Recommendation From Banking Sectors

This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon 

Federal Bank 

REGISTER GOOD RETURNS WITH FEDERAL BANK 

HERE IS WHY
Strong operating performance
Healthy loan growth momentum
Good growth prospects 

Federal Bank is an Indian commercial bank in the private sector. It operates across the segments of corporate & institutional banking, commercial banking, business banking, rural & micro banking, retail business, as well as government business & treasury. Headquartered in Kerala, the bank operates 1251 branches and 1669 ATMs across numerous states in India. It has a tremendous loan book size of Rs.1,07,000 crore. 

The bank's Book Value (BV) rose to Rs.64.60 per share in Q3FY19 from Rs.60.80 per share in Q3FY18. EPS reached Rs.6.68 in Q3FY19 from Rs.5.32 in Q3FY18. Meanwhile, Return on Assets (ROA) surged to 0.91 per cent in Q3FY19 from 0.87 per cent in Q3FY18. Return on Risk-Weighted Assets (RoRWA) surged to 1.51 per cent in Q3FY19 from 1.40 per cent in Q3FY18. Return on Equity (ROE) climbed to 10.48 per cent in Q3FY19 from 8.74 per cent in Q3FY18. 

The cost/income ratio improved to 50.25 per cent in Q3FY19 from 52.37 per cent in Q3FY18. The Net Non-Performing Assets (NNPAs) were reported at 1.72 per cent in Q3FY19 as against 1.36 per cent in Q3FY18. The company reported a CASA ratio of 33.35 per cent in Q3FY19 in comparison to 33.13 per cent in Q3FY18. The CASA ratio is the ratio of deposits in the current and saving accounts to total deposits. CASA deposits stood at Rs.41,200 crore in Q3FY19, which amounts to 33.4 per cent of total deposits. Fee income climbed 45 per cent YoY to Rs.279 crore in Q3FY19 from Rs.193 crore in Q3FY18. 

The company experienced healthy loan growth of 24 per cent YoY as corporate loans rose 28 per cent YoY, while retail loans grew 22 per cent YoY. 

The market share of advances improved by 11 bps YoY, while that of deposits improved by 12 bps. The yield on advances rose to 9.31 per cent in Q3FY19 from 9.17 per cent in Q3FY18. The company reported the highest ever Net Interest Income (NII) of Rs.1,077 crore in Q3FY19 as against Rs.950 crore in Q3FY18, posting a YoY growth of 13.36 per cent. Net profit surged 28 per cent YoY to Rs.334 crore in Q3FY19 from Rs.260 crore in Q3FY18. The company reported Net Interest Margin (NIM) of 3.17 per cent in Q3FY19 as against 3.33 per cent in Q3FY18, thereby plummeting 16 bps. 

The quality of assets was impacted by the floods in Kerala. Slippages in Q3FY19 stood at Rs.430 crore as against Rs.480 crore in Q2FY19. Slippages in the corporate segment plummeted by 43 per cent YoY to Rs.60 crore, while agricultural slippages increased 69 per cent YoY to Rs.80 crore. Slippages in the SME segment rose 57 per cent YoY to Rs.190 crore, particularly due to the Kerala floods. 

The bank showcased a healthy performance despite the challenging environment. It continued cleansing its balance sheet, while maintaining healthy and stable levels of business growth. It is well on its way to enhancing its market share in both the corporate and retail segments. By virtue of these factors, we recommend our reader-investors to BUY this stock.