This article first appeared on GuruFocus .
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Net Profit:INR 1,176.93 crores, up 36.57% YoY.
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Earnings Per Share (EPS):INR 19.15, up 36.06% YoY.
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Net Interest Income (NII):INR 2,945.89 crores, up 26.06% YoY.
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Net Interest Margin (NIM):3.33%, up 13 basis points sequentially and 39 basis points YoY.
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Total Deposits:INR 320,117.66 crores, up 11.37% YoY.
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CASA Ratio:Improved 188 basis points to 32.23%.
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Gross Advances:INR 281,239.54 crores, up nearly 15% YoY.
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Fee Income:INR 957.21 crores, up 21.7% YoY.
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Cost-Income Ratio:Improved to 52.5%, down 239 basis points YoY.
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Gross NPA (GNPA):Improved to 1.52%, down 39 basis points YoY.
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Net NPA (NNPA):Record low of 0.18%, down 30 basis points YoY.
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Provision Coverage Ratio (PCR):Strengthened to 87.37%.
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Return on Assets (ROA):Improved to 1.22%, up 22 basis points YoY.
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Return on Equity (ROE):Improved to 12.02%.
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Release Date: July 17, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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The Federal Bank Ltd ( LSE:FEDS ) reported a strong start to FY27 with a net profit increase of 36.57% year-over-year.
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Net interest income rose by 26.06% YoY, and net interest margin improved by 39 basis points YoY.
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The bank's CASA ratio improved by 188 basis points to 32.23%, indicating a strong deposit base.
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Asset quality reached a decadal best with GNPA at 1.52% and NNPA at a record low of 0.18%.
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The bank secured an investment-grade international credit rating from S&P, enhancing its access to global capital markets.
Negative Points
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Treasury income has been muted in the last two quarters, impacting overall income growth.
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Processing fees were down sequentially, indicating potential challenges in fee income generation.
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The inflation trajectory is above the RBI's medium-term target, posing macroeconomic challenges.
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The bank's yield on advances saw a slight dip, partly due to strong corporate growth, which may affect future margins.
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There are segments like auto and small business loans where execution could be sharper, indicating room for operational improvement.
Q & A Highlights
Q: Can you explain the sequential decline in processing fees and the sustainability of NIMs going forward? Also, do you have any targets for FCNR deposits under the RBI scheme? A: The decline in processing fees is typical for the first quarter due to lower disbursement levels compared to the fourth quarter. Regarding NIMs, they are sustainable due to both liability and asset side actions, with a focus on improving the CASA ratio and asset mix. We don't have a specific target for FCNR deposits but expect to get our fair share. The cost effectiveness of FCNR will be evaluated as it plays out. - Krishnan Subramanian, CEO
Q: What is driving the sharp decline in the cost of deposits, and how should we expect it to move incrementally? Also, what is driving the CASA improvement? A: The decline in the cost of deposits is primarily due to the impact of cash certificates at the end of the year and interest on IT refunds. The CASA improvement is driven by a combination of factors, including opening more current and savings accounts, better quality accounts, and a focus on liability side KPIs. The growth is well-distributed across retail, commercial, and corporate customers. - Venkatraman Venkateswaran, CFO
Q: The low-yielding proportion of the loan book has increased slightly. Is this due to opportunistic lending, and will it correct over time? A: The increase is due to strong corporate growth this quarter, which is not our normal trajectory. We expect the asset mix change to continue as we focus on mid-yielding segments like commercial banking and gold loans. Even within the corporate segment, we are shifting towards mid-market, which should improve yields. - Krishnan Subramanian, CEO
Q: Given the strong start to the year, how should we look at the growth trajectory for the coming year? A: Our guidance remains mid-teens plus growth, with a positive bias. We are confident in our strategy and will remain alert to the environment to flex our strategy as needed. - Krishnan Subramanian, CEO
Q: Are you seeing any ground-level stress in the MSME book due to fuel price hikes? A: We have not yet seen any impact on our books. Slippages in our small business loans have declined, indicating no significant stress in this segment. - Krishnan Subramanian, CEO
Q: Can you provide more details on the cost of deposits decline and its impact on NIM? A: The decline in the cost of deposits is due to the reinvestment deposits, where interest is accrued quarterly but paid at the end of the year. This has a denominator effect, but the real drop in cost of deposits is about 11 bps, contributing to the NIM expansion. - Venkatraman Venkateswaran, CFO
Q: How does the FCNR offering impact the NRE franchise, and is there any poaching of deposits? A: We haven't seen any negative correlation between FCNR and NRE deposits. The FCNR offering does not impact the NRE franchise adversely. - Krishnan Subramanian, CEO
Q: What is the outlook for the gold loan segment, considering the decline in tonnage and increase in LTV? A: Our LTVs remain around 60%, and we are comfortable with the current levels. We expect the gold loan growth trajectory to be sustained, with no significant stress anticipated. - Krishnan Subramanian, CEO
Q: What is the impact of the FCNR deposits on the cost of funds compared to dollar borrowings? A: The cost of funds depends on several moving parts, including base rates, dollar-rupee swap rates, and rupee rates. Timing is crucial, and we will evaluate the cost-effectiveness at the time of pricing the deal. - Krishnan Subramanian, CEO
Q: What is your definition of "fair share" in the context of FCNR deposits? A: Our usual share in FCNR deposits is around 2.5%. We aim to maintain this share in the current window. - Krishnan Subramanian, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
