Whalesbook
Home Loan Strategy Shift
Federal Bank is actively moderating its expansion in the home loan segment. The decision is driven by concerns that current market pricing does not offer favorable risk-adjusted returns. This strategic pivot means the bank will prioritize offering home loans primarily to customers who already engage with multiple banking products.
Yield Outlook and Rate Cycle
The bank noted its Q4 yield on advances stood at 8.65 percent. This figure is viewed within the context of the interest rate cycle likely reaching its nadir. With a significant portion of its loan book linked to floating rates tied to EBLR or MCLR, the current yields reflect this low-rate environment. Management believes rates are poised to either hold steady or gradually increase from current levels, which should support the expansion of asset yields.
Margin Resilience
Despite approximately 125 basis points of rate cuts from peak levels, Federal Bank's net interest margins (NIMs) have shown considerable resilience. The bank provided guidance for FY27, projecting a modest NIM expansion of five to six basis points each quarter, acknowledging this growth may not be perfectly linear.