Federal Bank is Motilal Oswal’s preferred midcap private banking pick. They have a Buy rating with a target price of Rs 250 per share. This implies around 18% upside from current levels for the Federal Bank share price. According to Motilal Oswal, strong business growth and the bank rebalancing its portfolio toward medium- and high-yielding segments support the Buy call among the key movers from the list of bank sector stocks. The main drivers include better margins, asset mix shift and improved cost efficiency.
Federal Bank recorded slower growth in FY25 due to its ongoing portfolio rejig and conscious shift toward higher-yielding products. However, Motilal Oswal believes that its strategic focus, “driven by asset mix improvement, liability optimization, and digital initiatives, positions it well to improve its profitability profile.”
Motilal Oswal on Federal Bank: Strategic shift under new CEO
The report highlighted that the bank is addressing key gaps and is on track to deliver stable growth with improved margins and stronger return ratios under the new CEO.
Though the stock trades at a discount to peers, improving fundamentals and a better Return on Asset and higher return on equity “should support valuation re-rating over time, particularly as the steps that management is taking begin to yield results.” Motilal Oswal added.
They expect the bank’s RoA to expand to 1.4% and RoE to rise 15.6% by FY28, with potential upside from rising margins and continued asset mix shift.
Motilal Oswal on Federal Bank: Asset quality improving
The other key factor supporting Motilal’s view on Federal Bank includes the strategic shift towards profitable growth by reshaping its asset mix while preserving asset quality. In FY25, it reported modest credit growth of 12% as the bank deliberately slowed non-friendly corporate loan growth, while other segments like gold loans continued to grow at a healthy pace. Although gold loan growth slowed in Q4 due to regulatory factors, Motilal Oswal pointed out that the “recent relaxations by the RBI should support recovery.”
Federal Bank remains cautious on unsecured credit but expects a gradual re-entry as conditions improve. That said, Motilal Oswal highlighted that Federal Bank’s net interest margins may remain under pressure for the near-term due to rising funding costs, muted CASA growth, and yield compression from the transmission of repo rate cuts. Further the brokerage house pointed out that the “bank has exited select non-remunerative corporate loans, replacing them with better-yielding assets. We estimate margin to improve to 3.45% by FY28.”
Federal Bank share performance
The Federal Bank share price is up 4% in 1 month and the returns in 2025 is nearly 5%. The bank has gained 19% in the last 1 year. The shares are trading very close to their 52-week high level of Rs 219 per share.