Federal Bank Ltd posted its highest-ever quarterly profit of ₹704 crore in Q2 of the current fiscal, an increase of 53 per cent YoY and 17 per cent QoQ.

“This has been our strongest quarter till date with very good growth across all key parameters. Strong business momentum has aided meaningful gains in market share,” MD and CEO Shyam Srinivasan said.

He attributed the earnings to strong performance across verticals of the bank including corporate segment, retail and interest income.

Strong loan growth

Federal Bank posted loan growth of 19 per cent YoY, led by an increase of 18 per cent each in retail and agriculture advances, 17 per cent in business banking loans, 19 per cent in commercial banking loans, and 21 per cent growth in corporate advances.

The private sector lender’s net interest income rose 19 per cent YoY, also to a record high of ₹1,762 crore in Q2FY23. Other income was up 24 per cent at ₹610 crore.

Net interest margin for the bank improved by 10 bps to 3.30 per cent, a trend expected to be seen across banks as they benefit from the widening spreads between lending and deposit rates. Federal Bank expects NIM for FY23 to remain at 3.27-3.30 per cent, Srinivasan said in the post earnings call.

“We expect our credit growth in the high teens, while deposit growth is consistent and expected to be in pre-teens (10-12 per cent). A combination of this will ensure that our book is capable of growing,” he said, adding that a certain amount of pent-up credit demand is also being seen across lenders.

Deposits of the bank were up 10 per cent YoY to ₹1.9 lakh crore as on September 30. This was led by an increase of 11 per cent in low-cost current and saving account (CASA) deposits, which at ₹68,873 crore accounted for 36 per cent of total deposits on September 30.

Asset quality improves

Slippages from Federal Bank’s retail portfolio nearly halved sequentially but remained elevated, contributing ₹123 crore of the total slippages of ₹375 crore. However, these were largely off-set by recoveries and upgrades of ₹329 crore during the quarter.

Gross NPA ratio of the bank improved to 2.5 per cent and the net NPA ratio to 0.8 per cent as at the end of September. Credit cost was at 53 bps--higher than 41 bps in Q1FY23--largely owing to a 37 per cent increase in provisions for the quarter to ₹452 crore.

Srinivasan said that retail slippages are not of concern as majority of the book is secured. Combined with strong recoveries, the restructured book of the bank is “behaving” much better than expected during the pandemic, he added.