Federal Bank gains as deposits, advances jump 21% in Q1

The Federal Bank share price gained over a percent in the morning trade on July 3 after the private lender reported strong growth in its deposits and advances for the quarter ended June 2023.

The bank’s total deposits reached Rs 2.22 lakh crore, a growth of 21.4 percent from Rs 1.83 lakh crore in the year-ago period. The bank’s gross advances grew by 20.9 percent year-on-year to Rs 1.87 lakh crore from Rs 1.54 lakh crore, YoY.

At 10.15 am, the stock was quoting at Rs 127.85 on the NSE, up 1.35 percent from the previous close. The stock has been rangebound over the past month and is 11 percent away from its 52-week high of Rs 143.40.

As per internal classification, the bank’s retail credit book grew by 20.2 percent and its wholesale credit book grew by 21.6 percent. The retail-to-wholesale ratio is at 54:46 respectively, the bank said in an exchange filing.

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The lender’s CASA ratio, which is the ratio of deposits in current accounts and saving accounts to total deposits, in the June quarter came in at 31.85 percent as compared to 36.84 percent YoY and versus 32.68 percent QoQ.

The management expects advances to increase in the high teens in the current financial year with a focus on high-yield products like microfinance institutions, credit cards, etc. The management also expects the return on assets to be at 1.30-1.35 percent.

According to Gaurav Jani, research analyst, Prabhudas Lilladher, growth in the higher-yielding retail pool is the key monitorable, which could decide the net interest margins trajectory for Q1 FY24.

At the current market price, the stock is trading at book value of 1.2x/1.1x FY24E/FY25E. The domestic broking firm has a “buy” rating with a target price of Rs 170.

Federal Bank’s Q1 business update comes after AP Hota was appointed as the part-time chairman with effect from June 29, 2023 to January 14, 2026. He was serving as an independent director on the board of the bank since January 15, 2018.

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