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Informist, Tuesday, Oct. 14, 2025

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By Pratiksha

 

NEW DELHI – Federal Bank's net profit for Jul-Sept is seen falling on year for the second consecutive quarter, owing to a continued surge in provisions, according to brokerages tracking the lender. The expected jump in provisions is likely due to higher slippages from the stressed microfinance portfolio, analysts said.

 

The Kerala-based private sector lender is expected to report a 16% on-year decline in its bottom line for the September quarter to INR 8.86 billion, according to the average of estimates from 11 brokerage firms. The net profit is estimated to rise 3% on quarter. Kotak Institutional Equities Ltd. has the lowest estimate for Federal Bank's net profit for the September quarter at INR 8.12 billion, while Nirmal Bang Equities Ltd. has the highest estimate at INR 9.39 billion. The bank will detail its September quarter financial results Saturday.

 

Prabhudas Lilladher Pvt Ltd., Motital Oswal Financial Services Ltd., and Nomura Equity Research Ltd. expect the bank's provisions to have more than doubled on year to around INR 3.3 billion in Jul-Sept. The lender reported provisions of INR 1.58 billion in the corresponding quarter last year. The bank's provisions during Apr-Jun were INR 4 billion.

 

According to Nuvama Wealth Management Ltd., Federal Bank may see slippages of INR 5.7 billion in Jul-Sept, up 33% on year. ICICI Securities expects slippages to increase 15% on year to INR 5.0 billion in the quarter under review. "We expect slippages at ~1.1% of loans (around INR 7 billion) driven by retail microfinance," Kotak Institutional Equities said in a report. 

 

In the June quarter, the slippage ratio was 1.11%, up 27 basis points from the March quarter and up 33 bps from the June quarter of 2024-25 (Apr-Jun). The bank had reported fresh slippages of INR 6.58 billion in Jan-Mar, higher than INR 4.17 billion in the same quarter last year, due to higher slippages in agriculture and microfinance sectors.

 

In a post-earnings media call in August, Federal Bank had said it expects slippages to moderate and normalise going forward. The management had said that slippages in the microfinance sector are likely to have peaked and they expect fresh slippages to fall in the coming quarters. 

 

The bank's net interest income--the difference between interest earned and expended--is seen falling 1% on year to INR 23.45 billion in the quarter ended September, according to the average of estimates from the 11 brokerages. "We expect net interest income to decline of ~3% year-on-year with net interest margin declining 10 bps quarter-on-quarter," Kotak Institutional Equities said. "We expect a weak operating profit growth (~-15% year-on-year) due to weak revenue growth. Fee income growth is likely to be steady."

 

Net interest margin compression is expected to keep Federal Bank's earnings growth in check, according to Emkay Global Financial Services Ltd. Margins are expected to be lower across the banking sector following the 100-bps reduction in the policy repo rate effected in 2025 so far by the Reserve Bank of India's Monetary Policy Committee, including a cut of 50 bps in June.  

 

The bank's management had said in an analyst concall in August that it does not see its net interest margin softening more than 5-10 bps during the September quarter, adding that it is hopeful that margins will improve to around 3% by the end of the year. The private sector bank's net interest margin softened to 2.94% in the June quarter from 3.12% in the March quarter and 3.16% in June quarter last year. 

 

Brokerages will keep an eye on the bank's guidance for loan and deposit growth and for net interest margin in 2025-26 (Apr-Mar). "The key discussion points would be to understand the impact of the rate cut on net interest margin over the next few quarters," Kotak Institutional Equities said. 

 

Shares of the lender have risen almost 8.5% since it declared earnings for the June quarter on Aug 2. At 1026 IST, shares of the bank were trading at INR 215.85 on the National Stock Exchange, up 1.3% from the previous close. The bank's bottom line for the June quarter had fallen nearly 15% on year to INR 8.62 billion, again, owing to a nearly threefold sequential jump in provisions.

 

Of the 26 brokerages reports on the bank available with Informist, 21 have a 'buy' rating on the stock with an average target price of INR 221 per share. Five brokerages have a 'hold' rating on the lender. None of the brokerages have a 'sell' rating on the bank. 

 

The following are the Jul-Sept earnings estimates for Federal Bank from 11 brokerages in descending order of the estimate of net profit in INR million:

 

Brokerage firm	Net interest income (in mln rupees)	Net profit(in mln rupees)
Nirmal Bang Equities Pvt. Ltd.	23,105	9,394
Anand Rathi Share and Stock Brokers Ltd.	23,841	9,231
Emkay Global Financial Services Ltd.	23,305	9,158
YES Securities Ltd.	23,996	9,005
Nuvama Wealth Management Ltd.	23,700	9,000
JM Financial Institutional Securities Pvt. Ltd.	23,684	8,906
ICICI Securities Ltd.	23,333	8,836
Nomura Equity Research	23,500	8,800
Prabhudas Lilladher Pvt. Ltd.	23,412	8,623
Motilal Oswal Financial Services Ltd.	23,126	8,438
Kotak Institutional Equities	22,934	8,123
Average	23,448.73	8,864.91

 

End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Nishant Maher

 

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