Motilal Oswal Financial Services (MOFSL) has upgraded IDFC First Bank to Buy from Neutral, with a target price of ₹105, implying a potential 23% upside from its last closing price of ₹85. The brokerage cited the bank’s stronger deposit franchise, sustained loan growth, improving operating leverage and controlled credit costs as key reasons behind the upgrade.
MOFSL said the bank had made significant progress in strengthening its deposit franchise while continuing to grow its loan book and de-risk its balance sheet. The brokerage expects these improvements to support a recovery in profitability. It stated that the upgrade was based on a target valuation of 1.6 times FY28E adjusted book value (ABV).
“The bank is well positioned for a sustainable recovery in profitability, supported by healthy business growth, improvement in operating leverage and controlled credit cost. The bank has strengthened internal controls and governance processes and has lowered its credit cost guidance, underscoring strong asset quality trends. We upgrade our rating to BUY from Neutral with a TP of INR105 (based on 1.6x FY28E ABV),” said the brokerage.
IDFC First Bank stock price trend
The stock jumped over 5% to its 52-week high of ₹89.58 per share on BSE in intra-day deals today after the upgrade. It has now jumped 54% from its 52-week low of ₹58.08, hit in April 2026.
The stock has been giving strong returns in recent times. It added 4.5% in 1 week, 2.4% in 1 month, 13% in 3 months, 47% in 6 months and 26% in the last 1 year.
Why Motilal Oswal upgraded IDFC First Bank
1. Strong loan growth and diversified asset mix
MOFSL expects IDFC First Bank’s loan book to grow at around 21% CAGR over FY26-FY28E, taking the loan book beyond ₹3.4 lakh crore by FY27E. The bank’s net advances grew 20.8% year-on-year in Q1 FY27, with wholesale loans rising 30% and retail advances increasing 21.5%. Within retail, vehicle finance and consumer loans grew around 26% each, while gold loans surged around 103%.
“The bank continues to selectively moderate MFI exposure while maintaining a diversified retail asset mix. Going forward, management expects further market-share gains, with improving traction in gold loans, consumer loans and vehicle finance. We estimate ~21% loan CAGR over FY26-28E, taking the loan book beyond INR3.4t by FY27E, supported by a diversified asset mix and disciplined growth,” it added.
2. Deposit franchise has strengthened
The brokerage highlighted the bank’s liability franchise as another key factor. Retail deposits now account for around 80% of customer deposits, compared with 27% at the time of the merger, while the CASA ratio stood at 51%. Deposits grew around 18% year-on-year, while MOFSL expects deposits to grow at a 25% CAGR over FY26-FY28E.
MOFSL described the deposit franchise as an important part of the bank’s improving fundamentals, with deposit growth outpacing loan growth. The brokerage noted that the bank’s liability franchise had continued to show resilience.
3. FCNR(B) flows could lift earnings
The bank mobilised $3.57 billion (about ₹30,000 crore) in FCNR(B) deposits, equal to 11% of total deposits, which MOFSL expects to support deposit growth and lower the credit-to-deposit ratio to 89% by FY28E.
MOFSL estimates the mobilisation could compress full-year NIM by 7-12 basis points due to 73% leverage, depending on deployment and retirement of high-cost liabilities. However, it could also boost incremental NII by 1.5%-4.4% and FY27E earnings by 4.1%-6.8%.
4. Improving efficiency and asset quality
Operating leverage is another important part of the upgrade thesis. MOFSL expects the cost-to-income ratio to moderate to 69% in FY27E and 65% in FY28E, compared with around 71% currently on an ex-trading basis. The brokerage estimates a 42% CAGR in pre-provision operating profit over FY26-FY28E. It also expects normalising credit costs to support the improvement in profitability.
On asset quality, MOFSL said the bank’s internal controls and governance processes had strengthened, while its credit-cost guidance had been lowered. It estimates GNPA/NNPA to moderate to 1.4%/0.4% by FY28E. The brokerage also noted that the MFI book had declined to ₹6,700 crore from ₹13,340 crore in FY24, while the impact of the fraud incident had been fully recognised.
IDFC First Bank estimates and target price
MOFSL has raised its earnings estimates for IDFC First Bank following its assessment of the bank’s growth and improving operating metrics. For FY27E, the brokerage raised its PAT estimate to ₹4,470 crore from ₹4,350 crore, a 2.6% increase. For FY28E, PAT has been raised to ₹6,310 crore from ₹6,000 crore, a 5.3% increase.
Net interest income is estimated at ₹25,400 crore in FY27E and ₹30,840 crore in FY28E, compared with previous estimates of ₹25,370 crore and ₹30,180 crore, respectively. MOFSL expects NII to grow at a 21% CAGR over FY26-FY28E, while NIMs are projected at 5.7% in both FY27E and FY28E.
The brokerage estimates RoA of 1.0% in FY27E and 1.2% in FY28E, compared with 0.4% in FY26. RoE is projected to improve from 3.9% in FY26 to 9.2% in FY27E and 11.9% in FY28E. EPS is estimated at ₹5.2 in FY27E and ₹7.3 in FY28E.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
About The Author
