Federal Bank gains 6% as RBI approves re-appointment of Shyam Srinivasan

The brokerage firm Motilal Oswal Financial Services said it sees this as a positive development as it addresses a key overhang on the management continuity

Shares of Federal Bank rose 6 per cent to Rs 90.90 on the BSE in intra-day trade on Monday amid heavy volumes after the lender said the Reserve Bank of India (RBI) has approved the re-appointment of Shyam Srinivasan as managing director and chief executive officer (MD and CEO) of the bank for a period of three years, starting from September 23, 2021.

At 12:40 pm, Federal Bank was trading 5.7 per cent higher at Rs 90.50, as compared to a 0.44 per cent rise in the S&P BSE Sensex. It had hit a 52-week high of Rs 92.40 on March 4, 2021. The trading volumes on the counter jumped over three-fold, with a combined 48.56 million shares having changed hands on the NSE and BSE so far.

Brokerage Motilal Oswal Financial Services said it sees this as a positive development as it addresses a key overhang on the management continuity. Moreover, the approval for three years has come at a time when the Street was expecting RBI to grant only a one-year extension.

On the asset quality front, the initial impact of Covid-19 was in check as Federal Bank has no big ticket accounts (over Rs 100 crore) in its watch list. The restructuring book stood at Rs 1,400 crore (1.1 per cent of loans). Also, total slippages stood at 1.4 per cent of loans in FY21, similar to pre-pandemic levels. Federal Bank maintains a healthy coverage ratio of 66 per cent, which is highest among its midsize peers.

Meanwhile, in the April-June quarter of the financial year 2021-22 (Q1FY22), Federal Bank recorded gross advances of Rs 132,770 crore, up 8 per cent from Rs 123,437 crore in the year-ago quarter. The bank had logged advances of Rs 134,877 crore in Q4FY21.

CASA ratio in Q1FY22 rose to 34.81 per cent as against 32.02 per cent in Q1FY21 and 33.81 per cent in Q4FY21. The bank witnessed a liquidity coverage ratio of 215.20 per cent in the quarter under review as compared to 233.14 per cent in the same quarter last year and 211.74 per cent in the March 2021 quarter.

“CASA plus retail term deposit constitutes around 90 per cent of total deposits. Federal Bank saw a reduction in the cost of deposits and has a lower cost of funds advantage vis-à-vis other midsized banks. This, along with its focus on cross-selling liability products to corporate customers, robust NRI franchise, and pick-up in loan growth would aid margin. The average RoE for the bank has been 9 per cent over the past six years. With earnings now gaining traction, we estimate RoE to improve to 14 per cent by FY23E,” Motilal Oswal Financial Services said company update.