Wholesale banking continues to be lender’s Achilles heel
KOCHI: The Federal Bank, the largest bank in Kerala, has suffered a 21.04 per cent year on year decline in its net profit for the fourth quarter ending March 31, 2020 from Rs381.51 crore to Rs301.31 crore.
The biggest contributor to the bottom line during the quarter under review (Q4) was the treasury operations which earned a profit before tax of Rs390.33 crore as against Rs154.56 crore during the previous quarter.
At the same time, the wholesale banking or corporate banking proved to be a weak point this time too as the portfolio handed out a loss of Rs356.80 crore (before tax), more than tripling from Rs113.40 crore for the quarter ending December 31, 2019.
However, for the full year, FY20, the bank saw its net profit grow by 24.03 per cent – from Rs1243.89 crore to Rs1542.78 crore. The operating profit of the bank registered a growth of 27.10 per cent to reach Rs959.31 crore in Q4 FY20
Asset quality has improved significantly with gross NPA coming down by 8 bps and net NPA coming down by 17 bps on a year-on-year basis to 2.84 per cent and 1.31 per cent respectively.
A conservative provisioning strategy adopted by the bank saw its provision coverage ratio (PCR) improve by 809 bps (8.09 percentage points) on a quarter to quarter basis to 53.39 per cent.
Federal Bank’s PCR still leaves much to be desired compared with its peers, especially another Kerala-based bank, Dhanlaxmi Bank.
While the total deposits recorded a growth of 12.85 per cent to reach Rs1.52 lakh crore, gross advances registered a growth of 11.02 per cent as it increased from Rs1.12 lakh crore to Rs1.24 lakh crore year on year.
Commenting on the results and financial performance, Shyam Srinivasan, managing director & CEO of the bank, said Federal Bank has delivered a robust operating performance with the operating profit registering a growth of 27 per cent.
“The asset quality of the bank has improved substantially, which is a positive. To face any unfavourable situation that may arise due to the pandemic, we have increased the provisions substantially and strengthened the balance sheet,” Srinivasan added.
Despite the uncertainties surrounding the prospects of India’s overseas workers, the NRE deposits of the bank posted a growth of 14.20 per cent during the year to reach Rs57,223.13 crore as on March 31, 2020.
Most banks have started focusing on gold loans being a safe asset class, whereas Federal Bank saw its gold loans register a robust growth of 28.68 per cent to reach Rs9,301.00 crore as the year closed on March 31, 2020.