Ind-Ra affirms IDFC First Bank's debt instruments at AA-plus with negative outlook

Mumbai (Maharashtra) [India], Aug 8 : India Ratings and Research (Ind-Ra) has affirmed private sector lender IDFC First Bank's debt instruments ratings at AA-plus with a negative outlook.
The negative outlook reflects challenges on the lender's asset quality and resultant increased credit costs due to measures taken in the wake of COVID-19 pandemic like the Reserve Bank of India (RBI)-prescribed moratorium coupled with a weak operating performance and moderately diversified liability profile compared to peers.
The ratings, however, factor in the bank's strengthening franchise with an increasing proportion of granular loans offering strong pricing power, adequate capital buffers and experienced management, said Ind-Ra.
The retail book of IDFC First accounted for 54 per cent of the total funded exposure in Q1 FY21. The bank intends to continue focusing on expanding its retail loan portfolio, thereby reducing concentration risk, improving yields and resultantly strengthening margins which will offset some of the impact of higher funding cost.
Retailisation of the loan book has led to an improvement in the net interest margin for IDFC First to 4.53 per cent in Q1 FY21. However, Ind-Ra said the retail portfolio (where 40.7 per cent loans remain unsecured in nature) may witness heightened credit cost in the prevailing challenging economic scenario.
Thus, the banks' ability to manage its asset quality better than the peers remains monitorable. As at June-end, the bank reported about 28 per cent of its loan portfolio under the RBI-prescribed moratorium which is higher than its peers.