FEDERALBNK - Federal Bank Ltd. Share Price

Management provided an optimistic outlook for the upcoming financial year (FY '26), emphasizing their strategic focus on mid-yielding segments, robust growth in current accounts, and maintaining asset quality. Key financial highlights for FY '25 include a total business milestone of INR 5.18 lakh crore, net profit exceeding INR 4,000 crores, and a significant rise in other income to INR 1,006 crores. The net interest margin (NIM) improved slightly to 3.12%.

Management highlighted forward-looking points:

1. Current Account (CA) growth surged 27% quarter-on-quarter (Q-o-Q) and 35% year-on-year (Y-o-Y), reflecting a strong strategy for current account acquisition running at a 50% higher rate than previously.
2. Credit costs for FY '25 were in line with guidance at 38 basis points, showcasing proactive management of asset quality amid competitive pressures.
3. The bank opened 85 branches over the year, with 39 branches established in Q4 alone, indicating a commitment to expanding their network strategically.
4. CASA deposits grew by 6.74% Q-o-Q, with a CASA ratio of 30.23%, marking an improvement over the previous year.
5. The asset quality remained strong with Gross Non-Performing Assets (GNPA) at 1.84% and Net Non-Performing Assets (NNPA) at 0.44%, while provision coverage improved to 75.37%.
6. Management plans to enhance the fees from retail and corporate banking, reflecting an intention to optimize revenue streams amid potentially compressed margins.
7. Future asset yield management will focus on balancing growth and cost of funds, particularly as policy rates trend downwards.

Overall, the management's outlook involves sustained growth, improved operating efficiency, and a focus on quality growth across their portfolios.

Major Questions and Responses from the Q&A Section

1. Question from Mahrukh Adajania: "Do we expect that most of the consolidation on the lower yield segment is done? Can we return to the high teen loan growth in FY '26? Also, will most current accounts be sticky, and what is the bottom for margins in FY '26?"

   Answer by KVS Manian: "We believe our mid-yield segment will continue to show strong growth, driven by products like cards and loans against property. While some growth was muted due to regulatory issues, we're confident in resuming growth in those areas. Regarding CASA, while we benefited from year-end inflows, overall CA growth is strong and acquiring customers has improved, aiming to maintain momentum. As for NIM, it's complex, influenced by regulation and market shifts, making guidance challenging, but minimizing decline is our goal."

2. Question from Rikin Shah: "Why are reported margins flat despite loan yield being down? Will the T+90 repricing apply to the entire book? What's the quantum of corporate recovery?"

   Answer by Venkatraman V: "NIM remained flat due to yields on investments offsetting loan yield declines. The T+90 repricing applies to new disbursements only. As for corporate recovery, it was approximately INR 110-115 crores included under provisions. Structured recovery initiatives in Q4 contributed to this improvement, though ongoing recovery levels may not be repeated."

3. Question from Xiyuan Gau: "What's our strategy to address declining remittance market share? Do we plan to change portfolio allocations to improve yield?"

   Answer by Shalini Warrier: "Our remittance market share remains stable, and we've been focused on profitability over discounting rates. For volumes, we're enhancing partnerships with exchange houses, targeting increased throughput. While the past year experienced decline, our profitability has increased, and we expect improvements as technology embeds with partners."

4. Question from Deekshant B: "At what point will we expand in unsecured credit? What's our MA focus given the shift to fixed interest loans?"

   Answer by KVS Manian: "We've already started growing our credit card portfolio significantly. Personal loans will see expansion soon due to improved credit environment. We are cautious on MFI for now. Regarding fixed vs. floating rates, while we are shifting select products like car loans, balances are key across cycles, and we aim for optimal portfolio distribution."

5. Question from M.B. Mahesh: "Can you clarify on margins with respect to yield on advances and costs moving differently? How should we think about future NIM?"

   Answer by KVS Manian: "The reported fall in NII is due to fewer days this quarter versus the previous one, not a drop in operational effectiveness. While costs have climbed due to branch expansion, we aim to maintain cost efficiency. In terms of future NIM, it will stabilize in a year, reflecting a comprehensive strategy adjusting to mixed funding sources."

These responses reflect our strategy to address key shifts and maintain profitable growth amid changing market dynamics.