IDFC First Bank Targets 70% Insurance Coverage for Microfinance Book by March 2025 Amid Rising Provisions

IDFC First Bank Targets 70% Insurance Coverage for Microfinance Book by March 2025 Amid Rising Provisions

IDFC First Bank has set a target to insure 70% of its microfinance (MFI) book by the end of the fiscal year, as part of its efforts to stabilize asset quality and mitigate risk through the Credit Guarantee Fund for Micro Units (CGFMU). The bank began insuring incremental MFI disbursements through CGFMU in January 2024 and currently has 50% of its MFI book insured, according to V Vaidyanathan, the managing director and CEO. By March 2025, he expects the coverage to increase to 70%.

Despite IDFC First Bank reporting strong growth with a 21% rise in income and 28% growth in operating profit for the quarter, the bank’s net profit declined sharply due to substantial provisions aimed at strengthening its risk cushion. The bank allocated Rs 250 crore for its exposure to a company affected by the government’s toll discontinuation in Mumbai and an additional Rs 315 crore towards its MFI book. “We aim to recognize issues early, providing for them ahead of time," Vaidyanathan said, noting that IDFC First Bank has adopted a conservative approach with provisioning rates of 75% at 90 days past due and 120% at 120 days past due.

On deposit rates, Vaidyanathan emphasized that IDFC First Bank has focused on building a deposit franchise based on customer service and technology, rather than high interest rates. Following a rate reduction on deposits under Rs 5 lakh to 3% five months ago, the bank has maintained stable rates, choosing to prioritize service and long-term customer relationships. This strategy appears effective as deposits have grown at an impressive rate of 30% since the merger.

IDFC First Bank’s MFI segment faces some challenges, with Special Mention Accounts (SMA) 1 and 2 categories increasing from 1.27% in March to 2.54% in September. This prompted the bank to provide for MFI loans at 30 days past due, an unusual step reflecting concerns over factors such as election-related disruptions, extreme weather, and local economic pressures in regions like Tamil Nadu.

Since January 2024, IDFC First has also consistently paid premiums to CGFMU to insure its MFI book. Currently, 50% of the MFI book is covered under this insurance scheme, and at the current disbursement pace, the bank expects 70% coverage by the fiscal year-end. The bank has shifted focus away from infrastructure lending, having reduced its exposure to infrastructure projects from Rs 22,000 crore to Rs 2,500 crore, citing challenges in this sector.

In alignment with its universal banking strategy, IDFC First Bank has expanded across multiple financial segments. It recently launched a cash management service, gaining 3,000 new customers, and grew its startup banking customer base to 20,000. Credit cards have reached a customer base of 3 million, and its wealth management segment, launched four years ago, has achieved Rs 20,000 crore, growing at 60% annually. The bank’s Fastag services have also acquired 14 million customers. Non-infrastructure corporate lending and overall loan growth remain strong, with non-infrastructure loans increasing at 20% annually.

To offer transparency on asset quality, IDFC First Bank now discloses product-wise SMA data quarterly. Vaidyanathan clarified that this reporting initiative aims to reassure stakeholders about the bank’s asset health, emphasizing that other loan portfolios, excluding MFI, have remained stable.