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What the record says.
Federal Bank reported a record net profit of INR 1,057 crore (+10.79% YoY) and NII of INR 2,367 crore (+15.11% YoY) in Q2 FY25. Asset quality improved with GNPA at 2.09% and net NPA at 0.57%. Deposit growth lagged loan growth (1% QoQ vs 19.45% YoY advances), leading to a CD ratio above 85%. Management emphasized CASA growth and tactical term deposit pricing to close the gap. New MD KVS Manian is conducting a strategy review, with details expected in December. NIM was impacted by 7bps due to penal charge reclassification; underlying NIM improved to 3.19%. Risks include elevated competition for deposits, potential MFI stress, and margin pressure from rate cuts.
Colored figures show movement against the previous available record.
Guidance to track
- Management reiterated loan growth guidance of around 18% for FY25, with focus on deposit mobilization rather than slowing advances.
- Full-year credit cost guidance remains at 29-30 basis points, supported by strong asset quality and conservative underwriting.
- ROA guided at ~1.8% for the full year, with potential slight improvement if rate cuts occur later.
- Bank plans to raise INR 1,500 crore via infrastructure bonds to fund infrastructure assets, a first for the bank.
Risks flagged
- Deposit growth was only 1% QoQ vs loan growth of 19.45% YoY, leading to a CD ratio above 85%. Management aims to close the gap but faces competitive pressure.
- MFI slippages have increased, though management claims they are below industry levels due to conservative underwriting and geographic concentration in southern states.
- NIM was impacted by 7bps due to penal charge reclassification. Potential rate cuts could further pressure margins, though management expects underlying NIM improvement.
- RBI embargo on co-brand credit card reissuance remains unresolved. Management expects to approach RBI soon for one model, but other models may take longer.
Key quotes
- Our goal remains to be the most admired bank, and we are committed to adding momentum to this vision.
- We are amongst probably the top three or four in the private sector banks that have announced results on a QoQ CASA growth.
- We do want to get higher NIMs, we do want to improve our unsecured mix. All of that is true, but the way we get there or the speed at which we get there is different, given the environment.
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