Apr'25 View on Federal Bank Ltd

The Federal Bank Limited (‘the Bank’) was incorporated in 1931 as Travancore Federal Bank Limited. It provides retail and corporate banking, para banking activities such as debit card, third party product distribution etc., treasury and foreign exchange business.[1].It is the second-largest bank and the largest private sector bank in Kerala Initiating buy coverage with target of 225 based on following inputs Rationale: • Federal Bank reported a 5% yoy decline in earnings due to a 220% increase in provisions (lower base). • The bank’s headline performance in this quarter does not show any signs of worry. • Slippages at 90 bps are still holding up well. • Management has made some early remarks about certain changes in assets and liabilities, but we should have more clarity in the ensuing quarters. • Maintain BUY; FV unchanged at Rs225. Q3FY25 Earnings Update: Positives: • Federal Bank reported ~15% yoy loan growth. • The CASA ratio has remained stable at ~30%, with no decline from previous levels. • Net Interest Margin (reported) remained flat qoq at 3.1%. • GNPL and NNPL ratios declined ~10 bps qoq at ~2.0% and ~0.5%, respectively. Negatives: • Non-interest income growth was relatively slower at ~6% yoy, led by lower treasury income. • Federal Bank reported a 5% yoy decline in earnings due to a 220% increase in provisions (lower base).