IDFC First vs Federal Bank Detailed comparison on 20+ KPI - Which is better | Fundamental Analysis
Summary
TLDRThis 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
- π¦ 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.
- π IDBI First faced challenges after its merger with Capital First in 2018, inheriting weak asset quality due to exposure in wholesale and infrastructure lending.
- π 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.
- πΌ 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.
- π 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.
- π° IDBI First has a higher CASA ratio (46.6%) than Federal Bank (29%), which is beneficial for bank profitability.
- π 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.
- π 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.
- πΌ Federal Bank demonstrates higher operational efficiency with a lower cost-to-income ratio of 53.2% compared to IDBI First's 70%.
- π 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.
- πΉ 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.
Outlines
π¦ Comparative Analysis of IDFC First and Federal Bank
This paragraph introduces a comparative analysis between two mid-tier private banks, IDFC First and Federal Bank, highlighting their leadership and growth strategies. The speaker mentions Mr. V Vaidyanathan of IDFC First and Mr. Sham Shamsunder of Federal Bank, detailing their respective challenges and growth paths. IDFC First had to deal with a weak asset quality post-merger, while Federal Bank had a history of bureaucratic control and a regional focus. Both banks are praised for their focus on digitization and retail banking. The analysis is based on more than 20 key parameters using the latest Q1 FY25 results and compares performance over one and three-year timeframes. The speaker emphasizes the importance of doing personal research for investment decisions and clarifies that the analysis is intended for long-term investors rather than traders.
π Key Performance Indicators and Financial Insights
The second paragraph delves into the financial performance of both banks, comparing their deposit growth, CASA ratios, loan books, and retail focus. IDFC First shows a higher growth rate in deposits and advances but has a lower profitability ratio compared to Federal Bank. The net interest margin, a key indicator of a bank's profitability, is significantly higher for IDFC First. The cost-to-income ratio, which reflects operating efficiency, favors Federal Bank. Despite higher net interest income, IDFC First's operating profit is lower due to higher costs. The paragraph also discusses the impact of provisioning on net profits and the growth in share prices and market capitalization, concluding with a note on the banks' valuations and price-to-book ratios.
π Long-Term Growth and Strategic Developments
This paragraph examines the long-term growth trajectories of IDFC First and Federal Bank, focusing on deposit and advances growth, retail loan composition, and profitability ratios. Over the past three years, IDFC First has shown a more rapid growth rate in these areas compared to Federal Bank. The speaker also discusses the improvements in asset quality and net interest margins for both banks. Despite higher provisions and costs, IDFC First has made significant progress in its operational efficiency and profitability. Federal Bank has maintained a lower cost-to-income ratio and higher profitability. The paragraph also touches on the leadership changes at Federal Bank and the capital raise by IDFC First, suggesting that both banks have strong future prospects.
π‘ Future Expectations and Investment Guidance
The final paragraph discusses the future expectations for both banks, emphasizing the importance of the banking sector in the growth of the Indian economy. The speaker provides an optimistic outlook for the long-term growth of quality private banks, despite short-term challenges such as the impact of COVID-19 and pressure on net interest margins. IDFC First has shared a five-year guidance focusing on profitability targets, while Federal Bank's future expectations will become clearer with new leadership. The speaker invites viewers to join a community of long-term investors for further guidance and shares information on how to access additional investment insights, concluding the video with an invitation to share the analysis and a reminder of the importance of personal research for investment decisions.
Mindmap
Keywords
π‘Mid-tier private banks
π‘Merger
π‘Asset Quality
π‘CASA Ratio
π‘Advances
π‘Retail Loan Book
π‘Profitability Ratios
π‘Net Interest Margin (NIM)
π‘Cost to Income Ratio
π‘Provisioning
π‘Market Capitalization
π‘Price to Book Ratio
Highlights
IDFC First and Federal Bank are two mid-tier private banks with promising growth potential.
IDFC First faced challenges post-merger with Capital First, inheriting weak asset quality due to high exposure in wholesale and infrastructure lending.
Federal Bank, one of the oldest banks in India, was historically controlled by bureaucrats and had a regional focus.
Mr. V Vaidyanathan of IDFC First and Mr. Sham Shasan of Federal Bank are both highly competent bankers with decades of experience.
Both banks have a strong focus on digitization and have created a significant presence in the Indian banking sector.
A comparative analysis of the banks is conducted based on over 20 key parameters using their latest Q1 FY25 results.
IDFC First has shown impressive growth in deposits and advances but faces challenges with cost to income and provisioning.
Federal Bank demonstrates better profitability ratios, with higher Return on Equity (RoE) and Return on Asset (RoA).
Asset quality for both banks is comparable, with similar gross and net Non-Performing Assets (NPAs).
