IDFC First Bank is entering a decisive phase of operational maturity as margin expansion, disciplined balance-sheet growth, and easing asset-quality pressures converge. ICICI Securities has reiterated its BUY rating with a 12-month target price of Rs 100, implying a 22% upside from current levels. Q3FY26 marked a clear inflection point, with net interest margins improving, credit costs moderating, and profitability accelerating sharply. As liability repricing benefits continue to flow and microfinance stress fades, the bank appears well-positioned for a sustained return-on-assets expansion over the medium term.

Brokerage View and Recommendation Snapshot

ICICI Securities, in its latest retail equity research update, has reaffirmed a BUY recommendation on IDFC First Bank, setting a target price of Rs 100 based on a valuation multiple of ~1.5x FY28E adjusted book value. The call reflects growing confidence in the bank’s earnings trajectory as structural improvements in funding, margins, and asset quality begin to translate into stronger profitability metrics.

At the current market price of around Rs 82, the brokerage sees meaningful upside potential over the next 12 months, supported by a steady improvement in return ratios through FY27–FY28.

Q3FY26: A Quarter That Signals an Operational Turning Point

IDFC First Bank delivered a broad-based operational performance in Q3FY26, marking progress across nearly all core banking metrics. Loans expanded by approximately 21% year-on-year, reaching nearly Rs 2.8 lakh crore, with growth driven by mortgages, vehicle finance, consumer lending, and MSME advances. This expansion was balanced by equally robust liability traction, as deposits grew about 24% YoY to Rs 2.82 lakh crore.

Crucially, the CASA ratio improved to roughly 51.6%, reflecting a continued shift toward lower-cost deposits and reinforcing the bank’s improving funding profile.

Net interest margins rose 17 basis points sequentially to 5.76%, aided by a reduction in cost of funds, CRR-related benefits, and ongoing liability repricing. This margin expansion translated into ~12% YoY growth in net interest income, underscoring the operational leverage now embedded in the balance sheet.

Profitability Accelerates as Credit Costs Ease

The quarter’s most notable highlight was the sharp acceleration in earnings. Net profit surged 48% YoY to Rs 503 crore, supported by margin expansion and a moderation in provisioning. Credit costs declined to ~2.05%, down 19 basis points sequentially, as stress in the microfinance portfolio continued to normalize.

Asset quality trends strengthened further. Gross NPA improved to 1.69%, down 17 basis points quarter-on-quarter, while collection efficiency across both MFI and non-MFI segments stabilized near pre-stress levels. Management indicated that residual microfinance stress is expected to fade gradually, allowing credit costs to trend closer to long-term normalized levels.

Margin Upcycle Underway, with Further Upside Indicated

ICICI Securities highlighted Q3FY26 as a clear inflection point in margins. Roughly 12 bps of the QoQ NIM improvement came from lower cost of funds, while the remainder was driven by CRR normalization and capital structure benefits.

Management has revised its margin guidance upward, now expecting Q4FY26 exit NIM of ~5.85%, as deposit repricing benefits continue to flow through the system. While margins remain sensitive to future rate cuts and loan-mix changes, the brokerage believes that the bank’s structural funding improvements, including reduced reliance on high-cost deposits, provide a more resilient margin base over the medium term.

Loan Growth Remains Healthy with Controlled Risk

Loan growth remains well-distributed across segments, reducing concentration risks. The microfinance portfolio has declined to ~2.4% of funded assets, down sharply from ~4.8% a year ago, while core retail segments continue to scale.

Gross slippages excluding the MFI book improved to 3.09% in Q3FY26, compared with 3.39% in the previous quarter. Combined with controlled operating expense growth and improving operating leverage, these trends are expected to support a gradual and sustainable improvement in profitability metrics.

Cost Structure and Operating Leverage: The Next Leg

Operating expenses rose around 13% YoY, partly reflecting a one-time Rs 65 crore labour-code provisioning impact. Excluding this, cost growth remained aligned with business expansion. Management has reiterated its medium-term objective of reducing the cost-to-income ratio from the current low-70s to the mid-50s, driven by scale benefits and digital leverage.

Retail lending, credit cards, and wholesale verticals are all targeted for meaningful efficiency gains over time, a factor ICICI Securities views as central to the bank’s return-on-equity expansion story.

Valuation Framework and Target Price Rationale

ICICI Securities values IDFC First Bank at ~1.5x FY28E adjusted book value, arriving at a target price of Rs 100. The valuation incorporates expectations of:

Steady RoA expansion toward ~1.1% by FY28

RoE improving to ~10.8% over the same period

Sustained balance-sheet growth with improving asset quality

The brokerage believes the current valuation does not fully reflect the bank’s improving earnings visibility and structural transformation into a retail-focused franchise.

Key Risks Investors Should Track

Despite the improving outlook, ICICI Securities flags two principal risks:

• Slower-than-expected improvement in the cost-to-income ratio, which could delay operating leverage benefits.
• Weaker liability accretion, potentially pressuring margins if deposit competition intensifies.

These risks, however, are viewed as manageable given current trends and management commentary.

Investor Takeaway

IDFC First Bank appears to be transitioning from a recovery-led narrative to a consistency-driven growth phase. With margins turning, asset quality stabilizing, and operating leverage beginning to assert itself, ICICI Securities sees a clear runway for earnings compounding over the next several years.

For investors seeking exposure to a structurally improving private-sector bank with expanding profitability metrics, the brokerage’s BUY call reflects growing confidence that the transformation story is now translating into durable shareholder value.