IDFC First vs Federal Bank Detailed comparison on 20+ KPI - Which is better | Fundamental Analysis

Summary

This video compares two mid-tier private banks, IDFC First and Federal Bank, based on their performance over the past year and three years. It evaluates key parameters such as deposit growth, asset quality, profitability ratios, and digital focus. Despite IDFC First's higher growth in deposits and advances, Federal Bank shows better profitability and operational efficiency. The analysis concludes that both banks have potential for long-term wealth creation, with Federal Bank's strong succession plan and IDFC First's recent capital raise, suggesting a promising future for investors.

Takeaways

• 🏦 IDBI First and Federal Bank are two mid-tier private banks that have shown promising growth and development under the leadership of Mr. V Vaidyanathan and Mr. Sham Shasan, respectively.
• 🔄 IDBI First faced challenges after its merger with Capital First in 2018, inheriting weak asset quality due to exposure in wholesale and infrastructure lending.
• 📚 Federal Bank, one of the oldest banks in India, was traditionally controlled by bureaucrats and had a limited presence mainly in Kerala and the southern region.
• 💼 Both leaders, with decades of experience, have a shared history of working at City Bank and have focused on digitization and building a strong bank culture.
• 📈 IDBI First has shown impressive growth in deposits (38%) and advances (24%) compared to Federal Bank's 20% and 20% respectively, indicating a more aggressive expansion.
• 💰 IDBI First has a higher CASA ratio (46.6%) than Federal Bank (29%), which is beneficial for bank profitability.
• 🛒 IDBI First has a larger retail loan book (72% of total loans) compared to Federal Bank's 45%, showing a stronger focus on retail banking.
• 📊 Federal Bank has better profitability ratios with a higher Return on Equity (RoE) of 13.6% and Return on Assets (RoA) of 1.27% compared to IDBI First's 3% and 0.91% respectively.
• 💼 Federal Bank demonstrates higher operational efficiency with a lower cost-to-income ratio of 53.2% compared to IDBI First's 70%.
• 📉 Despite higher net interest income, IDBI First's net profit is lower due to higher provisioning and cost-to-income ratio, resulting in a negative net profit growth of -11% compared to Federal Bank's 18% growth.
• 💹 Federal Bank has outperformed IDBI First in terms of share price growth, increasing by 48% in the last year compared to IDBI First's decrease of 15%.

Q & A

What are the two mid-tier private banks discussed in the video?

The two mid-tier private banks discussed are IDFC First Bank and Federal Bank.

Who are the leaders of IDFC First Bank and Federal Bank?

IDFC First Bank is led by Mr. V Vaidyanathan, and Federal Bank is led by Mr. Sham Shashank.

What major challenge did IDFC First Bank face after its merger with Capital First in December 2018?

IDFC First Bank faced a major challenge of inheriting weak asset quality from Capital First due to its high exposure in wholesale and infrastructure lending.

What is the significance of the CASA ratio for banks?

The CASA ratio, which stands for Current Account Savings Account ratio, is significant for banks' profitability as a higher ratio indicates a lower cost of funds.

How has the retail loan book composition differed between IDFC First Bank and Federal Bank?

IDFC First Bank has a retail loan book composition of 72%, while Federal Bank's retail book is at 45%, indicating that IDFC First Bank is more focused on retail lending.

What profitability ratios are used to compare IDFC First Bank and Federal Bank?

The profitability ratios used for comparison are Return on Equity (RoE) and Return on Asset (RoA), with Federal Bank showing better performance in both.

What is the importance of the net interest margin (NIM) for banks?

The net interest margin (NIM) is important as it represents the difference between the interest income generated by banks and the amount of interest paid out on their liabilities, essentially reflecting the bank's profitability from its core lending and deposit-taking activities.

How has the cost-to-income ratio impacted the operating efficiency of IDFC First Bank and Federal Bank?

A lower cost-to-income ratio indicates higher operational efficiency. Federal Bank has a lower ratio of 53.2% compared to IDFC First Bank's 70%, suggesting that Federal Bank is more efficient.

What has been the impact of provisions on the net profit of IDFC First Bank and Federal Bank?

IDFC First Bank's provisions have jumped significantly, impacting its net profit negatively. In contrast, Federal Bank has shown a more moderate increase in provisions, allowing for better net profit growth.

How do the market capitalizations of IDFC First Bank and Federal Bank compare?

Both IDFC First Bank and Federal Bank have similar market capitalizations of around 50,000 crores.

What are the future expectations for Federal Bank after Mr. Sham Shashank's departure?

Mr. Sham Shashank will be replaced by Mr. Krishnan Venkatsubramanian, a banking veteran with experience at Kotak Mahindra Bank, indicating a strong succession plan for Federal Bank.

What recent capital raising activity did IDFC First Bank undertake?

IDFC First Bank recently raised 3,200 crores through a preferential round of capital, attracting top insurance firm, Life Insurance Corporation of India, increasing D St's holding to 12.8%.

What are the key metrics for IDFC First Bank's five-year guidance for 2029?

IDFC First Bank's five-year guidance for 2029 focuses on achieving high profitability with high RoE and RoA, aiming to reach net profits of 12 to 13,000 crores compared to the current 2,232 crores.