Federal Bank: Quarterly Update
01-02-2022

Federal Bank | Market Cap 21,148 Cr

CMP 101 | P/B 1.05x FY23

Results: Federal Bank reported 7% growth in Net interest income and Loan book growth of 12% year on year. Fee Income grew 15% during the same period.

Operating profit before provisioning declined 4% year on year.

Click here to see the 10 year X-ray of Federal Bank

 

Key Highlights

  • Retail loans for the quarter grew at 8%, largely from Agri (18%) and Business banking (11%). Non-retail loan growth was 12% year on year majorly from Institutional Banking (14%) and Corporate banking (12%).
  • NIM improved to 3.27% (vs 3.22% in Q3FY21) however, Cost of deposits increased to 4.32% (from 4.27% in previous quarter).
  • Cost to income ratio grew to 54.8% from ~50% in Q3FY21. Asset quality declined as the GNPA^ & NNPA^^ grew to 3.06% & 1.05% (from 2.71% & 0.6% in Q3FY21) respectively.
  • Standard Covid Specific Restructuring outstanding is 3,519 Cr, which is 2.45% of Gross Advances. While restructuring is optically higher, ~98% of this book is secured and has a collection efficiency of 96%.
  • The bank has Rs. 730 Cr provision for Covid specific restructuring. The overall provision coverage ratio is 65.8%.
  • Overall deposits grew by 8.5% year on year and CASA** improved to 36.68% (vs 34.48% in 3QFY21).
  • As of end of Q3FY21, bank had 1,274 branches and 1,882 ATMs all over India. Out of all branches, 16% are in metros and 54% in semi-urban and 12 in rural areas.

Outlook: Management expects RoA (return on assets) possibility of 1.2% over next 4-6 quarters. This is to be led by NIM expansion of ~0.1% with change in loan mix (out of this 0.05% has been done already). Also it expects the credit costs to decline as the bank has done upfront provisions. Cost-benefit arising out of digital strategy will lead to improvement in cost to income ratio in next 2 years.

As per the management, the bank has managed Covid-19 related stress quite well, similar to frontline banks. It is on track to improve its ROE profile through higher-yielding Retail/CV/Credit cards in its portfolio mix. Overall credit growth guidance remains in the mid to high teens.

 

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