Federal Bank Q3 Results Review - Closing In On True Franchise Potential: HDFC Securities

HDFC Securities Institutional Equities

Federal Bank Ltd. reported its highest-ever quarterly earnings, largely on the back of strong loan growth (up 20% YoY), margin expansion (up 19 basis points QoQ), sustained fee traction and lower credit costs (38 bps annualised).

Federal Bank benefitted from a timing difference in asset/deposit repricing, offsetting higher employee opex (provision for wage revision) and higher provisions for security receipts as per the Reserve Bank of India circular.

Federal Bank is confident of leveraging its differentiated fintech ecosystem partnerships to clock market share gains in high-yield segments and driving further business productivity on both sides of the balance sheet.

The bank appears to be on track to deliver its targeted return on asset of 1.25% for FY23 and is likely to clock a further 10 bps RoA accretion over the next couple of years as the Federal Bank further calibrates the mix of high-yielding loans.

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