Federal Bank Q2 Profit Drops on Higher Provisions

Mumbai, Oct 18 (PTI) Federal Bank on Saturday reported a 9.51 per cent decline in its September quarter consolidated net profit at Rs 991.94 crore as

provisions surged.

The private sector lender had reported a net profit of Rs 1,096.25 crore for the year-ago period.

The core net interest income rose 5.4 per cent to Rs 2,495 crore on the back of a 6.23 per cent growth in its loan book and a 0.06 per cent compression in the net interest margin year-on-year at 3.06 per cent.

A senior bank official said the lender is aiming to grow the book by 10-12 per cent in the second half of the fiscal, which will be higher than the 7.6 per cent in H1 and lead to a credit growth of under 10 per cent for FY26 even if the upper end of the aim for the latter half is met. This will be lower than the 12.14 per cent for FY25.

Managing director and chief executive K V S Manian told reporters that demand for corporate loans, which form a sizable chunk because of the high number, is still weak and hoped that the increase in consumer demand due to measures like the GST cuts by government prompts corporates to initiate capacity additions.

Retail will be the focus area from a loan growth perspective for the bank, he said. However, Manian also said that the bank will be cautious on the microfinance loans and personal loans segment.

The bank wishes to be profitable in the loan growth efforts, he said, adding that it cannot push hard on the home loans front due to the lower yields because of aggressive posturing by competition. The home loans de-grew 1 per cent during the quarter, he added.

The other income for the bank rose by 12.26 per cent to Rs 1,082 crore.

Manian said the deposit growth for the quarter stood at 7.36 per cent, and added that Federal Bank will be focusing on increasing the share of the low-cost current and saving account balances going forward.

From an asset quality perspective, the fresh slippages came at Rs 579 crore, up from Rs 428 crore in the year-ago period, and the slippage ratio also increased to 0.94 per cent from 0.79 per cent a year ago.

The bank management said that the slippages are lower than the Rs 658 crore in the quarter-ago period, and added that it has also been able to contain the slippage ratio under 1 per cent. The gross non-performing assets ratio for the lender improved to 1.83 per cent from 1.91 per cent at the end of the preceding quarter and 2.09 per cent on-year.

The overall provisions for the bank jumped to Rs 397.44 crore from Rs 196.14 crore in the year-ago period, which hurt the profit growth the most.

Manian explained that the bank undertook a change in the provision policies on the unsecured loan exposures in the December quarter of last year, and hence, the provision numbers are not comparable.

The capital adequacy of the lender stood at 15.71 per cent at the end of the quarter. Manian said the bank's board will be meeting on November 24 to deliberate on a fundraising plan, but declined to spell out any details when asked if the infusion will be a strategic one.