IDFC First has a higher Current Account Savings Account (CASA) ratio, indicating better profitability potential.
Federal Bank shows operational efficiency with a lower cost to income ratio.
IDFC First's net profit growth has been negative, contrasting with Federal Bank's positive growth.
Share price performance has varied, with IDFC First down by 15% and Federal Bank up by 48% in the last year.
Both banks have a similar market cap and valuation, with a Price to Book ratio of 1.9.
Long-term growth analysis shows IDFC First outperforming Federal Bank in deposit, advances, and retail loan growth.
Federal Bank has consistently shown higher profitability and better asset quality over the last three years.
IDFC First has provided a five-year guidance focusing on achieving high RoE and RoA, aiming for significant net profit growth.
The future of Federal Bank will gain more clarity once Mr. Krishnan Subramanyam joins as the new MD.
Both banks are considered promising for long-term investment, with the banking system being integral to economic growth.
The analysis serves as an educational tool, and investors are advised to conduct their research for investment decisions.
Transcripts
hey everyone there are two mid tier
private banks that I've been tracking
for a long time and found them quite
promising it's idfc First and Federal
bank idfc first led by Mr V vatan and
Federal Bank led by Mr sham shasan idfc
first on one side had a roller coaster
Journey where idfc limited got merged
with capital first in December 2018 to
become idfc first but this merger had a
major challenge where newly formed idfc
first inherited weak asset quality from
ADC limited due to its high exposure in
wholesale and infrastructure lending On
The Other Side Federal Bank is one of
the oldest bank in the country with
presence of more than 100 years now
however it was under the control of
bureaucrats for many decades and its
presence was restricted mainly to Kerala
and southern part of the region so on
one side Mr vatan took the mem task of
cleaning up idfc first balance sheet and
taking it to the path of growth and
making it a retail focused Bank on the
other side Mr sham shasan decided to
transform the old traditional banking of
federal bank to make it a world-class
bank with presence across the country by
the way both of them are highly
competent Bankers with Decades of work
experience they had One Bank in common
where they both worked it's City bank
then another common aspect in both the
leadership was focus on digitization
both idfc First and Federal Bank highly
focused on digital banking in addition
to setting up the right culture to build
the fundamental building blocks of the
bank bank and over the last few years
both idfc First and Federal Bank have
created a strong presence in the Indian
banking sector with growth across
parameters but the question is which
bank is better between idfc first and
federal bank so in this video I've have
done a comparative analysis of both the
banks on more than 20 key parameters
based on their latest q1 fi25 results
but since one quarter of analysis won't
do justice to the comparison I've taken
two time frame for comparison first time
frame is year on year where I had
compared their q1 fi25 performance
versus q1 of f24 and then I have taken a
threeyear time frame to understand their
growth over the long term it was quite a
tedious task to go through multiple
investor presentation to fetch the data
I hope you'll find it useful and then I
would quickly share the insights from
the comparison before I conclude which
is a better bank but before that a
disclaimer that this analysis is only
for Education purpose please do your own
research to build conviction before
investing your money and and this
analysis would be only useful for
long-term investors not for Traders and
I've recently done a three video series
on top fi di hni I track closely for
multibagger ideas I would highly
recommend watching that all right let's
get
started all right so this is the
comparison of idfc First and Federal
bank across two time frame first is the
latest q1 of fi25 number versus last
year q1 f24 and uh the second time frame
is the comparison of Q q1 of f24 versus
3 years uh before data which is q1 of
F22 so this is more of a long-term time
frame to understand the long-term story
now if you look at the deposit idfc
first deposit is 2.04 lakh CR versus
Federal Bank deposit of 2.66 lakh Ro so
in terms of absolute number Federal Bank
is slightly On The Higher Side however
as far as growth is concerned idfc first
deposit has grown at 38% versus Federal
Bank growth of 20% next is Casa ratio I
first is 46.6 versus Federal Bank of
around 29% now Kasa is current account
and saving account ratio and higher this
number better it is for banks
profitability and again here idfc first
has higher Kasa then next important kpi
is advances which is the loan book so
idfc first advances is 2.09 lakh CR
Federal Bank is 2.2 lakh CR again in
absolute number both are at similar
level however idfc first loan book has
grown at 24% versus Federal bank loan
book of 20%
again in terms of growth idfc is better
then next is retail loan book so out of
total loan book what is the percentage
of retail and here when I say retail I
include the rural loan book and exclude
the wholesale lending and MSM lending so
in case of idfc first retail book is 72%
whereas Federal Bank retail book is 45%
so idfc first is more focused towards
the retail side as compared to Federal
Bank as far as retail loan growth is
concerned it is 20 7% versus the overall
