MUMBAI: The Kochi-based private sector lender Federal Bank has reported a 9 per cent jump in net income for the December quarter at Rs 1,041.21 crore, buoyed by stronger core income and operating leverage along with cheaper funds, pushing its shares to a one-year high, rallying 13% to Rs 278.40.
The net interest income, which is the difference between the interest earned from loans and the interest paid to depositors, stood at Rs 2,652.73, up 9.11% up on-year and non-interest or fee income rose 18.57% to Rs 896.47 crore from Rs 869 crore, the management led by KVS Manian told reporters in a concall Friday.
The key profitability gauge net interest margin, expanded 12 bps to 3.18%, supported by improvements in liability mix and asset repricing. But Manian admitted that the recent repo rate hike will crimp margin in the March quarter to some extent, yet ruled out lowering savings account rates, having already brought it down to 2.5%.
With the microfinance book improving, the overall asset quality showed declines, with gross non-performing assets declining 23 bps to 1.72%, and net NPAs falling 7 bps to 0.42%, both at decadal lows. However, overall provisions, excluding tax, increased to Rs 332 crore during the quarter from Rs 292 crore a year ago.
Slippages at the end of the quarter improved to Rs 443 crore from Rs 584 crore during the second quarter last year, or 0.16%.
Total business rose 11.4% to Rs 5,53,364.49 crore, said executie director Venkatraman V.
On the fresh slippages of Rs 435 crore, down from Rs 579 crore a year ago, he said retail had the highest stress during the quarter.
Funding costs declined further, with cost of deposits at 5.48% and overall cost of funds at 5.50%. Advances rose to Rs 2,55,568.67 crore, up 10.94%, led by commercial banking and corporate & institutional banking, and deposits increased to Rs 2,97,795.82 crore, growing 11.80%. Of this the low-cost Casa ratio improved to 32.07, up 191 bps and Casa balances grew 18.86%.
On the struggling MFI book, he said, since crisis peaked last May, the segment has been steadily improving with better collection and recovery ratios.
On the NRI deposits front where the bank leads in Kerala, he said the same rose to 10% to Rs 87,000 crore and gold loan grew 9% to Rs 35,000 crore.
On the budget expectations, Manian said he expects the annual policy statement to boost consumption by tweaking direct taxes as for it to be growth-oriented, the budget has to boost demand.
On the Rs 6,196.5 crore that Blackstone has agreed to invest in the bank for a 9.99% stake, Manian said only 25% of the money will come in the March quarter, which will increase the core capital base by 50 bps and the remaining 75% of the money will flow in after 18 months when it converts the warrants into equity.
Last October, the private equity major had agreed to invest in the bank, through its arm Asia II Topco XIII. This deal gives Blackstone the right to nominate a director to the bank's board and boosts Federal Bank's capital adequacy ratio.
Meanwhile, the bank also said it has increased its stake in Ageas Federal Life Insurance from 26% to 30% by acquiring 3.2 crore shares at Rs 30.45 each.
The banking shares have been on a bull run since September and have gained 42%. The stock finished 2025 with a 34% gains, marking its fifth straight annual winning run. The rally contributed to a 95% surge over three years and 270% over five years. Considering the stock's 2020 low of Rs 35.70, it has delivered a solid 674% return.