Strong NII, lower NPA power Federal Bank’s Q2 profit

Federal Bank mobilised $1.5 billion through the FCNR(B) window. These funds are being deployed towards lending as well as replacing relatively expensive deposits. The retail loan portfolio includes Rs 9,438 crore of loans against FCNR deposits. On inorganic growth opportunities, Manian said the lender is exploring investment opportunities across financial services, including the core banking and universal banking segments.

However, he refrained from commenting on reports that Federal is in advanced talks with Jana Small Finance Bank for an acquisition. On the business front, net advances grew 22% year-on-year to Rs 2.98 lakh crore, while deposits increased 19% to Rs 3.43 lakh crore. CASA deposits rose 23% to Rs 1.09 lakh crore, with the CASA ratio improving to 32.04%. Gold loans grew 37% year-on-year to Rs 44,242 crore, while the corporate banking portfolio expanded 17% to Rs 1.05 lakh crore.

Management said the bank would continue focusing on medium-yielding assets, including gold loans, commercial banking, credit cards, loans against property and commercial vehicle financing. However, it is maintaining a cautious approach towards agricultural lending amid concerns over deficient rainfall and El Niño conditions. Asset quality continued to improve, with the gross non-performing asset (GNPA) ratio declining to 1.32% from 1.83% a year ago, while the net NPA ratio fell to 0.17% from 0.48%.

Both ratios were at their lowest levels in a decade, the management said. On the proposed expected credit loss (ECL) provisioning framework, the management said the one-time transition impact was estimated at 1.5-2% of the bank's net worth. It has already created floating provisions that could be utilised during the transition. The bank is also assessing the potential impact of the insurance regulator's proposed guidelines on insurance distribution income and its life insurance associate, Ageas Federal Life Insurance.

Management acknowledged that the proposed regulations could affect fee income, although the extent would depend on the final guidelines, Manian said. Meanwhile, the integration of Standard Chartered Bank's acquired credit card portfolio remains on track for completion by December. Management said the acquired portfolio could increase the bank's credit card base by 15-20%. The bank's return on assets improved to 1.32% from 1.09% a year ago, while return on equity rose to 13.57% from 11.01%. Its capital adequacy ratio stood at 16.84% at the end of September. On Friday, shares of Federal Bank closed 0.9% higher at Rs 338 on the NSE.