Federal Bank Q2 Results: A Mixed Bag for Investors

Federal Bank reported its Q2 results, with the bank’s net profit declining by 9.6% to Rs 955.26 crore, compared to Rs 1,056.69 crore in the year-ago period. The decline in net profit was primarily due to higher provisioning expenses, which rose sharply by 129.7% to Rs 363 crore, from Rs 158 crore in the year-ago period.

Key Highlights of Federal Bank’s Q2 Results

• Net profit down 9.6% to Rs 955.26 crore versus Rs 1,056.69 crore
• Net interest income down 19.9% to Rs 1,896 crore versus Rs 2,367 crore
• Provisions up 129.7% to Rs 363 crore versus Rs 158 crore
• Gross NPA at 1.83% versus 1.91% (QoQ)
• Net NPA flat at 0.48% (QoQ)

Asset Quality Ratios Show Improvement

Despite the decline in net profit, Federal Bank’s asset quality ratios showed improvement on a sequential basis. The bank’s gross NPA ratio declined to 1.83% from 1.91% in the previous quarter, while the net NPA ratio remained flat at 0.48%.

The bank’s return on assets (ROA) and return on equity (ROE) also showed improvement, with ROA increasing to 0.27% from 0.25% in the previous quarter, and ROE increasing to 11.06% from 10.94% in the previous quarter.

Net Advances and Deposits See Growth

Federal Bank’s net advances saw a 6% year-on-year increase, reaching Rs 2.44 lakh crore, while total deposits jumped over 7% in the same period to Rs 2.89 lakh crore as on September 30.

The bank’s net interest margin (NIM) also saw an uptick of 12 basis points, coming up to 3.06% in the September quarter versus the previous three months’ 2.94%.

CASA Ratio Shows Sustained Growth

The bank’s CASA (Current Account Savings Account) ratio rose to 31.01% from 30.35% in the previous quarter, reflecting the trust of its customers and the consistency of its team’s execution.

Federal Bank’s stock price has been impacted by the Q2 results, and investors are advised to keep a close eye on the bank’s future performance.

Fee Income Shows Strong Growth

Federal Bank’s fee income saw strong, double-digit sequential growth, underscoring the breadth and resilience of its earnings.

Board to Consider Fundraise via Share Sale

The bank’s board will be meeting on October 24 to consider a fundraise via share sale through a rights issue, preferential allotment, or qualified institutional placement.

Management Expects Credit Growth of 10-12% in H2

The bank’s management expects credit growth of 10-12% in the second half of fiscal 2026, driven by growth in its chosen segments.

The management also stated that it continues to remain cautious on microfinance and personal loans and is not pushing for growth in these spaces.

Conclusion

Federal Bank’s Q2 results have been a mixed bag for investors, with the bank’s net profit declining due to higher provisioning expenses, but key asset quality ratios showing improvement. The bank’s net advances and deposits have seen growth, and its CASA ratio has shown sustained growth. Investors are advised to keep a close eye on the bank’s future performance and consider Indian banking sector news for updates on the sector.