Private sector lender Federal Bank reported a 45.1 per cent year-on-year (Y-o-Y) rise in net profit to a record Rs 1,386 crore in the July-September quarter of the financial year 2026-27 (Q2FY27), supported by strong growth in net interest income, higher fee income and an improvement in asset quality.
Net interest income (NII), or the difference between interest earned and interest expended, rose 26.4 per cent Y-o-Y to Rs 3,153.4 crore. The bank's other income rose 37.7 per cent to Rs 1,490.4 crore, with fee income increasing 31.9 per cent to Rs 1,167.7 crore. Its net interest margin (NIM) expanded by 26 basis points (bps) to 3.32 per cent during the quarter.
“Last two quarters we have given this guidance that we expect five to six basis points improvement in NIM. While it will not be linear, we had guided and we continue to stick to our guidance on that,” said K V S Manian, MD and CEO, Federal Bank.
Asset quality improved further, with the gross non-performing asset (GNPA) ratio declining to 1.32 per cent as of September 30, 2026, compared with 1.52 per cent as of June 30, 2026. The net NPA ratio fell to 0.17 per cent from 0.18 per cent. Both ratios were at their lowest levels in a decade, the bank said.
Fresh slippages declined 27.5 per cent Y-o-Y to Rs 420 crore, while the slippage ratio fell to 0.59 per cent from 0.94 per cent a year ago. Credit cost declined by 19 bps to 0.31 per cent.
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The bank's deposits rose 18.6 per cent to Rs 3.43 trillion. Low-cost current account and savings account (CASA) deposits grew 22.6 per cent Y-o-Y to Rs 1.1 trillion, taking the CASA ratio to 32.04 per cent, up 103 bps from a year ago.
Non-resident deposits, comprising NRE and other non-resident deposits, rose 26.6 per cent to Rs 1.19 trillion.
Gross advances crossed the Rs 3 trillion mark to reach Rs 3.02 trillion. Among lending segments, gold loans grew 37.1 per cent Y-o-Y, while loans against property (LAP) increased 32.2 per cent. Credit card advances rose 28.3 per cent and commercial banking advances grew 25.5 per cent. Corporate and institutional banking advances increased 17.2 per cent to Rs 1.05 trillion.
The bank's capital adequacy ratio stood at 16.84 per cent at the end of September 2026, while its Tier-I capital ratio was 15.76 per cent.
Regarding the impact of the insurance regulator's proposed consultation paper overhauling the distribution framework on the bank's fee income as well as on its life insurance arm, Ageas Federal Life Insurance, Manian said the bank was assessing the impact, which would depend on the final regulations.
He said, “There could be an impact, but it is too early to quantify. The bank will wait for the guidelines to be finalised and the implementation timeline to become clear.”
“We are in the process of assessing that. It is still in draft stage in terms of the guideline. We are assessing the impact of that on our associate company and the options that it has got in terms of what kind of business model it should follow as well as what options it has got,” Manian added.
Manian also said that the bank was constantly evaluating opportunities, but there was nothing currently on the table to disclose. It is looking at opportunities across financial services, including core banking and universal banking.