Federal Bank Slows Home Loan Growth, Sees Rate-Cut Cycle Bottoming Out

Federal Bank Adjusts Home Loan Growth Strategy Amidst Competitive Market

Federal Bank has announced a strategic shift in its approach to home loan growth, citing the highly competitive nature of the segment as a primary reason. According to the lender, it has begun to slow down home loan growth, but will continue to offer this product to customers who subscribe to multiple products of the bank.

The decision to slow down home loan growth is largely driven by the current pricing environment, which Federal Bank believes does not offer favorable risk-adjusted returns. As a result, the lender has chosen to focus on offering home loans to customers who are already multi-product customers of the bank. In contrast, single product customers will no longer be a primary target for home loan offerings.

In a post-earnings call, the bank noted that the current yield on advances of 8.65 percent must be viewed in the context of being at the bottom of the interest-rate cutting cycle. As more than 60% of the bank's book is linked to floating rates, external benchmark lending rates (EBLR) or marginal cost-of-funds lending rate (MCLR), the current yield is reflective of this fact. The bank believes that rates will either rise or remain flat in the coming period, potentially allowing for expansion of yields on the asset side.

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A key highlight of the bank's performance is its ability to maintain resilient net interest margins (NIMs) despite nearly 125 basis points of rate cuts from peak levels. Federal Bank has guided an expansion of NIMs by 5-6 basis points every quarter in FY27, even if the growth is not linear.

The lender's Q4 results saw a 22 percent rise in net profit to Rs 1,259 crore, with a dividend of Rs 1.20 per share declared.