FEDERALBNK - Federal Bank Ltd. Share Price

Management Outlook:
Federal Bank's management, under new MD & CEO KVS Manian, emphasizes strategic reorientation focusing on sustainable growth, risk mitigation, and improved profitability. Key priorities include transitioning to granular, deposit-driven growth (prioritizing Average CASA over EOP metrics), reducing reliance on wholesale deposits (down Rs.4,000 crore QoQ), and diversifying liability profiles to enhance liquidity (LCR improved to 133% from 111%). Asset-side strategies involve cautious unsecured lending (MFI/personal loans), optimizing yields via fixed-rate models (e.g., auto loans shifted to 80% fixed-rate disbursements), and scaling mid-yield segments like commercial banking (+24.5% YoY) and gold loans (+30% YoY).

Major Points:

• Deposit Quality: Focus on stable, low-cost deposits; average CASA grew 2.3% QoQ despite EOP declines. Reduced exposure to high-risk sectors (financial sector deposits down Rs.5,319 crore).
• Asset Growth: Targeting 1.5x system growth post-reorientation. Growth in secured segments: auto loans (+25% YoY), LAP (+20% YoY), and credit cards (small base but expanding).
• Margin & Profitability: Proactive NIM management via pricing adjustments and portfolio optimization. One-time provision of Rs.292 crore (accelerated NPA provisioning) impacted short-term profits but aligned with long-term risk resilience.
• Credit Costs: Guidance maintained at 40"“45 bps for FY25; slippages rose marginally (Rs.486 crore vs. Rs.428 crore QoQ), but write-offs (Rs.496 crore) cleaned the balance sheet.
• Cultural Shift: Instituting "triple A culture" (astute, agile, alert) through organizational realignment and employee engagement.

Near-Term Focus: Stabilizing deposit mix, refining risk frameworks, and preparing for scalable growth. Medium-term goals include improving ROA and NIMs through balanced asset-liability strategies. An analyst meet on February 21 will detail the strategic roadmap.

Question 1 (Mahrukh Adajania, Nuvama):
"Is the reorientation of deposits and loans complete, or will there be further consolidation? Would deposit/loan growth have been higher without reorientation? Explain NII growth vs. asset growth. Clarify the impact of write-offs on credit costs."

Answer:
Reorientation is ongoing but balanced with growth. Deposit/loan growth was impacted by strategic shifts (e.g., reducing wholesale deposits). NII growth stemmed from average balance improvements, not temporary factors. The Rs.292 crore write-off involved fully provided NPAs, aligning with industry practices, and credit cost guidance remains 40"“45 bps.

Question 2 (Jai Mundhra, ICICI Securities):
"Are other loan products transitioning to fixed rates? What loan growth target is feasible during reorientation? How will CASA/deposits improve without aggressive pricing?"

Answer:
Auto loans shifted to 80% fixed-rate disbursements; similar transitions are planned for small business loans. Target loan growth is 1.5× system growth. Deposit strategy focuses on granular growth via franchise strength, not aggressive pricing.

Question 3 (Nitin Agarwal, Motilal Oswal):
"Comment on retail slippages, MFI stress, and unsecured portfolio strategy."

Answer:
Retail slippages remain stable; MFI stress mirrors industry trends but with better asset quality. Unsecured segments (5% of advances) face cautious growth due to risk. Credit cards are prioritized as a payment/credit hybrid.

Question 4 (MB Mahesh, Kotak Securities):
"Explain the Rs.292 crore provision rationale. Are early-bucket stresses rising?"

Answer:
The provision aligns with stricter industry norms, preponing future NPA costs. No significant stress in early buckets; unsecured portfolio risks are manageable, with no surprises expected.

Question 5 (Param Subramanian, Nomura):
"Break down the provision impact. How will NIMs fare amid rate cuts? Comment on capital adequacy."

Answer:
The provision covers existing NPAs, not standard assets. NIMs will benefit from liability optimization and mid-yield asset growth. Capital (Tier-1: 13.8%) is sufficient, with retained profits further strengthening it.

Question 6 (Kunal Shah, Citi):
"Why hasn't deposit cost improved? Clarify LCR metrics and reorientation headwinds."

Answer:
LCR improved to 133% (exit) vs. 111% last quarter. Deposit cost benefits will materialize gradually. Reorientation caused short-term growth headwinds but aligns with "fund before lending" philosophy.

Question 7 (Suraj Das, Sundaram Mutual):
"Elaborate on gold loan headwinds and CV/CE growth."

Answer:
Gold loan growth faces RBI-driven process disruptions, likely stabilizing in 1"“2 quarters. CV/CE grew 39% YoY (fixed-rate), with expansion into tier-2/3 cities driving further growth.

Question 8 (Abhishek, HSBC):
"Can credit costs stay at 40"“45 bps? Address deposit growth challenges."

Answer:
Credit cost guidance (40"“45 bps) holds for FY25 and beyond, subject to portfolio mix. Deposit growth prioritizes quality over short-term gains, leveraging network strength.

Question 9 (Gaurav Jani, Prabhudas Lilladher):
"Will reorientation improve NIMs? Explain fixed-rate mix and credit cost trends."

Answer:
NIM improvement is targeted via liability optimization and fixed-rate shifts (30% of loans). Credit costs reflect accelerated provisioning, not structural increases; guidance remains stable.