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Motilal Oswal Report
The Federal Bank Ltd. reported a strong quarter with a profit after tax of Rs 8 billion (up 54% YoY and 13% beat), aided by lower provisions and net interest margin expansion even as the bank prudently increased the provision coverage ratio to ~70%. Margin improved 19 bps QoQ to 3.49%.
Gross advances grew 19.1% YoY, led by a broad-based pickup across all business segments. Deposit growth was healthy, led by strong traction in term deposits, while current account and savings account ratio moderated to 34.2%.
Fresh slippages came in at Rs 4.1 billion (~1.1% of loans), led by a QoQ increase in the retail segment. Gross/net non-performing asset ratio moderated to 2.43%/0.73%, while restructured loans too improved 20 bp QoQ to ~1.8%.
Federal Bank reported a return on asset/return on equity of 1.33%/15.91% in Q3 FY23. We raise our estimates by 5-7% as we build in higher margins and provisions.
Federal Bank remains our preferred pick among mid-sized banks and we estimate it to deliver a RoA/RoE of 1.3%/15.2% in FY25.
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