The stress being witnessed in micro loans or MFI segment will likely peak out in Q4FY25 and credit cost in MFI loans will likely start moderating from Q1FY26 onwards, IDFC First Bank MD, CEO V Vaidyanathan tells businessline in an interaction. He talks about the guardrails bank has put in place to counter stress in unsecured credit segment, while sharing guidance on net interest margin (NIM). Edited excerpts:

Q

Are you in compliance with MFI sector SRO body guidelines. When do you foresee MFI stress peak out?

We are fully complaint. In addition we have put some additional norms like looking at number of trade enquiries, leveraging rules etc. We do MFI because it helps meet PSL regulatory requirements of weaker segments, small and marginal farmers. We were a DFI (development finance institution), converted to a bank overnight. So, MFI helped us catch up PSL requirements quickly. And at the same time it is a profitable business as well.

The recent issue with MFI is something that happened across industry. Our MFI book has come down from 7 per cent of total loans a year ago, and we will lower it about 2-2.5 per cent of overall book. With self-regulatory organisation (SROs) interventions and low exposure, it will be overall safe. For further safety, 58 per cent of our MFI book is already insured, which will become 100 per cent in due course. We will replace the gap with other form of PSL.

At this stage of analysis, we feel that in Q4FY25 we will see the peak of MFI stress and from Q1FY25 onwards, credit cost should come down in MFI book. MFI typically is 2- year loan and almost 1 year has already passed

Q

Excluding MFI book, how is the book performing

Excluding MFI, the entire loan book is performing very well. Special mention accounts, or loans that are 30-90 days past due (DPD), is the best indicator. We give SMA and NPA (non-performing asset) level product by product in public domain. All SMA numbers are between 0.3 per cent-1.15 per cent. Our gross NPA and net NPA ratio its only 1.81 per cent and 0.49 per cent, which is quite low excluding MFI. All in all, excluding MFI, our numbers are quite stable, and we expect it to be stable.

Q

Has the stressed toll account started repaying again?

Yes, monies are coming in, we are getting about 30 per cent of what we were getting prior to the new rules coming into place. But we are pursuing the matter and are pursing recoveries. Since merger, we have resolved about Rs 20,000 crore of infrastructure loans, which is now down to Rs 2,500 cr. We will doggedly pursue this also.

Q

How is the cards business performing?

We started the business just 3 years ago, so base is low. We have extended credit card largely to our existing bank customers. Also we are very careful with credit norms. Apart from bureau score, we assess stability of a person, how long does one have bank account with other bank, and there are lot of other inputs that are taken before we extend credit card. Our gross NPA in credit card is only 1.91 per cent and net NPA is 0.53 per cent. We also have highly digital process, so we probably get more digitally evolved customers, this could also be a possible reason.

Q

What are the levers for other income growth?

We have seeded businesses of wealth management, cash management, rural, gold loans, commercial vehicles. Currently 31 per cent of fee income is loan origination fees, credit cards and toll is 20 per cent, wealth and third party is 17 per cent, and trade, FX, general banking fees etc is 23 per cent.

Q

Will you be able to maintain NIM at 6 per cent?

NIM should broadly be stable. We have unique model where our NIM is strong but our credit cost as compared to our peers is low in like to like business lines. Because we play in the prime of every segment, whether it is two-wheeler or used cars. Also we are very good at using data as we are a very digital bank with advanced scorecards. We will have to see the full impact of MFI book coming down, and it being replaced with gold loans, working capital loans.