Federal Bank Q1 Results: Profit falls 15% YoY to ₹862 crore, NII up 2%; asset quality deteoriates

The Federal Bank reported a 14.64% year-on-year (YoY) decline in its net profit to ₹861.75 crore in the June quarter of the 2025-26 financial year (Q1FY26). In the corresponding period a year ago, its net profit stood at ₹1,009.53 crore.

The decrease in its profit followed a compression in margins, which impacted its core income, and an uptick in bad assets led to higher provisions.

The bank’s net interest income (NII) surged 2% YoY to ₹2,373 crore during the reporting quarter, compared to ₹2,292 crore in the first quarter of FY25, due to a surge in core fees and a jump in treasury income, it said in a regulatory filing on Saturday.

While its credit grew 9%, its net interest margin (NIM) contracted to 2.94% in Q1FY26 from 3.16% in the same quarter last fiscal year, impacting its core income growth the most.

While the private sector lender’s overall asset quality improved YoY, it deteriorated sequentially. Its gross non-performing assets (GNPA) stood at 1.91% from 2.11% in Q1FY25 and 1.84% in the quarter-ago period. Its net NPA (NNPA) was at 0.48%, compared to 0.60% in the year-ago period, and 0.44% in Q4FY25.

The bank's fresh slippages came at an elevated ₹658 crore, and were driven by a higher contribution from the MFI book and also the seasonal stress in the agriculture portfolio.

The overall provisions shot up to ₹437 crore in the April-June period, from ₹173 crore, which impacted the profits.

The bank's overall capital adequacy ratio stood at 16.03% with the core buffer at 14.69% as on June 30, 2025.

From a loan growth perspective, its MFI book grew 4%, the commercial segment displayed a 30% jump, credit card was up 16% and the corporate was up 4% as better-rated companies preferred to raise money from bond markets.

Commenting on the earnings, KVS Manian, the Managing Director and CEO of the Federal Bank, said: “This quarter reaffirmed the strength of our diversified model. Even in a typically soft Q1, we saw momentum in key segments like commercial banking, credit cards, and gold loans. Our mid-yielding engines are firing well, too. We delivered a strong operating performance, with improved productivity. Fee income hit a record high, and CASA ratios continued to improve steadily.”

“On asset quality, while credit costs were elevated this quarter, they were largely driven by slippages in the Agri and MFI portfolios. Based on current trends, we expect these slippages to moderate and stabilise going forward, leading to a normalisation in credit costs. With macro tailwinds building and our strategic themes gaining traction, we’re confident of accelerating growth in the second half while staying disciplined on risk and profitability,” he added.

Shares of Federal Bank closed 3.37% lower at ₹195.61 crore on the National Stock Exchange (NSE) on Friday.

The Federal Bank has a total market capitalisation of ₹48,095.06 crore, as of August 3, 2025, as per data on the NSE.