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Good strategy but better execution a key

Quick Pointers: ? Target is to upgrade to a higher peer set and be among the top private banks.

* NIM/fees expansion, CASA mix and opex efficiency are key focus areas.

* MD&CEO Mr. Manian well articulated FB’s medium-term strategy (FY25-28E) which includes CASA/NIM/fee expansion and opex efficiency. Branches would be re-oriented to be more customer centric and sales driven. FB aspires to be among the top pvt. sector banks by improving return ratios which would entail superior balance sheet management by focusing on profitable growth and better asset/liability mix. FY24 NIM/core RoA was 3.1%/1.1% while for larger peers it ranged between 3.5-4.9% and 1.6-2.3% suggesting that execution and consistency are a key. In our view, if the strategy is executed well, benefits may flow over medium-term although near-term could see upfront investments. We maintain multiple of 1.3x on Sep’26 ABV and keep TP of Rs210. Retain ‘BUY’.

* Aspiration for NIM to be near large private peers: NIM increase strategy would weigh more on liability mix as compared to assets. NIM is guided to be between top-3 and next-3 banks led by 1) increasing CASA share 2) improving share of mid/high yielding assets while avoiding aggressive growth in low yielding products and (3) introducing RARoC based pricing. Aim is to enhance the product bouquet and increase the share of secured high-yielding products like used vehicle finance, tractor loans, micro-LAP and affordable housing. Real estate lending is another lucrative segment.

* Target to scale-up CASA: CA share for FB is currently below industry average; CASA ratio is aimed to increase from 30% to 36% by FY28E (industry at 37%). This will be achieved by rise in SA by 2% and CA by 4% led by lower base and untapped opportunities even in dominant markets like Kerala. Branch strategy would be re-oriented towards garnering higher CASA by strengthening NR segment and expanding CA offerings, digital onboarding and RM coverage. Govt. business/institutional CASA is an important segment as well.

* Focus on improving fee income: Fee to avg. assets for FB is lower at ~90bps compared to 120-165bps for top-5 private peers. Overall increase in fees will be achieved through cross sell and introducing more products to customers. New staff may be required, which would entail re-skilling as well. Aim is to increase sources of trade/forex income while introducing insurance products and wealth/cash management services. Reducing dependency on third party and increasing self-originated credit cards and could also improve fees.

* Higher productivity to be preferred over cost control: Branch turnaround coupled with digitization is aimed over 3-5 years. Focus is on ‘free the branch’ initiative by shifting work through automation, centralization, outsourcing to Fedserv and regionalizing. This would free bandwidth which would be utilized towards sales/customer engagement. Aim is to increase organic sourcing of credit cards through ‘feet on street’. This overall strategy could increase costs in short-term but improve medium-term profitability thru better productivity.

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