Federal Bank - Focusing On Growing Profitable Segments: Nirmal Bang

Nirmal Bang Report

We met the management of Federal Bank Ltd. The bank maintains its guidance of loan growth at 18-20% for FY24 and is on track with return on asset improvement to 1.4% by FY25. Higher yielding segments like commercial vehicle/construction equipment, credit cards, Personal Loans, micro, small and medium enterprise (business banking plus commercial banking) and microfinance are expected to see faster growth on a low base.

On the liability side, Federal Bank is focusing on cross selling current account, savings account and term deposit products to its existing customers and leveraging its relationships with wholesale clients/fintech partnerships. However, in the near term, net interest margin will be a key monitorable due to moderate increase in the cost of funds in H2 FY24.

Opex ratio is expected to be elevated at more than 50% over the medium term due to continued physical expansion and digital investments. The impact of the recent Reserve Bank of India guidelines on increase in risk weights is expected to be ~50 bps on CET-1.

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