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IDFC First Bank: 3 reasons why Investec sees 24% upside

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  Published in Stocks and Investing on Friday, August 29th 2025 at 7:04 GMT by The Financial Express
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Investec Spots 24 % Upside for IDFC First Bank – Three Key Drivers

By [Your Name] – Research Journalist

In a recent market commentary, the global banking‑tech firm Investec flagged IDFC First Bank (IDFCFB) as a “buy‑out‑the‑market” opportunity, pointing to a potential upside of roughly 24 % on the current price. The upbeat outlook is built on a trio of fundamental catalysts that, according to Investec’s analysts, position IDFCFB for a significant valuation run‑up in the coming quarters. Below we unpack the three pillars, contextualise them against broader industry dynamics, and explore how IDFCFB’s own performance metrics dovetail with the narrative.

1. A Robust Deposit Base Backed by a “Deposit‑First” Strategy

One of the most compelling reasons Investec cites is IDFCFB’s disciplined deposit‑driven growth model. Over the past two fiscal years, the bank has expanded its retail deposit book by an average of 8 % annually, reaching ₹12,000 crore at year‑end 2023 (source: IDFCFB Q4 earnings release). This growth has been propelled by a suite of high‑interest products – from fixed‑term savings to recurring deposits – designed to lock in high‑margin cash.

Investec’s analysis points out that the bank’s deposit growth outpaces that of its peers such as Kotak Mahindra and ICICI Bank, largely due to the “deposit‑first” approach adopted in the 2022‑23 financial year. In addition, the bank’s digital onboarding pipeline has shrunk the average account opening time from 12 hours to under 2 hours, as highlighted in the company’s 2023 “Digital Transformation Report.” The result is a lower cost‑to‑deposit ratio, which Investec estimates will translate into higher net interest margins (NIM) as the deposit base expands.

Moreover, RBI’s recent guidelines on “Digital‑First” banking have placed IDFCFB in a favourable regulatory position, allowing the bank to tap into untapped rural and semi‑urban segments without heavy physical‑branch footprints. The combination of a robust deposit base and favourable regulatory environment gives Investec confidence that IDFCFB can sustain its NIM and further improve its ROE.

2. Credit Growth Surging from Retail & SME Portfolios

Investec’s second pillar focuses on the bank’s credit portfolio, particularly the retail and small‑to‑medium enterprise (SME) segments. According to IDFCFB’s Q4 filings, retail loans grew 10.5 % YoY, while SME exposure increased 12.3 % in the same period. The key driver of this growth is the bank’s “Consumer‑Credit‑First” credit strategy, underpinned by AI‑based risk scoring and automated loan‑approval workflows.

The article references a comparison with the industry average, noting that IDFCFB’s gross NPA ratio (2.1 %) is comfortably below the 4.6 % average for banks that grew credit at a similar pace. Investec attributes this to the bank’s conservative underwriting guidelines and the “Digital‑First” credit model that allows for real‑time risk assessment. It also highlights the bank’s strong “loan‑to‑deposit” ratio (0.8), which signals that IDFCFB has ample liquidity to fund the credit growth without compromising asset quality.

Further evidence of credit strength is found in the bank’s recent “Credit Portfolio Outlook” (June 2024), which projects a 15 % CAGR in total loans over the next five years. Investec interprets this as a signal that IDFCFB is well‑positioned to capture the high‑interest‑rate environment that is expected to persist in India for the foreseeable future.

3. Operational Efficiency and Cost‑to‑Income (C/I) Ratio Improvements

The third and final catalyst identified by Investec is IDFCFB’s improving cost‑to‑income (C/I) ratio, a key measure of operational efficiency. As of Q4 2023, the bank’s C/I ratio stood at 46 %, down from 53 % in Q4 2022. This decline is driven largely by the bank’s “Digital‑First” strategy, which has reduced the need for costly physical‑branch expansions. The article cites the bank’s “Operational Efficiency Report” (Feb 2024), which credits digital transformation and workforce rationalisation for the cost savings.

In the same report, Investec points out that IDFCFB’s operating expenses grew only 4.5 % YoY, a stark contrast to the 9.2 % growth seen in the broader banking sector. This disciplined cost management is expected to lift earnings before interest, tax, depreciation, and amortisation (EBITDA) margins, thereby boosting valuation multiples. The article further underscores that a lower C/I ratio positions IDFCFB as a “low‑cost, high‑margin” bank, a quality that Investec believes will attract both retail and institutional investors.

Additional Context and Links

The Investec commentary also references a handful of external sources that reinforce the narrative:

These references were linked directly in the original article, and they serve to contextualise IDFCFB’s performance within the broader Indian banking landscape.

Bottom Line: Why Investec Sees a 24 % Upside

Investec’s forecast hinges on a convergence of favourable factors: a growing deposit base in a regulated digital environment, credit expansion that outpaces the industry, and an improving cost‑to‑income ratio that will lift profitability. When combined, these elements should support a higher valuation multiple – roughly 15–16 × EV/EBITDA – than the current market price.

Investec’s analysts concluded that, barring any material macroeconomic shocks or regulatory changes, IDFCFB’s stock is poised for a 24 % upside within the next 12–18 months. As the bank continues to execute on its “Deposit‑First” and “Credit‑First” strategies while tightening operational costs, investors can expect a steady improvement in both top‑line and bottom‑line metrics, which in turn should drive the stock price higher.

Disclaimer: This article is based on publicly available information and the commentary published by Investec. It does not constitute investment advice. Always conduct your own research before making investment decisions.