Federal Bank Q1 PAT up 42% on strong income growth

Led by strong growth in its net interest income (NII) and steady asset quality, Federal Bank posted a net profit of ₹854 crore for Q1 FY24, up 42 per cent y-o-y. Sequentially, the profit after tax was lower than ₹903 crore in Q4 FY23.

NII was up 20 per cent y-o-y at ₹1,919 crore for the quarter, whereas other incomes were up 62 per cent at ₹732 crore.

The bank’s net advances grew 21 per cent y-o-y to ₹1.8-lakh crore as of June 30, led 17 per cent growth in retail loans, 18 per cent in business banking loans, 22 per cent in commercial banking loans, 20 per cent in agriculture loans and 22 per cent in corporate loans.

Favourable Fundamentals

In the earnings call, MD and CEO Shyam Srinivasan said that growth in advances has been broad-based across geographies, products and consumer segments. Assuming 13-14 per cent credit growth for the banking sector in FY24, Srinivasan pegged loan growth for the bank at 18-19 per cent for the full year, adding that the bank will continue to gain market share throughout the year as the fundamentals remain favourable.

Federal Bank said overall consumption trends look strong and the bank is expected to see 40-45 per cent growth in credit cards given the small base and strong growth in the CV portfolio led by external demand and logistics growth and increased distribution.

NIM (net interest margin) for the quarter was 3.15 per cent compared with 3.31 per cent a quarter ago, and 3.22 per cent a year ago.

Srinivasan said the NIM compression was in-line with the bank’s estimates owing to slower repricing of deposits. Further, recovery in margins is seen faster than anticipated with the bank expecting a 5-7 bps rise in margins in Q2.

Restructured loan slippages

Of the total slippages of ₹490 crore in Q1, about ₹250 crore were from retail loans of which one-third were from the Covid restructured book. This led to quarterly slippages for the bank being 10 per cent higher than the average of ₹400-450 crore. The bank saw loan recoveries and upgrades of ₹246 crore.

Higher slippages led to the bank’s gross NPA ratio worsening marginally to 2.38 per cent as of June 30, from 2.36 per cent a quarter ago, but was better than 2.69 per cent a year ago. The net NPA ratio at 0.69 per cent was flat from a quarter ago, but saw an improvement from 0.94 per cent in the previous year.

Bulk of the unsecured lending by the bank is to existing or pre-qualified customers and the quality of portfolio is holding up well, Srinivasan said, adding that credit costs are likely to to remain around the Q1 level of 41 bps for the rest of the financial year, pegging the slippage rate at around one per cent of the loan portfolio.

Deposits of the bank rose 21 per cent y-o-y to ₹2.2-lakh crore at the end of June. Srinivasan said that while there may continue to be some challenges on deposit accretion, considerable credit expansion on a sustained basis, for the industry as a whole, will ensure that deposit growth also picks up pace.

Saying that the incremental deposit rate battle may not be as intense, Srinivasan does not expect any “pricing challenges of scale” for the bank.