The bank will issue compulsorily convertible preference shares (CCPS) worth ₹4,876 crore to a Warburg Pincus affiliate, and shares worth ₹2,624 crore at ₹60 each to an ADIA subsidiary. While the Warburg affiliate will hold 9.48% stake, the ADIA unit will hold 5.10%.

IDFC First Bank was formed in December 2018 with the merger of non-bank lender Capital First with IDFC Bank, then a subsidiary of IDFC Ltd. The latest investment marks a return of Warburg to IDFC First – the PE major had originally invested in Capital First when it was founded in 2012, and stayed on after the IDFC Bank merger. Warburg sold its IDFC Bank stake over the last two years.

Read more: JPMorgan India to expand presence in startup banking, says bank CEO Chawda

“I was reaching out to select private equity firms directly and pitching. Then I requested Warburg Pincus to participate. They know us and trust us; so it helped," IDFC First managing director and chief executive V. Vaidyanathan said over the phone, adding that there were no investment bankers involved, and the bank saved over ₹100 crore compared to, say, a qualified institutional placement (QIP).

Fueling growth engines

The investment aims to “fuel the next phase of growth", IDFC First said. The bank's board has cleared the preferential issue, which will now go to shareholders and regulators for approval.

“Frankly, with the current weak market conditions, if you went for a QIP, there are many pitches to potential investors, and then, sometimes there are also discounts because of market conditions. Here, we haven't had to offer any such discount," Vaidyanathan said. “Our job is to keep the bank safe at all times; so, capital is a good buffer to have. Global market conditions are not good; so, better to be safe."

The investment raises IDFC First's capital adequacy ratio from 16.1% to 18.9%. The bank said its book value per share will increase 2.3% after the proposed capital raise to ₹52.85 from ₹51.64 in December 2024.

"We have developed very good capabilities, over 10-15 years for financing rural markets, MSMEs, retail, gold loans, mortgages, small business banking etc. With these capabilities the bank has built, and with India growing, I do believe that we can grow," Vaidyanathan said. “But more important is quality -- We want GNPA (gross NPA) and NNPA (net NPA) below 2% and 1%, which we have shared with the Street and the investors as our internal guideline. We can always open new locations; India is a large, unserved market."

IIDFC First has a network of 971 branches across 60,000 locations. Its gross NPA ratio stood at 1.94% and the net NPA ratio at 0.52% at the end of December 2024.

The lender posted a net profit of ₹2,957 crore in FY24. However, profitability dipped 45% on year to about ₹1,221 crore in the first nine months of FY25 due to industrywide challenges in microfinance. As per provisional data for Q4 FY25, the bank’s advances were up 20% on year and deposits up 25% as of March 2025. The bank is yet to release its March quarter earnings.

Read more: Muthoot-owned Belstar Microfinance enters gold loan biz to diversify portfolio

“We believe the Indian banking sector presents an exciting opportunity and is poised for long-term growth," said Vishal Mahadevia, managing director, head of Asia private equity, and global co-head of financial services at Warburg Pincus. "We are excited to re-invest behind the IDFC First Bank team to support them in the next phase of growth and sustainable ROE (return on equity) improvement."

“The bank has firmly moved into profits and is now at a pivotal stage, where our income growth is expected to consistently exceed opex (operating expenditure) growth, leading to improved operating leverage. We expect many businesses which are in the investment stage to turn profitable with scale," Vaidyanathan said in the bank's statement.

IDFC First Bank, in an investor presentation, said the growth capital raised will help scale up the multiple lines of businesses like credit cards, cash management and wealth management for “optimal profitability". It will help the bank achieve the target of growing its loan book at around 20% for the next few years, and also reduce the need for frequent fundraising while positioning the bank for “strong and profitable growth", it said.

Hamad Shahwan AlDhaheri, executive director of the private equities department at ADIA, said that IDFC First Bank has firmly established itself as one of India's leading private sector banks, backed by a seasoned management team, and expanded technology and branch infrastructure, and is thus “well positioned for the future".