Like many other banks, Federal Bank Ltd, too, reined in its advances growth during the turbulent December quarter. Outstanding loans increased marginally during the quarter, from Rs 21,326 crore at the end of September to Rs21,552 crore by the end of December.
The bank had indicated to analysts earlier that it would moderate loan growth in the uncertain environment.
That didn’t stop Federal Bank from putting up an impressive performance during the quarter, with net profits rising by 98.1% year-on-year (y-o-y). True, a large part of that extraordinary performance was on account of higher growth in investment profits (“other income” rose by 94% y-o-y) and lower provisions (lower compared with the previous quarter), but net interest income (NII), too, grew at a very impressive 88.8%, much higher than the 64% y-o-y growth in NII during the September quarter.
Growth was aided by a rise in net interest margins, which went up from 4.1% in the first half of the current fiscal year to 4.41% for the nine months ended December 2008.
To be sure, bad loans went up, with the gross non-performing assets (NPAs) percentage going up from 2.6% at the end of September to 2.8% at the end of December. But the bank provided for the extra bad loans, thus reducing net NPAs from 0.4% to 0.33%.
The net result has been that earnings per share (EPS) for the December quarter has been Rs11.92, almost the same as the Rs12.02 earned during the year-ago quarter, which means the impact of the rights issue on EPS has been almost recouped in a year. Thanks to the issue, the bank is sitting pretty on a capital adequacy ratio of 19.85%, a comfort in these days when cash is king. The stock rose 9.8% on Friday. At Rs155, the stock trades at 0.62 times its book value as on 31 December 2008, a very attractive valuation.
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