IDFC First Bank's Q2 Profit Drops 73% Amid Surge in Provisions for Microfinance and Toll Accounts

IDFC First Bank's Q2 Profit Drops 73% Amid Surge in Provisions for Microfinance and Toll Accounts

IDFC First Bank reported a sharp 73% decline in profit for the quarter ending September 2024, as profits dropped to ₹201 crore from ₹751 crore in the same quarter last year. The substantial decrease is attributed to increased provisions, as the bank proactively boosted its reserve buffers to cover potential future losses in its microfinance segment.

The bank’s provisions tripled year-on-year to ₹1,732 crore, compared to ₹528 crore in the previous year. Of this, ₹315 crore was allocated specifically to bolster the bank's microfinance portfolio. This increased provisioning has now allowed the bank to cover around 99% of loans overdue by more than 30 days, though these loans have not yet been classified as non-performing assets (NPA).

Additionally, IDFC First Bank absorbed a ₹253 crore provision for a legacy toll road account related to Mumbai’s entry toll point. CEO V Vaidyanathan explained that the account was impacted by the Maharashtra government’s recent decision to waive toll charges for light motor vehicles (LMVs). He noted that the bank could reclaim this amount as profit depending on toll collection performance and state compensation adjustments.

The bank’s collection efficiency in its microfinance segment showed a slight reduction, dipping to 98.6% in September from 99% in June 2024. The microfinance portfolio’s share of the overall loan book has also narrowed, now constituting 5.6% as opposed to 6.3% three months prior.