Federal Bank on right track with an increased focus on high-margin business

Shares of Federal Bank gained 4% on the NSE on Wednesday. Investors are upbeat about the bank’s growth plans, which were discussed at the recent analysts’ meeting. The bank intends to increase its focus on high-yielding lending businesses.

This includes segments such as commercial vehicle and construction equipment finance, credit cards and personal loans. The bank’s management told analysts that it plans to double new business over the next three years, while continuing to expand the remaining large businesses. Federal Bank intends to increase the share of high-yield loans to 25% from 20.5% at present. The faster growth in these areas is expected to help the bank’s net interest margin.

To drive loan and deposit growth, Federal Bank had over the years been working on improving its customer base, especially in the digital space and enhancing fintech partnerships. At the end of December, the fintech partnership’s share was 75% in credit cards and 36% in personal loans, 19% in incremental savings balances and 10% in incremental term deposits. These partnerships contributed to nearly 4.5x growth in personal loan disbursements between October and December 2022.

Additionally, a steady increase in advances and deposits has been included to improve the return on asset expansion (ROA); Increase fee income and cross-selling by leveraging data; maintain good asset quality; and improve efficiency with calibrated branch expansion. For FY23, it expects its RoA to be around 1.25%.