Private sector lender Federal Bank on Friday reported a 63% on year increase in its net profit to Rs 600.6 crore in the first quarter of the current financial year on account of significant lowering of provisions. The lender witnessed a 74% on year decline in its provisions to Rs 166.7 crore in Q1FY23 as compared to Rs 640 crore in the same quarter of the previous year.
Despite a rise in net profit, the bank posted a decline in its pre-provisioning profit. The loss in the treasury market caused a decline in the lender’s other income which in turn impacted its operating profit. The bank’s operating profit declined to Rs 973 crore, down 14.3% on year. The bank’s other income declined 30% on year to Rs 453 crore despite an increase in its retail fee income. The bank earns fee income from services such as card transactions, loan processing, commissions and foreign exchange charges.
The bank’s net interest margin (NIM) for Q1FY23 fell within the guidance provided by the bank in the previous quarter. As on June 30, NIM stood at 3.22%, higher by 7 basis points (bps) on year while sequentially margin improved by 6 bps. Net interest income (NII) improved by 13% on year to Rs 1,605 crore in Q1FY23.
The bank’s cost of deposits declined by 8 bps to 4.20% in Q1FY23. Deposits recorded a growth of 8% to reach Rs 1.83 trillion while the current accounts, savings accounts (CASA) ratio improved by 203 bps to 36.84%. The lender’s capital adequacy ratio as of June 30 declined to 14.57% from 14.64% a year ago.
On the asset quality front, the bank witnessed elevated levels of slippages in the retail loan segment with slippages of around Rs 204 crore in Q1FY23 compared with Rs 126 crore a year ago. One of the reasons the bank has seen an increase in slippages in the retail segment is due to restructured accounts slipping into non-performing assets (NPA), Shyam Srinivasan, managing director and chief executive officer of the bank said in a press conference. While the slippages in retail and agribusiness division are likely to remain elevated for one or two quarters, Srinivasan added that the level is within the bank’s guidance range. The bank saw an expansion of 14 bps in credit costs on a sequential basis to 0.41% in Q1FY23. On a year-on-year basis, the credit cost declined by around 95 bps.
Gross non-performing asset (NPA) ratio stood at 2.69% on June 3 as against 2.80% a quarter ago and 3.50% a year ago. Net NPA ratio stood at 0.94% on Jun 30 as against 0.96% a quarter ago and 1.23% a year ago. Provision Coverage Ratio stood at 65.03% as on June 30 as compared to 65% a year ago.
The bank posted higher-than-industry growth in advances to 16% on year as almost all segments saw an improvement in credit offtake during the quarter. Retail segment, which is a major contributor to the loan book, grew by 14% on year, while agribusiness division and business banking division grew by 19% and 18% respectively. Housing loans form the bulk of the bank’s retail loan segment.