Federal Bank profit surges 37 per cent to Rs 1,177 crore as bad loans hit decade low

KOCHI: Federal Bank has posted its strongest quarterly show in years, with net profit jumping 36.57 per cent to Rs 1,176.93 crore for the quarter ended 30 June 2026, even as a volatile market kept treasury gains firmly in check. The message from Mumbai was unambiguous: this was a quarter won on fundamentals, not financial engineering.

Net interest income climbed 26.06 per cent to Rs 2,945.89 crore, comfortably outpacing advances growth of 14.94 per cent, while fee income rose 21.71 per cent. Net interest margin expanded 39 basis points year-on-year to 3.33 per cent, helped by a 60 basis-point fall in cost of funds against a milder 44 basis-point compression in asset yield. Cost of deposits eased 57 basis points to 5.21 per cent. Earnings per share rose 36.06 per cent to Rs 19.15.

Asset quality, long a talking point for Indian lenders, hit a decadal best. Net NPA fell to 0.18 per cent, with the absolute figure down 56.29 per cent year-on-year to Rs 506.04 crore. Gross NPA improved to 1.52 per cent, and fresh slippages dropped 37.79 per cent to Rs 409.48 crore. Provision coverage, excluding technical write-offs, strengthened to 87.37 per cent, up a hefty 1,296 basis points, while credit cost declined 24 basis points to 0.41 per cent. Including technical write-offs, coverage stands at 94.23 per cent.

The balance sheet, too, is closing in on a landmark. Total business reached Rs 5,97,615.83 crore, up 13.05 per cent, edging toward the Rs 6 lakh crore mark. Total deposits stood at Rs 3,20,117.66 crore, up 11.37 per cent, while gross advances rose 14.94 per cent to Rs 2,81,239.54 crore. CASA balances grew a brisk 18.26 per cent to Rs 1,03,163.15 crore, lifting the CASA ratio 188 basis points to 32.23 per cent, comfortably outrunning overall deposit growth. Non-resident deposits climbed 14.24 per cent to Rs 1,05,123.41 crore, building on last quarter’s Rs 1 lakh crore milestone.

Granular lending segments delivered across the board: commercial banking grew 22.96 per cent, commercial vehicle and construction equipment financing 21.07 per cent, gold loans 33 per cent, loans against property 21 per cent, and credit cards 36 per cent. Corporate and institutional banking grew 16.12 per cent and crossed the Rs 1 lakh crore mark for the first time. Operating efficiency improved too, with the cost-to-income ratio falling 239 basis points to 52.50 per cent, even after absorbing the annual wage revision. Return on assets rose 22 basis points to 1.22 per cent, return on equity expanded 171 basis points to 12.01 per cent, and book value per share grew 17.02 per cent to Rs 161.87. Ten branches were added during the quarter, taking the network to 1,650 outlets.

KVS Manian, managing director and chief executive, said the quarter demonstrated something important about the franchise being built. “Our profit grew nearly 37 per cent in a period when treasury had a challenging period, which tells you that the earnings are coming from the core business, not from market gains,” he said, adding that net interest income growing 26 per cent against advances growth of 15 per cent reflected the margin expansion that has been “a core focus for the bank.”

On asset quality, Manian called the 0.18 per cent net NPA figure the lowest in the bank’s recent history, alongside an 87 per cent provision coverage ratio. “We are building a resilient balance sheet through a combination of lower credit cost and a strong buffer out of our current earnings,” he said, adding that the bank’s chosen advance segments were “delivering as intended,” with the NR and CASA franchises continuing to deepen. “We enter the rest of the year with our capital position strong, our asset quality at its decadal best, and good momentum in our core business.”

With bad loans at their lowest ebb in ten years, margins widening and every growth engine firing at once, Federal Bank has served notice: this is a lender hitting its stride, not riding a lucky quarter.