Federal Bank Q3 result disappoints investors, shares dive 9 per cent

Private sector lender Federal Bank came out with a disappointing set of Q3FY16 numbers on Tuesday.

Federal Banks total income was flat on a Q-O-Q (quarter on quarter) basis at Rs 2086.07 crore from Rs 2084.53 crore in the previous quarter. However, bank saw an increase in its employees' expenses, which were up by 4 per cent Q-O-Q. Bank's Net Interest Income (NII), the difference between interest earned and interest expended declined by 1 per cent sequentially. NII decreased from Rs 608.34 to Rs 605.2 crore in the December quarter. The primary reason for the decline was the cut in interest rates, which had to be passed on to the consumers. Profits increased marginally Q-O-Q by 1 per cent.

Sequentially the provisions were lower by 14 per cent standing at Rs 75.1 crore in Q3FY16 from Rs 87.28 crore. Net Non Performing Assets (NPAs) stood at 1.66 per cent versus 1.33 per cent sequentially, while gross NPAs stood at 3.15 per cent for the quarter ended December 31 compared with 2.9 per cent seen in the previous quarter. Net NPAs came in at Rs 876.10 crore compared to Rs 674.84 crore in the previous quarter. The weakening of asset quality has been a major concern for the bank, as they have been unable to arrest the decline. A decrease in the provisioning figure sequentially, came as a surprise which is indicative that the weakening of the asset quality may be at its final stages. Next quarter will be an important quarter to gauge the progress made in terms of asset quality numbers and subsequently the profitability of the bank.

Federal Bank reported a 39 per cent fall in its profits Y-O-Y for the quarter ending 31st December 2015. Banks profit declined from Rs 264.69 crores to Rs 162.72 crores on a yearly basis. Profits were lower due to a slow growth in net interest income and a sharp drop in operating income of the company.

Total income has decreased to Rs 2,086.07 crore from Rs. 2,090 crore reported for the quarter ending December 31, 2014. Income from investments rose by 11 per cent from Rs 401.68 crore to Rs 445.89 crore Y-O-Y. Federal Bank's other expenses increased by 17 per cent to Rs 204.44 crores compared to Rs 174.65 crores in the  previous year leading to shrinking of profit margins.

Retail Banking operations of the bank contributed 46 per cent to the total revenue of the bank in Q3FY16, up from 44 per cent in the same quarter previous fiscal. Banks Net Interest Income (NII), rose by 3 per cent Y-O-Y compared to the same period last fiscal. NII increased from Rs 587.16 to Rs 605.2 crore in the December quarter.

Reacting to the dismal set of results, Federal bank scrip cracked more than 9 per cent intra-day to hit a new 52-week low of Rs 47.45 before slightly recovering in trade to close at Rs 48.25 down by 7.74 per cent.