The Federal Bank Limited — Q4 FY25 earnings call

Call held 30 Apr 2025

Management summary

Federal Bank reported a strong Q4 FY25, with net profit up 14% YoY and full-year profit exceeding INR4,000 crores. The bank demonstrated robust deposit growth, particularly in CASA, and maintained healthy asset quality with improving GNPA. While mid-yielding segments like LAP, CV/CE, and credit cards showed strong growth, gold loans and microfinance faced headwinds, and NIM is expected to be challenging to maintain at current levels. Strategic initiatives for profitability and operational efficiency are underway.

Highlights

  • Total business crossed INR5 lakh crore, reaching INR5.18 lakh crore for FY25.

  • Net profit for FY25 exceeded INR4,000 crores, with Q4 FY25 net profit growing 14% YoY to INR1,030 crores.

  • Core fee income grew 6% QoQ, outpacing asset growth.

  • CASA deposits grew a healthy 6.74% QoQ, with CA growth at 27% QoQ and 35% YoY.

  • GNPA improved by 11 bps QoQ to 1.84%, and NNPA remained stable at 0.44%.

  • Provision coverage strengthened to 75.37%, an improvement of over 400 bps YoY.

Concerns

  • Gold loan growth slowed in Q4 FY25 due to certain regulatory guidelines.

  • Microfinance segment requires continued caution for 'a couple of more quarters or maybe at least 1 more quarter'.

  • NIM sustainability is challenging, with management stating it will be difficult to keep NIM exactly at the current level through the year.

  • Q4 operating costs were higher due to the bunching of branch expansion, with nearly 50% of 85 branches opened in Q4.

Key financials

3 periods

Headline

  • Total Business
    ₹5.18L Cr

Q4 FY25

  • Net Profit
    ₹1,030 Cr
    YoY +14%
  • Other Income
    ₹1,006 Cr
  • NIM
    3.1%
    QoQ +0.01%
  • Total Deposits
    ₹2.83L Cr
    QoQ +6.5%
  • CASA Deposits
    ₹85,700 Cr
    QoQ +6.7%
  • CASA Ratio
    30.2%
  • CD Ratio
    82.8%
  • LCR
    145%
  • GNPA
    1.8%
    QoQ -0.11%
  • NNPA
    0.44%
    QoQ 0%
  • Provision Coverage Ratio
    75.4%
  • CET1 Ratio
    15%

FY25

  • Net Profit
    ₹4,000 Cr
  • Credit Costs
    38 bps
  • Advances
    ₹2.38L Cr
    YoY +12%
  • ROA
    1.2%
    YoY +0.02%
  • ROE
    12.8%
  • Opex to Assets
    —
    YoY -0.01%

What they filed

Q1 FY27: revenue up 8.2%, net profit up 36.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue6,577 6,809 6,648 6,687 6,742 +3%6,868 +1%7,399 +11%7,238 +8%
Net profit1,057 955 1,030 862 955 −10%1,041 +9%1,259 +22%1,177 +37%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Loans Against Property
    20.5% Growth
  • Gold Loans
    21% Growth
  • Microfinance Portfolio
    19% Growth
  • CV/CE
    35% Growth
  • Credit Card Business
    19% Growth
  • Middle East Portfolio
    19% Growth

Capital allocation

high confidence
  • Liquidity Liquidity disclosed CRAR stood at a healthy 16.4%, CET1 ratio at 15.04%, and LCR was at 145% as at 31st March.
    Our CRAR stood at a healthy 16.4%, positioning us for a self-sustaining franchise. In terms of distribution, we opened 85 branches during the year, and we were quite careful in terms of choosing the locations of this expansion. ... Our capital position is strong with CET1 ratio at 15.04, well above regulatory requirements, providing ample headroom for growth. ... And as at 31st March, it was at 145.

Guidance & targets

Credit Growth

  • Overall Loan Growth Credit Growth · FY26 · Medium confidence better than 12%
    Yes, we are guiding that -- the growth will -- should get better than 12% that we have seen.

    — KVS Manian

Balance Sheet Growth

  • Balance Sheet Growth Balance Sheet Growth · Medium-term · Medium confidence 1.2x to 1.5x the industry growth rate or nominal GDP growth rate
    Param we have given that guidance right? We have always said we will lay in 1.2x to 1.5x the industry growth rate or the nominal GDP growth rate both are roughly the same metrics, roughly come to the same thing. So that's the guidance that continues.

