Federal Bank Q2 Results: Profit Down 10% As Provisions Surges To More Than Twofold

Federal Bank reported profit for the September quarter declined due to higher provisioning expenses, even as key asset quality ratios showed improvement on a sequential basis.

The lender reported a 9.6% fall in net profit for the September quarter to Rs 955.26 crore, compared with Rs 1,056.69 crore in the year-ago period, according to its statement to the exchanges. The bottom line, however, surged 11% on a sequential basis.

Net interest income declined 19.9% year-on-year to Rs 1,896 crore from Rs 2,367 crore. Provisions rose sharply to Rs 363 crore, a 129.7% increase from Rs 158 crore registered in the year-ago period.

• Net profit down 9.6% to Rs 955.26 crore versus Rs 1,056.69 crore

• Net interest income down 19.9% to Rs 1,896 crore versus Rs 2,367 crore

• Provisions up 129.7% to Rs 363 crore versus Rs 158 crore

• Gross NPA at 1.83% versus 1.91% (QoQ)

• Net NPA flat at 0.48% (QoQ)

"Last year we were not taking accelerated provisions against unsecured loans. This year we have taken that. So we can’t compare provisions year-on-year. The impact of that provision will go away after Q4," The lender's Chief Executive Officer KVS Manian said.

Federal Bank's return on assets, on a non-annualised basis, came up to 0.27%, marking a slight increase from the previous quarter's 0.25%. The lender's return on equity, as per a press release, came up to 11.06% for the quarter under review.

Net advances also saw a 6% year-on-year increase, reaching Rs 2.44 lakh crore, while total deposits jumped over 7% in the same period to R. 2.89 lakh crore as on Sept. 30.

The company's net interest margin saw an uptick of 12 basis points, coming up to 3.06% in the September quarter versus the previous three months' 2.94%.

CASA ratio, on a sequential basis, rose to 31.01% from 30.35%.

"Our CASA franchise continues to demonstrate sustained and meaningful growth, reflecting the trust of our customers and the consistency of our team’s execution," KVS Manian, Managing Director and chief executive of Federal Bank said in the press release.

"We’re also broadening our asset mix thoughtfully, increasing the share of our mid-yield portfolio in a measured and disciplined way. At the same time, our fee income has seen strong, double-digit sequential growth, underscoring the breadth and resilience of our earnings," he added.

Federal Bank's board will also be meeting on Oct. 24 to mull a fundraise via share sale through a rights issue, preferential allotment or qualified institutional placement.

The bank's management, in a post-earnings media call, said that it expects credit growth of 10-12% in second half of fiscal 2026.

"We normally try to benchmark ourselves against the nominal GDP and we expect to grow around 1.2 times of that. Currently, nominal GDP with the low inflation is in single digits. So, we would say between 10-12% would be the credit growth for H2," the management said.

The bank said that it continues to remain cautious on microfinance and personal loans and is not pushing for growth in the space.

"We need to grow in our chosen segments and the growth must be profitable. These are very important for us, and we are seeing opportunities to grow at a reasonable clip and still remain profitable," the management explained to journalists.