Federal Bank Q2 Profit Jumps 45% to Record ₹1,386 Crore

Federal Bank has posted the most profitable quarter in its history. Net profit for the July–September period climbed 45.10% year on year to ₹1,386.09 crore, as loan growth picked up, funding costs eased and bad loans fell to their lowest level in a decade. The Kerala-based private lender released its standalone results for the second quarter of FY27 on 16 October.

The bank had earned about ₹955 crore in the same quarter last year and ₹1,177 crore in the April–June quarter, according to IIFL. On a sequential basis, profit rose 17.77%. Earnings per share came in at ₹22.26, up 44.34%.

Managing Director and CEO KVS Manian called it “our highest-ever profit” in the bank’s press release, adding that gross and net NPAs were “at their lowest levels in a decade.”

Core income does the heavy lifting

This was not a quarter carried by one-off gains. Net interest income, the gap between what the bank earns on loans and pays on deposits, rose 26.38% to ₹3,153.40 crore. Net interest margin widened by 26 basis points to 3.32%, a notable move at a time when many lenders are struggling to defend spreads.

Much of that came from the liability side. Cost of deposits fell 39 basis points to 5.18%, and the overall cost of funds was down 40 basis points from a year earlier. Fee income also did its share, rising 31.86% to ₹1,167.71 crore, while total other income grew 37.73% to ₹1,490.44 crore.

Operating profit rose 35.35% to ₹2,225.37 crore. The cost-to-income ratio improved by 196 basis points to 52.08%, which suggests revenue is now growing faster than the bank’s expense base. Return on assets stood at 1.32%, up 23 basis points, and return on equity rose 256 basis points to 13.57%.

Asset quality at a ten-year best

The cleaner balance sheet will interest investors as much as the profit number. Gross NPAs fell 51 basis points to 1.32%, and net NPAs dropped 31 basis points to 0.17%. IIFL puts the year-ago figures at 1.83% and 0.48% respectively.

Fresh stress is also slowing. The slippage ratio eased to 0.59% from 0.94%, and fresh slippages fell 27.48% year on year. Credit cost came down 19 basis points to 0.31%, which directly supported profit.

Provisioning is now thick. The provision coverage ratio, excluding technical write-offs, rose 1,333 basis points to 86.78%; including them, it stands at 94.49%. The restructured book was ₹1,389.55 crore, or 0.46% of advances.

Balance sheet growth stays above 20%

Total business crossed ₹6.4 lakh crore, up 20.12% from a year earlier. Gross advances grew 21.66% to ₹3,01,687.80 crore, and deposits rose 18.61% to ₹3,42,693.56 crore.

The loan mix shows where Federal Bank is chasing yield. Gold loans grew 37.13%, loans against property 32.21%, credit cards 28.27% and commercial banking 25.46%. These are higher-margin segments than plain corporate lending, which helps explain the stronger NIM.

The deposit franchise also strengthened. Current and savings account balances rose 22.56% to ₹1,09,803.15 crore, lifting the CASA ratio by 103 basis points to 32.04%. FCNR(B) deposits, foreign currency term deposits from non-resident Indians, jumped 239.14% to ₹23,547.72 crore. During the investor call, Manian noted that average CASA deposits had crossed ₹1 lakh crore, according to an Investing.com summary.

Capital is comfortable. The capital adequacy ratio was 16.84%, with Tier I capital at 15.76%. Book value per share stood at ₹166.32. The bank added 12 branches during the quarter, taking its network to 1,662 banking outlets.

Why it matters for investors

Mid-sized private banks have spent much of the past two years fighting for deposits against larger rivals, and that fight has squeezed margins across the sector. Federal Bank’s numbers suggest that a lender can grow loans at over 20% while bringing down its cost of funds and improving asset quality at the same time. That combination is rare.

“We are growing faster while keeping the quality of the book intact,” Manian said in the release. Management told analysts it wants to deepen its liability franchise and prefers small, bolt-on acquisitions over a large deal, according to the Investing.com call summary.

The market reaction was measured. The stock closed at ₹338 on the NSE on 16 October, up about 0.9% from its previous close of ₹335, after trading between ₹328 and ₹344.80, IIFL reported. Some of the improvement may already have been priced in after a run of steady quarters.

What to watch next

Management itself flagged three risks on the call: competition for deposits, pressure on margins, and draft bancassurance rules that could dent fee income. Fee income has been a key driver this year, so the final shape of those rules matters.

The surge in FCNR(B) deposits is another variable. These funds have helped lower costs, but how long the inflows last, and at what price, will decide whether margins hold in the second half. Asset quality in the faster-growing retail segments, especially credit cards and gold loans, will also be tracked closely.

For now, Federal Bank has delivered the kind of quarter investors reward over time: faster growth, a cleaner book and better returns, all at once. The coming quarters will show whether that balance can be sustained as competition for deposits stays intense.