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Strong execution leading to tangible outcomes

We hosted FB’s senior managementfor a road show. The bank’s evolution is progressing well and the MD & CEO sounded confident of achieving the targets set out in Feb’25. Liability mix has improved with reduced bulk deposit share, while de-congestion at branches has led to consistent rise in avg. CASA from 27.3% in Q4FY25 to 30.7% in Q1FY27. Prudent balance sheet management with superior asset-liability mix has led to sustained NIM expansion over the last 1 year from 2.94% to 3.33%. NIM may further increase led by faster growth in mid-yield/unsecured loans and CASA. Fee to asset may see a fillip, although existing opex run-rate may sustain given the focus on increasing presence in metros. We raise core PAT for FY27/28E by 5%/11% led by higher NIM/fees. Due to improving earnings trajectory, we raise multiple to 1.8x from 1.6x on Sep’28 ABV and increase TP to INR 400 from INR 345. Upgrade to ‘BUY’ from ‘ACCUMULATE’

CASA momentum to sustain led by improving branch efficiency:

Avg CASA has consistently risen over past 6 quarters from 27.3% to 30.7% driven by branch-level changes such as

(1) shifting loan origination/renewal and other admin functions to a central processing center

(2) enhanced performance monitoring by introducing score cards and related incentive structures, especially for liabilities

(3) elimination and simplification of clerical processes leading to lower TAT for account opening

(4) setting up of a separate RM team to manage retail lending

(5) enhancement of teller-level approval limits. The management sees further scope for improvement in CASA.

Mid-yield segments to drive growth; unsecured growth to be measured: Management reiterated its guidance of mid-teens loan growth with an upward bias, led by mid-yield segments. Profitability would not be compromised in favor of faster growth. FB may pursue higher growth in BuB/auto loans as impact of the West Asia crisis/El Nino eases, aided by structural changes in branch-level teams. FB remains optimistic on gold loans, which is cannibalizing personal loans. Unsecured loan growth is picking up but would be calibrated with guardrails in place. We raise FY28E loan growth by ~100bps to 15%.

FCNR-led liquidity surge may not impact FB materially:

FCNR inflows of ~USD100bn across the industry is likely to flush the system with surplus liquidity, which could lower interest rates and prompt NBFCs and large corporates to shift back to bond markets for funding. This, in turn, may moderate corporate credit growth for the industry (19% YoY in Jun’26). However, since 80% of FB’s incremental disbursals are to mid-corporates (that yield 50-60bps higher than large corporates), impact on growth may be minimal.

NIM/fees expansion to strengthen RoA/RoE:

Reported NIM has steadily increased from 2.94% in Q1FY26 to 3.33% in Q1FY27. NIM is expected to further improve, aided by sustained CASA accretion, expansion in unsecured loans and continued growth in midyield segments. Fee to assets may improve led by the

(1) sustained momentum in banca & CC businesses

(2) expanding wealth AUM and related trail fees

(3) increase in trade & forex fees with implementation of new tech propositions. Improvement in NIM/fees could expand RoA by 3-4bps per quarter. We introduce FY29 estimates.

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