Release Date: October 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Federal Bank Ltd (BOM:500469, Financial) achieved its highest-ever net profit of INR 1,057 crores, reflecting a year-over-year growth of 10.79%.
- The bank's asset quality improved with Gross Non-Performing Assets (GNPAs) reduced to 2.09% and Net NPAs to 0.5%.
- Net Interest Income (NII) reached its highest level at INR 2,367.23 crore, marking a year-over-year growth of 15.1%.
- The bank's CASA ratio increased by 80 basis points quarter-over-quarter, positioning it among the industry's leaders in CASA growth rate.
- The Federal Bank Ltd (BOM:500469) reported a significant turnaround in NR savings with a 6.8% growth during the first half of FY '25, reversing last year's decline.
Negative Points
- Deposit growth in the quarter was only 1%, raising concerns about how the bank plans to accelerate it in the coming quarters amid high competition.
- There was a divergence between loan growth and deposit growth, with the latter lagging, which could pressure the bank to slow down loan growth or increase deposit mobilization.
- The bank's unsecured loan mix remains low, which could limit potential yield improvements.
- The bank is facing challenges in maintaining its Net Interest Margin (NIM) compared to other large private banks.
- There is a slight uptick in slippage rates for credit cards and personal loans, although it remains a small percentage of the overall portfolio.
Q & A Highlights
Q: How does Federal Bank plan to accelerate deposit growth in the upcoming quarters given the competitive environment?
A: Shalini Warrier, Executive Director, explained that the bank is focusing on maintaining CASA growth by ensuring primary bank status with customers and driving greater CASA growth through both wholesale and retail banking. The bank is also calibrating term deposit costs to avoid unsustainable high rates, focusing on competitive tenors, and leveraging distribution capabilities to attract new funds.
Q: What factors contributed to the sharp increase in general service charges and para-banking fees?
A: Shalini Warrier noted that the increase in general service charges is partly due to a change in how penal charges are reflected. The growth in para-banking fees is attributed to new corporate agency partnerships with Tata AIA and Bajaj Allianz Life, which have expanded distribution capabilities and product offerings.
Q: How is Federal Bank managing its Loan-to-Deposit Ratio (LDR) and what are the future plans regarding loan and deposit growth?
A: Harsh Dugar, Executive Director, stated that the bank aims to push deposit growth rather than slow down loan growth. The focus will be on increasing deposit mobilization, particularly CASA, while continuing to pursue loan growth opportunities without compromising asset quality.
Q: What is the current status of the credit card embargo and what steps is the bank taking to comply with RBI guidelines?
A: Shalini Warrier mentioned that the bank is working with partners and RBI to ensure compliance with the framework. They are focusing on a model with Scape, which aligns closely with RBI's expectations, and plan to approach RBI soon for confirmation. Other models may take longer to adjust.
Q: What is the outlook for Federal Bank's asset quality, particularly in the MFI and credit card portfolios?
A: Harsh Dugar highlighted that while there are heightened slippages in the MFI sector, the bank's conservative approach and focus on favorable geographies have kept slippages below industry levels. Shalini Warrier added that the bank has seen a slight uptick in slippages in credit cards and personal loans, but these remain a small part of the overall portfolio, and effective controls are in place.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
