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Consistent improvement in earnings quality

FB saw a strong quarter yet again as core PPoP/PAT beat PLe by 9.9%/13.5% due to better NII/NIM. Bank is well on course in executing its stated strategy and this was the fourth quarter of a positive surprise. Reported NIM improved by 13/39bps QoQ/YoY to 3.33% led by (1) increase in mid-yielding segment by 200bps YoY to 45.5% (2) rise in avg. CASA by 190bps YoY (3) good QoQ growth in PL/CC (4) use of surplus liquidity. RoA is guided to improve by 3-4bps each quarter. We raise NIM for FY27/28E by 12bps each leading to core PAT upgrade of avg. 5.0%. As we roll forward to Sep’28 ABV and increase multiple to 1.6x from 1.5x, we raise TP to INR 345. Retain ‘ACCUMULATE’.

Strong quarter; core PAT beat due to higher NII/NIM:

NII was a 6.3% beat at INR 29.5bn (PLe INR 27.7bn) due to better loan growth and NIM (calc.) that was 3.31% (PLe 3.13%); reported NIM was up 13bps QoQ to 3.33%. Loan/deposit growth at 15%/11.4% YoY were higher (PLe 11.9%/10.9%). LDR was 86.7% (84.3% in Q4’26). Other income was a tad lower at INR 10.5bn (PLe INR 11.4bn); fee was largely in-line. Opex at INR 21bn was 0.9% below PLe; higher staff cost (driven by wage revisions) was offset by lower other opex. Core PPoP at INR 18.7bn was 9.9% above PLe; PPoP was INR 19bn. Asset quality improved; GNPA was lower at 1.52% (PLe 1.64%) due to lesser slippages. Provisions were INR 3.18bn (PLe INR 3.33bn). Core PAT was 13.4% above PLe at INR 11.6bn; PAT was INR 11.8bn

Loan growth was mainly led by commercial/corporate:

Credit growth was higher at 4.9% QoQ (PLe 2.0%) due to commercial (5.2%) & corporate (4.3%); retail growth was a bit muted at 2.8% due to housing. The bank continues on its path of re-calibration; there was healthy QoQ offtake in CC (9.8%) gold (8.2%), LAP (5.5%), while growth in housing was subdued (-1.1%). Share of mid-yielding segments has enhanced by 200bps YoY to 45.5% while average CASA is up 110/190bps QoQ/YoY. StanC’s CC acquisition, which is expected to get completed by Dec’26, may strengthen the cards franchise. Credit growth guidance was intact at mid-teens plus, with a positive bias. We raise loan growth for FY27E by 200bps to 16%; we see deposit growth of 13% CAGR over FY26-28E.

NIM further improves QoQ; ECL impact of 1.5-2% of networth:

Reported NIM improved by 13bps QoQ due to

(1) fall in deposit cost by 12bps QoQ also led by higher CASA mix

(2) healthy QoQ growth in high-yielding PL/CC segments

(3) utilization of excess liquidity. As per mgmt., NIM could improve by 5-6bps per quarter. One-time ECL impact is estimated at 1.5-2% of net-worth with no material impact on a sustainable basis.

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