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%.