Earnings Outlook
Slow loan growth, NIM pressure to weigh on Federal Bk's PAT
This story was originally published at 12:15 IST on 1 August 2025
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By Sagar Sen
NEW DELHI - Slower loan growth and margin compression are expected to drag down Federal Bank's net profit for the June quarter, according to the brokerages tracking the lender. The Kerala-based private sector bank is expected to report an 8.2% on-year fall in its bottom line for the June quarter to INR 9.26 billion, according to the average of estimates from 17 brokerage firms. The net profit is projected to fall 10.1% on quarter.
InCred Research Services Pvt Ltd. has the lowest estimate of INR 8.0 billion for net profit while YES Securities (India) Ltd. has the highest estimate of INR 9.84 billion. Brokerages expect weak operating profit growth due to weak revenue growth. "Opex (operating expenses) growth will be higher than the business growth due to appraisal season.," YES Securities said in a report. Brokerages expect steady growth in the bank's fee income.
The bank's net interest income is expected to increase 2.2% on year to INR 23.42 billion in the June quarter, according to the average of the estimates. This will be a 1.5% fall from the March quarter. "We expect a flattish 0.3% on-quarter growth in net interest income, with net interest margin likely dipping to 3.0%. Pre-provision operating profit is set to decline around 5% on-quarter, weighed down by slightly higher operating expenses and a dip in other income. Resultantly, net profit is projected to drop by around 12% on-quarter," Centrum Broking Ltd. said in a report.
Margins are expected to be lower across the banking sector in the June quarter following the 100 basis points reduction in the policy repo rate effected in 2025 so far by the Reserve Bank of India's Monetary Policy Committee, including a 50 bps cut in June.
In the March quarter, the bank's net interest income was INR 23.77 billion, up 8% on year. Sequentially, the net interest income fell by 2% in that quarter. The bank's net interest margin for the March quarter was 3.12%, up 1 basis point from December quarter.
On the asset quality front, brokerages expect slippages to be higher on a sequential basis due to seasonality. "We expect slippages at around 1.2% of loans driven by retail and micro, small and medium enterprises. Gross non-performing loan ratio could marginally increase on-quarter," Kotak Institutional Equities said in a report.
"Slippages would be higher on sequential basis due to seasonality. Provisions will be higher on sequential basis," YES Securities said.
In the March quarter, the bank's net non-performing assets ratio improved slightly to 0.44%, from 0.49% a quarter ago and 0.60% a year ago. The gross non-performing asset ratio fell to 1.84% from 1.95% a quarter ago and 2.13% a year ago. The provision coverage ratio improved to 75.37% as of Mar. 31 from 71.08% a year ago.
Brokerages will keep an eye on the bank's guidance for 2025-26 (Apr-Mar) loan growth and management strategy. "Outlook on asset quality and credit costs will be closely watched," IDBI Capital Market Services Ltd. said. "The key discussion points would be to understand the impact of the rate cut on net interest margin over the next few quarters," Kotak Institutional Equities said.
The bank will release its earnings on Saturday.
The company's stock has 24 buy recommendations from brokerages at an average target price of INR 221, two hold recommendation with an average target price of INR 213 and no sell calls, according to data available with Informist.
Shares of the bank have risen 9% since the bank reported its March quarter earnings. At 1212 IST, shares of Federal Bank were 2.3% down at INR 197.79 on the National Stock Exchange.
Following are the Apr-Jun earnings estimates for Federal Bank based on reports from 17 brokerage firms in descending order by the estimate of net profit:
Brokerage firm | Net interest income (in INR million) | Net profit (in INR million) |
YES Securities (India) Ltd. | 23,774.00 | 9,838.00 |
Nirmal Bang Equities Pvt Ltd. | 23,756.00 | 9,834.00 |
Anand Rathi Share and Stock Brokers Ltd. | 23,626.00 | 9,721.00 |
Emkay Global Financial Services Ltd. | 23,376.00 | 9,704.00 |
IDBI Capital Market Services Ltd. | 23,567.00 | 9,637.00 |
Nuvama Wealth Management Ltd. | 23,200.00 | 9,500.00 |
Kotak Institutional Equities | 23,210.00 | 9,409.00 |
Dolat Capital Market Pvt. Ltd. | 23,594.00 | 9,338.00 |
Antique Stock Broking Ltd. | 22,817.00 | 9,285.00 |
Motilal Oswal Financial Services Ltd. | 22,972.00 | 9,202.00 |
Nomura Equity Research | 23,300.00 | 9,200.00 |
Centrum Broking Ltd. | 23,837.00 | 9,096.00 |
IIFL Capital Services Ltd. | 23,500.00 | 9,000.00 |
ICICI Securities Ltd. | 22,908.00 | 8,963.00 |
JM Financial Institutional Securities Pvt. Ltd. | 23,169.00 | 8,890.00 |
Prabhudas Lilladher Pvt. Ltd. | 24,597.00 | 8,865.00 |
InCred Research Services Pvt. Ltd. | 23,000.00 | 8,000.00 |
Average | 23,423.71 | 9,263.65 |
End
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Edited by Vandana Hingorani
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