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On Wednesday, BofA Securities revised its price target for Federal Bank Ltd (FB:IN) shares, reducing it to INR 210.00 from the previous INR 225.00. Despite the adjustment, the firm has chosen to maintain a Neutral rating on the bank’s stock.
Federal Bank’s third-quarter financial results for the year 2025 were highlighted as a key factor in the reassessment. The bank reported a Profit After Tax (PAT) of Rs 9.6 billion, which reflects a 10% decrease from the previous quarter and a 5% drop year-over-year. According to BofA Securities, the earnings fell short of expectations due to stagnant loan growth, which remained flat quarter-over-quarter, and an increase in credit cost, which rose to 50 basis points.
The bank’s Net Interest Margin (NIM) remained stable quarter-over-quarter, supported by a shift in loan growth mix towards higher-yielding loans and a slight increase in the Loan to Deposit Ratio (LDR) to 86.5%, as the bank reduced its high-cost deposits. Asset quality was broadly stable, but Federal Bank chose to make accelerated Non-Performing Asset (NPA) provisions of Rs 292 Crore, reflecting a more conservative provisioning policy.
The new CEO of Federal Bank is reportedly steering the bank towards a strategic reorientation, focusing on enhancing the balance sheet’s stability and the sustainability of earnings. While BofA Securities appreciates the bank’s overall approach, it anticipates that the numerous initiatives underway may introduce volatility to the bank’s earnings over the next few quarters.
Investors and analysts are expected to gain further insights into Federal Bank’s medium-term growth and Return on Equity (ROE) projections during the bank’s analyst day presentation scheduled for February 21, 2025.
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