Why were Federal Bank results down in the Dec-20 quarter?

Federal Bank reported third quarter net profit down 7.4% at Rs.418 crore due to higher provisioning for doubtful debts. For the Dec-20 quarter, Federal Bank reported 6.63% growth in revenues on a yoy basis at Rs.4089 crore. The top line growth was driven by growth in Treasury income and interest on retail banking while corporate banking was down.

In terms of profitability, the operating profits were up 31.81% at Rs.1002 crore in the Dec-20 quarter. This growth was on the back of lower interest cost due to falling rates, during the pandemic. Profit after tax (PAT) was down -7.41% at Rs.418 crore due to sharply higher provisioning which spiked from Rs.163 crore last year to Rs.439 crore this year.

Operating margins expanded from 19.83% in Dec-19 quarter to 24.51% in the Dec-20 quarter, on the back of better operating metrics. However, the pressure of higher provisioning was visible in the net margins. PAT margins consequently contracted from 11.78% in Dec-19 quarter to 10.23% in the Dec-20 quarter.

The one thing that is evident from the results is that the asset quality may have come under some pressure. The provisions for doubtful debts was Rs.439 crore in the Dec-20 quarter compared to just Rs.163 crore in the Dec-19 quarter. However, such provisions were lower than the Rs.625 crore in Sep-20 quarter.

Gross NPAs fell marginally to 2.67% and due to the substantial provisions in the last two quarters it led to the net NPAs tapering to a more reasonable level of just 0.61%, which means moratorium risk could be largely provided for. However capital adequacy is just about 14% and that restrains book expansion.