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On Tuesday, JPMorgan analysts downgraded Federal Bank Ltd (FB:IN) stock rating from Overweight to Neutral, adjusting the price target to INR210.00 from INR215.00. This decision follows the bank’s fourth-quarter results for the fiscal year 2025, which fell short of JPMorgan’s expectations in terms of net interest margin (NIM) and had higher than anticipated costs.
The bank reported a miss on the expected NIM, and costs were above the estimates for the fourth quarter. In anticipation of potential rate cuts, JPMorgan forecasts that the bank’s margins will likely face downward pressure. To mitigate some of this pressure, Federal Bank has taken measures such as reducing deposit rates and modifying loan rate reset periods for certain loans.
JPMorgan projects a decrease in the bank’s NIMs, on average assets, by 24 basis points in the fiscal year 2026 compared to the previous year, with an expected recovery in 2027. The bank is currently undergoing a strategic transformation under new leadership, aiming to improve its performance by targeting higher-yield segments, expanding distribution, strengthening its liability franchise—particularly in current accounts (CA)—and boosting operational efficiency.
However, these initiatives are expected to increase operational costs in the short term. This is further complicated by the competition in growing current accounts and the necessity for maintaining strict asset quality in new and untested credit segments. Despite Federal Bank’s strong fundamentals and growth potential, the JPMorgan analysts have downgraded the stock due to the immediate challenges it faces with margin compression and operational cost pressures.
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