Federal Bank reported a 15 per cent year-on-year decline in net profit to Rs 862 crore for the June quarter of FY26, as higher provisions and a compression in margins weighed on its performance.
The private sector lender saw a sharp uptick in slippages, particularly from its microfinance (MFI) and agri loan portfolios, leading to a spike in credit costs.
Analysts decrease share price targets up to 60%, have mixed views on the stock
Post results, analysts at major broking firms trimmed their target prices on Federal Bank, citing pressure on asset quality and margins, while several maintained their existing ratings.
Morgan Stanley maintained an ‘underweight’ rating and cut its target to Rs 165, suggesting a 60.39 per cent downside from Friday’s (August 1) closing. The brokerage noted that slippages and credit costs increased sequentially, especially in the MFI portfolio, though management expects this stress to ease in the next 1–2 quarters.
CLSA retained a ‘buy’ call but reduced its target to Rs 235. The brokerage said credit costs were 70 per cent above estimates, but the bank maintained profitability through strong fee income and lower operating expenses. Citi also maintained a ‘buy’ rating, lowering its target to Rs 240. Core income remained under pressure, but the sharp rise in other income (up 22 per cent) helped cushion the impact of higher provisions, according to Citi analysts.
Federal Bank Q1FY26 results highlights
The bank’s core net interest income (NII) grew marginally by 2 per cent YoY to Rs 2,337 crore, while other income rose a strong 22 per cent to Rs 1,113 crore, driven by growth in fee income and treasury gains.
However, the net interest margin (NIM) slipped to 2.94 per cent, down from 3.16% in the same quarter last year.
On the asset quality front, gross non-performing assets (GNPA) edged up to 1.91 per cent, compared to 1.84 per cent in the previous quarter. Fresh slippages came in at an elevated Rs 658 crore, largely attributed to the MFI book and seasonal agri stress.
Total provisions surged to Rs 437 crore in Q1FY26, from Rs 173 crore in Q1FY25.
Loan growth moderated to 9 per cent year-on-year, with mixed performance across segments. While the MFI and corporate portfolios each grew 4 per cent, the commercial loan book jumped 30 per cent and credit card advances rose 16 per cent.
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