Federal Bank shares fell over 5% on Monday, August 4, after the private sector lender reported a sharp 14.64% year-on-year (YoY) decline in net profit for the first quarter of FY26. As of 9:15 AM, the shares were trading 5.23% lower at Rs 185.80.
The bank posted a net profit of ₹861.75 crore for the June 2025 quarter, compared to ₹1,009.53 crore in the same period last year.
Despite a modest 2% YoY rise in net interest income (NII) to ₹2,373 crore—driven by higher core fees and treasury gains—profitability was hit due to a contraction in net interest margin (NIM) and elevated provisions. The NIM for Q1FY26 dropped to 2.94%, from 3.16% a year ago, affecting core income growth.
Loan growth remained steady at 9% YoY, with strong performance in certain segments. The commercial loan book surged 30%, credit cards grew 16%, and the MFI and corporate books rose by 4% each. However, a rise in slippages—especially from the microfinance (MFI) portfolio and seasonal stress in agriculture—pressured asset quality.
Fresh slippages came in at ₹658 crore, while provisions for the quarter more than doubled to ₹437 crore, compared to ₹173 crore in the year-ago period, dragging down earnings.
Asset quality showed mixed trends. On a YoY basis, the bank’s gross non-performing assets (GNPA) improved to 1.91% from 2.11% in Q1FY25, and net NPA (NNPA) dropped to 0.48% from 0.60%. However, sequentially, GNPA rose slightly from 1.84% in Q4FY25, and NNPA ticked up from 0.44%.
Federal Bank’s capital adequacy ratio remained robust at 16.03% as of June 30, 2025, with the core capital buffer (CET-1) at 14.69%.
Adding to the cautious tone, brokerage houses have also slashed their target prices post the Q1 results. Motilal Oswal (MOSL) cut its target price on the stock to ₹235 per share from ₹250. Similarly, Avendus revised its target price down to ₹209 per share from ₹216.
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