Federal Bank plans to increase foreign currency deposits and explore international borrowing following recent RBI relaxations. The bank maintains its mid-teen loan growth target for FY27 after reporting a 36.6% year-on-year profit rise in the June quarter.
Federal Bank is looking to strengthen its deposit base and funding mix by targeting Foreign Currency Non-Resident (Bank), or FCNR(B), deposits in the coming months. These deposits are made by non-resident Indians in foreign currency. Recent regulatory changes by the Reserve Bank of India have made it easier for banks to mobilize these funds, creating a window that the management intends to utilize as part of its funding strategy for the September quarter.
Strategic Funding and International Debt
Managing Director and CEO KVS Manian noted that the bank is approaching this segment with a measured strategy. Rather than engaging in aggressive interest rate competition, the bank plans to price these deposits competitively, targeting a spread of 8 to 10 basis points. Beyond deposits, the bank is also keeping its options open for external commercial borrowings. The institution has already secured the necessary credit ratings for international debt markets and is currently monitoring global economic conditions to ensure any borrowing provides an economically sound benefit to the bank’s balance sheet.
Financial Performance and Growth Outlook
The bank reported a net profit of Rs 1,177 crore for the June quarter, marking a 36.6% increase compared to the same period last year. While this growth highlights a strong trajectory, the profit figure was slightly below some market expectations. Looking ahead, the management has maintained its guidance for mid-teen loan growth for the fiscal year 2027. If credit demand in the market remains robust, the bank has signaled that it may consider revising this growth target upward.
Margins and Revenue Context
A key focus area for investors remains the net interest margin, which represents the difference between the interest income generated and the interest paid to depositors. Following a 13 basis point expansion in the June quarter, the bank expects a further average increase of 5 to 6 basis points in the upcoming quarters. The bank is also focusing on financing for mid-market corporate clients to support loan growth. Meanwhile, the high volume of remittances from West Asia, which provided a boost to the bank during periods of geopolitical instability, is now beginning to moderate, which is a factor to track for future fee-based income stability.
Investors will likely monitor the actual mobilization of FCNR(B) deposits and the timing of any potential international borrowing, as these factors will influence the bank's cost of funds and overall liquidity management in the second half of the year.