Not expecting higher slippages from unsecured book: Federal Bank ED

Additional provisions for existing NPAs in unsecured book, says Federal Bank ED

Kerala-based Federal Bank’s additional provisioning of Rs 292 crore in the third quarter of the financial year 2025 (Q3FY25) towards its unsecured portfolio weighed on the banks’ profitability in the quarter, which dropped 5 per cent year-on-year (Y-o-Y) and 10 per cent sequentially to Rs 955 crore. 

 

Although the bank is not anticipating any additional slippages from its unsecured portfolio, the extra provisioning is for its existing gross non-performing assets (NPA) from the portfolio.

 

“We have been more conservative and provided more and advanced buffers for these existing GNPAs,” Harsh Dugar, Executive Director, Federal Bank told Business Standard.

 

“We are not anticipating slippages, but this is on our existing GNPAs. The accelerated provision is higher and more than what was required earlier as per Income Recognition, Asset Classification, and Provisioning (IRAC) norms,” said Dugar, adding that it is not floating but higher provisions than required as per regulations.

 

The gross NPA ratio of the lender dropped to 1.95 per cent in Q3FY25 compared to 2.09 per cent in the previous quarter, while the net NPAs of the lender stood at 0.49 per cent as against 0.57 per cent in the previous quarter.  ALSO READ: Federal Bank's Q3FY25 results: Net profit down 5% at Rs 955 crore

 

In Q3, provisions made by the lender increased 43 per cent and 21 per cent sequentially to Rs 614 crore in Q3FY25.

 

“There is visibly more stress in microfinance in Q3, compared to Q1 and Q2. But, it (microfinance portfolio) is just about Rs 4,000 crores and it has grown only by 1 per cent sequentially. We have tightened the filters and our asset quality remains better than the industry average in the microfinance segment and also the pool is very small,” Dugar said.

 

Federal Bank’s microfinance portfolio stood at Rs 4,123 crore at the end of Q3, its personal loan portfolio stood at Rs 3,774 crore; and credit card portfolio stood at Rs 3,444 crore.

 

Meanwhile, the additional provisions made by the lender drove the credit cost of the bank to 0.58 per cent in Q3 from 0.30 per cent in Q2 and 0.31 per cent in Q3 of FY24. The bank is anticipating a credit cost of around 0.40 – 0.45 per cent in the next 15 months.

 

The net advances of the lender grew by 16 per cent Y-o-Y to Rs 2.30 trillion as on December 31, 2024 with retail advances rising 13 per cent to Rs 73,498.5 crore. On the other hand, the total deposits of the bank rose by 11.2 per cent Y-o-Y to Rs 2.66 trillion. 

 

The Net Interest Margin (NIM) of the bank stood at 3.11 per cent compared to 3.19 per cent in the same quarter last year which the bank expects to be around similar levels as it focuses on high margin products.

 

“We are focusing on high margin products. Our lending to commercial vehicles, cards business, MSME segment is expected to be yield accretive. Also, we are looking at focusing more on current account flows and SA. This CASA will have a favourable impact on the cost of funds. So, between a lower cost of funds which we are aiming for and a better yield because of our asset mix. I would expect the NIMs to be maintained at the levels which they are in,” Dugar said.