loan growth of 24% in case of Federal
Bank it is same as 20% for retail loan
as well then the profitability ratio
which is return on equity and return on
asset both Federal Bank is better with
13.6 versus 3% Roe and Federal Bank Roe
is 1.27 versus idfc first Ro of
0.91 next asset quality if you look at
it more or less both are at same level
gross NP of idfc first is 1.9 Federal
Bank is two net pay 0.6 for both the
banks so asset quality is same for both
net interest margin is the margin that
bank make on the net interest uh income
and here it is 6.22% federal bank is
3.16 so much better for idfc first net
interest income is nothing but the core
income that Banks generate from the net
interest and uh that is 4,695 CR for
idfc and 2292 for federal bank then next
important parameter is cost to income
this basically suggest the operating
efficiency of the bank and lower this
cost to income better it is so 70% is
idfc First and Federal Bank is 53.2
which means Federal Bank is more
efficient its cost is lower as compared
to the income so that is a positive sign
for Federal Bank operating profit for
idfc first is 1858 CR and Federal Bank
is, 1500 CR now if you look at it
interestingly in spite of having a high
net interest income of 4,695 CR it's
operating profit is 1858 CR so the Gap
has reduced mainly because the cost to
income of idfc first is much higher as
compared to Federal bank then operating
profit growth if you look at it again
idfc first is much ahead with 30% growth
versus Federal Bank 15% provision jump
again this is a problem here for idfc
first their Provisions for q1 fi25 is
994 CR versus 491 CR provision of
federal bank which means Bank IDC first
provision has jumped by 109% versus 10%
of Federal Bank provision jump and that
is the reason in spite of such high net
interest income your idfc first has
ended up with a net profit of 681 CR
because its cost to income is high and
then on top of that it reported nearly
1,000 CR of provision and due to that
its net profit is lower as compared to
Federal Bank next if you look at the net
profit growth Federal Bank net profit
has grown at 18% versus minus 11% for
idfc first current price of idfc first
is around 75 and Federal Bank is around
200 then as far as share price growth is
concerned in last one year idfc first is
down by around 15% so last year share
price was around $ 8590 and from there
it is down by around 15% Federal Bank is
up by 48% so last year around same time
it was trading at around 135 as far as
market cap is concerned both of them
have similar market cap of around 50,000
CR finally the valuation price to
earning of idfc first is 18 Federal Bank
is 12 but here the key parameter to
gauge valuation is Price to Book for
banks and that is same for both idfc and
federal bank idfc had a higher price to
book but because of recent correction in
last one year its Price to Book is now
1.9 so on valuation front both of them
are at same level so if you look at it
overall idfc first has done much better
on advances deposit growth but because
of uh higher cost to income higher
provisioning its net profit is on Lower
Side as far as long-term picture is
concerned in last three year so during
q1 of F22 idfc first deposit was
84,85 th000 CR so there's a 140% growth
in deposit for idfc first versus Federal
Bank deposit growth of 57% Kasa of idfc
first 3 years ago was minus 8.38% from
there it is at 46% so a huge turnaround
story Federal Bank Kasa was 34.8 and
today it has reduced to 29% advances for
idfc first three year ago was 1.13 lakh
and today it is 2.09 lakh so its
advances has grown at
83.9% whereas your Federal Bank advances
have grown at
66% next if you look at retail loan last
3 years ago it was 70% today it is 72%
so not much change retail loan growth 3
years it is 87.9 7% whereas Federal Bank
retail loan has grown at 65.8% so again
in terms of deposit advances retail loan
grown at idfc first has grown at much
faster rate as compared to Federal bank
then if you look at the Roe Roa your
federal bank has been much better in
fact idfc Roe was minus 13% and from
that it is now at 8.3 so there's a big
uh transformation Roa was also negative
now it is positive but Federal bank has
always had higher profitability in terms
of Roe and Roa asset quality of idfc has
also improved significantly in fact
Federal Bank asset quality has also
improved net interest margin for idfc
was 5.5 today it is 6.2 whereas Federal
Bank net interest margin is at same
level net interest income of IDC first
was 2,185 CR and today it is 4,600 so uh
it has grown at a much faster rate as
compared to Federal bank then cost to
income of idfc first is 77% uh so 3
years ago it was 77 today it is 70% so
cost to income has already reduced in
last re and bank is uh given a guidance
of reducing it further to 65% although
Federal Bank cost to income was always
lower at 45% although it has increased
in last three year operating profit of
idfc first 3 years ago was 600 CR today
it is 1858 CR and in three year its
operating profit has grown at
209% versus Federal Bank operating
profit growth of
32% finally if you look at the provision
your idfc first had a very high
provision 3 years ago which is reduced
significantly and Federal Bank was 600
so provision has reduced to- 47% Federal
Bank provision is reduced to 23% as far
as net profit is concerned your idfc
first was at loss 3 years ago 621 CR
negative today it is positive 681 CR
Federal Bank was 367 so net profit
growth of Federal Bank in is 175% in
threee your idfc first we cannot
quantify because it was in loss and
