IDFC First Bank froze lending for three years, then flipped to a ₹2,957-crore profit

In 2010 V. Vaidyanathan, an ICICI Bank retail veteran, did a leveraged buyout of a loss-making NBFC he renamed Capital First, shut its broking and real-estate arms, and built an MSME and consumer lender. Profits went from ₹30-crore losses to ₹358 crore, retail loans from ₹94 crore to ₹29,600 crore, and market value from ₹780 crore to ₹8,200 crore by 2018, per Forbes India.

In 2018 he merged Capital First with IDFC Bank, a young lender burdened with infrastructure loans and almost no deposits, and became MD & CEO of the combined IDFC First Bank. Days later the IL&FS crisis hit, and legacy exposures to DHFL, Reliance Capital and toll roads soured; the bank posted losses in its first year.

His counterintuitive call: stop growing. IDFC First Bank grew loans just 5.1% between December 2018 and December 2021, using fresh deposits to retire ₹28,000 crore of certificates of deposit and ₹30,000 crore of corporate deposits while building a branch network for retail savers. CASA climbed from 8.7% at merger to 49.8% by FY23, and retail went from a minority to 76% of customer deposits.

With the funding base rebuilt, the infrastructure book shrank from ₹26,832 crore (36.7% of loans in FY18) to ₹4,664 crore (2.9% in FY23). Net profit soared about 18-fold to ₹2,437 crore in FY23, then rose 21% to ₹2,957 crore in FY24 with return on assets at 1.10% and gross NPAs at 1.88%.

CASA ratio rose 8.7% to 49.8%; infra loans fell from 36.7% to 2.9% of the book; net profit hit ₹2,437 crore in FY23 and ₹2,957 crore in FY24.

The decision ran against banking instinct: deliberately not growing the loan book for three years while rivals expanded.

It fixed the liability side first — swapping ₹58,000 crore of wholesale funding for retail deposits before chasing assets.

Legacy infra and IL&FS-era bad loans were provisioned and run down instead of being rolled over or hidden.

Customer-first retail products (monthly savings interest, scrapped fees) powered deposit growth without rate wars.

Profit followed the funding fix: 18x profit growth in FY23 once the deposit engine was built.

You cannot grow out of a broken funding base. Freeze the loan book, replace hot wholesale money with sticky retail deposits, then restart lending on the clean foundation.

By FY24 IDFC First Bank reported a ₹2,957-crore net profit, 1.10% RoA and 1.88% gross NPA, and in 2023 announced a reverse merger absorbing parent IDFC Ltd to leave a promoter-less bank. Cost-to-income, 92% before the merger, had fallen to the low 70s, with legacy 8.8% infra bonds still being repaid and replaced by cheaper deposits.