Federal Bank Hikes Fixed Deposit (FD) Rates As Part of Its Republic Day Celebrations

Federal Bank raised interest rates on fixed deposits of less than Rs 2 Cr after reporting its highest-ever quarterly profit for the quarter that ended on December 31, 2023. Beginning on January 17, 2024, the Federal Bank will be changing interest rates on deposits made by residents and non-residents alike.

The interest rate has been raised to 7.75% for 500 days and 8.25% for elderly individuals. Federal Bank is now providing a maximum return of 8.40% for 500-day tenures to resident elderly people, while the interest rate for non-withdrawable fixed deposits has been raised to 7.90% for the general public.

Federal Bank Financials

According to Federal Bank, its entire business as of December 31, 2023, was Rs. 438776.39 Cr, up 18.72% from the year-ago quarter. Whereas, total deposits rose from Rs. 201408.12 Cr on December 31, 2022, to Rs. 239591.16 Cr on December 31, 2023. From December 31, 2022 to December 31, 2023, net advances on the asset side grew to Rs. 199185.23 Cr from Rs. 168173.13 Cr. Its retail advances grew by 20.39 % to reach Rs.65041.08 Cr in Q3FY24 while business banking advances grew by 17.80 % to reach Rs.16679.75 Cr. To reach Rs. 20773.55 Cr, commercial banking saw a 25.99% growth. Corporate advances had a 14.38% growth, reaching Rs. 71978.41 Cr. For the quarter that ended on December 31, 2023, the bank reported an operating profit of Rs.1437.33 Cr and a net profit of Rs.1006.74 Cr. The operating profit improved admirably by 12.80% year on year. As of December 31, 2023, Net Interest Income increased by 8.53%, from Rs.1956.53 Cr in Q3FY23 to Rs.2123.36 Cr in Q3FY24. The bank's overall income increased by 32.72% to Rs. 6592.66 Cr. The annualised earnings per share (EPS) is Rs 16.54. The bank's quarterly ROA and ROE were, respectively, 1.39% and 14.80%. The Gross NPA of the bank during the quarter under review stood at Rs. 4628.79 Cr, which as a percentage of Gross Advances stood at 2.29%. As of December 31, 2023, the Net NPA and Net NPA as a percentage of Net Advances were recorded as Rs. 1284.37 Cr and 0.64%, respectively. 71.08% was the provision coverage ratio, excluding technical write-offs. As of December 31, 2023, the bank's net worth has climbed from Rs. 20456.75 Cr from the year-ago quarter to Rs. 28084.72 Cr. As of the end of the quarter, the Bank's Capital Adequacy Ratio (CRAR), which is calculated in accordance with Basel III rules, was 15.02%. As of December 31, 2023, the bank had 1418 branches and 1960 ATMs/recyclers.

Federal Bank Outlook & Valuation

"Federal Bank has reported stable 3QFY24 earnings and the key pointers are a) NPA ratio slightly weak (GNPA: 2.29% v/s 2.26% in the previous quarter) on the back of higher slippages and slower recoveries, b) Reported slippages (Rs 4.8bn v/s Rs 3.7bn in 2QFY23) were up with slower recoveries (Rs 2.9bn), c) restructuring pool declined further with 20% coverage, d) strong business growth with credit off-take of 18.4% and deposit traction of 19%, e) sequentially higher credit cost with stable PCR f) quarterly profit stood at Rs 10.1bn up 5.5% sequentially with ROA of 1.4%. Moreover, the stable NIMs of 3.19% and higher treasury income led to 8.5% QOQ growth in PPOP. Additionally, the bank's credit quality is in check and we recommend BUY," said the brokerage firm LKP Securities.

"We believe the asset quality is likely to stay stable with improvement in profitability. We have incorporated steady provision requirements along with stable growth in the balance sheet and thus expect it to deliver RoA/ RoE of 1.5%/15.4% by FY25E. We reiterate BUY with target price of Rs 169 (based on 1.2x FY25E Adj. BVPS); a potential upside of 18%," said the brokerage.