Motilal Oswal Financial Services

28 May 2020

4QFY20 Results Update | Sector: Financials

Federal Bank

Estimate change

TP change

Rating change

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

FB IN

1,992

85.2 / 1.1

110 / 36

-9/-31/-41

1157

CMP: INR43

TP: INR65 (+52%)

Buy

Moratorium book broadly in line with other private

lenders; Asset quality improves

Credit cost to stay elevated as focus remains on strengthening PCR



Financials & Valuations (INR b)

Y/E Mar

FY20 FY21E

NII

46.5

49.6

32.0

34.7

15.4

11.4

NIM (%)

3.0

2.9

EPS (INR)

7.8

5.7

EPS Gr. (%)

23.4

-26.2

BV/Sh. (INR)

72.8

78.0

ABV/Sh. (INR)

64.9

67.6

Ratios

ROE (%)

11.1

7.6

ROA (%)

0.9

0.6

Payout (%)

0.0

10.5

Valuations

P/E(X)

5.5

7.5

P/BV (X)

0.6

0.5

P/ABV (X)

0.7

0.6

Div. Yield (%)

0.0

1.4

FY22E

56.0

39.8

17.7

3.0

8.9

55.4

85.7

73.4

10.9

0.9

13.6

4.8

0.5

0.6

2.8



Federal Bank (FB) reported moderation in 4QFY20 business growth affected

by the weak environment. The bank made higher COVID-19 related

provisions of INR930m, which dragged earnings in the quarter. PPoP was

strong at 27% YoY (aided by treasury gains) while moratorium book stood at

35%. Lower slippages (as FB availed dispensation given by the RBI) and

higher provisions, resulted in overall improvement in asset quality/PCR.

We have cut our FY21E estimates sharply by 19% as we factor in higher

credit cost and slight moderation in business growth. However, we largely

maintain our FY22E estimates. Maintain

Buy.

Shareholding pattern (%)

As On

Mar-20 Dec-19 Mar-19

Promoter

0.0

DII

36.5

37.4

29.3

FII

34.4

33.6

38.2

Others

29.1

29.0

32.5

FII Includes depository receipts

PPoP beat led by treasury gains; Higher provisions impact earnings



4QFY20 PAT came in at INR3.0b (-21% YoY; MOSLE: INR3.9b) affected by

higher provisions as FB made COVID-19 related provisions of INR930m. NII

grew 11% YoY (INR12.2b) as margins expanded 4bp QoQ to 3%.



Core fee income grew 13% YoY while higher treasury income resulted in

total income growth of 28% YoY. Opex grew 28% YoY as the bank made

additional employee cost provisions of INR1.2b. PPoP, thus, grew 27% YoY

to INR9.6b. C/I ratio declined ~220bp QoQ to 50.2%.

For FY20,

NII/PPoP/PAT grew 11%/16%/24%.



Loan growth moderated to 11% YoY, led by sluggish trends in

corporate/SME, while retail loans grew 19% YoY. Within retail, housing and

mortgage grew a robust ~18-19% YoY. Deposit base grew 13% YoY led by

moderation in CASA deposits. CASA mix stood at 30.5% (-96bp QoQ).



Fresh slippages stood lower at INR2.8b (1.1% annualized), as FB availed the

RBI dispensation, which otherwise would have resulted in additional

slippages of INR3b. GNPA/NNPA ratio, thus, moderated by 15bp/31bp QoQ

while PCR increased ~810bp QoQ to 54.5% (72.5% incl. technical w/o). Total

SMA book stood at INR8.4b (0.7% of total loans).

Highlights from management commentary



Moratorium by value:

The proportion of customers that have availed the

moratorium for segments – Agri (31%), Retail (38%), Business Banking

(79%), Commercial Banking (53%) and Corporate (20%). Overall, 35% of the

total portfolio in value have availed moratorium.

NIMs would remain stable over the next two quarters while some pressure

could be seen from 3QFY21, depending on the macro environment.

