Federal Bank Surges 10% on Robust Q3 Profit, Stable Core Income

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AuthorRiya Kapoor|Published at:
Federal Bank Surges 10% on Robust Q3 Profit, Stable Core Income
Overview

Federal Bank reported a 9% year-on-year increase in net profit to ₹1,041 crore for the December quarter, driven by stable core income and a stronger asset quality. Shares jumped 10% as net interest income grew, and net interest margins expanded. The bank also saw healthy loan and deposit growth, with improved NPA ratios, while exploring potential acquisitions and awaiting private equity funding.

Profitability Boost

Federal Bank's net profit climbed 9% year-on-year to ₹1,041 crore for the third quarter ended December, anchoring a robust financial performance. This gain was fueled by stable growth in core income and a healthier asset base. Net interest income (NII) rose 9% to ₹2,653 crore, while other income saw a significant 20% jump. Pre-provision operational profit increased by 10% to ₹1,729 crore.

Margin Dynamics and Growth

Net interest margin (NIM) expanded by 7 basis points year-on-year to 3.18% in Q3. Bank management indicated that while the last repo rate cut will fully impact net interest margins in the fourth quarter, mitigation strategies are being explored. Loans grew 11% year-on-year to ₹2.55 lakh crore, with retail loans constituting 55% of customer assets. Deposits also saw healthy 12% year-on-year growth, reaching ₹2.97 lakh crore, supported by an increase in low-cost CASA deposits to over 32%. The bank aims for "high-teens" growth in both loans and deposits.

Asset Quality and Strategic Outlook

Asset quality showed marked improvement, with gross non-performing asset (GNPA) ratio falling to 1.72% from 1.83% sequentially. Net NPAs improved to 0.42%. Fresh slippages were contained at ₹435 crore. Federal Bank is also awaiting final Expected Credit Loss (ECL) guidelines from the Reserve Bank of India. Management acknowledged evaluating strategic opportunities, including potential acquisitions, but offered no concrete details regarding reports of talks with Deutsche Bank. The bank anticipates a 50 basis point boost to its capital adequacy ratio upon completion of the proposed nearly 10% stake acquisition by Blackstone.

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