Nomura has initiated coverage on IDFC First Bank with a buy rating and a target price of ₹105 per share, citing the bank’s transition from a prolonged investment and balance-sheet rebuilding phase to one of sustained and broad-based profitability. The brokerage believes the structural transformation undertaken over the past few years is now beginning to translate into visible earnings momentum and improving return ratios.
Nomura highlighted that IDFC First Bank has built a strong liabilities franchise, with CASA ratio at around 50% as of 1HFY26, alongside a sharp reduction in reliance on borrowings, which now account for just 13% of the funding mix, compared with 32% in FY22. This marks a decisive shift away from its earlier wholesale-led model towards a granular, retail-focused balance sheet, improving funding stability and reducing cost of funds.
Growth visibility remains robust, according to the brokerage, with Nomura forecasting loan and deposit CAGRs of 20% and 22%, respectively, over FY26–28F. The bank’s fee-income profile, exceeding 2% of average assets, is also highlighted as superior to most peers, providing an additional earnings buffer and supporting profitability through cycles.
Nomura expects a sharp improvement in operating performance over the next few years, projecting a 39% core pre-provision operating profit (PPOP) CAGR over FY26–28F. This acceleration is expected to be driven by a 50 basis point moderation in cost-to-assets, alongside a 14 basis point improvement in net interest margins (NIMs) as the liability mix continues to strengthen. In addition, a 35 basis point decline in credit costs is anticipated as the loan book seasons and asset quality stabilises.
These factors together are expected to lift return on assets (RoA) to 1.2% and return on equity (RoE) to 11.8% by FY28F, from 0.6% and 5.4% in FY26F, respectively. Nomura believes this sharp improvement will translate into a sector-leading EPS CAGR of 67% over FY26–28F, underpinning its positive stance on the stock.
Disclaimer: The views and recommendations above are those of Nomura. Business Upturn does not endorse them. Please consult a financial advisor before making investment decisions.