Federal Bank share: Brokerages split after Q1; CLSA, Nuvama stay positive, Morgan Stanley cautious

Brokerages have offered mixed views on Federal Bank after the lender reported a soft Q1FY26, with rising credit costs and moderation in net interest margins (NIM). While CLSA and Nuvama maintained positive ratings, citing strong fee income and manageable profitability, Morgan Stanley remained underweight, flagging asset quality concerns and a likely decline in return ratios.

Morgan Stanley on Federal Bank share: RoA may moderate as stress builds in MFI

Rating: Underweight | Target Price: ₹165
Morgan Stanley noted that slippages and credit costs rose sequentially, led largely by the microfinance (MFI) portfolio, with marginal increases in retail and business banking segments. The firm expects return on assets (RoA) to moderate to 1%, while also pointing out that management sees the current MFI stress as transitory, likely to ease over the next 1–2 quarters.

CLSA on Federal Bank share: Credit costs higher, but profitability intact

Rating: Outperform | Target Price: ₹230
CLSA highlighted a marginal PAT beat, although credit costs were 70% above estimates due to MFI and business banking stress. However, it credited the bank for managing profitability with the help of stronger other income and lower operating expenses.

The brokerage also noted that loan growth has slowed from 20% to 9% YoY, and NIM moderated 18 basis points, which is still better than many midcap peers. Fee income showed healthy 21% YoY growth, and the bank’s expense ratio continued to improve, supporting its overall outlook.

Nuvama on Federal Bank share: Credit cost elevated short term, but manageable

Rating: Buy | Target Price: ₹230
Nuvama termed Q1 as “soft,” with NIM down 18 bps QoQ, slippages rising 34%, and credit cost jumping to 66 bps from 24 bps in the previous quarter. The brokerage attributed this to MFI stress, especially in Karnataka where the bank has a 20% exposure, and some impact from business and CV lending.

Despite the rise in risk provisions, core pre-provision operating profit (PPoP) held steady, and Nuvama remains positive, expecting credit costs to remain elevated in Q2 before declining. Management guided for Q2 NIM decline of 5–10 bps and credit cost of 55 bps for FY26.

Summary of brokerage views on Federal Bank share:

Disclaimer: This article is based on brokerage reports and is for informational purposes only. It does not constitute a recommendation or investment advice. Investors should consult their financial advisors before making investment decisions.