Federal Bank plans to increase its CASA ratio to 36% by focusing on MSME customers and product penetration. The bank also targets mid-teen loan growth while maintaining stable credit costs, as it strategically shifts away from wholesale deposits to manage its funding costs effectively.
Federal Bank is working toward a medium-term goal of reaching a Current Account Savings Account (CASA) ratio of 35% to 36% within the next three years. This ratio represents the proportion of a bank's total deposits that come from low-cost current and savings accounts. A higher CASA ratio is generally beneficial for banks, as it helps reduce the cost of funds and can support net interest margins, which measure the difference between the interest income generated by banks and the amount paid out to depositors.
Strategic Focus on Deposits and Lending
To achieve this, the bank is focusing on increasing product usage among existing customers and expanding its services to the micro, small, and medium enterprises (MSME) sector. The management highlighted that while CASA figures can fluctuate from quarter to quarter due to seasonal patterns, the year-on-year growth remains steady. To maintain a stable and granular deposit base, the bank is deliberately limiting the growth of wholesale deposits, which are typically large-ticket and more expensive funds.
Federal Bank is also managing its funding through Foreign Currency Non-Resident (FCNR) deposits. The bank anticipates a rise in these inflows ahead of the September 30 deadline and has launched the FCNR Max scheme to attract these deposits. The institution aims to capture approximately 2.5% to 3% of the incremental FCNR(B) market as part of its broader resource mobilization strategy.
Credit Costs and Portfolio Outlook
On the lending side, the bank expects mid-teen loan growth. It continues to focus on its gold loan portfolio, which it anticipates will eventually account for 15% to 18% of its total loan book. Regarding asset quality and credit costs, the bank has maintained its guidance in the range of 50 to 60 basis points, with expectations that performance will lean toward the lower end of this bracket. One basis point is equal to 0.01 percent.
While the bank maintains a steady outlook, it remains watchful of external factors, specifically mentioning potential impacts from geopolitical developments in West Asia that could influence the broader economic environment. For investors, the key monitorables will be the actual trend in CASA accumulation, the success of the FCNR deposit mobilization, and whether the bank can continue to maintain its credit costs within the targeted range while growing its MSME and gold loan portfolios in a competitive banking sector.