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What the record says.
Federal Bank reported a strong start to FY24 with total business crossing INR 4 lakh crore, achieving sequential growth of ~5% despite Q1 seasonality. Management reiterated 18%-20% credit growth guidance and expects NIM to improve from Q2 onwards, targeting full-year NIM around 3.30%. The bank sees margin expansion driven by yield on advances rising to 9.27% in Q2 while cost of deposits moderates. Credit quality remains stable with credit cost guided at ~40bps. Key risks include competitive pressure on loan pricing and potential deposit rate wars, though management believes the worst of the rate war is behind. The bank also highlighted a recovery in NR deposit momentum and a disciplined approach to high-yield segments, capping unsecured exposure at 10% of the book.
Colored figures show movement against the previous available record.
Guidance to track
- Management expects advances and liabilities to grow 18%-20% for the full fiscal year, with strong momentum seen in Q1 and continuing into Q2.
- Net interest margin for FY24 is expected to be around 3.30%, with Q1 at 3.15% and improvement from Q2 onwards.
- Management guided credit cost to be around 40 basis points plus or minus for the full year, consistent with previous commentary.
- Management reiterated guidance of 7-8 basis points improvement in return on assets for FY24, with a similar improvement expected in FY25.
Risks flagged
- Management acknowledged intense competition in home loans and other segments, which may cap yield expansion despite favorable mix shift.
- Analyst raised concern about potential deposit rate hikes by PSU banks; management believes worst is behind but competition remains.
- Retail slippages increased partly due to COVID restructured book maturing; further stress could emerge as the restructured portfolio normalizes.
- Analyst noted that despite 33% share in advances, high-yield segments contribute only 30% of revenue, suggesting lower-than-expected yield benefit.
Key quotes
- The INR 1 lakh crore, from three to four, was done in two years, and the previous INR 1 lakh took us, I think, three years, and the previous INR 1 lakh took us five years.
- We believe that the compression we saw should start turning the way, you know, there should be margin expansion that will come through because the tail end of the rate increase on deposits have played through.
- Our model of the bank is to ensure that we go after the better-rated segments in every better-rated customer in every segment, be comparatively priced.
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