today it is at very uh High profit
current price is 75200 so in last three
years idfc bank has generated around 50
to 80% kind of return because 3 years
ago it share price was around 4050 and
Federal Bank 3 years ago was trading at
7080 so in 3 years it has generated 150
to 180% return market cap is same and
valuations are same I hope you got a
fair idea of comparison of IDC first
across your uh year- on-ear and 3 years
ago
period so the key inside is first of all
on deposit and advances growth IDC first
is growing at much faster rate as
compared to Federal Bank second idfc
first also has a much higher retail loan
book composition then idfc first Kasa
ratio is also much higher than Federal
bank and its overall net interest margin
is also much higher on expense Side
Federal bank has much lower cost to
income ratio as compared to idfc First
it means Federal bank has higher
operational efficiency having said this
one of the reason is idfc first is
growing its branches at a much faster
rate so it's operating expenses are on
higher side at the moment then IDC first
also has a high operating profit growth
as compared to Federal Bank but it also
has higher provision as compared to
Federal bank and because of higher
provision idfc first net profits are
also on Lower Side as compared to
Federal Bank moreover Federal bank has
higher profitability in terms of return
on equity and return on asset as
compared to idfc first then on asset
quality both have similar asset quality
in terms of gross NPA and net NPA in
terms of creation for shareholder
Federal bank has generated much higher
return as compared to IDC first over the
last one year and threeyear time frame
finally on valuation both have similar
valuation as at Price to Book of 1.9 and
the valuation looks quite attractive
overall it's a mix set adfc first growth
is much higher than Federal Bank but its
profitability is lower than Federal bank
and due to high provisioning adfc first
net profits are on Lower Side as
compared to Federal Bank on valuation
both have similar valuation so there is
no clear winner as such now let us look
at the expectation for the near to
longterm before we conclude which is a
better investment
opportunity friends first of all there's
an important update on Federal Bank
after serving as MD for 14 years Mr sham
shason will step down on 23rd September
24 due to RBI Norms he will be replaced
with Mr Krishnan wenat subramanyam a
banking veteran who previously served as
joint MD of kotak Mahindra bank so
Federal bank has a very strong
succession plan there's also an update
on idfc First Bank they have recently
successfully raised a preferential round
to raise 3,200 CR capital and it
attracted top Insurance FS of India
hence in its latest holding D St is up
from 7.9% to
12.8% now as an investor there are two
aspect of looking at Future perspect one
is you look at quaron quar performance
and decide what to do on that idfc first
net profits are down due to high
provisioning it share price has been
correcting and consolidating for almost
one year now Federal Bank on another
side has generated good return in last
one year however if you look at the
long-term picture both Federal bank and
idfc first have done well in the last
three years in terms of business so in
the near term there can be hiccups but I
believe that banking system is the
backbone of any economy if the Indian
economy has to grow banks will play a
very crucial role hence I've always been
bullish on top private banks of India of
course it would never be a smooth ride
in fact just a few years ago we
witnessed how covid created havoc in
banking sector with a fall in asset
quality and currently private banks are
facing another challenge of pressure on
net interest margin due to higher cost
of funds having said this I believe that
the long-term growth story of good
quality private Banks is completely
intact as far as future guidance is
concerned idfc first shared a fiveyear
guidance for the bank during 2018 at the
time of its merger and fast forward
today bank has achieved majority of it
guidance across asset and liability side
except for a few metric like cost to
income Roe Roa that are delayed now bank
has again shared its fire year guidance
for 2029 and this time the key focus is
on profitability with high Roe and Roa
if Bank can achieve this number it
expect to touch net profits of 12 to
13,000 CR as compared to 2,232 CR
currently on the other side we'll get a
good Clarity on Federal Bank future
expectation once Mr Krishan subramanyam
joins the bank so overall I believe that
if we ignore the short-term volatility
both banks are looking quite promising
for long-term wealth creation and the
valuations are also quite attractive
okay I don't want to stress this video
further by the way if you like this
analysis and need more guidance on
investment I have a close community of
serious long-term investor why am I
exclusive weekly video series in this
series I keep a close eye on key
government initiative and discuss the
potential companies along with stocks
where I am investing my own money I also
track the quad results of more than 200
compies but this is again not a stock
tip the idea is to share my conviction
as I spend almost 8 to 10 hours a day
keeping a close eye on the market for
more details you can explore my website
or check the join button on my YouTube
channel so this is it for this video if
you find it useful do share it within
your circle I'll see next video till
then take care
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