Federal Bank’s net profit for the quarter ended March stood at Rs 1,259 crore, up 22.2% on year. The growth in the bottom line was due to rising net interest income (NII) and improvement in the asset quality. Analysts’ expectations of Rs 1,236 crore, according to data from Bloomberg.
NII for the reporting quarter increased 33% on year to Rs 3,173 crore, and the other income was up nearly 14% on year to Rs 1,145 crore. Analysts had pegged the NII at Rs 2,854 crore in the reporting quarter. The bank reported a one-off gain of Rs 456 crore which is the interest on the IT refund. The net interest margins expanded to 3.74% for Jan-Mar, as compared to 3.18% a quarter back.
In the post earnings media call, the bank’s management said that they aim to expand margins by 5-6 basis points per quarter, under the assumption that there are no repo rate changes or any further significant deterioration in the geopolitical conditions.
Strategic Shift
The retail loan book of the bank was up 1% year to Rs 70,118 crore while the corporate book was up 8% on year to Rs 1.25 lakh crore as on March 31. K V S Manian, managing director and CEO of Federal Bank said that have taken a conscious call to slow down the home loan book.
“Home loan is a highly competitive segment. At current pricing, we do not see our risk-adjusted returns being favourable. It’s a product that we want to offer to our customers as long as they are multi-product customers of the bank.” He also said that they aim to see a 10% growth in the corporate book.
Strengthening Liability Profile
The total deposits of the bank grew 5% on year to Rs 3.13 lakh crore, with current account and savings account (CASA) deposits crossing Rs 1 lakh crore as on March 31. The CASA ratio improved by 271 basis points on year to 32.94%. The non-resident external (NRE) accounts also reported a pick up of 12% on year to Rs 2,276 crore.
The bank also improved its funding profile by focusing on retail liabilities and deliberately reducing the volume of high-value deposits to lower the overall cost of funds which stood at 5.46%. The credit-deposit (CD) ratio stood at 84.25% as on March 31, and the management expects to remain in the range of 84-86%.
On the impact of the West Asia crisis, Manian said that they are seeing a pickup in the remittances, however if the situation prolongs and leads to job losses, then there could be some impact.
Provisions and contingencies inched for the bank in the reporting quarter and stood at Rs 741 crore form Rs 332 crore a quarter ago. The bank made a floating provision of Rs 456 crore, which the management said could be used for the expected credit loss (ECL) norms.
Asset quality improved with the gross non-performing asset ratio at 1.62% as on March 31, as against 1.72% a quarter ago and the net NPA ratio stood at 0.20% as against 0.42% a quarter ago. The credit cost inched up to 1.18%, however, excluding the one off, the credit cost would be 0.47%. The Basel-III capital adequacy ratio of the bank stood at 17.25% as on March 31.
The board announced a dividend of Rs 1.20 per equity share of face value Rs 2 each for the financial year 2025-26. On Wednesday, the shares of Federal Bank closed 2.01% lower at Rs 284.75 on NSE.