IDFC reported a 46 per cent fall in net profit during the June quarter, led by muted net interest income growth, a sharp fall in other income and increase in staff expenses.

One of the leading project lenders in India, the company’s performance in the last two years has been significantly impacted by the challenges in the infrastructure sector.

Muted loan growth has impacted the company’s core performance. The net interest income on loans has fallen by 18 per cent during the June quarter.

The company’s net interest margin has slipped to 3.2 per cent as of June 2015 (rolling 12 months) from 4 per cent during the same period last year.

The increase in bad loans is also a concern.

The gross NPAs as a proportion of loans stood at 1.5 per cent as of the June quarter, up from 0.6 per cent last year and 0.7 per cent in the March quarter. As on June 2015, the net restructured loans are at 7 per cent of loans. All these led to a fall in earnings.

The company’s profitability in the near term will also be impacted by costs involved for meeting the statutory requirements of a bank and branch expansion.

The return on assets could go down to 1.2-1.4 per cent over the next three to four years, and thereafter stabilise at 1.7-1.8 per cent.

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