, stable collection efficiency, and gradual normalisation within the microfinance portfolio, supported by healthy provision coverage.

IDFC First Bank’s growth outlook is anchored in a steady strengthening of its funding profile alongside calibrated expansion across retail, rural and fee-led businesses. Management remains focused on scaling deposits to support approximately 20 per cent balance-sheet growth while repaying legacy wholesale borrowings of about ₹25,000 crore. The continued shift towards granular retail deposits, with retail LCR deposits now forming roughly two-thirds of the base, is strategically important as it improves funding stability, lowers cost of funds over time, and supports a gradual normalisation of the credit–deposit ratio over the next 12–24 months. Ongoing branch additions further widen the liability catchment and enable deeper penetration across geographies.

On the asset side, growth is being driven primarily by secured retail segments such as mortgages and vehicle loans, supported by improving asset quality metrics. The bank’s emphasis on factory-style underwriting, automation and analytics, targeting origination at scale, allows it to grow volumes while maintaining risk discipline. Stable early-bucket collections and improving GNPA/NNPA trends provide confidence that incremental growth can be achieved without disproportionate credit costs.

In rural finance, management has materially de-risked the microfinance portfolio through book reduction and higher insurance coverage, creating optionality to re-accelerate growth once conditions stabilise. Parallel rollout of products such as gold loans, tractor finance and KCC expands the rural addressable market and supports cross-sell opportunities. Trading at approximately 1.4x price-to-book, IDBK offers an attractive valuation relative to its improving profitability and strengthening balance sheet. With a scalable retail-led model, disciplined risk management, and visible earnings improvement, the bank is well positioned for sustainable long-term growth.

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