Q2FY20 was a modest quarter for FB in terms of loan growth, NIM and asset quality. Other income and retail book growth provided support. Disappointment was largely on higher slippages at Rs 540cr mainly on higher corporate slippages skewed by one account of Rs 180cr to large group

Federal Bank Ltd is a major Indian commercial bank in the private sector headquartered in Kerala having 1,251 branches and 1,942 ATM/ Recyclers and a loan book size of ~Rs116,000cr. A muted sequential growth in interest income due to the decline in the yield on advances from 9.55% in Q1FY20 to 9.33% in Q2FY20. Business growth was moderate at 17%, with advances and deposits growing at 15% & 18% YoY respectively. The provisions slightly increased on a YoY basis and the bank has...

After a relatively steady show over the trailing three quarters, a small but broad stumble (growth, margins and opex) is evident. Even as corporate slippages were significantly higher (largely from identified stress), the steady watchlist and a <2% SMA book provide consolation on asset quality. At 1.1x FY21E ABV, valuations are cheap and reflect FB's inconsistent journey through challenging macros. It is noteworthy that the incumbent MD&CEO was granted a only year's extension by the regulator (with conditions for further extension). Maintain BUY with a TP of Rs 119. FB saw higher slippages, margin contraction, slower growth and an opex bump up in 2QFY20. A static watchlist was the silver lining. With a TP of Rs 119 (1.5x Sept-21 ABV of Rs 79), we maintain BUY.

Federal Bank reported a decline in its credit growth at 15% YoY (vs 19% Q1FY20) due to a cautious approach towards its corporate portfolio. Net Interest Income grew by 10% YoY led by decline in NIMs, while PAT grew by 56% YoY due to corporate tax rate cut benefit (effective tax rate at 11% vs 35% in Q1FY20). Operating profit grew by 15% YoY driven by a 30% growth in Non-Interest Income. GNPA due to higher slippages in the quarter increased by 8bps sequentially to 3.07%. With NIM declined by 14bps QoQ to 3.01%, cost to income ratio increased by 410bps QoQ to 53.5%. We revise down the PAT estimates by 4%/10% for FY20/21 and re-iterate BUY' with a new TP of Rs.110 (Rs...

Many one-offs dent operating profit, Retain BUY Net profit came in at 4.2 bn, up by 56.6% yoy. This quarter numbers were marked by slower growth, higher NPLs (led by one large corporate account), elevated opex cost and a miss on margins too. Slippages were at 5.4 bn (vs. 4.2 bn qoq) which were largely led by one large corporate account amounting to 1.8 bn. Bank highlighted its exposure to few large vulnerable accounts (incl. 2 HFCs and IL&FS;) amounts to 4.75 bn which are still standard in the books and provisions on these are at 0.7 bn. Margins qoq slipped by ~14 bps to 3% led by linking of advances & deposits to external benchmark repo rates. Mgmt expects exit margin of 3.13.15% in FY20. On the opex side, due to fall in the yields and upward revision in wage hike...

one account of Rs1.8bn to large group, while retail/SME continued on their run rate. Few accounts from NBFC/HFC of Rs7.7bn continue to be on stress list which remains a risk to asset quality leading to miss in guidance but bank has been making adequate provision on case to case basis to cushion hits and remain within the credit cost guidance range. Stock currently trades attractive valuations of 1.3x FY20 & 1.2x FY21 ABV with a steady NIM and continued operating levers. Retain BUY with revised TP of Rs102 (from Rs121) based on 1.3x Sep-21 ABV as we lower loan growth and adjust to...

Federal Bank Limited (FBL) is a major private sector bank headquartered at Aluva, Kerala with 1,251 branches and 1,668 ATMs spread across 25 states, Delhi NCR and 4 union territories. The Bank was incorporated on April 23, 1931 as the Travancore Federal Bank Limited, Nedumpuram and Late K.P. Hormis, the visionary banker and founder took up the reigns in 1945 and built the bank a nationwide institution. The bank's business segments include Retail, Corporate, Business Banking, Commercial Banking and Agriculture. FBL is a pioneer among traditional banks in India in the area of using technology to leverage its...

Q1FY20 operational performance of Federal Bank (FB) was healthy with strong fee income growth and steady provisions with controlled slippages in a seasonally weak quarter. NII growth was muted with advance growth of 19%, marginally lower than previous run rate.

The bank witnessed a strong 30% YoY growth in operating profit and the Net Interest Income grew by 18% over the same period. Total deposits increased 19% YoY, with a muted CASA growth at 12% YoY, and CASA ratio declined by 203bps YoY to 31.44%. The provisions remain stable on a YoY basis with a marginal decline in provision coverage ratio sequentially to 67.41%. The bank maintained a stable asset quality with GNPA/NNPA at 2.99%/1.49%, but a sharp rise witnessed in retail slippages....

Inconsistent performance across parameters (spanning asset quality and C-I) capped valuations for FB over several quarters. We sense increasing stability over the last two quarters. Despite factoring higher slippages and provisions towards stressed exposures, FB can deliver earnings CAGR of ~28% led by operating leverage and better core performance, especially asset quality. To be sure, FB has stumbled in the past but several corrective initiatives are probably paying off, finally. UPGRADE to BUY with a TP of Rs 117. We upgrade Federal Bank to BUY (TP Rs 117, 1.5x June-21 ABV of Rs 77) after a better than expected show across parameters, in a seasonally weak quarter. Further consistency can lead on to significantly better outcomes.

