The Federal Bank Ltd expects an additional provisioning impact of around 1.5-2% of its net worth due to the transition to the Reserve Bank of India’s new expected-credit-loss framework for loan-loss provisioning.
The bank said the one-time impact will be calculated on its net worth of around Rs 38,700 crore as of March 31, 2026. The ECL framework will come into effect from April 1, 2027. Despite the expected future provisioning hit, Federal Bank reported strong financial performance for the June quarter.
Q1 Profit Rises Sharply
The private sector lender reported a 36.78% year-on-year increase in consolidated net profit to Rs 1,256.09 crore for the April-June period. Standalone net profit stood at Rs 1,177 crore.
Net interest income or core income rose 26% to Rs 2,946 crore, supported by a 15% increase in advances. The loan book expanded to Rs 2.77 lakh crore during the quarter. The bank’s net interest margin improved to 3.33% from 2.94% in the corresponding quarter last year.
Managing Director and Chief Executive Officer KVS Manian said credit growth in the first quarter had been strong and the bank might consider revising its guidance upwards. He added that the bank was targeting a 0.05-percentage-point expansion in the NIM every quarter, though he did not indicate when it expects to reach the 4% level.
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Asset Quality Improves
Federal Bank’s asset quality strengthened further during the quarter.
The gross non-performing assets (GNPA) ratio improved to 1.52% as of June 30, 2026, compared with 1.91% a year earlier.
Fresh slippages declined to Rs 409 crore from Rs 658 crore in the same period last year.
The bank’s overall capital adequacy ratio stood at 16.97% at the end of June.
ECL Transition to Have One-Time Impact
The bank management said the move to the RBI-mandated ECL-based provisioning system will result in a one-time impact of up to 2% of net worth as of March 31, 2027.
The new framework requires banks to provide for expected future credit losses rather than waiting for loans to turn non-performing.
FCNR(B) Deposit Scheme
Federal Bank plans to use inflows from the FCNR(B) deposit scheme to partially refinance its existing wholesale deposit book. The lender intends to offer leverage of around 8-10 times, and in some cases up to 12 times, to eligible non-resident Indian customers.
Manian said the strongest business opportunities are likely to come from the Middle East, Singapore and Hong Kong, where the bank has a significant customer base. He added that FCNR(B) funds would not directly drive additional credit growth, which will depend on demand in the broader economy.
About 85% of the bank’s deposits are retail in nature, reducing dependence on bulk deposits.
Cautious on Microfinance
From a credit growth perspective, the bank will remain cautious on micro loans due to concerns arising from scant rainfall in some regions. Manian also said remittance flows had moderated after an initial spike during the West Asia conflict, though the conflict had not created any major impact on the bank’s overall business.
Open to More Acquisitions
Federal Bank, which recently announced a deal to acquire portfolios from Standard Chartered, said it remains open to additional acquisitions.
Manian said the bank does not have a preference between acquiring individual portfolios or pursuing entity-level transactions.
Stock Gains After Results
Investor sentiment remained positive after the earnings announcement.
Federal Bank shares closed 6.7% higher at Rs 348.80 apiece following the results, supported by strong profit growth, improving asset quality and healthy loan expansion.
(With inputs PTI)
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