Rupee being counted. (Photographer: Dhiraj Singh/Bloomberg)

Why Federal Bank’s Stock Jumped The Most In Over 16 Years

Shares of Federal Bank rose the most since February 2002 after its earnings for the April-June quarter beat analyst estimates and the bank’s slippages nearly halved.

Here are key operating parameters that could have contributed to the 19 percent rally in the share price of the private lender:

Beats Profit Estimates

Federal Bank reported a net profit growth of 25 percent to Rs 263 crore, beating estimates of Rs 215 crore. This was aided by lower provisions for the quarter even as other income declined by 17.7 percent.

No Asset Quality Concerns

The bank’s gross bad loan ratio remained unchanged sequentially at 3.0 percent. In absolute terms, they rose 2.6 percent sequentially.

Most of the credit wrinkles have been addressed and there are no large accounts under threat of turning bad, Managing Director and Chief Executive Officer Shyam Srinivasan told BloombergQuint.

“The only wild card in this is Air India, which is a very large account where we hold a small share,” he said. “We don’t know the outcome but my personal view is that it won’t become an NPA.”

Apart from this Rs 250 crore, the remaining Rs 300 crore in the loan book is made up of small accounts, which are not under any threat of non-repayment, he said.

Lower Slippages

Slippages for the quarter have nearly halved to Rs 461 crore from Rs 872 crore in the three months ended March, when they had spiked after the Reserve Bank of India’s revised circular on stressed assets.

  • The bank absorbed a provision of Rs 53.6 crore towards residual unamortised gratuity expense while deferring provisioning on mark-to-market losses to the tune of Rs 44 crore.
  • Loan growth stood at 23.6 percent for the quarter, tracking the 20 percent-plus trend in the previous two years. That was driven by a 31.6 percent growth in the corporate book—retail loans rose 19 percent.
  • Deposits grew at 16.1 percent over the year-ago quarter with non-resident (external) deposits growing 19.9 percent over the previous year. Any reduction in accretion to NRI savings deposits would have been a negative.

Before the today’s surge, shares of Federal Bank had fallen 31. 6 percent till July 16 this year compared with a 4.5 percent rise in Nifty Bank Index.