Federal Bank on Tuesday reported a 25% year-on year (YoY) rise in its net profit to Rs 1,007 crore, led by a robust growth in advances and other income. The Q3FY24 profit id higher than Rs 935 crore estimated by Bloomberg.
The lender’s bad loans, however, rose, with the gross non-performing asset (GNPA) ratio rising 3 basis points on a sequential basis to 2.29%. Net NPAs at 0.64% were flat QoQ. Credit costs — or the capital set aside for potential bad loans — rose by 20 bps on a QoQ basis.
Managing director and CEO Shyam Srinivasan said a large account that slipped into the NPA category during Q3 may recover as soon as Q4 itself. The bank at the beginning of the current fiscal had guided that overall slippages would be around Rs 1,800-1,900 crore during FY24, Srinivasan said. With Rs 1,300 crore of slippages being reported till 9MFY24, the lender’s estimates will likely be met.
On whether the RBI’s rules on higher risk weights for unsecured consumer loans will lead to a moderation in the bank’s exposure to such credit, Srinivasan said the book is largely secured and unsecured loans have meaningfully risen only in the last two years.
“(Unsecured loans) are still 3%-4% of our overall outstanding loans, we do have some headroom for growth, within that and within our risk appetite, we will keep growing… we are keeping a close watch, remember in this book it takes 18-24 months to start showing stress, so we are tracking it very closely. We are not growing by waving any credit criteria…,” he said.
With regard to the RBI’s letter to send the names of two fresh candidates for the post of MD, CEO, Srinivasan said the lender has engaged with specialist firms to identity candidates.
Federal Bank had applied to the RBI for a one-year extension to Srinivasan as MD, CEO as his current term ends in September this year. The RBI, however, was not inclined to give one-year term extension and has accordingly sought names of fresh candidates.
Core business
During Q3, the private sector lender’s deposits grew at a faster rate compared with credit. For instance, while overall deposits rose 19% YoY and 3% QoQ to Rs 2.39 trillion as of December end, net advances were up 18% YoY and 3% QoQ to Rs 1.99 trillion.
Owing to a robust credit growth, the lender’s NII rose 9% YoY to Rs 2,123 crore during October-December. Net interest margin (NIM), or the difference between interest earned and expended, has been under pressure for the industry, Srinivasan said, but the bank will try to sustain the current level of NIM at 3.19% during Q4 with a change in the business mix, improving credit quality and higher yield on new businesses.
Other income—which includes fees from sale of third party products and treasury income, among others—rose 18% QoQ and 62% YoY to Rs 863 crore during Q3.
Shares of the bank ended 2.2% lower at Rs 149.70 apiece on Tuesday. The lender released its Q3 earnings during market hours.