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Unveils ‘Breakthrough Phase’ Strategy; Execution Key

CITI'S TAKE At Federal Bank Analyst Day, new CEO Mr. Manian unveiled the strategy of embarking on ‘Breakthrough Phase‘ to modernize and inch closer to top private banks with a universal bank vision and national franchise. It benchmarked itself to ‘Next 3’/‘Best 3’ private banks cohort and envisioned outcome to at least better ‘Next 3’ cohort by FY28 on various metrics (incl NIM of 3.5-4.4%, RoA of 1.4-2.2%, RoE of 13-16%). What’s encouraged: [1] enhancing profitability/RoA while sustaining growth, instilling P&L culture in business heads, concentrated/phased state specific expansion beyond Kerala, refining/modernizing branches, rebranding (bank of choice). [2] Emphasized focus (in order of preference) on rationalizing CoDs (through CA), reshaping product mix to optimize yields and enhance fees. [3] Targeted segments – mass affluent/MSME/mid-corporate/NR/next gen. Key to monitor: [a] Strategy execution amidst competitive intensity, volatile environment. [b] near-term headwinds may outweigh medium- term aspirations. Valuations at 1.1x FY27E book appear reasonable. Maintain Buy.

RoA improvement levers — [1] Rationalize CoDs – Scale up CA to 10% by FY28 through product innovation, penetration (not easy given CA discipline guideline and peers too aggressive on garnering CA), enhance engagement with capital markets for better fee and float (no ready existing customer base), enhance NR Beyond the GCC/Kerala, position as Primary Banker through customized offerings (all pvt banks targeting this), granular focus on CASA/RTD, LCR efficiency. [2] Reshape advance mix to optimize yields - scaling up medium-yield assets (from 31% to 34%), deepen high-yield assets (from 5% to 8%), targeting mid-market corporate lending, applying RAROC and tenor-based pricing. [3] Expanding product portfolio - Scale-up Used Vehicle Finance (CV/CE, Car Loans), expand offerings for Micro-LAP, tractor finance, EMI business loans, affordable housing, real estate financing. [4] Fee enhancement through product origination and cross-sell targeted at mass affluent/NR, MSME, mid-market – Trade/forex income, wealth mgmt.., bancassurance, credit cards, CMS. [5] Cost Efficiency – enhanced productivity, low-cost sales channel, leverage Fedserv, centralize/regionalize processes, AI/automation.

Product portfolio dynamics — Will grow business banking, commercial banking, mid-corporate, used vehicle, etc. and will enhance profitability in credit card, agri, micro loans, etc.

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