IDFC First Bank Q1 Profit Slumps 32%; Asset Quality Under Pressure

IDFC First Bank reported a sharp decline in its Q1 FY26 net profit, signaling pressure on its asset quality and microfinance exposure.

The private lender’s net profit dropped by 32.07% to ₹462.6 crore in the June 2025 quarter, down from ₹681 crore a year ago. While profits saw a significant decline, the bank’s net interest income (NII) grew 5% year-on-year, reaching ₹4,933 crore compared to ₹4,695 crore last year.

Asset Quality Deteriorates

One of the major concerns this quarter was the bank’s asset quality.
Gross Non-Performing Assets (GNPA) rose to 1.97%, up from 1.87% in the previous quarter. In terms of value, gross NPAs increased to ₹4,867.5 crore from ₹4,433.5 crore.
Meanwhile, net NPA also edged up to 0.55% from 0.53%, reaching ₹1,346 crore against ₹1,230 crore in the previous quarter.

These numbers indicate that loan defaults and delinquencies are gradually rising, raising red flags about the quality of the bank’s loan book.

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Microfinance Exposure Reduced

Another notable shift this quarter is the bank’s reduced focus on microfinance.
The microfinance portfolio contracted by 36.9% year-on-year, and its share in the overall loan book dropped from 6.3% in June 2024 to just 3.3% by June 2025.

This strategic reduction seems aimed at mitigating risks in the unsecured loan segment, especially considering the growing stress in the microfinance sector.

Net Interest Margin Slides

The bank’s Net Interest Margin (NIM) also took a hit, falling 24 basis points sequentially from 5.95% to 5.71%. This drop was largely due to the impact of repo rate movements, which affects the cost of funds and lending rates.

IDFC First Bank’s performance in Q1 FY26 indicates rising pressure from both internal and external factors. While net interest income growth is steady, profitability is being squeezed due to higher provisions and declining asset quality.
The significant cut in microfinance lending shows a cautious stance amid market stress.

How the bank manages its asset quality and loan portfolio mix in the upcoming quarters will be crucial for regaining investor confidence.

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