On Tuesday, Citi reiterated its Buy rating on Federal Bank Ltd (FB:IN) stock, maintaining a price target of INR231.00. The firm's analysis highlighted Federal Bank's Return on Assets (RoA) at 1.28%, surpassing Citi's estimates, bolstered by a 30 basis points credit cost, consistent Net Interest Margins (NIMs), and increased fee income.
The report pointed out several positive factors for the bank, including its focus on secured lending, which has helped keep slippages and credit costs low at approximately 80 basis points and 30 basis points, respectively. Additionally, the bank's Liquidity Coverage Ratio (LCR) improved to 115% from 112% quarter-over-quarter, despite a modest 1% growth in deposits.
Core NIMs, adjusted for penal charges, saw a slight increase of 2 basis points quarter-over-quarter, benefiting from a higher proportion of high-yielding advances. The bank also experienced growth in loan processing and para-banking fees, further contributing to its strong financial performance.
Citi also noted areas to watch in the near future, including the need for an increase in deposit growth, which is currently lagging at 16% year-over-year compared to a loan growth of 19%. The bank's new Managing Director and CEO's forthcoming strategy, which will be shaped after in-depth discussions with functional teams and the conclusion of a structured outreach program in November, is also anticipated.
The bank's projections for the fiscal years 2025 to 2027 include an estimated RoA of 1.2-1.3% and a Return on Equity (ROE) of 13-14%, with credit growth expected to be in the range of 15-17%. Citi has a 90-day Positive Catalyst Watch open on Federal Bank, reaffirming its Buy recommendation.
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