He sees steady growth ahead, driven by mid-teens advances expansion, gradual margin improvement and strong traction in gold loans, fee income and remittances, while maintaining a cautious and disciplined approach to risk.
Watch the full conversation here or scroll for edited excerpts.
Federal Bank’s January-March quarter of 2026 (Q4FY26) performance reinforces this outlook, with net interest income rising 20% year-on-year to ₹3,173 crore from ₹2,377 crore. Pre-provision operating profit grew 30% to ₹2,276 crore, while profit after tax increased 14% to ₹1,259 crore from ₹1,030 crore, reflecting strong operating momentum.
The Kerala-based lender currently has a market capitalisation of around ₹70,176 crore, with its shares gaining nearly 45% over the past year, underscoring sustained investor confidence alongside steady business growth.
These are edited excerpts from the interview.Q: Should we expect stress in micro, small, and medium enterprises (MSMEs) or retail loans in the next couple of quarters?
A: We have had an operationally very strong quarter—record net interest income (NII), fee income, operating profit and net profit, even excluding one-offs.
On the next couple of quarters, we have not seen any stress yet in MSME or business banking. If the Middle Eastern crisis continues, then from the July-September quarter of 2026 (Q2FY27) some impact may come through, but currently, there is no stress visible.
Q: Gold loans have grown strongly. What is the portfolio mix and comfort level?
A: Gold loans grew 9% quarter-on-quarter despite winding down one part of the book. They now constitute 14% of advances.
We are comfortable growing this further and are not looking to cap growth at this stage. The loan-to-value (LTV) is below 54%, giving enough headroom and safeguards. We may reassess if it approaches 20% of advances.
Q: Is growth coming from new customers or existing borrowers?
A: Customer growth in gold loans is also strong—double digit, over 10%. So, it is not just the same customers borrowing more.
Q: What are the normalised margins and outlook for 2026-27 (FY27)?
A: Excluding one-offs, NIM was 3.20%, higher than the October-December quarter of 2025 (Q3FY26) despite rate cuts.
We expect NIM to expand by about 5–6 basis points per quarter, though not linearly. The environment remains volatile, and we will stay agile to opportunities.
Q: What is the guidance on advanced growth?
A: We are targeting mid-teens growth, around 15–17%.
We will balance growth with prudence. Rapid expansion today can create issues later, which we will avoid.
Q: What about provisions and expected credit loss (ECL) transition?
A: The provisions in Q4 were taken prudently and are not linked to specific stress.
They are floating provisions to support the transition to ECL norms. The full impact is still being assessed.
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Q: What is the outlook for fee income?
A: Fee income grew 24% year-on-year, with fee-to-assets at 1.07%.
We aim to improve this by another 15–20 basis points, moving towards 1.5–1.6% over time.
Q: Any plans to spin off the wealth business?
A: We have just launched the wealth offering and see strong potential, especially with our liability and Non-Resident Indian (NRI) franchise.
At this stage, there are no plans to spin it off. The focus is on scaling the business and targeting the mass affluent segment.
Q: Any impact on remittances due to the Middle East situation?
A: We saw a positive impact in March, possibly due to multiple factors, including Ramadan.
Flows remain strong, with market share close to 20%.
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