IGI Logo

Sharp recovery in loan growth; liability franchise holding up well

Federal Bank (FB) released a quarterly update highlighting its 3QFY22 business numbers. The bank posted a strong recovery in business trends, despite a challenging environment amid the pandemic. The key updates are furnished below:

* Gross advances rose ~12.1% YoY to ~INR1.4t and reported a strong sequential growth of 4.6% in 3QFY22 (v/s 3.4% QoQ growth in 2QFY22). We believe the growth was led by healthy traction across all segments.

* FB’s total deposit base grew ~8.5% YoY (+2% QoQ) to INR1.75t. Total customer deposits increased 8.7% YoY (+1.1% QoQ), while CASA deposits witnessed a strong traction and rose ~15% YoY (+3.5% QoQ). Accordingly, CASA ratio improved 52bp QoQ to ~36.7% ̶ the highest level achieved by FB. Conversely, term deposit growth was broadly flat sequentially (-0.2% QoQ).

* Certificate of deposit/interbank deposits posted a sharp sequential increase of ~65%/~21%, respectively, in 3QFY22.

* Liquidity Coverage Ratio (LCR) declined sharply to 154% in 3QFY22 from 231% in 2QFY22 indicating deployment of excess liquidity that the bank was carrying.

* CASA trends remained healthy, with the liability franchise holding up well for the bank. LCR ratio, though witnessed a sharp decline, is likely to have supported the loan growth. We expect an improvement in margin in 3QFY22, underpinned by a recovery in credit trends and lower cost of funds. We maintain our BUY rating on the stock with a TP of INR130 (1.3x Sep’23E ABV for core bank).

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

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