Expect slippages to moderate, stabilise going forward, says Federal Bank
This story was originally published at 19:42 IST on 2 August 2025
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--Federal Bank: Expect gold loans to grow 25-30% FY26
--CONTEXT: Federal Bank management's comments in post-earnings media call
--Federal Bank: Expect NIM to bottom out Q2, improve thereafter
--Federal Bank: Expect slippages to moderate, stabilise going forward
--Federal Bank: Expect stronger disbursement momentum in Oct-Mar
--Federal Bank: Remain optimistic on CASA growth momentum
--Federal Bank: Anticipate corporate credit growth to be muted FY26
--Federal Bank: Will aim for 8-10% corporate credit growth
--Federal Bank: Hopefully seen peak for slippages for microfin
--Federal Bank: Expect credit growth at 12-13% FY26
--Federal Bank: Should be back to around 3% level on NIM FY26-end
--Federal Bank: Don't envisage raising capital in next 12 months
--Federal Bank: Don't see any sense of alarm in MSME sector right now
MUMBAI/ NEW DELHI – Federal Bank expects slippages to moderate and normalise going forward, the bank's management said in a post-earnings media call on Saturday. The management said that slippages in the microfinance sector are likely to have peaked and they expect fresh slippages to fall in the coming quarters.
In the June quarter, the slippage ratio was 1.11%, up 27 bps from the March quarter and 33 bps from the June quarter of 2024-25 (Apr-Jun). The bank reported fresh slippages of INR 6.58 billion in the reporting quarter, higher than INR 4.17 billion last year, which the management said was due to higher slippages in agriculture and microfinance sectors. Retail slippages were the highest share at INR 2.73 billion as against INR 2.39 billion last year, and agriculture-related slippages to the tune of INR 2.70 billion in Apr-Jun were nearly fourfold of the year-ago figure.
Federal Bank's net profit for the quarter ended June fell nearly 15% as provisions for the quarter surged a little less than threefold. The Kerala-based private sector lender's net profit totalled INR 8.62 billion, missing the Street view by INR 640 million. Sequentially, the net profit fell 16%.
On the asset quality front, the bank expects net interest margins to fall in Jul-Sept, and improve thereafter. "We do expect the NIM to be around...maybe about 5 to 10 basis points around these levels, maybe slightly lower." The bank said that NIM is expected to be back around 3% by the end of the current financial year ending March. For the June quarter, the banks reported the NIM at 2.94%, compared to 3.12% a quarter ago, and 3.16% an year ago.
"We will see the impact of the rate cut which happened in June, the full quarter impact coming through in this quarter. And post that, with the deposit pricing, you know, starting to readjust because deposits usually, the average maturity of term deposits are about 12 to 14 months. So you will see the deposit pricing reducing, plus the impact of the savings rate cut and the mixed change", the management said.
The Reserve Bank of India's Monetary Policy Committee has so far in the year cut the repo rate by 100 basis points to 5.50%. The management said that banks have to find a way to improve their share of non-interest income, such as other income and fees income, to make up for the fall in net interest income due to rate cuts.
The management said that disbursement momentum is likely to pick up in the second half of the financial year. For FY26, the bank expects the credit growth to be around 12-13%. On its gold loans portfolio, the bank expects a growth of 25-30% in FY26. The bank also remains optimistic on the growth momentum in its current and savings account, the management said. By the end June, global advances and global deposits rising over 9% and 8%, respectively, to INR 2.45 trillion and INR 2.87 trillion as of Jun. 30. Within advances, retail advances were up 8% on year to INR 1.37 trillion. The retail book makes up 56% of its loan portfolio.
However, corporate credit growth in expected to be muted in FY26, the management said. The share of corporates in the bank's loan book may also see a fall over a period, they said. The bank aims corporate credit to grow at 8-10%, the management said. For the June quarter, corporate advances saw a growth of 4.5% to INR 836.80 billion.
The management said that though others in the industry have flagged risk in the micro, small, and medium enterprises segment, the bank does not expect any alarming signs in their portfolio as of now. The management also said that bank is not considering to raise capital in the next 12 months.
On Friday, shares of the bank ended 3.2% lower at INR 196.06 on the National Stock Exchange. The bank announced its earnings Saturday. End
Reported by Pratiksha and Srijita Bose
Edited by Deepshikha Bhardwaj
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