August 3, 2025

Federal Bank, a prominent private sector lender, has reported a decline in its net profit for the first quarter of the fiscal year, with a drop of 15% resulting in a total profit of Rs 862 crore. This downturn is attributed primarily to increased provisions associated with slippages in its agriculture and microfinance sectors. For comparison, the bank had reported a profit of Rs 1,010 crore during the same period last year, reflecting the challenges it faced in the current quarter. Despite this decrease in profit, the overall asset quality of the bank has shown improvement on a year-on-year basis, which is a positive sign in the face of increasing financial provisions. The provisions and contingencies for the quarter were significantly higher at Rs 400 crore compared to Rs 144 crore in the previous year, indicating the heightened risks attributed to slippages in their portfolio. KVS Manian, the managing director & CEO of the bank, expressed hope that the worst of the slippages from the microfinance institutions (MFI) portfolio has been seen. "It was an operationally strong quarter, if you isolate the agri and MFI portfolio," he noted, emphasizing the importance of these sectors for future performance. In terms of profitability metrics, the bank's net interest margin (NIM) fell to 2.94%, marking the lowest level in the past five quarters. Venkatraman Venkateswaran, the executive director, indicated expectations for the NIM to stabilize and bottom out in the upcoming second quarter. This performance is critical as NIM plays a major role in a bank's profitability. Total net interest income grew modestly by 2% year-on-year to reach Rs 2,337 crore. However, the bank saw a notable increase in its other income, which rose by 22% to Rs 1,113 crore. Within this segment, fee income grew by 20% to Rs 786 crore, while the net profit from sales on investments surged by 275% to reach Rs 127 crore. Manian remarked that as interest rates decline, enhancing non-interest income becomes vital for banks' performance. The total income of Federal Bank increased by 7.64% on a year-over-year basis, reaching Rs 7,800 crore, suggesting a positive trend in revenue generation despite challenges in the net profit line. The net advances of the bank also displayed a positive trajectory, growing by 9% year-on-year to Rs 2.41 lakh crore. Notably, retail advances grew at an impressive rate of 15.64%, standing at Rs 81,047 crore, which is encouraging for the bank's future outlook. As the festive season approaches, Venkateswaran expressed optimism for stronger retail momentum in the second half of the year. The bank is hopeful for a 20-25% growth in gold loans, which would contribute positively to its retail offerings. Alongside its asset growth, the bank reported a decrease in its gross non-performing assets (NPA) ratio, which stood at 1.91% at the end of June, down from 2.11% a year ago. However, there were fresh slippages amounting to Rs 658 crore, largely due to defaults stemming from agriculture and microfinance loans. Alarmingly, out of a total of Rs 4,670 crore NPAs, Rs 1,288 crore are linked to the agriculture and MFI sectors. In terms of corporate lending, the bank registered a growth of 4.47%, reaching Rs 83,680 crore, and aims for an overall growth of 8-10% in corporate advances without compromising margins, as stated by executive director Harsh Dugar. In conclusion, Federal Bank is targeting a 12-13% growth in advances for the fiscal year, which, coupled with an 8% increase in total deposits that reached Rs 2.87 lakh crore at the end of June, signals the bank's proactive approach towards strengthening its financial position and supporting future growth.

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Tags: Federal bank, Net profit, Provisions, Agriculture, Microfinance, Nim, Advances growth, Financial results,