Private sector lender Federal Bank on Thursday missed estimates as it reported its March quarter net profit at Rs 906 crore due to higher operating expenses. The Bloomberg consensus estimates of net profit was Rs 963 crore.

Shyam Srinivasan, MD & CEO, explained that the while the March quarter was operationally the strongest quarter, but ‘some of the numbers have seen wrinkles only because the bank took a one-off impact on account of certain wage related matters, in terms of pension costs.’

During the quarter, the bank’s total expense rose 36% year-on-year (YoY) and 9% quarter-on-quarter (QoQ) to Rs 5,622 crore. The higher expenses were on account of higher wage related provisions to comply with the 12th bipartite settlement agreement between lenders and bank unions.

“We have been every year sequentially increasing our spends (on IT systems) as a share of our overall expenses. I think last year (FY24) we are getting close to 6.5%-7% of our expenses. More desirable space would be closer to 8%, so in FY25 and FY26 we will get there,” he added.

Srinivasan said that the bank is in the advanced process of sending his successor candidates names to the Reserve Bank of India (RBI), and has a large list of external and two senior internal candidates for the same. The bank will send the candidate names to the RBI within weeks, he said, but did not divulge details on whether former Kotak Mahindra Bank joint MD KVS Manian will be a part of the candidate list. Srinivasan’s tenure as MD, CEO ends on September 22, 2024.

The Board of Directors of the bank have proposed a dividend of Rs 1.20 per equity share of face value Rs 2 each, amounting to 60% of the face value. Shares of the bank ended trading 3.4% higher at Rs 168 per share on the BSE today.

The lender’s overall advances rose 20% YoY and 5% QoQ to Rs 2.09 trillion as on March 2024. Retail loans constituted 56% of overall advances and grew 25% YoY, whereas corporate loans formed 44% and grew 15% YoY.

Overall deposits, at the same time, rose 18% YoY and 5% QoQ to Rs 2.52 trillion as on Q4FY24 end. The share of low-cost current account and savings account (CASA), however, moderated to 29.38%, from 30.63% a quarter ago and 32.68% a year ago. The bank is targeting to grow overall deposits in the range of 16%-18% in the current fiscal, added Srinivasan.

Net interest income (NII) — the difference between interest earned and expended — rose 15% YoY and 3% QoQ to Rs 2,195 crore during Q4. Other income grew 3% YoY but moderated 13% sequentially to Rs 754 crore in Q4FY24. Net interest margin (NIM) grew from 2.96% in Q3FY24 to 3.20% in Q4FY24 and the lender is expecting NIM to be in the 3%-3.25% range in FY25.

The bank’s asset quality improved, with gross and net non-performing asset ratio (GNPA, NNPA) at 2.13% and 0.60% in Q4, lower than 2.29% and 0.64% in Q3FY24. Going forward, the bank is targeting 18% YoY growth in advances in the current financial year.