Federal Bank reported a 9% year-on-year increase in net profit for the third quarter at ₹1,041 crore, aided by higher fee and other income. Interest income of the private sector lender saw a modest rise of ₹6,868 crore against ₹6,809 crore in the third quarter of the previous year.
Other income jumped 20% to ₹1,100 crore, boosting profitability. This was driven by an all-time high fee income of ₹896 crore, with the balance coming from non-fee income.
The lender’s net interest income (NII) grew 9% to a record ₹2,652.73 crore in Q3FY26. The growth in NII was supported by a 4% year-on-year decline in net interest expenses to ₹4,215 crore. As a result, the bank’s net interest margin (NIM) expanded 7 basis points year-on-year and 12 basis points quarter-on-quarter to 3.18%.
What did MD & CEO, Federal Bank say?
KVS Manian, MD & CEO, Federal Bank, said there will be some pressure on margins in the next quarter due to the recent repo rate cut. “We have seen the impact of that for a month in the Q3 that will fully play out in Q4. We have to see how to mitigate the impact of that in the next quarter,” he said while addressing the bank’s Q3 earnings press meet.
He added that a higher share of low-cost current account and savings account (CASA) deposits and a falling cost of deposits, and advances mix will help cushion the impact on margins. “Our asset mix is also moving towards medium yielding assets,” he said.
Total business expanded 11.4% year-on-year to ₹5.53 lakh crore at the end of the December 2025 quarter. Advances rose 9% to ₹2,65,722 crore. Commercial Banking advances grew 25% year-on-year to ₹28,177 crore as of Q3FY26, while corporate loans increased 9% to ₹94,886 crore.
However, the bank’s yield on advances continued its declining trend, falling to 8.7% from 9.39% in the same period last year. Manian said the drop in yields was lower than what the repo rate cut would have suggested.
Retail Portfolio Performance
The bank’s retail portfolio including personal loans, gold loans, and agriculture and allied segments grew 5% year-on-year to ₹1.43 lakh crore. Commercial vehicle and equipment finance recorded the strongest growth within retail loans at 26% to ₹5,343 crore, while core retail loans remained flat at ₹69,186 crore compared with ₹68,551 crore in the year-ago quarter. The gold loan book rose 12% year-on-year to ₹35,221 crore, while microfinance advances declined 1.47% to ₹4,064 crore.
“May was the peak of the slippages (in microfinance). We are seeing month-on-month decline in slippages since then. Clearly the MFI space is improving,” Manian said.
Asset quality improved meaningfully, with gross and net non-performing assets (NPAs) declining to decadal lows. Gross NPA fell to 1.72% from 1.83% in the previous quarter and 1.95% a year ago, while net NPA eased to 0.42% from 0.48% in the preceding quarter.
On the liability side, total deposits increased 12% year-on-year to ₹2.98 lakh crore. CASA deposits rose 19% to ₹95,498 crore, while NRE deposits grew 10% to ₹87,402 crore. CASA deposits now account for 32.07% of total deposits. The cost of deposits improved to 5.48% from 5.92% a year ago.
On reports of Federal Bank exploring the acquisition of Deutsche Bank’s India retail portfolio, Manian said the bank is evaluating all kinds of opportunities, though there is nothing on the table to disclose at present. “We remain focused on accretive opportunities that can present themselves,” he said.
Shares of Federal Bank closed 10% higher at ₹270.35 on the NSE.