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In-line earnings; lower provisions drive earnings beat

Guides for CD ratio of ~80% by CY24 end

* FB reported a mixed quarter as net earnings beat our estimate by 6% driven by lower provisions and healthy other income (FedFina stake sale gains) but slippages increased while NIMs compressed 3bp QoQ.

* Advances growth was healthy at 18% YoY/3.3% QoQ, led by robust growth in retail and commercial banking. Deposits grew 19% YoY/2.9% QoQ, aided by continued traction in term deposits. Thus, the CASA ratio moderated 54bp QoQ to 30.6%.

* Slippages increased to INR4.8b, due to higher slippages in the corporate segment. GNPA/NNPA ratios were broadly stable at 2.3%/0.6%. Restructured book declined ~15bp QoQ to 1.1%.

* FB reported RoA/RoE of 1.4%/14.8% in 3QFY24. We fine-tune our estimates following the 3Q results and expect FB to deliver RoA/RoE of 1.3%/14.5% in FY25. We reiterate our BUY rating on the stock.

Business growth steady; NIM contracts 3bp QoQ to 3.19%

* FB reported net earnings of INR10.1b (up 25% YoY, 6% beat), driven by lower provisions and healthy other income. NII stood at INR21.2b (in line), while NIM contracted 3bp QoQ to 3.19%. Over 9mFY24, PAT grew 33.5% YoY to INR28b vs INR21b over 9mFY23.

* Other income grew 18% QoQ to INR8.6b (6% beat), driven by healthy business activity and ~INR0.9b gains from the FedFina stake sale. Treasury gains stood at INR2.2b in 3QFY24 vs. INR0.7b in 2QFY24.

* Opex rose 27% YoY (up 6% QoQ), largely due to an increase in employeerelated expenses and wage provisions. PPoP growth stood at 8.5% YoY (Core PPoP declined 5% YoY).

* On the business front, advances growth was healthy at 18% YoY/3.3% QoQ at INR1.99t, led by healthy growth in retail and agriculture. Retail grew 5% QoQ, while Agriculture growth was robust at 6% QoQ. Deposits grew 19% YoY (up 2.9% QoQ), driven by faster growth in TDs. As a result, the CASA ratio declined 54bp QoQ to 30.6%.

* Slippages increased to INR4.8b however healthy reductions led to GNPA/NNPA ratios remaining stable at 2.3%/0.6%, respectively. Specific PCR stood at 72%. Restructured loans declined to INR22b (1.1% of loans).

Highlights from the management commentary

* FB aims for a C/D ratio of 80% and 18% growth in its advances portfolio.

* The focus remains on delivering RoA of ~1.4%.

* For succession planning, the board has already started the process. The bank will submit candidate names to the RBI in the coming months and is open to considering external candidates as well.

* The yield on advances was stagnant despite the bank moving to high-yielding segments. FB expects yields to move upward going forward as the mix of highyielding segments improves.

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