    — KVS Manian

Profitability

  • Cost-to-Income Ratio Profitability · Next 2-3 years, medium term · Medium confidence flattish, around 53%
    And we have essentially guided a flattish cost-to-income number over the next 2 to 3 years. So 53 handles -- that handle is what you should expect in the medium term for us to remain at.

    — KVS Manian

Deposits

  • CASA Ratio Deposits · Over 3 years · Medium confidence 36%
    Look at our strategy document. We have guided that over 3 years we will get to 36% is what we have guided.

    — KVS Manian

Operating Costs

  • Opex to Assets Ratio Operating Costs · Next few quarters · Medium confidence around 52.5% to 53.5%
    we expect to be operating around the 53% level. The range will be around 52.5% to 53.5% in the next few quarters.

    — Venkatraman V

NIM

  • NIM Normalization NIM · About a year · Low confidence normal
    about a year, if you ask me, the broad principle wise about a year.

    — KVS Manian

What to watch in Q1 FY26

Gold Loan Growth

Next quarter
Current Slowdown in Q4 FY25
Target Resumption of steady growth

Why it matters

Gold loans are a mid-yielding segment, and resumption of growth is key to the bank's strategic focus and overall asset growth.

the recent regulatory clarity positions us to resume steady growth in that product as well, consistent with our performance over the past year.

Risks & concerns

  • NIM compression due to dynamic rate environment and competition

    high

    Management expects it to be challenging to maintain NIM at current levels through the year due to policy rates, changing mix, and competitive pressures, requiring an agile approach.

    Both acknowledged

  • Regulatory issues impacting Gold Loan growth

    medium

    Gold loan growth slowed in Q4 FY25 due to regulatory issues, but recent clarity is expected to allow resumption of steady growth.

    Management acknowledged

  • Credit environment for Microfinance

    medium

    The microfinance segment requires continued caution, leading to a conscious decision to slow growth in Q3 and Q4 FY25, with caution expected for 1-2 more quarters.

    Management cautious approach

  • Higher operating costs due to branch expansion

    low

    Nearly 50% of the 85 new branches for FY25 were opened in Q4, leading to a temporary uptick in the cost-to-income ratio, but costs are expected to flatten out over the year.

    Both acknowledged

Q&A highlights

8 direct
NIM sustainability and drivers Direct
the increase in yield on investments and increase in other earning assets have helped us ensure that the NIM is maintained, in fact, it's 1 bps higher than what it was in last quarter, 3.12

Clarifies how NIM remained flat despite loan yield decline and cost of funds increase, pointing to treasury and other earning assets as key contributors.

Asked by Rikin Shah

Gold Loan LTV and growth strategy Direct
LTV is at 75%, but banks in general are required to maintain the LTV throughout the tenure of the loan and not just time of origination. Even accrued interest is what we factor in, and we keep a little bit extra margin so that we don't cross LTV at 75% at any point.

Explains the bank's conservative LTV approach for gold loans, which led to degrowth but ensures asset quality, and how regulatory clarity will allow growth resumption.

Asked by Rikin Shah

Branch expansion costs and future opex growth Direct
of the 85 branches which we opened in FY '25, nearly 50% of it was in Q4. That was one of the reasons where it got bunched up a bit, and you saw a bump in Q4.

Addresses the higher Q4 operating costs, attributing it to concentrated branch openings, and provides guidance on future opex levels.

Asked by Rikin Shah

Remittance market share strategy Direct
we've ensured from a profitability standpoint that we don't follow some of the trends of giving unnecessary discounts on rates... our profitability from a remittance engine has actually gone up 14% year-on-year.

Explains the bank's strategic shift in remittances to prioritize profitability and expand partnerships, aiming for volume growth in coming quarters.

Asked by Xiyuan Gau

Unsecured credit growth strategy (Cards, PL, MFI) Direct
on personal loan... slippages have come off. And we are getting more comfortable in growing that segment going forward. And that is one area where we are about to start pushing for higher growth.

Details the bank's differentiated approach to unsecured lending, accelerating growth in cards and personal loans while remaining cautious on MFI.

Asked by Deekshant B

Home loan strategy and customer profile Direct
we want a more holistic relationship customers while doing home loan business, which means home loan customers should give us multiproduct relationship rather than just home loan because home loan per se is not a profitable enough for ROE accretive product.

Clarifies that the focus is on acquiring holistic customer relationships rather than just home loan growth for ROE accretion.

Asked by Jignesh Shial

Fintech partnerships and strategy changes Direct
on the card side -- credit card side, of course, we had a regulatory issue on doing business. We have resumed business with one of the fintechs on that, which is Scapia.

Provides an update on the bank's fintech strategy, including resuming card partnerships post-regulatory issues and enhancing personal loan and savings account partnerships with a focus on quality and cross-sell.

Asked by Anand Swaminathan

NIM outlook given potential rate cuts Direct
I think there are going to be rate cuts and we have to remain agile and see how we manage our NIM. No rate cut is not even a base case scenario or extreme case scenario probably just now.

Management's view on the likelihood of rate cuts and their agile approach to managing NIM in a dynamic rate environment.

Asked by Jai Mundhra

3 min read 7 chapters

Detailed narrative

Strong Financial Performance in FY25

Federal Bank achieved a significant milestone, crossing INR5 lakh crore in total business, reaching INR5.18 lakh crore by March 31, 2025. The bank's net profit for FY25 surpassed INR4,000 crores, with Q4 FY25 net profit growing 14% year-on-year to INR1,030 crores, driven by robust revenue growth and operational efficiency. The Return on Assets (ROA) improved by 2 bps to 1.24%, and Return on Equity (ROE) stood at 12.82% for the full year, underscoring progress towards sustainable profitability.

Robust Deposit Growth and Improving CASA Mix

The bank reported healthy deposit growth, with total deposits increasing 6.5% quarter-on-quarter to INR2.83 lakh crores. CASA deposits grew a strong 6.74% quarter-on-quarter to INR85.7 lakh crores, resulting in a CASA ratio of 30.23%, an improvement over the previous year. Current account acquisition accelerated by 50% compared to the previous period, and the bank focused on acquiring high-value savings accounts and reducing reliance on financial sector deposits to enhance LCR, which stood at 145% at quarter-end.

Strategic Shift Towards Mid-Yielding Segments

Federal Bank is strategically prioritizing mid-yielding segments to drive sustainable profitability. Loans against property grew 20.5% YoY, CV/CE grew 35% YoY, and the credit card business grew 19%. The Middle East portfolio also saw robust 19% growth. While gold loan growth slowed in Q4 due to regulatory issues, management expects a resumption of steady growth following recent clarity. The microfinance segment, however, will continue to be approached cautiously for the next one to two quarters.

Asset Quality Remains Stable with Strong Recoveries

The bank maintained robust asset quality, with Gross Non-Performing Assets (GNPA) improving by 11 bps quarter-on-quarter to 1.84% and Net Non-Performing Assets (NNPA) remaining stable at 0.44%. Provision coverage was strengthened to 75.37%, an increase of over 400 bps year-on-year. The bank reported corporate recoveries of INR110-115 crores in Q4, which were netted in the provision line, though management expects this level of recovery to taper in coming quarters.

NIM Management in a Dynamic Rate Environment

Net Interest Margin (NIM) for Q4 FY25 improved by 1 basis point to 3.12%, supported by increased yields on investments and other earning assets. Management acknowledged that maintaining NIM at current levels will be challenging through the year due to policy rate dynamics and competitive pressures. The bank is implementing measures such as resetting new floating rate loans to T+90, shifting car loan business to fixed rates, and adjusting savings deposit rates to balance growth and profitability.

Operational Efficiency and Strategic Initiatives

The bank opened 85 new branches in FY25, with nearly 50% in Q4, contributing to a temporary uptick in Q4 operating costs. Management expects the opex-to-assets ratio for FY25 to be 1 bps lower than last year and projects the cost-to-income ratio to operate around 52.5-53.5% in the next few quarters, aiming for a flattish trend (around 53%) over the next 2-3 years. Key strategic initiatives include a new transfer pricing methodology, RaRoC-based pricing model, and a comprehensive business-wise profit and loss system to enhance accountability and capital utilization.

Fintech and Remittance Strategy Evolution

Federal Bank is evolving its fintech partnerships, resuming card business with partners like Scapia post-regulatory issues, and enhancing personal loan distribution through more fintechs. In remittances, while market share normally remained in the 18-20% range, the bank prioritized profitability, leading to a 14% YoY increase in remittance engine profitability. They are expanding exchange house and aggregator partnerships, including into non-GCC geographies, expecting increasing share from these partners in coming quarters as technology solutions get embedded.

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