Share Price of Federal Bank Tumbles as Q3 Results Show Positive Net Profits

Shares of Federal Bank took a significant hit in the morning session of January 28, 2025 declining by 7% after the lender reported disappointing Q3 earnings. A sharp provision rise negatively impacted the bank's bottom line, raising investor concerns.

Federal Bank Share Performance

As of 10:09 AM on January 28, Federal Bank shares were trading at Rs 178.76 on the NSE, reflecting a steep decline. This drop added to the stock's cumulative fall of over 10% in 2025 so far.

Q3 Earnings: A Detailed Look

The lender's net Profit for the third quarter was Rs 955.4 crore, a 5% decline from Rs 1,006.70 crore reported during the same period last year. 

Revenue and Earnings Breakdown

Net Interest Income Shows Positive Growth

Despite the weak net Profit, Federal Bank's net interest income (NII) showcased growth, rising nearly 15% year-on-year to reach an all-time high of Rs 2,431.30 crore, 

The positive NII performance highlights the bank's ability to maintain core operational efficiency despite challenging market conditions.

Asset Quality: Mixed Signals

Regarding asset quality, the bank delivered a mixed performance:

• Slippages: Increased by 14.7% quarter-on-quarter.
• Gross Non-Performing Assets (GNPA) Ratio: Declined by 14 basis points to 1.95%.
• Net Non-Performing Assets (NPA) Ratio: Reached 0.5% with an increase of eight basis points.

These improvements in asset quality were attributed to strong recoveries and upgrades during the quarter.

Management Insights and Future Outlook

In its post-earnings call, the Federal Bank emphasized its medium-term growth strategy. The bank aims to:

• Grow its loan book at 1.5x the overall system growth rate.
• Maintain net interest margins (NIM) by optimizing asset and liability management.
• Strengthen the asset quality of its unsecured loan book.

The lender acknowledged that elevated provisioning might impact results for another quarter. However, full-year credit costs are projected to remain in the 40-45 basis points range, with slippages estimated at approximately 1% for the year.

Summary

Federal Bank's Q3 performance highlighted a challenging period marked by increased provisions and declining Net Profit. However, robust net interest income growth and asset quality improvements offered some positive signals. The bank remains optimistic about future growth, backed by strategic asset-liability management and a strong focus on unsecured loans.