Citi has maintained a 'neutral' rating on Federal Bank (FB), with a price target of Rs 360 even as the stock had a negative reaction to reports claiming that it will acquire stake in Jana Small Finance Bank.
However, both banks later clarified that there was no material event or information that requires disclosure, though stated it evaluates various opportunities in the ordinary course of business.
Citi research delved deeper into the prospective pros and cons of a deal and outlined that Jana SFB's Assets Under Management and deposits represent 14% and 11% of FB's advances/deposits, respectively.
"It potentially offers FB geographic reach into underpenetrated markets, access to high-yield granular secured retail portfolio, PSL diversification, captive customer base for liability cross-sell, and funding cost arbitrage," the brokerage said in its note.
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Elucidating on the same Citi noted that Jana's CASA ratio remains structurally weak at 18-20% compared to FB's 32%-plus CASA ratio. Jana's funding cost at 7.4% remains materially elevated relative to FB's 5.2%, presenting funding cost arbitrage.
It further explained why Federal Bank's stock reacted negatively to a potential deal, highlighting that the market perceives risks in any such transaction.
These risks include integration complexity, inheriting unsecured portfolio (though CGFMU guarantee provides buffer), and uncertainty around the deal itself and its contours, including structure, valuation, etc.
Federal Bank Q1 FY27
Private lender Federal Bank reported a strong performance for the quarter ended June 2026 (Q1FY27), with net profit rising 36.6% year-on-year (YoY) to Rs 1,177 crore, driven by healthy growth in net interest income (NII) and lower provisions.
The private sector lender's NII grew 26.1% YoY to Rs 2,946 crore, compared with Rs 2,337 crore in the corresponding quarter last year.
On the asset quality front, gross non-performing assets (GNPA) improved to 1.52% from 1.62% in the March quarter, while net NPA (NNPA) declined to 0.18% from 0.20% sequentially.
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