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- 02 May 2025
- ICICIdirect Research
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FEDERAL BANK DELIVERED A MIXED PERFORMANCE IN Q4FY25
News: Federal Bank delivered a mixed performance in Q4FY25, with advances growing in line with industry levels, falling short of its medium term guidance to grow at 1.2-1.5x the system rate. Healthy traction was seen in SME (16.1% YoY), corporate (12.5% YoY), and gold loans (20.9% YoY), while moderation was noted in agri and certain retail segments such as housing (7% YoY) and personal loans (-1.5% YoY). Liability accretion was strong at 6.5% QoQ (12.3% YoY) to ₹2,83,647 crore; however, the sharp gap between average CASA and EOP CASA raises concerns about retention into Q1FY26. Yield on advances declined 8 bps QoQ, while the cost of funds rose 5 bps; despite this, NIMs remained flat sequentially, up 1 bp to 3.12%, owing to technical reasons. Other income posted healthy growth 33.4% YoY (9.8% QoQ), driven by strong fee income and higher recoveries from written-off assets. Operating expenses were steady in FY25, though the CI ratio inched up to 56.7% in Q4FY25 due to branch expansion and tech-related spends. Strong corporate recoveries helped keep provisions low, supporting earnings. PAT stood at ₹1,030 crore, rising 13.7% YoY (8% QoQ). Asset quality improved, with GNPA and NNPA ratios down 11 bps and 5 bps QoQ to 1.84% and 0.44%, respectively
View: With ~51% of loan book linked to EBLR, faster transmission on the asset side is expected to exert near-term margin pressure despite partial offset from SA rate cuts and TD repricing. Opex to remain in a range with continued branch expansion and tech cost. CI ratio to remain broadly at ~52-53 levels. Levers to sustain RoA at current levels appear minimal, driven primarily by other income. Given these dynamics, a short-term correction in valuation cannot be ruled out.
Impact: Negative