Federal Bank Q2: Profit falls 26% as provisions more than double, but asset quality improves

Private sector lender Federal Bank has reported a 26.2 percent year-on-year decline in September quarter profit, impacted by significant step up in provisions to further strengthen the balance sheet, but there was an improvement in asset quality.

Profit for the quarter declined to Rs 307.62 crore, compared to Rs 416.7 crore in the year-ago period. The strong growth in NII, other income and operating profit limited the decline in profit.

Net interest income surged 22.8 percent year-on-year to Rs 1,379.85 crore with muted loan growth of 6 percent YoY and net interest margin at 3.13 percent for the quarter, while deposit growth was 12 percent in Q2.

Provisions and contingencies increased by 135.2 percent year-on-year to Rs 592.06 crore in the quarter ended September 2020, and the sequential increase was 50 percent.

"We additionally maintained Rs 588 crore of specific standard asset provision including Rs 402 crore made during the quarter," the bank said, adding it strengthened provision coverage ratio (PCR) to 64.65 percent at the end of September quarter from 58.54 percent in June quarter.

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Asset quality has seen improvement with gross non-performing assets (NPA) falling 12bps sequentially to 2.84 percent in Q2FY21, while net NPA declined 23 bps QoQ to 0.99 percent at the end of September quarter.

Non-interest income increased 21 percent year-on-year to Rs 509.33 crore and pre-provision operating profit climbed 40 percent to Rs 1,006.53 crore in Q2FY21.