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Federal Bank: Education Loan NPAs Mar an Otherwise Good Operating Performance - Views on News from Equitymaster

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  • Jan 16, 2018 - Federal Bank: Education Loan NPAs Mar an Otherwise Good Operating Performance

Federal Bank: Education Loan NPAs Mar an Otherwise Good Operating Performance
Jan 16, 2018

Federal Bank declared the results for the third quarter of financial year ending March 2018 (3QFY18). The bank has reported 20% YoY and 26.4% YoY growth in net interest income and net profits respectively in 3QFY18. Here is our analysis of the results.

Performance summary
  • Net interest income grew by 20% YoY in 3QFY18 on the back of 22.9% YoY growth in advances.
  • Net interest margins remained stable at 3.33% on YoY.
  • Cost to income ratio improved substantially on a YoY basis and stood at 52.4% in 3QFY18 compared to 55.5% in 3QFY17. However, in 3QFY17, the cost to income ratio was up due to demonetization.
  • Other income declined by 17% YoY driven by sharp moderation in treasury gains.
  • Gross non-performing asset (GNPA) as a percentage to advances increased sequentially to 2.52% from 2.39% in the preceding quarter. The net NPA as a percentage of advances also increased sequentially and stood at 1.36%. Provisioning increased marginally by 2.3% YoY. The Provision Coverage Ratio (including technical write-offs) stood at 70%.
  • Due to strong growth in advances, stable NIM and good operating performance, net profit grew by 26.4% YoY.

    Financial Snapshot
    Rs (m) 3QFY17 3QFY18 Change 9MFY17 9MFY18 Change
    Interest income 22,814 25,012 9.6% 63,614 72,049 13.3%
    Interest expense 14,900 15,512 4.1% 41,512 45,553 9.7%
    Net Interest Income 7,914 9,500 20.0% 22,103 26,496 19.9%
    Net interest margin (%) 3.32% 3.33%        
    Other Income 2,754 2,286 -17.0% 7,976 8,450 5.9%
    Operating Expenses 5,919 6,172 4.3% 16,321 17,921 9.8%
    Provisions and contingencies 1,588 1,624 2.3% 4,957 5,756 16.1%
    Profit before tax 3,161 3,990 26.2% 8,800 11,268 28.0%
    Tax 1,104 1,390 25.8% 3,058 3,930 28.5%
    Profit after tax/ (loss) 2,057 2,600 26.4% 5,742 7,339 27.8%
    Net profit margin (%) 9.0% 10.4%   9.0% 10.2%  
    No. of shares (m)*         1,966.4  
    Book value per share (Rs)         60.8  
    P/BV (x)*         1.7  

    *Book value as on 30th September 2017

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