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Provisions For Potential Loan Stress Result In Federal Bank Q2 PAT Declining 26%

The management of the private sector bank, however, said that from an operational profit perspective, it has been the best quarter ever with a bottomline of over Rs 1,000 crore.

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Setting aside money for potential loan losses in the pandemic resulted in South-based Federal Bank on Friday reporting a 26 per cent decline in its September quarter net profit at Rs 307.62 crore.

The management of the private sector bank, however, said that from an operational profit perspective, it has been the best quarter ever with a bottomline of over Rs 1,000 crore.

Its Managing Director and CEO Shyam Srinivasan said the bank fears up to 3 per cent of its Rs 1.25 lakh crore book to apply for restructuring and has decided to make provisions in advance.

Provisions of over Rs 350 crore were made for the Rs 3,500 crore of assets, which now sit as standard assets on the book but are likely to be restructured, its Executive Director Ashutosh Khajuria told reporters.

He added that the bank has made provisions at the RBI-prescribed rate of 10 per cent for all the restructured assets even before they get recast.

If the loans do not get recast, it will result in a write-back of the money set aside right now, he said.

Srinivasan said the overall slippages came in at only Rs 3 crore, but if not for the moratorium and the related dispensations, the same would have been Rs 237 crore.

The bank has set aside provisions of 15 per cent on these Rs 237 crore of loans even though they are currently recognised as standard assets, he said.

This has resulted in the overall provisions zooming to Rs 592 crore from Rs 251 crore in the year-ago period, Srinivasan said.

The stock of gross non-performing assets (NPA) has slid down to 2.84 per cent as of September 2020, from 3.07 per cent in the year ago period. The bank’s core net interest income grew 23 per cent to Rs 1,380 crore on a 6 per cent growth in loans and net interest margins was stable at 3.13 per cent.

Srinivasan said the bank's focus on gold loans has helped deliver a 50 per cent growth in the category and it is distributing loans at 80-85 per cent loan to value.

The demand on corporate loans is modest and the bank is also not keen to lend in this category, he said, adding that companies which can borrow at cheaper costs are going to other alternatives beyond the banking system.

Other income stood at Rs 509 crore as against Rs 421 crore in the year-ago period, as economic activity resumed.

Its overall capital adequacy stood at 14.64 per cent as of September, and Srinivasan said there is no immediate plan to raise money. He said there may be a need for funds towards the end of the fiscal or early next fiscal and the bank will take an appropriate call then.

Its request to increase stake in life insurance venture IDBI Federal Life by a possible 4 per cent is pending before the RBI, even as IDBI Bank has exited the venture, Srinivasan said.

The Federal Bank scrip closed 0.97 per cent up at Rs 52.25 a piece on the BSE as against gains of 0.64 per cent on the benchmark on Friday.

(PTI)


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