Federal bank is aggressively expanding its credit card business and have recently been the best credit card in terms of throwing offers at premium channels including Lifestyle, Amazon, MMT, Yatra…. Marketing efforts are very visible and right there amongst top tier banks. Am sure, these businesses will grow from a low base, driving high earnings growth visibility for Federal. Good times ahead it seems?
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Federal Bank has consistently delivered NIMs at the bottom of the curve (competition is far ahead). While so far the Provisions have been limited, we don’t know the future, given proposed changes in the asset profile. So far the aggression in its asset profile hasn’t resulted in improved NIMs
Going ahead the fight for deposits will only intensify and the interest rates (on assets) are going to start falling. In such a scenario, with such lower NIMs how will it sustain profitability
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Yes … this is a valid concern
There r no easy answers. The only answer is increasing focus on unsecured loan book. Once it gets into double digits, NIMs can improve structurally. Management is at it
Till then, the overhang should remain
still in the previous quarter, there was a notable rise in the investment made by FII in Federal Bank. Its among top in banking sector in terms of fii investment
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FEDERAL BANK -
Q4 FY 24 results and concall highlights -
Key financial parameters -
Deposits @ 2.52 lakh cr, up 18 pc YoY
Advances @ 2.09 lakh cr, up 20 pc YoY
Gross NPAs @ 2.13 vs 2.36 pc
Net NPAs @ 0.6 vs 0.69 pc
PCR @ 71.08 vs 70.02 pc
Credit cost for FY24 @ 0.23 vs 0.40 pc YoY
Q4 NII @ 2195 vs 1909 cr, up 15 pc YoY
Other income @ 754 vs 734 cr
Fee income @ 620 vs 542 cr
PAT @ 906 vs 903 cr ( affected adversely due - Rs 162 cr being set aside for VRS settlement of employees )
Cost of funds @ 5.97 vs 5.21 pc YoY
Yield on Advances @ 9.48 vs 9.13 pc YoY
NIMs @ 3.21 vs 3.36 pc YoY
Segment wise loan / advance growth -
Retail - 20 pc
Agri - 28 pc
Business banking - 21 pc
CV/CE - 57 pc
MFI - 141 pc
Commercial banking - 27 pc
Corporate banking - 12 pc
High yielding segments include - Credit cards, Personal loans, MSME loans, CV/CE loans, Micro Finance. These segments are also the fastest growing ones. These segments combined form 24.6 pc of loan book vs 21.8 pc YoY - growth and asset quality in these segments is a key monitor able to be tracked
CASA ratio @ 29.38 vs 33.81 pc ( falling CASA is an industry wide phenomenon )
CASA + Deposits ( < 2 cr ) @ 80 pc of total deposits vs 85 pc YoY
Total branch count @ 1500, up by 140 branches YoY
In Q4, slippages were below the recoveries - a very very encouraging sign ( there were no one offs in recoveries ). Q4 slippages were at 352 cr vs 436 cr YoY
Expect fee income to keep growing @ 20 pc kind of rates for FY 25 as well
The rapid branch expansion is leading to increased growth in operating expenses ( even after accounting for one time VRS related provisions )
Aim to open a min of 100 branches in FY 25
Guiding for a credit cost of 30 bps for FY 25
Market conditions wrt garnering deposits continues to be tough. Should see cost of deposits icing up further - over next 1-2 Qtrs
Despite that, the bank is guiding for a 2-3 bps NIM expansion due greater focus on high yielding business
IT spends @ 6 pc of OPEX. Aim to take this to 8 pc of OPEX
Overall OPEX is likely to remain elevated due IT spends, branch expansion
Disc : holding, biased, not SEBI registered
HI all, Just a general question. Why regional banks, although doing well are trading usually at PBV 1 or 1.5 in the last 10 years. Banks like Karanataka, Federal, CUB, KVB, etc. Thier ROE is reasonably well around 15%.
