Federal Bank Q3 Results Review - Inline; Lower Provisions Drive Earnings Beat: Motilal Oswal

Motilal Oswal Report

Federal Bank Ltd. reported a mixed quarter as net earnings beat our estimate by 6% driven by lower provisions and healthy other income (FedFina stake sale gains) but slippages increased while net interest margins compressed 3 basis points QoQ.

Advances growth was healthy at 18% YoY/3.3% QoQ, led by robust growth in retail and commercial banking. Deposits grew 19% YoY/2.9% QoQ, aided by continued traction in term deposits. Thus, the current account and savings account ratio moderated 54 basis points QoQ to 30.6%.

Slippages increased to Rs 4.8 billion, due to higher slippages in the corporate segment.

Gross non-performing asset/net-non performing asset ratios were broadly stable at 2.3%/0.6%. Restructured book declined ~15 bp QoQ to 1.1%.

Federal Bank reported return on asset/return on equity of 1.4%/14.8% in Q3 FY24. We fine-tune our estimates following the Q3 results and expect Federal Bank to deliver RoA/RoE of 1.3%/14.5% in FY25.

We reiterate our 'Buy' rating on the stock.

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