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* FB posted a mixed quarter, with in-line PAT and lower-than-expected NII. PAT grew 42% YoY to INR8.5b, aided by high other income (28% beat). The NII miss was due to a 16bp fall in NIM to 3.15%. The PCR was stable at ~71%.

* Gross advances grew 21% 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 31.9%.

* Slippages came in at INR4.9b, led by a 77.6% QoQ increase in the retail segment. GNPA/NNPA ratios remained stable at 2.38%/0.69%, while restructured loans improved ~22bp QoQ to ~1.4%.

* FB reported RoA/RoE of 1.3%/15.7% in 1QFY24. We broadly maintain our estimates as controlled credit costs and healthy other income compensated for higher opex. We estimate FB to deliver RoA/RoE of 1.3%/15.8% in FY25. We reiterate our BUY rating on the stock.

Robust growth across segments; PCR healthy at ~71%

* FB reported a net profit of ~INR8.5b (up 42% YoY; in line), driven by higher other income (up 62% YoY). NII grew ~20% YoY to INR19.2b (flat QoQ, 2% miss) as margins moderated 16bp QoQ to 3.15%.

* Core fee income increased 34% YoY (down 2% QoQ), driven by healthy business activity. Treasury gains were strong at INR1.97b.

* Operating expenses rose ~24% YoY (up 3% QoQ). Thus, the C/I ratio rose to 50.9% in 1QFY24 from 49.5% in 4QFY23. PPoP jumped ~34% YoY (core PPOP grew 15% YoY).

* On the business front, gross advances grew 21% YoY and 5.2% QoQ to INR1.86t, led by a broad-based pickup across segments. Its corporate portfolio grew 4% QoQ, while Retail, SME and Agri grew 4%/6%/8% QoQ. Deposits increased 21% YoY, with CASA up ~5% YoY. The CASA ratio declined to 31.9% (down 83bp QoQ), while CASA + Retail deposits stood at 85% in 1QFY24.

* GNPA/NNPA ratios remained stable at 2.38%/0.69%, aided by recovery and upgrades, even as slippages grew to INR4.9b (up 9.3% QoQ). PCR stood stable at ~71%. Restructured loans declined to ~INR25.7b (~1.4%).

Highlights from the management commentary

* The bank expects FY24 NIM to be 3.3% and margins expansion of 7-8bp by 2QFY24 due to the expansion in yield.

* FB clocked 21% YoY growth in deposits, mainly due to the withdrawal of INR 2,000 currency notes related deposits.

* Retail deposit stands at 85% currently and the bank expects it to be in the range of 85-88%.

* The incremental cost of term deposit is currently at 6.4% and the bank expects it to go up by 10bp to 6.5%.

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