The Federal Bank Limited

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.

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.

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.

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.

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.

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.

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.