IDFC First Bank shares plunged by over 5% in Monday's early trading session after the release of underwhelming Q2 2024 results. Opening with a sharp decline at ₹61.01 on the NSE, the stock hit an intraday low of ₹59.30, reflecting investors' concern over the bank's quarterly performance. For those who invest in stocks, understanding these market fluctuations and the factors behind them is essential.
Q2 results reveal challenges
The Q2 2024 results for IDFC First Bank painted a challenging picture. Despite a year-on-year 21% increase in Net Interest Income (NII) to ₹4,788 crore, the bank's net profit took a hit, dropping by 73% to ₹201 crore from ₹751 crore last year.
This decline elevated provisions, amounting to ₹568 crore, including ₹315 crore for the stressed MFI segment and ₹253 crore related to a toll account in Maharashtra. Anshul Jain, Head of Research at Lakshmi Shree Investment and Securities, noted that these provisions reflect potential credit risks, posing caution for those who actively invest in stocks.
Mixed signals in loan and credit quality
While IDFC First Bank reported a 21.5% year-on-year growth in loans and advances, reaching ₹2,22,613 crore, there are signs of caution. Although the bank's Gross NPA ratio has improved from 2.11% to 1.92% over the year, concerns remain due to ongoing macroeconomic challenges.
Jain highlighted the bank's move to reduce its MFI portfolio from 6.3% of the total loan book in June 2024 to 5.6% in September, reflecting a cautious stance amidst pressure in this segment. For investors aiming to invest in stocks with a view towards stability, this cautious approach signals that IDFC First Bank is proactively managing its risks. Still, profitability could remain under pressure in the near term.
Key takeaways
Risk management: With reduced exposure to the MFI segment, IDFC First Bank demonstrates a focus on de-risking, yet ongoing provisions highlight near-term profitability concerns.
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