Federal Bank's profit fell 26% year on year as the bank stepped up provisions to deal with likely rise in slippages due to the economic impact caused by the Covid 19 pandemic.
Net profit dropped to Rs 308 crore in the quarter ended September 2020 from Rs 417 crore a year ago as the bank more than doubled provisions in the period. Total provisions increased to Rs 592 crore from Rs 252 crore a year ago and up 50% compared to the quarter ended June.
CEO Shyam Srinivasan said the bank has made upfront provisions of 10% of its expected loans to be restructured according to Reserve Bank of India (RBI) norms.
"We expect 2.5% to 3% of our loan book to be restructured with RBI specified norms. This quarter we restructured loans worth Rs 26 crore and have got requests for Rs 360 crore worth of loans to be restructured," Srinivasan said.
Slippages were masked by the RBI directed moratorium on loans with a mere Rs 3 crore of loans slipping into NPAs. Srinivasan said if not for the moratorium about Rs 237 crore of loans would have slipped into NPAs. As a result of the moratorium the bank's gross NPA ratio dropped to 2.84% of total loans from 3.07% a year ago.
The bank's total loan book as of September was at Rs 1.22 lakh crore and 2.5% to 3% loans would mean Rs 3500 crore will be restructed out of which Rs 1000 crore will be corporate loans, Srinivasan said.
"The environment we are operating in will have a somewhat elevated impact on slippages," Srinivasan said.
On the business side Federal Bank's net interest income increased 23% to Rs 1380 crore while othe income rose 21% to Rs 509 crore.
Net interest margin or the difference the yield a bank earns on loans and that it pays on deposits improved to 3.13% in September versus 3.01% a year ago.
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