The lender's cost-to-income ratio rose to 80% in the March quarter, while it could grow its core income by just 2.8% on a sequential basis.
Credit rating agency Icra downgraded the long-term debt instruments of IDFC First Bank on Tuesday to AA from AA+ citing the lender’s weak Q4 earnings performance and heightened provisions.
In a statement, Icra said, “The rating revision takes into account the weak earnings profile given the elevated cost-to-income ratio because of the ongoing branch expansion and an increase in credit provisions on account of unanticipated fresh stressed exposures identified by the bank in Q4 FY2019.”
The lender’s cost-to-income ratio rose to 80% in the March quarter, while it could grow its core income by just 2.8% on a sequential basis.
The rating was for outstanding non-convertible debentures (NCDs) worth `38,689 crore. The lender’s total borrowings, including deposits and the debt markets, stood at `1.4 lakh crore at the end of March, 2019, according to a company presentation. While 23% of the borrowings were in the form of deposits, the rest was from money markets.
“Despite the strong growth in current account and savings accounts (CASA) deposits, its share in overall liabilities remains low resulting in higher cost of interest-bearing liabilities compared to other banks,” according to experts at Icra.
The private-sector lender’s shares dropped after it posted a loss of `218 crore, on account of higher provisioning in Q4FY19 against a profit of `41.93 crore in the corresponding quarter in the previous year. Credit Suisse, earlier this month, had downgraded the stock to underperform leading to the further fall in its price.