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What the record says.
Federal Bank reported a strategically reoriented Q3 FY25, prioritizing liability quality and asset-side prudence over headline growth. Total deposits declined marginally to INR 264,829 crore, driven by a deliberate reduction in wholesale and LCR-unfriendly deposits, while average CASA grew 2.3% QoQ. The bank took an accelerated provision of INR 292 crore on existing NPAs, raising YTD credit cost to 41 bps but maintaining full-year guidance of 40-45 bps. NIMs were held steady despite a marginal rise in deposit costs, supported by a pivot to fixed-rate auto loans and growth in medium-yield segments like commercial banking (up 24.5% YoY). Management targets 1.5x system loan growth over the medium term but remains cautious on unsecured lending, with MFI and personal loan books flat or declining. Key risk: further asset quality stress in microfinance and unsecured portfolios could pressure credit costs beyond guided levels.
Colored figures show movement against the previous available record.
Guidance to track
- Despite accelerated provisions of INR 292 crore in Q3, management expects FY25 credit cost to remain within 40-45 basis points.
- Management targets loan growth at 1.5 times the banking system growth rate over the medium term, post reorientation.
- Measures such as shifting to fixed-rate auto loans and improving average CASA are expected to support NIMs, though rate cuts pose a risk.
Risks flagged
- MFI stress is elevated, with higher slippages in Q3; management expects one more quarter of pain before improvement.
- RBI's September 2024 letter on gold loan practices may disrupt growth; management expects one to two quarters of disruption.
- Analyst questioned how choosy the bank can be on deposits given competitive pressures; management acknowledged the challenge but emphasized quality over growth.
Key quotes
- We are keeping the plane flying while refueling it mid-air.
- Fishermen repair their nets before they set sail. When the sea is too rough to sail, the smart ones don't wait; they get to work.
- Our intention is to get back to a growth which is, I would say, a broad number of one and a half times the system growth.
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