The Federal Bank Limited — Q4 FY26 earnings call

Call held 29 Apr 2026

Management summary

Federal Bank reported its highest ever quarterly net profit of ₹1,145 crores in Q4 FY26, driven by strong growth in total business, robust CASA and NRE deposit accretion, and improved profitability metrics. The bank demonstrated strong asset quality with all-time low GNPA and NNPA, alongside an expanded NIM and healthy fee income growth. Strategic shifts in asset portfolio mix and branch network expansion are underway, though macro uncertainties like the West Asia conflict remain a watch item.

Highlights

  • Net profit of ₹1,145 crores, representing nearly 10% sequential growth and highest ever quarterly net profit for the bank.

  • Total business stood at ₹5,78,959 crores, growing 4.63% Q-o-Q and nearly 12% Y-o-Y.

  • CASA balances crossed ₹1 lakh crore to ₹1,03,390 crores, growing 8.26% sequentially and nearly 21% Y-o-Y.

  • NRE deposits crossed ₹1 lakh crore to ₹1,02,620 crores, up 13.2% Y-o-Y.

  • NIM expanded to 3.20%, up 2 basis points sequentially, supported by reduced funding costs.

  • Fee income reached ₹990.92 crores, a strong growth of 10.5% Q-o-Q and 24% Y-o-Y.

  • Cost-to-income ratio improved to 52.86%, down 106 basis points sequentially.

  • GNPA declined to 1.62% and NNPA down to 0.37%, marking all-time lows for the bank.

  • ROA increased to 1.24%, up 9 basis points sequentially, and ROE improved to 12.47%, an expansion of 79 basis points Q-o-Q.

Concerns

  • Macro environment uncertainties, particularly the West Asia conflict, require watchfulness due to potential volatility in global energy markets.

  • Gold loan portfolio downsizing in a specific subsegment was undertaken to align with the latest regulatory framework.

  • Conscious decision to prioritize portfolio health and yield protection in business banking resulted in 6% Y-o-Y growth, lower than other segments.

  • Home loan business is currently dragging down overall retail growth due to pricing considerations.

Key financials

  1. Net Profit ₹1,145 Cr +10%QoQ
  2. Total Business ₹5.79L Cr +12%YoY
  3. CASA Ratio 32.9%
  4. Gross Advances ₹2.68L Cr +13%YoY
  5. NIM 3.2%
  6. ROA 1.2%

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

  • Commercial Banking
    6% Growth26% Growth
  • Agriculture
    5% Growth
  • Microfinance
    7.3% Growth
  • CV/CE Business
    8.5% Growth
  • Gold Loan
    9% Growth26% Growth
  • LAP
    8% Growth
  • Business Banking
    6% Growth
  • Corporate and Institutional Banking
    0% Growth

Capital allocation

high confidence
  • Liquidity Liquidity disclosed LCR is 119%. Management is comfortable operating in the 115-120% range, having consciously brought it down from earlier levels of 135-140% as higher LCR is considered a NIM destroyer.
    KVS Manian: "119." (page 16); "Yes, we are comfortable with 115 to 120 range." (page 16); "We are comfortable operating at 115% to 120%. In fact, we have consciously brought it down from earlier levels of 135%, 140% that we used to maintain earlier. That is also a NIM destroyer, right? Higher LCR than required is also a NIM destroyer." (page 17)

Guidance & targets

Credit Cost

  • Credit Cost Credit Cost · Ongoing · Medium confidence 50-60 bps
    Our credit cost guidance has been 50 to 60 basis points in the past. Of course, we have done better than that in this year. Broadly, we have -- if you take the year, we are about 56 basis points. ... Guidance there. Especially, we don't want to meddle with the guidance just now. In view of the uncertainties in the environment just now, we don't want to review our guidance for now.

    — KVS Manian

CASA Ratio

  • CASA Ratio CASA Ratio · Some point · Medium confidence 36%
    Our target CASA ratio of 36% stays, right? Why not? Piran, as you know, we are close to 33% now, right, 32.9%. We are almost 300 basis points up since we started this journey, right? If we can do that in 12, 15, 18 months, we have done that. There's no reason for us not to believe 36% is getable at some point, yes.

    — KVS Manian

Cost-to-Income Ratio

  • Cost-to-Income Ratio Cost-to-Income Ratio · Ongoing · High confidence 53-56%
    If you see our numbers even this quarter and if you adjust for the onetime, we are in the 53-ish range, right? We had always guided that we will remain in this range bound in this 53%, 55%, 56% kind of range bound, we will remain depending on the quarter.

    — KVS Manian

Branch Expansion

  • New Branches Launched Branch Expansion · Next year · High confidence 100
    As of now, we plan to launch about 100 branches in the next year.

    — KVS Manian

Liquidity Coverage Ratio (LCR)

  • LCR Comfort Range Liquidity Coverage Ratio (LCR) · Ongoing · High confidence 115-120%

    Previously 135-140% → 115-120%

    We are comfortable operating at 115% to 120%. In fact, we have consciously brought it down from earlier levels of 135%, 140% that we used to maintain earlier. That is also a NIM destroyer, right?

