The Federal Bank Limited

Federal Bank reported its highest ever quarterly net profit of ₹1,145 crores, marking a nearly 10% sequential growth. The total business expanded to ₹5,78,959 crores, reflecting a 4.63% Q-o-Q and 12% Y-o-Y increase. This robust performance was attributed to healthy Net Interest Income (NII), strong fee income, disciplined cost management, and tight monitoring of asset quality.

The bank's liability franchise demonstrated significant strength, with CASA balances crossing ₹1 lakh crore to reach ₹1,03,390 crores, growing 8.26% sequentially and 21% Y-o-Y. The CASA ratio improved to 32.94%, an increase of 87 basis points Q-o-Q and 271 basis points Y-o-Y. NRE deposits also achieved a milestone, surpassing ₹1 lakh crore to ₹1,02,620 crores, representing a robust 13.2% Y-o-Y growth.

Gross advances closed at ₹2,68,369 crores, up 3.65% sequentially and nearly 13% Y-o-Y. Growth was primarily driven by segments prioritized for superior risk-adjusted returns, such as commercial banking (up 6% Q-o-Q, 26% Y-o-Y), LAP (up 8% Q-o-Q), and gold loans (up 9% Q-o-Q, 26% Y-o-Y). The gold loan portfolio's growth was maintained despite a conscious downsizing in a specific subsegment for regulatory alignment.

Net Interest Margin (NIM) expanded to 3.20%, up 2 basis points sequentially, supported by a 5 basis points Q-o-Q reduction in funding costs to 5.43%. Fee income reached a record ₹990.92 crores, demonstrating strong growth of 10.5% Q-o-Q and 24% Y-o-Y. The cost-to-income ratio improved significantly to 52.86%, down 106 basis points sequentially, reflecting operating leverage within the franchise.

Asset quality remained strong, with both GNPA and NNPA reaching decade bests at 1.62% and 0.37% respectively. The provision coverage ratio, excluding technical write-offs, increased to 76.55%, up 141 basis points sequentially. Credit cost for the quarter was maintained at 47 basis points, reflecting the bank's high standards of underwriting and portfolio quality.

The bank launched a wealth management business to enhance its mass affluent franchise and diversify revenue. A scientific, data-driven approach to physical network strategy led to adding 39 new branches in Q4, with plans to launch 100 new branches in the next year. This expansion, along with restructuring initiatives, aims to build a more efficient and future-ready branch network.

The Q4 macro landscape was largely resilient, with strong growth momentum and inflation within the RBI's 2-6% tolerance band. Headline CPI averaged 3.1% for the quarter, and core CPI averaged 2.1%. Food inflation, however, picked up towards March, reaching 3.87%, a trend that will be monitored in Q1 FY27. The West Asia conflict is noted as a principal macro risk, potentially impacting global energy markets.