Healthy Operating Performance; Consistency Key to Valuations Federal Bank has delivered an in-line set of numbers in 1QFY20 led by NII growth of 18% YoY, a healthy 25% YoY growth in core fee-based income and 30% YoY growth in PPoP. However, slippages were higher than our estimate mainly led by elevated retail slippages, though higher write-offs aided GNPA ratio (+7bps QoQ). Further, NIM declined sequentially despite sharp rise in lending yields owing to continued pressure on cost of funds and one-off in 4QFY19. Notably, advances and deposits grew by 19% YoY each. Loan growth during the quarter was driven by retail loans, which grew by 26% YoY. CASA ratio continued to move southwards. Nonetheless,...

Federal Bank's numbers were a beat on our estimates. Net Interest Income/PAT growth of 17.8% and 46% YoY was 1.6/7.8% above our expectation. Operating profit came in fairly higher (+29% YoY) driven by a 45% growth in Non-Interest Income. GNPA due to slightly higher slippages in the quarter increased by 8bps sequentially to 3%. Credit growth though lower than our expectation of 20%, was decent at 18.8%. With NIM almost flattish at 3.15%, cost to income ratio improved by 240bps YoY to 49.4%. We largely retain our numbers on FY20/21 and re-iterate BUY' with a new TP of Rs124...

Federal Bank posted good numbers PAT grew by 46% yoy led by stable asset growth & margins, higher treasury gains which the bank offset with higher gratuity cost. There was slight disappointment on higher slippages reported on retail and business banking segments and slower growth in savings deposits. Positively, the bank has no exposure to some of troubled cos like airways or media company. Its total exposure to some of the stressed cos is relatively less at...

Operational performance came in healthy at 30% YoY to | 783 crore, led by higher other income at | 392 crore (~45% YoY). However, NII growth came in at 18% YoY to | 1154 crore, lower compared to our estimate. Margins improved 3 bps excluding one off of 5 bps in margins in Q4FY19. As of Q1FY20, margins were at 3.15%. Led by higher slippages in the quarter, provisions increased 8% QoQ, to | 192 crore, while stable YoY. Accordingly, PAT was at | 384 crore, up 46% YoY, largely in line with our estimates. Advance growth came in lower at ~19% YoY to | 113717 crore. However,...

Higher retail slippages not a structural issue Federal Bank (FBL) reported 1QFY20 results with the key takeaways being: (1) Overall slippages increased to Rs 4.15bn for the quarter compared with Rs 2.56bn for 4QFY19 mainly due to higher retail slippages but we do not see this as a structural problem (2) NIM remained broadly flat, declining 2 bps to 3.15% QoQ supported by favourable business mix and loan re-pricing (3) Core fee income rose 25% YoY. Management had previously indicated that fee income traction would be a key RoA expansion driver going forward and (4) Digital strategy continued to display encouraging outcomes and augurs well for opex control (See detailed conference call takeaways on page 2 for significant incremental colour). Per se, on the key P&L; items, FBL posted a net interest...

Cost-to-income ratio improved by 60 BPS q-o-q and 244 BPS y-o-y due to strong topline and other income performance. The bank's strategy of building incremental book in better-rated borrowers (corporate) and granular and higher-yielding book (CV, cards and PL) on the retail and business banking side, with tight control on asset quality is positive for the long term. Stressed pool at 1.67% of total assets has been reducing and is down by...

on higher than expected provisions. Bank undertook higher standard asset provisions on specific stressed accounts and also maintained PCR of 50% as slippage of Rs4.3bn came at higher end of trend line, while recovery/upgrades was lower. Bank continues to maintain its credit cost guidance of 60bps & slippages in line with trends with slight risk of one-off a/c in corporate. While...

16 July 2019 controlled provisions (-4% YoY to INR1.9b) and higher other income (+45% YoY). NII stood at INR11.5b (+18% YoY), which, coupled with higher other income, drove 24% YoY growth in total income. NIM shrank 2bp QoQ to 3.15%. Core fee income grew robustly by ~35% YoY to INR2.2b and was well supported by treasury profit of INR0.9b (+86% YoY). Loan growth of 1.6%/18.8% QoQ/YoY was driven by retail + agri loans (+24% YoY), whereas growth across business banking/commercial banking slowed down to 13%/12% YoY. Deposit base grew 19% YoY to INR1.3t, led by term deposits (+23% YoY).

We recently met with Mr. Shyam Srinivasan, CEO of Federal Bank (FBL) and gleaned Sector: Banking incremental insight into the strategy of the company. We share our detailed takeaways below. We revise our estimates for FY20/FY21 and retain Buy rating, revising our target CMP: Rs103...

Federal Bank (FB) reported strong earnings growth led by sharp improvement in asset quality and lower provisions. GNPA improved by 22bps QoQ to 2.9% driven by lower slippages. Credit growth is at 20%, driven by retail, which grew 25%.