The company reported the highest-ever quarterly profit again In Q1 FY23.
The bank’s asset quality has significantly improved and the management is confident of maintaining the asset quality going forward as well.
The company believes that the overall team continues to be of top quality and top nudge to take all the challenges that might come its way and will help to make strong overall growth for the bank in the upcoming years.
The management thinks that its liability franchise is way better than any other private bank.
The bank has invested significantly In the fintech space. The bank believes that it has created a robust fintech model which will not only benefit the bank but will also benefit the other fintech partners.
The company is on track to deliver returns on Assets at 1.4%-1.5%. Currently, it stands at 1.10% at the end of June 2023. The Management believes that if there are no major environmental factors like lockdowns, the company will be able to meet its guidance.
The bank will pass on the rate hike to the customers. It has already hiked the rate by 15Bps in the March quarter and will gradually pass on the upcoming rate hikes as well.
The bank thinks that 25% of the incremental deposit growth of the bank will come because of the matured digital partnerships that the bank has earlier made.
And also 40-50% of the incremental lending will come from the fintech partnerships.
As of June 2023, out of all the branches of the bank, only one branch of the bank is non-profitable and the reason for the same is that it is less than 2.5 Years old. Rest all other branches of the bank are profitable.
Any new branch opened will take at least 18 months to mature and turn profitable, while in the case of fintech partnerships, it turns profitable immediately.
Bank will have a 5% branch base growth every year which will help to increase the distribution base every year.
In terms of Fees Income, most of the income still comes from Debit Cards and credit card fees are still very small at this stage.
GNPA and NNPA were down to 2.69% and 0.94% respectively in the June 2022 quarter.
Strengthened collection and recovery mechanism helped robust recovery/ up-gradation of 281 Cr.
Balance Sheet & Capital:
The balance sheet grew by 13% YoY (Rs 2.25 Lakh Cr)
The total business grew by 12% YoY (Rs 3.35 Lakh Cr) and CRAR at 14.57%.
Partnerships & Digital highlights:
Enabled online income tax payments for clients in CBDT’s TIN 2.0 platform.
Introduced the best-in-class CRM solution that will enhance CX.
75+ number of fintech partners.
Bank has tied up with FPL Technologies (First Principal Technologies) popularly known as One Card for issuing Co-branded Credit Cards.
The Bank is live with 2 leading Fintech Partners-FI & Jupiter.
Partnered with Pine Labs to offer EMIs on Credit Card purchases.
The Bank has partnered with DigiVriddhi Technologies (DGV). DGV is a Neo for Bharat Fintech empowering the underserved & underbanked with banking facilities.
Federal Bank, DGV and Amul have joined hands to digitize the farmer milk payment cycle spread across 18,000 Milk Societies and 36 Lakh Famers.
Total Advances grew by 16% YoY.
CV/CE grew by 56% and Auto Loans grew by 24%.
Gold Loans grew by 17% YoY.
Business Banking & Commercial Banking grew at 18% and 20% YoY respectively.
Market Share Updates:
Market Share in Advances at 1.21%.
Market Share in Deposits at 1.08%.
Market Share at an all-time high of 21.06% for Individual Inward Remittance.
Credit Growth Outlook:
The Bank has set an outlook to have mid-teen credit growth In the upcoming years. The Bank believes that there are always some or the other business stream which will be growing faster which will help the bank to have a mid-teen credit growth outlook going forward. The credit card business and commercial vehicle financing which are still In the nascent stage with high growth rate visibility due to the low base and also due to the growing demand will help the bank to have mid-teen credit growth for the bank.
The bank may go slow or fast in the corporate credit side of the book depending upon the market opportunities available for the bank.
The Company’s Liquidity Coverage Ratio is the best amongst all the players, but the company still made a 3 Year Borrowing from NABARD. The bank feels that during times of rising interest rates, these fixed-cost borrowings are a good choice for the bank and will also help to control the overall cost of borrowings during inflationary times.
The External Benchmark-based book is 45%, MCLR is 18% and the Fixed book is 27% out of the total loon book. The remaining 10% are staff loans, forex books, and other small-small segments.
Net Interest Margin:
Regarding the Net Interest Margin, the management thinks that margins should not be seen on a quarterly basis and should be seen on the yearly basis. The management expects the NIM to increase by 7-8bps going forward.
Other Income and Cost to Income Ratio:
Fee Income @ 441 Cr increase of 73% YoY and, Other Income at 453 Cr, impacted by lower Treasury gains and loss on revaluation of Investments
Cost to Income at 52.68% in Q1 FY23, a reduction of 721bps sequentially.
Going forward there will be no such major charge to the Profit and Loss Statement and therefore the Cost to Income ratio will be back in the range of 50% points.
Management wants to push it to the range of 48%-49%, but it thinks that it will need one more financial year to bring the ratio to that range.
The Bank says that are no merger opportunities available for the bank. Neither has the bank approached anyone for the merger nor anyone has approached the bank for the merger.
The Bank is entirely growing organically.
If the bank gets any microfinance setup available but at a very good cost, the bank will happily carry forward the deal ahead.
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Yadnya Academy Pvt. Ltd. (InvestYadnya) is registered with SEBI under SEBI (Research Analyst) Regulations, 2014 with registration no. INH000008349.
Disclosure with regard to ownership and material conflicts of interest:
1. Neither Research Analyst nor the entity nor his associates or relatives has any financial interest in the subject Company;
2. Neither Research Analyst nor the entity nor its associates or relatives has actual /beneficial ownership of one percent or more securities of the Subject Company, at the end of the month immediately preceding the date of publication of the research report or date of public appearance;
3. Neither Research Analyst nor the entity nor its associates or his relatives has any other material conflict of interest at the time of publication of the research report or at the time of public appearance.
Disclosure with regard to receipt of Compensation:
1. The Research Entity and its associates have not received compensation from the subject company in the past twelve months.
2. The subject company is not or was not a client during the twelve months preceding the date of recommendation.
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