IGI Logo

Flagged as a top pick in 2021, FED marches on

Result Highlights

* Asset quality: Gross slippages amounted to Rs 4.12bn (annualized slippage ratio of 1.0%) and recoveries and upgrades were healthy at Rs 2.87bn

* Margin picture: NIM at 3.49% was up 19 bps QoQ as yield on advances moved up faster than cost of deposits

* Asset growth: Advances grew 4.3%/19.1% QoQ/YoY driven sequentially by Agri, Business Banking, CV/CE and Corporate loans

* Opex control: Total opex rose 4.9%/9.7% QoQ/YoY, staff expenses rose/fell 8.8% /-3.8% QoQ/YoY and other expenses rose 1.9%/24.7% QoQ/YoY

* Fee income: Fee income rose 4.0%/28% QoQ/YoY, sequentially driven by Card fees, Para Banking and general service charges.

Our view – Flagged as a top pick in 2021, FED marches on

Management enhanced RoA guidance for FY23 and FY24, with no single lever expected to be the dominant driver for RoA expansion:While the bank is now expected to deliver full year FY23 RoA at 1.25% or slightly better, the FY24 RoA is expected to be 10 bps higher than FY23 levels. Management stated that RoA improvement would not be dominated by any one single lever. The FY24 NIM guidance stands at 335-340 bps, which is the same as what is now expected for full year FY23. This is higher than the 330 bps guided for (for FY23) during the 2QFY23 result call.

Management guided for loan growth to be in the high-teens for FY24, which is similar to what they had flagged for FY23: While the new guidelines for fintech lending somewhat held back gold loans, management stated that gold loans could grow at the pace of 25%. They further stated that new lending segments, commercial vehicle finance, credit cards and microfinance could double from current levels of about Rs 60-70 bn.

The guidance for cost to income ratio was 47.5-48% for FY24, with many moving parts: It has been observed that wage hikes have ranged between 10-15% in the past and a 15% hike has been assumed in making provisions. The wage provision impact amounts to about Rs 200mn per month and is effective 1st November 2022. The bank has added more than 60 branches so far this financial year and should add about 75 in total for the year. The bank will then add about 80-90 branches per year for 2 years, taking the 3-year total to about 250 branches.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer