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Informist, Wednesday, Apr. 29, 2026

NEW DELHI – Federal Bank is looking to expand its net interest margins by 5-6 basis points per quarter, the bank's senior management said Wednesday. The expansion in net interest margin may not be linear every quarter but would be around this range, the bank's management said in a post-earning press conference. Expansion in margin will help the bank's return on assets grow by 3-4 bps per quarter, the management also said.

The lender's net interest margin was at 3.74% at the end of March, compared with 3.18% at the end of December. For the March quarter, return on assets were at 1.36%. However, its return on assets would have been 1.24% for the quarter, excluding the one-time tax provision reversal seen during the quarter.

The bank is also eyeing to maintain its credit-deposit ratio in between 84-86% in 2026-27 (Apr-Mar), management said. The credit-deposit ratio, meanwhile, was 84.29% in FY26. The management of the bank made these forward looking statements considering there would be no repo rate change and no further deterioration in the West Asia crisis.

Financial results released earlier in the day showed that the Kerala-based lender's net profit rose over 22% on year to INR 12.59 billion for the March quarter. Sequentially, the net profit rose nearly 21%. The rise in Federal Bank's Jan-Mar net profit on year was the highest since the December quarter of 2023, data available with Informist showed. Total income for Jan-Mar grew nearly 12% on year at INR 85.44 billion and net interest income rose 33% on year at INR 31.73 billion. Sequentially, it was up 20%.

The lender's total profit for the quarter under review includes a one-time tax provision reversal of INR 1.15 billion. Excluding this, the bottom line for the March quarter stands at INR 11.45 billion.

Its current account savings account ratio, at 32.94%, has seen a significant improvement during the quarter, the management said. They intend to continue to focus on maintaining healthy current account savings account ratio. "...we see big potential in growing our CA (current account) much faster than the SA (savings account) also," the management said.

Meanwhile, the bank is shifting its focus away from the home loan products as it is "a highly competitive segment." At the current pricing, the management does not see the bank's "risk-adjusted returns being favourable". "For a single product customer, we are kind of defocusing on loan as a product. We want to grow it in a profitable manner, and therefore, there's a conscious call to slow it down," management said.

The bank has made total provisions of INR 7.41 billion during the latest quarter, higher than INR 1.38 billion a quarter ago. Of the total, the lender held INR 7.53 billion as provision for loan loss, which included a floating provision worth INR 4.56 billion. The management said extra buffer created in the provision would help to deal with the expected credit loss transitions. However, the bank is still in the process of assessing the total impact of the expected credit loss norms issued by the Reserve Bank of India Monday.

Under the new framework, banks will adopt a staging approach to provisioning based on changes in credit risk, while continuing with the extant system for identifying non-performing assets. The central bank has also clarified the categorisation of stressed assets, which may lead to banks setting aside higher provisions based on new classifications. These norms take effect on Apr. 1, 2027. 

On being asked about the impact of the war in West Asia, the management said that they do not see any impact on slippages. However, on the remittances side, the bank has seen a rise in remittance flow to India in short-term since the war began on Feb. 28. The bank's slippage ratio at the end of March quarter was 0.74%, slightly higher than 0.70% end of December, but 11 bps lower than 0.83% in March quarter last year. 

"...the initial impact has been more positive because people have remitted more money in. And therefore, we have seen both in our remittance side of the business and deposit side of business, actually an uptick, I think, out of this situation," the management said, adding that it is "still early to call." The bank's non-resident deposits rose 13% on year to INR 1.03 trillion for the March quarter. A quarter ago, the non-resident deposits were INR 958.72 billion.

The bank, which added 39 new branches during the quarter, is focusing on increasing the branch density in metro locations for expansions. "...there are several other levers that we have in place that we think we can continue to keep the pace," the management said. On Wednesday, shares of the bank ended INR 284.75 on the National Stock Exchange, down 2% from the previous close.  End

Reported by Shweta and Priyasmita Dutta

Edited by Akul Nishant Akhoury

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