[MUMBAI], 25 August 2025:
Federal Bank Ltd. is poised for a transformative growth journey under the leadership of its new Managing Director and CEO, K.V.S. Manian. The bank’s ambitious “Project Breakthrough” aims to elevate its standing among India’s top banks over the next 3 to 5 years, a shift that analysts believe could significantly enhance its market position.
Strategic Realignment for Sustainable Growth
In the wake of fiscal year 2025 (FY25), Federal Bank has made noticeable strides by recalibrating its lending strategies. This pivot involves moving away from high-yield unsecured loans towards more stable, mid-yield secured offerings. According to analysts at Axis Securities, this realignment has resulted in improved asset quality and allowed the bank to sustain its margins, even amid rising funding costs. They forecast that by FY27-28, return ratios could witness significant growth, with return on assets (RoA) climbing to 1.3–1.4% and return on equity (RoE) reaching 13–15%.
Federal Bank observed net interest margins (NIMs) compressing to 3.13% in FY25—a reduction of 7 basis points, largely due to the rising cost of deposits. However, the bank anticipates a rebound in margins by the second half of FY26, spurred by the repricing of deposits and an adjustment in the loan portfolio mix focused on mid- and higher-yielding options. They aim to maintain NIMs between 3.0% to 3.3% during FY26-28, supported by an emphasis on current account savings account (CASA) mobilization and the introduction of fixed-rate products.
Robust Business Growth Momentum
Federal Bank reported a commendable 12% loan growth in FY25, underscored by several key segments, including a 20% year-over-year increase in loans against property and an impressive 35% growth in commercial vehicles and construction equipment loans. Deposits mirrored this growth, also rising by 12%, driven by a surge in current accounts that saw a robust 34% increase. The bank is now strategically setting a target to boost its CASA ratio from 30.5% to approximately 36% by FY28, eyeing expansion into high-potential markets beyond its traditional stronghold in Kerala and the Gulf corridor.
Despite facing some stress in the unsecured microfinance sector, Federal Bank demonstrated resilience, achieving a decline in gross non-performing assets (NPA) to 1.84% from 2.13% in FY24, and a net NPA rate of 0.44%. Slippages were carefully contained at 0.8% of total loans, providing the bank with a solid foundation for continued growth. With a capital adequacy ratio (CRAR) of 16.4% and a Tier-I capital ratio of 15%, Federal Bank is well-positioned to support its medium-term growth ambitions.
Key Initiatives Moving Forward
The management at Federal Bank has outlined a comprehensive 12-point plan aimed at improving RoA and RoE metrics to align more closely with the leading banks in the industry. This strategy will involve enhancing NIMs, diversifying the product portfolio, and boosting fee income contributions. Additionally, they aim to reconfigure branch functionalities and continue investing in digital innovations, compliance, and human resources—all while keeping a vigilant eye on costs.
Key growth drivers identified by the management include expanding portfolios in mid-yield and higher-yield products such as gold loans, commercial vehicles, and personal loans. Moreover, collaborations with fintech companies are set to accelerate both deposits and fee income, further enhancing profitability through improved risk management and return analysis frameworks.
Analysts at Axis Securities indicate that Federal Bank stands at a pivotal point, suggesting that the bank’s ongoing strategy towards sustainable, risk-adjusted growth could lead to an essential re-rating in its stock. They assert, “NIM improvement remains the top management priority. With liability-side measures such as CASA expansion and deposit repricing, alongside asset-side portfolio reshaping, margins should recover steadily from H2FY26.”
As Federal Bank embarks on this transformative journey, the proactive measures and strategic shifts are poised not just to redefine its operational framework, but also to bolster its standing within the fiercely competitive Indian banking sector.
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Original source: bfsi.economictimes.indiatimes.com
