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Informist, Saturday, Oct. 18, 2025

--Federal Bank: Don't see significant impact from RBI's draft ECL norms 
--Federal Bank: Microfinance stress has eased but not comfortable completely 
--CONTEXT: Comments by Federal Bank management in post-earnings analyst concall 
--Federal Bank: Preparing for strong growth in auto loans in coming quarters 
 

By Pratiksha and Arundathi A R

NEW DELHI – Federal Bank does not see a signficiant impact on its profitability from the Reserve Bank of India's proposed norms transitioning to an expected credit loss accounting, the lender's management said on Saturday. "Based on the earlier submission, we have given an indication that it (expected credit loss accounting) will not have a substantial impact on us. It will be low, less than 0.2% on the capital," a senior management official said at the bank's post-earnings analyst conference call. 

The RBI's draft norms on the expected credit loss framework, which will take effect from April 2027, mandate banks to set aside more funds for potential bad loans on implementation. It also mandates banks to classify non-performing financial assets into three categories based on the period for which the asset has remained non-performing and the "realisability of the dues", while continuing to apply existing rules for classifying non-performing assets.

"There may be a one-time impact but we do not expect, on a running basis, the expected credit loss methodology to end up giving a signficantly higher kind of credit cost. We do not expect our fundamental credit cost to change just because the methodology on accounting has changed," the lender said. "But these are early stages and we are analysing..."

The expected credit loss framework is designed to be implemented with a suitable glidepath of nearly five years, allowing banks to transition smoothly. The draft norm issued on Oct. 7, as part of the central bank's 21 developmental and regulatory policies for the banking sector, was announced after the Monetary Policy Committee meeting outcome on Oct. 1. 

Federal Bank's net profit for the September quarter fell nearly 10% on year to INR 9.55 billion due to a jump in provisions. The lender maintained its credit cost guidance of 55 basis points for 2025-26 (Apr-Jun).

"After a slightly elevated credit cost in Q1 due to microfinance stress, we had earlier guided that our full-year credit cost would remain around 55 bps. This quarter, the credit cost moderated to 50 bps, and we remain confident in holding to our earlier guidance," it said. The Kerala-based bank's credit cost fell to 0.50% in the September quarter from 0.65% in the previous quarter. However, it rose from 0.30% in the corresponding quarter a year ago.  

The lender said stress from the microfinance sector has eased but it is not fully comfortable yet. The bank's fresh slippages fell to INR 5.79 billion in the September quarter, from INR 6.58 billion in the previous quarter. The bank had reported a sharp rise in slippages in the June quarter due to to higher slippages in agriculture and microfinance sectors. "If you look at the slippages they have dropped, but are they in a comfortable zone? I don't think so. So microfinance stress, I think, is still playing, the lender said.

The private-sector bank also expects strong growth in its auto loan sector in the coming quarters after reporting a growth of 3.9% on quarter in the commercial vehicle loans segment in the quarter under review. On Friday, shares of Federal Bank ended 1% lower at INR 212.38 on the National Stock Exchanges.  End

Edited by Vandana Hingorani

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