Private sector lender Federal Bank on Friday posted a 12.87 per cent decline in its consolidated net profit for the June 2021 quarter to Rs 356.76 crore, as provisioning for stressed assets soared due to the reverses of the second wave.
On a standalone basis, its net profit declined to Rs 367.29 crore from the year-ago period's Rs 400.77 crore. The absence of a regulatory dispensation, like a moratorium, and a second consecutive financial blow taken by the stressed segments have led to increased trouble for lenders, the bank management said.The fresh slippages surged to Rs 640 crore as against the usual run-rate of about Rs 400 crore per quarter, which resulted in a corresponding increase in the provisioning that led to the profit decline.
Federal Bank Managing Director and CEO Shyam Srinivasan said the bank has been setting aside 65 per cent on a non-performing asset (NPA) even though it has recourse to lower provisioning under the accounting norms, and added that this resulted in credit provisioning of Rs 460 crore.The overall provisioning came at Rs 641.83 crore as against Rs 394.62 crore in the year-ago period and the last quarter's Rs 242.33 crore.
The bank's asset quality showed deterioration as the gross non-performing assets (NPAs) rose to 3.50 per cent of the gross advances by the end of June 2021, from 2.96 per cent as of June 2020.Net NPAs or bad loans, however, remained stable at 1.23 per cent as against 1.22 per cent a year ago.
He said that given the difficulties faced by the people, it advised borrowers to recast their loans under the windows presented by the RBI. The COVID-19-related restructuring stood at Rs 2,414 crore with a bulk Rs 1,422 crore coming from retail portfolio, Rs 200 crore from gold loans and Rs 339 crore from business banking.
Srinivasan said there is no lumpy slippage in the bank's fresh slippages, and they include Rs 50 crore of gold loans as well. Lending against the previous metal is one of the most secure businesses because of the loan to value mix and the bank is sure of the additional provisions coming back, he said.
"Given the extended lockdown in certain geographies and the challenges clients had, we did not want to, beyond a point, push the customers to make the payment. If they could not, we restructured or it became NPA," Srinivasan said about the gold loans, adding that the NPA on this book is only 0.3 per cent.
The bank expects the overall credit costs, which stand at 1.36 per cent on an annualised basis as of now, to narrow down over the fiscal year to up to 1.10 per cent, Srinivasan said. He expects a reduction in NPAs and money being set aside for them in the remainder of the quarters.The write-offs stood at Rs 430 crore for the quarter as against Rs 380 crore a year ago, but Srinivasan hinted at limited concern on this line going forward by saying that the bank writes-off assets only once a year.
The overall credit growth came at 6.98 per cent during the quarter and it is aiming to "nudge" the double-digit mark for the fiscal. Total deposits grew 9.33 per cent.Its core net interest income grew 9.41 per cent to Rs 1,418 crore on an expansion in the net interest margin to 3.15 per cent. The non-interest income grew 33.13 per cent to Rs 650.15 crore on treasury gains and recovery from a lumpy NPA of the past.
The overall performance has been pleasing given the conditions, said Srinivasan pointing out that the operating profit of Rs 1,135.18 crore (up 21.75 per cent) is the highest ever.The bank said its board of directors also approved allotment of 10,48,46,394 equity shares at an issue price of Rs 87.39 apiece to International Finance Corporation (IFC) and its related entities for Rs 916.25 crore.It has allotted 31,453,918 shares to IFC; and 36,696,238 each to IFC Financial Institutions Growth Fund, LP (FIG) and IFC Emerging Asia Fund, LP (EAF).
With the allotment of these shares, the bank's paid-up equity share capital stands increased from the current level of 199,62,83,783 equity shares to 210,11,30,132 equity shares of Rs 2 each, Federal Bank said.Its overall capital adequacy stood at 14.64 per cent as of June 30, but will rise to 15.3 per cent after the Rs 916 crore infusion done by World Bank Group member IFC on Friday to pick up a 4.99 per cent stake, Srinivasan said.He added that the new shareholder has plans for making the bank's business more sustainable.
The bank started selling credit cards to its existing customers in June but soon faced a setback as Mastercard, its sole franchisee partner, was barred from issuing cards. Work to integrate with other two operators Visa and Rupay is already underway and by the end of September, it will be back to selling cards.With regard to FedFina, its non-bank lending subsidiary, the stress is higher because it recognised three commercial realty accounts as NPAs during the quarter, Srinivasan said.He added that one of them has already been upgraded and the company does not do big-ticket lending any more. FedFina's net grew five per cent to Rs 15 crore.
