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* FB posted a mixed quarter, with an 8% beat in PAT and a 6% miss in NII. PAT grew 67% YoY to INR9b, aided by low provisions. The NII miss was due to an 18bp fall in NIM to 3.31%. FB has prudently increased the PCR to ~71%.

* Gross advances grew 20.1% YoY, driven by a broad-based pickup in all business segments. Deposit growth too was healthy, aided by strong traction in term deposits. Thus, the CASA ratio moderated to 32.7%.

* Slippages came in at INR4.5b (~1.0% of loans), led by a QoQ increase in the Agri and SME segments. GNPA/NNPA ratios declined to 2.36%/0.69%, while restructured loans too improved ~20bp QoQ to ~1.6%.

* FB reported RoA/RoE of 1.45%/17.5% in 4QFY23. We broadly maintain our estimates as controlled credit costs and healthy other income compensate for a slight drop in NII. We estimate FB to deliver RoA/RoE of 1.3%/15.8% in FY25. We reiterate our BUY rating on the stock.

Healthy growth across segments; PCR healthy at ~71%

* FB reported a net profit of ~INR9.0b (up 67% YoY; 8% beat), driven by lower provisions (down 41% QoQ). NII grew ~25% YoY to INR19.1b (down 2% QoQ, 6% miss) as margins moderated 18bp QoQ to 3.31%. For FY23, NII/PPoP/PAT grew 21%/28%/59% to INR72.3b/INR47.9b/INR30.1b.

* Core fee income grew 34% YoY (up 11% QoQ), driven by healthy business activity. Treasury gains were strong at INR1.92b.

* Opex saw modest ~10% growth YoY, thus the C/I ratio rose to 49.5% QoQ v/s 48.8% in 3QFY23. PPoP jumped ~67% YoY (core PPOP grew 45% YoY).

* On the business front, gross advances grew 20.1% YoY and 3.7% QoQ to INR1.77t, led by a broad-based pickup across segments. Its corporate portfolio grew 3% QoQ, while Retail, SME and Agri grew 2-6% QoQ. Deposits grew 17% YoY, with CASA up ~4% YoY. The CASA ratio declined to 32.7% (-180bp QoQ), while CASA + Retail deposits stood at 85% v/s 88% QoQ.

* GNPA/NNPA rations moderated 7bp/4bp QoQ to 2.36%/0.49%, aided by a healthy recovery and upgrades, even as slippages grew QoQ to INR4.5b (~1.0% of loans). PCR improved 80bp QoQ to ~71%. Restructured loans declined to ~INR28.3b (~1.6%).

Highlights from the management commentary

* In terms of the cost of deposits, a large part of the liability book (~80%) has already been re-priced in 4Q and some of it will be re-priced in 1QFY24.

* Credit growth is expected to be in high teens in FY24, driven by higher growth from new business and fintech partnerships.

* In FY24, FB expects RoA of ~1.3-1.35% and NIM of ~3.3-3.35% (3.31% in 4QFY23), with higher margin in the second half v/s the first half.

* The credit cost is expected to be in the controlled range of ~40-50bp in FY24 (40bp in FY23).

* The C/I ratio moderated to 49% as on 4QFY23 and is expected to moderate by 100bp in FY24.

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