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NIM/opex key levers to core RoA improvement

Quick Pointers:

*  Weak quarter due to miss on NII and other opex.

*  Healthy CA growth, better fees and asset quality were positives.

FB reported a soft quarter as core PPoP at Rs12.6bn missed PLe by 11% driven by 4.2%/3.9% miss on NII/opex. However, lower provisions (led by corporate recovery) cushioned core PAT which met PLe at Rs8.7bn. In-line with its stated strategy, CA accretion was healthy QoQ. NIM may moderate as 50% of loans are EBLR linked with a T+1 reset. However, it may be cushioned by 1) shift to higher yielding segments 2) change in EBLR reset dates for new disbursals to T+90 and 3) growing fixed rate loans at a higher pace. Opex has been a drag; while the bank has guided for a flat cost to income in FY26 vs FY25, we expect that investment in branches and technology may keep opex elevated over the near term. We trim core PAT for FY26/27E by avg. 6.5% as we cut NIM by 5bps and slightly increase opex. We maintain multiple at 1.3x but our TP increases to Rs220 from Rs210 as we roll forward to Mar’27 ABV. Retain ‘BUY’.

* Soft quarter; core PPoP miss due to miss on NII/opex: NII was lower at Rs23.8bn (PLe Rs24.8bn). NIM (calc.) was a miss at 3.06% (PLe3.19%) although reported NIM was flat QoQ at 3.12%. Loan growth was lower at 12.1% YoY (PLe 13%); deposit accretion was higher at 12.3% YoY (PLe 9.0%). LDR fell to 82.8% from 86.5% in Q3FY25. Other income was higher at Rs10.1bn (PLe Rs9bn) due to fees. Opex at Rs19.2bn was a 3.9% miss as other opex was 7.5% more than PLe. Core PPoP at Rs12.6bn was 11% below PLe; PPoP was Rs14.7bn. Asset quality improved as GNPA reduced by 11bps QoQ to 1.84% (PLe 1.92%) due to lower net slippages. Provisions were at Rs1.4bn (PLe Rs2.5bn); PCR inched up to 76.2% from 75.2% in Q3’25. Core PAT was largely in-line at Rs8.7bn while PAT was Rs10.3bn.

* Focus on re-calibration of assets and liabilities: Credit accretion was 1.9% QoQ mainly led by corporate (+3.5%). While retail growth was slower due to housing, LAP accretion was healthy at 6.0% QoQ. Focus continues on mid-yielding assets for profitable growth. Gold loans saw a blip owing to regulatory changes; it is expected to bounce back post clarity from RBI. Unsecured growth i.e. PL/CC, is likely to pick up given that stress has peaked out. In line with the stated strategy of CA focus, CA growth was strong at 27% QoQ as CA acquisition is running at a 50% higher pace. While CA flow came towards the year-end, avg. CA has also improved.

* Asset liability mix to drive NIM; opex remains a drag: NIM may moderate post rate cuts as 50% of loans are EBLR linked. However, as per the bank, this fall may be curtailed owing to 1) shift to mid-yielding assets, 2) pick-up in high yielding PL/CC segments 3) change in EBLR reset dates for new disbursals from T+1 to T+90 and 4) growing fixed rate loans at a higher pace. Opex continues to drag; other opex saw a blip in Q4FY25 as 39 branches became operational. Cost to income for FY25 was 54% and FB expects it to remain flat in the near term.

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