Federal Bank’s NIM decline offsets Q1 positives
ICICI Securities Ltd. Meanwhile, Federal Bank saw healthy credit and deposit growth of 21% each year-on-year (y-o-y) in Q1 with strong performance across all its business segments.
The management expect to maintain 18-20% run rate for credit and deposit growth in FY24. It is comforting that the asset quality metrics continue to show stable trends, resulting in negligible credit costs.
The net non-performing assets (NPA) as of June stood at 0.69% which was at similar levels in March FY23 and significantly down from 0.94% last year. The stock of Federal Bank seems to be capturing the worries to a good extent.
Since touching 52-week high in January, the stock is down nearly 11%. Any potential upside hinges on the bank’s capital raise which is expected to happen in the near-term and NIM improvement in Q2.
NII/NIM estimates could be upgraded if Federal Bank raises capital, said analysts from Prabhudas Lilladher. “We expect calculated NIM for FY24E to decline by 14 basis points year-on-year to 3.1% as yield increase post Q2FY24 seems unlikely and Federal Bank is more focused on growth," they said in a report on 14 July.
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