Federal Bank Remains Motilal Oswal's Preferred 'Buy' Among Mid-Size Private Banks - Here's Why

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Motilal Oswal Report

Federal Bank Ltd. recorded slower growth in FY25 due to its ongoing portfolio rejig and conscious shift toward higher-yielding products. Its strategic focus—driven by asset mix improvement, liability optimization, and digital initiatives—positions it well to improve upon its profitability profile.

Under new CEO Mr. Manian, the bank is addressing key gaps and is on track to deliver stable growth with improved margins and stronger return ratios.

Though the stock trades at a discount to peers, improving fundamentals and a better RoA/RoE profile should support valuation re-rating over time, particularly as the steps that management is taking begin to yield results. 

We estimate RoA to expand to 1.4% and RoE to 15.6% by FY28E, with potential upside from rising margins and continued asset mix shift.

As operating leverage improves, the cost/income ratio is likely to decline to ~48.8% by FY28. Federal Bank remains one of our preferred Buy-rated ideas among mid-size private banks with a target price of Rs 250 (1.5x FY27E adjusted book value).

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