Federal Bank Set to Reach Rs 349: Analysts' Bullish Outlook

Federal Bank's Financial Performance Remains Resilient Amidst Challenging Market Conditions

Federal Bank, a leading Indian bank, has reported a strong quarterly performance in Q4FY26, with several key indicators suggesting a positive trajectory for the company. According to a recent research report by Anand Rathi, the bank received a significant amount of Rs4.56 billion as interest on tax refund in Q4FY26, which led to the creation of an equivalent floating provisioning. This was partly offset by Rs1.15 billion in provisioning reversal, resulting in a lower tax outgo. However, when adjusting for these one-off events, the core operating trends of the bank remain intact.

Credit Growth Accelerates, CASA Ratio Improves

Federal Bank's credit growth has accelerated to 12.7% year-over-year (y/y) in Q4FY26, up from 10.9% in Q3FY26. This improvement is attributed to a better mix of credit assets. Additionally, the bank's Current Account Savings Account (CASA) ratio has improved by around 270 basis points (bps) y/y, which has aided the bank's cost of funds. This is a significant development, as a higher CASA ratio is often associated with lower funding costs and improved profitability.

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Asset Quality Remains Healthy

The bank's fee income has grown at a faster pace than its balance sheet expansion, indicating a positive trend. Furthermore, the bank's asset quality remains healthy, with stable slippages reflecting a calibrated growth strategy and low unsecured exposure. This is a key positive for Federal Bank, as it suggests that the bank is taking a prudent approach to credit growth and risk management.

Outlook Remains Positive

Anand Rathi maintains a high conviction Buy rating on Federal Bank, with a target price of Rs349 per share. This valuation is based on a sum-of-the-parts (SOTP) approach, which values the bank at 1.7 times its FY28e price-to-asset-based value (P/ABV) and Rs20 per share for Fedfina and IDBI-Federal Life. The research report expects Federal Bank's Return on Equity (RoE) to expand by around 150-200 bps over FY26-28e, ahead of sector growth.

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