    — KVS Manian

What to watch in Q1 FY27

Food Inflation Trend

Q1 FY27
Current 3.87% in March 2026
Target Trend in Q1 FY27

Why it matters

Potential impact on overall inflation and RBI policy, affecting interest rates and NIM.

Food inflation was contained early in the quarter, but picked up towards March, reaching 3.87% and this is a trend which we have to monitor going into Q1 FY'27.

Risks & concerns

  • West Asia Conflict

    medium

    Escalated late in the quarter, introducing volatility into global energy markets and potential inflationary pass-through in Q1 FY27. However, the bank's granular and secured balance sheet is believed to be well-positioned.

    Management watchful

  • Food Inflation

    low

    Food inflation picked up towards March, reaching 3.87%, a trend to monitor going into Q1 FY27 for its impact on overall inflation.

    Management monitor

  • Rate Competition

    low

    Intense and sometimes irrational rate competition in the market, which the bank navigates by focusing on profitable growth and risk-adjusted returns.

    Management acknowledged

Q&A highlights

7 direct, 1 evasive
Growth outlook given loan and deposit growth below system in FY26 Direct
If you just go one level down and look at our CASA growth, it is significantly more than the system in terms of growth rate. Even our retail term deposit growth is higher than the system. Actually, we have grown our wholesale deposits negatively during the year. That is a measure of strength rather than weakness...

Management clarified that while headline growth might be lower, underlying retail and CASA growth are strong, and wholesale deposit reduction was a conscious strategic move.

Asked by Rikin Shah

Decline in staff expenses and quantification of normalized trends Evasive
We don't want to quantify that because there are provisions that happen through the year and things like that. Those are not easily quantifiable as to what exact impact that has had. All I would say is that this is normal course of business. It happens during cycles.

Management declined to provide specific quantification for the staff expense decline, stating it's part of normal business cycles.

Asked by Rikin Shah

Nature of one-time provisions of INR 456 crores (PCR vs. contingent) Direct
Having said that, the fact that it's a onetime gain, we wanted to be conservative and create a buffer. This, we believe we can as per the draft guidance, we can use it during the ECL transition, which is around the corner.

Management clarified the one-time provision is a conservative buffer for the upcoming ECL transition, not due to specific asset quality concerns.

Asked by Rikin Shah

NIM outlook for FY27 and scope for further deposit repricing Direct
there is still scope for deposit repricing. As we have earlier also guided that our deposit pricing goes into next -- I mean, the first quarter of this year as well as maybe early part of the next second quarter as well. There is some still some deposit repricing potential that is possible from here where we stand.

Management indicated continued scope for deposit repricing and multiple levers for NIM expansion, aiming to build on current levels.

Asked by Akshay Jain

Asset-side exposure to Middle East and potential risks Direct
All I can tell you is that it is not a large exposure. NR segment per se is a more liability-centric segment than asset-centric segment. It's not a large exposure. Like I mentioned a while back, unless we see job losses and people returning back to India kind of a situation, we don't see we don't expect trouble.

Management downplayed asset-side risk from the Middle East, citing the liability-centric nature of the NR segment and past resilience.

Asked by Kunal Shah

Accounting for the INR 1,500 crores IT favorable orders and ECL impact Direct
No. What we have reported is about close to about INR1,500 crores approximately INR1,500 crores of refund. Refund has 3 parts to that. One impact of that is interest on that refund that we have got, which is the INR456 crores number that you see in our as a one-off. The second is tax provision reversals, which is INR115 crores roughly number you see there. That is the second. Third is the balance sheet rest of it is a balance sheet item, which is excess tax paid refunded back.

Management provided a detailed breakdown of the INR 1,500 crores refund, clarifying its components and accounting treatment.

Asked by Kunal Shah

Gold loan pricing practices amidst price volatility Direct
What we do is the two things which we do. One is we take the last 30 working days average gold price and the previous day's gold price, the lower of the 2 is taken. That's a normal course. In times of extra volatility, we reduce the LTVs also.

Management explained their risk management practices for gold loans, including using conservative pricing and adjusting LTVs during volatility.

Asked by Jai Mundhra

LCR falling below 120% and internal comfort levels Direct
We are comfortable operating at 115% to 120%. In fact, we have consciously brought it down from earlier levels of 135%, 140% that we used to maintain earlier. That is also a NIM destroyer, right? Higher LCR than required is also a NIM destroyer.

Management clarified that the lower LCR is a conscious strategic decision to optimize NIM, and they are comfortable within the 115-120% range.

Asked by Jayant Kharote

2 min read 7 chapters

Detailed narrative

Q4 FY26 Performance Overview

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.

Deposit Franchise Strengthening and CASA Growth

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.

Asset Portfolio Strategy and 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.

Profitability and Efficiency Metrics

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 and Provisioning

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.

Strategic Initiatives and Branch Network Expansion

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.

Macro Environment and Inflation Outlook

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.

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