FEDERAL BANK -
Q1 results and concall highlights -
Deposits @ 2.66 lakh cr, up 20 pc
Advances @ 2.20 lakh cr, up 20 pc
NII up 19 pc @ 2592 cr
Fee income grew 22 pc @ 652 cr
Other income grew 25 pc @ 915 cr
NIMs @ 3.16 vs 3.20 pc
Gross NPAs @ 2.11 vs 2.38 pc
Net NPAs @ 0.60 vs 0.69 pc
High yielding segments grew at faster rates ( However, these segments grew on a lower base ) -
CV/CE loans up 51 pc @ 3.7k cr
MFI loans up 107 pc @ 3.7k cr
MSME book up 22 pc @ 40.1 k cr
Credit cards book up 73 pc @ 3.2k cr
Gold loans book up 31 pc @ 27.4k cr
Total high yielding book @ 35 pc of total loan book. Growth in high yielding segments is critical for the bank as their NIMs are on the lower side
CASA deposits grew by 10 pc @ 77k cr vs 70k cr YoY. CASA ratio @ 29 vs 33 pc YoY
CASA + Deposits < 3 cr form 80 pc of the Deposit book vs 84 pc YoY
Retail : Wholesale loan book @ 56:44
Yield on advances @ 9.43 vs 9.21 pc
Fresh slippages @ 417 cr - very well controlled - this to me is the key highlight of the results
Expecting the credit quality to remain within control for rest of FY 25 ( at similar levels as in Q1 )
Cost / Income @ 53 pc. Added 210 branches in last 18 months. Despite that, cost / income is trending downwards ( vs Q4 ). Aim to bring to down to 50 pc within 1.5-2 yrs time
Aim to add > 100 branches in FY 25. This should also help in deposit mobilisation
Federal bank’s loans are generally priced lower than other banks in most of the segments they operate. As a result, they are able to get best customers, lower slippages ( its reflected in the numbers as well ). But it comes at the cost of lower NIMs. But this is a deliberate ( and very conservative ) policy
Expect the NIMs to be around Q1 levels for Q2,Q3
Expect to exit FY 25 with RoA @ 1.35 pc vs 1.27 pc in Q1. That should mean - continued momentum in Deposits, Advances and control over slippages
Disc: holding from lower levels, things looks well within control, doesn’t look expensive at CMP, not SEBI registered, biased, not a buy / sell recommendation
5 Likes
Was comparing IDFC First Bank and Federal Bank Q2 Business Updates -
Both IDFC First Bank and Federal Bank have released provisional business updates for Q2 FY25. Here’s a comparison based on available data:
Key Metrics:
| Column 1 | Column 2 | Column 3 | Column 4 |
|---|---|---|---|
| Metric | IDFC First Bank | Federal Bank | |
| Loan Growth (YoY) | 21.3% | 19.3% | |
| Deposit Growth (YoY) | 32.2% | 15.6% | |
| CASA Ratio (Sep’24) | 48.9% | 30.07% | |
| Credit Rating | AA+ Stable (CRISIL and CARE) | AAA (CRISIL) | |
IDFC First Bank (IDFCFB):
● Strong Growth: IDFCFB witnessed robust growth in both loans and deposits during Q2 FY25
●CASA Focus: The bank’s CASA deposits surged by 37.6% YoY, contributing to a higher CASA ratio. This indicates a shift towards a more favorable deposit mix.
●Legacy Debt Repayment: IDFCFB is actively raising funds to repay existing borrowings, explaining the higher deposit growth compared to loan growth.This strategy aims to improve the bank’s financial health in the long run.
●Recent Merger: The merger of IDFC Limited with IDFC First Bank concluded on October 1, 2024, resulting in zero promoter holding. This transition positions IDFCFB as an independent entity, which could influence investor perception.
Federal Bank:
●Steady Growth: Federal Bank also exhibited healthy growth in advances and deposits, though at a slightly lower rate than IDFCFB.
●Retail Focus: The bank’s internal classification reveals a higher growth rate in retail credit (23%) compared to wholesale credit (13%). This focus on retail lending could imply lower risk and potentially higher profitability.
●Stronger Credit Rating: Federal Bank currently enjoys a slightly higher credit rating of AAA from CRISIL compared to IDFCFB’s AA+ Stable. A higher credit rating suggests lower credit risk for investors.
Conclusion:
●IDFCFB’s strong growth and improving CASA ratio are positive signs, as expected legacy debt repayment and the recent merger might introduce uncertainties.
●Federal Bank’s steady performance, retail lending focus, and stronger credit rating present a more stable picture.
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I believe high NIM model like that of IDFC bank is not sustainable for bank.
Lower NIM model like that of federal Bank is sustainable.
Lending rates by many private banks are still very high with respect to RBI policy rate. They are bound to come down as Indian economy gets more financialized.
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FEDERAL BANK | Q3 CONCALL
Loan book is expected to grow at 1.5x overall system growth rate
Accelerated provisioning may continue to impact results for 1 more quarter
Full-year credit costs are projected to be around 40-45 bps
Slippages for year are estimated to remain at approximately 1%
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The Federal Bank Ltd. announces the appointment of Mr. Virat Sunil Diwanji as the National Head – Consumer Banking and a Senior Management Personnel, effective April 10, 2025. Mr. Diwanji brings over 30 years of experience in Consumer Banking, previously serving as Group President at Kotak Mahindra Bank.
All those tracking Federal Bank for sometime if you can share your views on following aspects
- Impact of RBI gold loan regulations
- Change in provisioning norms (highlighted in last investor call)
- Change of management post new CEO
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