Federal Bank Ltd expects to continue gaining market share in the current financial year aided by credit growth of at least 16 per cent, higher than the estimated 12-14 per cent growth for the banking sector, according to Managing Director and Chief Executive Officer Shyam Srinivasan.
In a call to announce the bank’s results, Srinivasan said that credit growth for banks is growing and that he expects a “meaningful pick-up in credit” in the second half of the financial year on the back of credit demand returning to banks, higher capacity utilisation by corporates and higher cyclical demand during the festival season.
The private sector lender today posted a 64 per cent on-year rise in its profit after tax for Q1FY23 to ₹601 crore — the highest ever quarterly profit, attributed to strong credit growth of 16 per cent and an improvement in the non-performing asset ratios.
Gross non-performing assets ratio (GNPA) for the bank improved to 2.7 per cent as of March 2022 from 3.5 per cent a year ago. Net bad loan ratio (NNPA), too, was better at 0.94 per cent compared with 1.2 per cent in the previous year.
Shares of Federal Bank surged post the earnings to touch an intra-day high of Rs 99.95 on the NSE. The stock later pared some gains to close 1.5 per cent higher at ₹98.65.
Operating metrics
The bank’s operating profit, however, fell 14 per cent on year due to the absence of significant treasury gains as seen in the corresponding quarter of the previous year.
While the bank managed to avoid treasury losses in the reporting quarter, Executive Director at Federal Bank Ashutosh Khajuria said the bank has significantly trimmed its treasury book since March, also to avoid future losses in a rising interest rate regime.
Net interest income for the quarter was up 13 per cent on year at ₹1,605 crore. Net interest margin was at 3.22 per cent for the quarter, higher by 7 bps on year and 6 bps on quarter, with Srinivasan saying that the bank is on course for the guided NIM of 3.25 per cent for FY23.
Retail credit
While retail bad loans rose for the bank during the quarter, Srinivasan said the slippages were expected, largely comprised of secured loans and already provided for. On a whole, however, he expects retail loan stress to remain elevated for the sector in the coming quarters.
Retail loan slippages for the reporting quarter were at ₹204 crore — much higher than ₹86 crore in the previous quarter. Retail bad loans were at ₹1,131 crore, comprising 27 per cent of gross bad loans as of March 2022.
Despite this, the lender remains optimistic on retail credit, including credit cards, personal loans, home and automobile loans and gold loans--which are seeing strong traction, Srinivasan said. He added that the bank will also gradually revert to the pre-Covid underwriting standard for retail and personal loans, which had been tightened owing to uncertainty during the pandemic.
Executive Director Shalini Warrier said that the Reserve Bank of India’s norms restricting credit lines by PPIs (prepaid payment instruments) has increased the opportunity for credit card players.
Federal Bank does not have operations pertaining to ‘Buy Now Pay Later’ (BNPL) or PPIs, but will continue to work closely with fintech companies for credit cards, personal loans and low cost deposits, she added.
Federal Bank has retail fintech partnerships with neo-banks Fi and Jupiter, rural lending platform DigiVriddhi Technologies, and issues co-branded credit cards with FPL Technologies under the brand ’One Card’.