Within this landscape, Thakkar pointed to Federal Bank as a prime beneficiary. He spoke about the leadership of KVS Manian, noting that since his arrival as MD & CEO, the bank has embarked on a significant journey to improve its Return on Assets (ROA), a metric where it had historically lagged due to its conservative nature.
Despite the headwind of repo rate cuts, Federal Bank achieved a 15 basis points quarter-on-quarter (QoQ) improvement in its Net Interest Margins (NIMs) from the previous quarter. Thakkar attributed this to three primary factors. Firstly, a rare sequential improvement in its Current Account and Savings Account (CASA) ratio. Secondly, a strategic increase in lending towards mid-yielding assets such as gold loans, construction equipment, tractors, commercial vehicles, and business banking. Thirdly, a significant boost from fee income.These strategic shifts led to the bank reporting an all-time high in both Net Interest Income (NII), which stood at approximately ₹2,490 crores, and fee income. Consequently, its Profit After Tax (PAT) reached 1% of total assets, also an all-time high. Further bolstering its position, an impending investment from Blackstone, which is set to acquire a 9.9% stake for ₹6,200 crores, will provide additional capital, although the bank is already comfortably placed with a Tier 1 capital ratio of 15.7%.
Looking ahead, Thakkar believes the bank’s strategy of expanding into mid-yielding segments while simultaneously improving its CASA ratio is the right formula for success. He forecasts that this approach will steer Federal Bank towards an ROA of 1.4% by the financial year 2028.
Shares of Federal Bank are currently trading 0.2% higher on Monday at ₹234.5. Thakkar’s price target implies an upside potential of up to 37% from current levels. Thakkar also added that despite the stock being at a 52-week high, he is adding the stock to his portfolio.
