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Investing.com - Nomura/Instinet downgraded Federal Bank Ltd (NS:FB) from Buy to Neutral and lowered its price target to INR195.00 from INR220.00, citing elevated credit costs and muted growth prospects.
The rating change follows Federal Bank’s reported profit after tax (PAT) of INR8.6 billion, representing a 15% year-over-year decline and falling 6% below Nomura’s estimate. The bank’s underperformance was primarily driven by a sharp rise in credit costs, which increased by 40 basis points quarter-over-quarter to 0.7%.
Federal Bank experienced higher slippages in its microfinance institution (MFI) and agriculture segments, while also noting concerning upticks in business banking and commercial vehicle/construction equipment portfolios. Both loan and deposit growth remained subdued at just 1% quarter-over-quarter, translating to 9% and 8% year-over-year growth respectively.
Nomura has reduced its fiscal years 2026-2028 loan growth estimates by 1-2%, now projecting a compound annual growth rate of 14% compared to its previous 15.3% forecast. The firm also cut its earnings per share estimates for the same period by 11-13%, reflecting expectations for higher credit costs, weaker net interest margins, and slower loan growth.
The investment bank expects Federal Bank’s returns to remain muted in the near to medium term, with return on assets at 1-1.1% and return on equity at 11-12% over fiscal years 2026-2028.
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