ICICI Securities Retail Equity Research has issued a compelling "Buy" recommendation for IDFC First Bank, upgrading from "Hold" with a 12-month target price of Rs 100, against the current market price of Rs 85 as of December 29, 2025. This report underscores sustained credit growth, bolstered capital adequacy, and anticipated margin recovery amid improving asset quality, positioning the bank for robust operational leverage through FY28. Key projections include a 20% loan CAGR, NIM stabilization at 5.8% by FY26 end, and RoA uptick to 1.3%, though near-term volatility in margins and microfinance slippages looms as risks. Market capitalization stands at Rs 73,177 crore, with retail assets comprising 59% of funded assets and a branch network of 1,041.

Research call and valuation snapshot

Research house: ICICI Direct
Rating: BUY (upgraded from Hold)
Current market price: Rs 85
Target price: Rs 100
Upside potential: 18%
Valuation basis: ~1.5x FY28E adjusted book value
Investment horizon: 12 months

From merger to momentum: how IDFC First reshaped its balance sheet

Formed through the 2018 merger of erstwhile IDFC and Capital First, IDFC First Bank has methodically pivoted toward a retail-heavy business model. Retail-funded assets now account for nearly 59% of total funded assets, reflecting a conscious shift away from legacy wholesale exposures. As of September 2025, the bank operates a 1,041-branch network, supporting deeper penetration across mortgages, vehicle finance, business banking, credit cards, and emerging wealth products.

This structural transition is no longer theoretical—it is translating into tangible balance-sheet momentum.

Loan growth accelerates as deposits outpace credit expansion

Credit momentum remains intact. During H1FY26, advances expanded 19.7% year-on-year to Rs 2.67 lakh crore, led by mortgages, vehicle loans, and business banking. Importantly, management continues to consciously run down the microfinance portfolio amid sector-wide stress, prioritizing portfolio quality over headline growth.

Deposit traction strengthens the liability franchise. Deposits grew faster than loans at 23.4% YoY, with CASA ratios holding firm at 50.1%. This divergence is critical: it signals rising customer trust and gives the bank flexibility to rebalance funding costs over time.

ICICI Direct expects IDFC First Bank to deliver ~20% loan CAGR over FY25–FY28E, supported by a healthier funding mix and adequate capital headroom.

Capital infusion provides strategic breathing room

A defining development in FY26 has been the Rs 7,500 crore CCPS issuance, which materially strengthened capital ratios.

Post-issuance metrics:

CRAR: ~16.8%

Tier-1 ratio: ~14.8%

This capital buffer removes near-term growth constraints and positions the bank to scale high-return segments such as retail lending, credit cards, and wealth management without dilutive fund-raising pressure. In ICICI Direct’s assessment, capital is no longer a bottleneck—it is now a growth enabler.

Margins under pressure, but recovery remains a matter of timing

Net interest margins have softened in H1FY26, reflecting two simultaneous forces: repricing of repo-linked assets and a deliberate reduction in high-yield microfinance exposure amid stress.

Near-term volatility persists. The recent 25 bps repo rate cut could delay the pace of margin recovery. Additionally, management remains cautious on savings account rate cuts until the elevated credit-deposit ratio of ~94% normalizes.

Medium-term levers remain intact. ICICI Direct expects margin recovery from H2FY26, with management guiding toward an exit NIM of ~5.8% by FY26. Benefits are expected from CRR rationalization, calibrated term-deposit pricing, and eventual normalization of microfinance disbursements—segments that carry superior yields.

Asset quality shows visible signs of normalization

Stress indicators are trending favorably. Gross NPAs and net NPAs improved to 1.86% and 0.52%, respectively. The special mention account (SMA) book declined sharply to 0.9%, indicating reduced pipeline stress.

Credit costs moderate. Credit cost fell to 2.25% in Q2FY26, aided by buffer utilization and stability across non-MFI portfolios. With incremental stress in microfinance and credit cards showing a declining trajectory, management guides for credit costs in the 2.05–2.1% range going forward.

In AP-style terms, the worst appears behind—though vigilance remains essential.

Operational leverage emerges as the next earnings catalyst

Following years of balance-sheet restructuring, the strategic lens has shifted toward profitability metrics. ICICI Direct highlights two critical drivers:

Liability accretion outpacing expense growth. As the branch network matures and digital sourcing improves, operating expenses are expected to grow slower than topline.

Return ratios set to inflect. RoA is projected to recover from 0.5% in FY26E to 1.3% by FY28E, while RoE is expected to rise to 12.8%, driven by operating leverage and credit normalization.

Key financial trajectory at a glance

Investment risks that merit close tracking

Margin compression risk. Prolonged rate volatility or delayed repricing of liabilities could pressure NIM recovery.

Microfinance stress persistence. Any renewed deterioration in MFI asset quality could push credit costs above guidance.

Why ICICI Direct says BUY for IDFC First Bank

ICICI Direct’s upgrade reflects a belief that IDFC First Bank has crossed the most challenging phase of its transformation. With capital constraints eased, asset quality stabilizing, and operating leverage beginning to surface, valuation rerating becomes plausible. Rolling valuations forward to FY28E, the brokerage assigns a fair value of Rs 100, implying meaningful upside from current levels.