The attention of investors on Dalal Street has been quite intense on the difficult operating environment for larger private sector banks like Axis Bank, IndusInd Bank and Kotak Mahindra Bank. And even mid-sized private sector banks like Federal Bank, Bandhan Bank and IDFC First Bank have had to grapple with a tough operating environment in the June 2025 quarter – Federal Bank on Saturday reported a near 14.7 % y-o-y fall in its standalone net profit to Rs 861.75 crore in the quarter under review.
Earlier, Bandhan Bank reported a near 65% y-o-y fall in its net profit to Rs 372 crore in the June 2025 quarter. And IDFC First Bank’s standalone net profit also fell nearly 30% y-o-y to Rs 462.57 crore in the June 2025 quarter.
The Bandhan Bank share price ended nearly 2.8 % lower on Friday to Rs 163.4, and it has risen since its 52-week low of Rs 128.2 that was reached on 18 February 2025. In the case of Federal Bank, the stock fell 3.1 % on Friday to Rs 196, and it has risen from its 52-week low of Rs 173 that was reached on 3 March 2025.
Performance in the June 2025 quarter
For a key operational parameter net interest margin (NIM), for Federal Bank it was 2.94 % in the June 2025 quarter vis-à-vis 3.16 % a year earlier. And for Bandhan Bank, its NIM was 6.4 % in the June 2025 quarter vis-à-vis 7.6 % a year earlier.
Even for larger rival, Kotak Mahindra Bank, it’s NIM of 4.65 % in the June 2025 quarter vis-à-vis 5% a year earlier. The central bank had cut repo rates in its last meeting in early June 2025, and while interest rates on bank loans / credit facilities have come down, interest rates on deposits with the bank come down with a lag.
Meanwhile, Federal Bank grew its advances by nearly 9 % y-o-y to Rs 2.45 lakh in the first quarter of FY 26, and for Bandhan Bank, its advances grew 6 % y-o-y to Rs 1.33 lakh crore in the quarter under review. Larger rival, Axis Bank’s advances grew by 8 % y-o-y to Rs 10.59 lakh crore in the first quarter of FY 26.
However, Federal Bank’s provisions rose nearly 177 % y-o-y to Rs 400 crore in the June 2025 quarter and the resulting near 14.7 % y-o-y decline in standalone net profit. Similarly, Bandhan Bank’s provisions rose nearly 119 % y-o-y to Rs 1,146.9 crore in the June 2025 quarter, and Bandhan Bank’s % of net NPAs to net advances was 1.36 % in the June 2025 quarter vis-à-vis 1.15 % a year earlier.
For HDFC Bank, the largest private sector bank, its % of net NPAs to net advances was 0.47 % in the June 2025 quarter vis-à-vis 0.39 % a year.
HDFC Bank has also performed better than its much smaller rivals for a key operational parameter — HDFC Bank’s return on assets (average) not annualized was 0.48 % in the June 2025 quarter. And Bandhan Bank’s return on assets was 0.2 % in the June 2025 quarter while Federal Bank’s return on assets was 0.25 % in the June 2025 quarter.
Growth outlook
The RBI has taken several steps to boost lending in the banking system. Investors will be closely monitoring Federal Bank, Bandhan Bank, IDFC First Bank and other leading banks for their ability to protect their NIMs as well as performance on other operational parameters.
And Federal Bank’s 668 branches, Bandhan Bank’s 1,750 branches and IDFC First Bank’s 1,016 branches across the country will play a key role in accessing low cost CASA deposits as well as growing its advances going forward.
Valuations
Federal Bank trades at a P/E of 13 times estimated standalone FY 26 earnings while Bandhan Bank trades at a P/E of 18 times estimated FY 26 earnings.
HDFC Bank trades at a P/E of more than 20 times estimated standalone FY 26 earnings.
Mid-sized banks trade at a lower valuation however, investor sentiment for these stock is weak given the recent quarterly performance.
Disclaimer
Amriteshwar Mathur is a financial journalist with over 20 years of experience. The writer and his family have no shareholding in any of the stocks mentioned in the article.
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