The stress in the agri microfinance business of Federal Bank Ltd. will dissipate in the coming quarters as the trend of slippages is downward month-on-month, Executive Director Venkatraman Venkateswaran said.
"The bank's Q1 slippages came from the agri micro-finance business. The rest of the book is stable," Venkateswaran told NDTV Profit on Monday.
Federal Bank's profitability in the April-June period came in at a five-quarter low due to MFI slippages and higher credit cost. Slippage ratio rose to 1.11%, higher by 27 basis points sequentially and 33 bps year-on-year.
The bank's fresh slippages were higher at Rs 658 crore and were driven by higher contributions from the MFI book and seasonal stress in the agriculture portfolio. "The trend of the slippages from May to June is downward. It gives us belief and confidence that the worst of slippages in agri MFI is behind us," he said.
The top official said provisions will improve from the December quarter, while slippages will get better from the September quarter. He also stressed that there is no change in the full-year credit cost guidance at 0.55%.
"The second quarter will see a higher growth rate. The momentum on focused identified segments is strong. The cost of deposits is down 20%," Venkateswaran said.
Federal Bank Q1 Recap
Federal Bank's net profit declined by 15% to Rs 862 crore in the June quarter as a compression in margins impacted core income and an uptick in bad assets led to higher provisions. For the quarter, its core net interest income rose by just 2% to Rs 2,337 crore.
The other income was up 22%to an all-time high of Rs 1,113 crore on a surge in core fees and also a jump in treasury income. The private sector lender reported a credit growth of 9%, but the narrowing of NIM to 2.94% from the year-ago period's 3.16% impacted the core income growth the most.
The bank's managing director and chief executive K V S Manian said the NIMs will hit the bottom in the September quarter before rising to over 3% levels as deposits reprice, and added that its credit growth will accelerate to 12-13% levels with higher growth in the second half.
The overall provisions shot up to Rs 437 crore in April-June period, from Rs 173 crore which impacted the profits. The gross non-performing assets ratio inched up to 1.91% from 1.84% in the quarter-ago period.
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