Federal Bank

This Kerala based Bank reported excellent Q2FY14 results on lower provisioning. On total income of Rs. 1,858 crore, it posted net profit of Rs. 226 crore vis-à-vis Rs. 106 crore in Q1, on account of provision of barely Rs. 10 crore (versus Rs. 245 crore in Q1). Gross NPAs also reduced from Rs. 1,483 crore (3.51%) to Rs. 1,466 crore (3.39%), although net NPAs rose marginally from Rs. 374 crore (0.91%) to Rs. 411 crore (0.98%). The bank been consciously moderating its big corporate loans and is focusing on retail and SME segments, to maintain quality of asset book.

As of 30^th September 2013, bank’s balance sheet size was Rs. 71,236 crore. Its deposits and advances stood at Rs. 56,794 crore and Rs. 42,220 crore respectively, with not much quarterly growth. However, CASA ratio showed strong improvement to 30.72%, from 27.17% on 31^st March 2013 and 28.96% on 30^th June 2013, thanks to its strong retail and NRI franchise on the back on one-in-every-two branches located in Kerala. Due to improvement in low-cost CASA deposits, NIM strengthened to 3.30% in Q2, from 3.13% in Q1. RoA also showed signs of improvement, with annualized Q2 RoA at 1.31%, up from 0.61% in Q1. As at 30^th September 2013, its CAR as per Basel III was 15.35% while shareholders’ funds stood at around Rs. 6,700 crore, translating into BVPS of Rs. 77. In October end, bank had got FIPB approval for hiking foreign shareholding limit from 49% to 74%. Besides the recent stock split from Rs. 10 to Rs. 2 face value is likely to keep the share price buoyant.  There is likely to be strong interest in the bank, as a potential target in the Indian banking M&A play, given its large branch network, business of close to Rs. 1 lakh crore, no identifiable promoter with high institutional shareholding and strong financial performance in Q2 .