Federal Bank posted its highest ever quarterly profit of ₹1,006.74 crore in Q3 FY24, higher by 25 per cent on year and six per cent on quarter. Net Interest Income (NII) was up 8.53 per cent to ₹2,123.36 crore, also a quarterly record.

Net advances were up 18 per cent y-o-y and 3 per cent q-o-q to ₹1.99-lakh crore. Retail advances grew 20 per cent on year, business banking loans by 18 per cent, commercial banking loans 26 per cent and corporate advances by 14 per cent.

The net interest margin (NIM) for the quarter was 3.19 per cent, lower than 3.22 per cent in the previous quarter and 3.55 per cent in the previous year.

In the post-earnings call, MD and CEO Shyam Srinivasan said while the bank had expected NIMs to gain momentum in H2 FY24, the trend has not materialised due to the “tough” liquidity environment and slower deposit growth. However, this is a cyclical trend, and margins should remain at current levels going forward and start improving in FY25, aided by the pivot in the bank’s business towards retail assets and better credit quality.

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Deposits increased 19 per cent y-o-y and 3 per cent q-o-q to ₹2.01-lakh crore as of December 2023. The CASA ratio fell to 30.63 per cent from 34.24 per cent a year ago. Srinivasan attributed this to the macro environment, adding that the rate of fall in the CASA ratio for the bank is much lower than many peers.

Slippages

Slippages were higher in the quarter at ₹479 crore compared with ₹365 crore. Srinivasan said that the slight jump was because Q2 was an exceptionally good quarter, whereas Q3 has largely mirrored Q1, when slippages were ₹496 crore. Further, one large corporate account worth ₹70 crore slipped during the quarter but is expected to reverse in Q4, Srinivasan said.

Even so, the bank’s slippage rate continues to be below 1 per cent, one of the best in the industry. Overall slippages for FY24 should remain around ₹1,800-1,900 crore, of which around ₹1,300 crore have been seen in the first nine months, he said, adding that credit costs should continue to improve and remain within the long-term average of 30-35 bps.

The gross NPA ratio improved to 2.29 per cent from 2.43 per cent a year ago but was slightly worse than 2.26 per cent in the previous quarter. The net NPA ratio, too, fell to 0.64 per cent from 0.73 per cent in the previous year and was flat compared with a quarter ago.