Federal Bank: Ripe for re-rating despite guidance in run-rate of slippages

Strong growth is expected to counter the likely asset quality issues

Banking stocks have been on the rise since October. While Federal Bank — with 28 per cent gains in the last three months — has participated in the re-rating journey, gains seem muted when compared to IndusInd Bank or RBL Bank.

The Street may be worried that over 38 per cent of the bank’s loan exposure is to corporates and 19 per cent to small and medium enterprises (SMEs), which is comprehensible. 

Further, the fact that asset quality in the past two quarters may have been camouflaged by the moratorium, the bank’s provision of only Rs 590 crore towards likely Covid-induced asset