FB has reported moderation in business growth, reflecting a challenging

economic environment impacted by the COVID-19 outbreak. We expect

overall loan growth to get affected due to reduced economic activity and

the ongoing lockdown. Though the bank has lower quantum of stressed

Valuation and view



Research Analyst: Nitin Aggarwal

(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |

Himanshu Taluja

(Himanshu.Taluja@motilaloswal.com)

Alpesh Mehta

(Alpesh.Mehta@MotilalOswal.com);

Yash Agarwal

(Yash.Agarwal@motilaloswal.com)

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

28 May 2020

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Federal Bank

assets, we nevertheless expect credit cost to stay elevated due to COVID-19 related

provisioning. FB has been taking a cautious approach in building the loan mix toward

high-rated corporates and retail loans. Also, the bank’s liability franchise remains

strong with CASA + Retail TD of 91% and one of the highest LCR amongst banks. We

cut our FY21E estimates sharply by 19% as we factor in the higher credit cost and

slight moderation in business growth while maintaining our FY22E projections. We

estimate FB to report RoA/RoE of 0.9%/10.9% by FY22E. Maintain

Buy

with a revised

TP of INR65 (0.8x FY’22E ABV).

Quarterly performance

9,801

22.4

2,709

12,509

6,480

6,029

8.1

1,992

4,038

1,411

2,627

25.0

1,112

943

16.1

23.6

3.0

1.7

43.5

FY19

10,225 10,773

13.7

13.4

3,229

3,456

13,454 14,228

6,478

7,150

6,976

7,078

19.6

26.1

2,888

1,901

4,088

5,177

1,427

1,841

2,660

3,336

0.9

28.3

1,182

1,009

21.6

25.2

3.1

1.8

43.6

1,235

1,056

22.8

24.2

3.1

1.7

45.9

10,965

17.5

4,117

15,083

7,535

7,548

28.2

1,778

5,770

1,955

3,815

163.1

1,350

1,102

20.5

19.9

2.9

1.5

50.1

11,542

17.8

3,915

15,457

7,629

7,828

29.8

1,920

5,907

2,065

3,842

46.2

1,325

1,120

19.1

18.8

3.0

1.5

50.7

FY20

11,238 11,549

9.9

7.2

4,209

4,079

15,447 15,628

8,259

8,190

7,188

7,438

3.0

5.1

2,518

1,609

4,670

5,830

503

1,423

4,167

4,406

56.6

32.1

1,395

1,159

18.1

14.8

3.1

1.6

49.0

1,446

1,192

17.1

13.0

3.0

1.6

46.4

12,160

10.9

7,111

19,271

9,678

9,593

27.1

5,675

3,918

906

3,012

-21.0

1,523

1,223

12.8

10.9

2.8

1.3

54.5

FY19

41,763

16.6

13,510

55,274

27,643

27,631

20.6

8,559

19,073

6,634

12,439

41.5

1,350

1,102

20.5

19.9

2.9

1.5

50.1

FY20

46,489

11.3

19,314

65,803

33,756

32,047

16.0

11,722

20,325

4,898

15,428

24.0

1,523

1,223

12.8

10.9

2.8

1.3

54.5

(INRm)

FY20E V/s our

4QE

Est

11,664

4.2

6.4

4.5

3,739

90.2

15,403

25.1

8,295

16.7

7,109

35.0

-5.8

32.9

2,034 179.0

5,075

-22.8

1,136

-20.3

3,938

-23.5

3.2

-24.3

1,523

1,241

12.8

12.6

3.2

1.8

44.4

0.0

-1.5

0.0

-1.7

-0.4

-0.5

10.1

Net Interest Income

% Change (YoY)

Other Income

Total Income

Operating Expenses

Operating Profit

% Change (YoY)

Provisions

Profit before Tax

Tax

Net Profit

% Change (YoY)

Operating Parameters

Deposit (INR b)

Loan (INR b)

Deposit Growth (%)

Loan Growth (%)

Asset Quality

Gross NPA (%)

Net NPA (%)

PCR (%)

E:MOFSL Estimates

Quarterly snapshot

FY18

INRm

Profit and Loss

Interest Income

Advances

Investment

Interest Expenses

Net Interest Income

Other Income

Trading profits

Forex Income

Other Non-interest Inc.

Total Income

Operating Expenses

Employee

Others

Operating Profits

Core Operating Profits

Provisions

NPA provisions

PBT

Taxes

PAT

23,241

17,878

4,683

15,234

8,007

3,291

1,120

340

1,461

11,298

5,719

2,985

2,735

5,579

4,459

2,364

3,214

1,113

2,102

23,796

18,590

4,500

14,807

8,989

2,872

750

410

1,542

11,861

6,029

3,127

2,902

5,832

5,082

1,768

1,400

4,064

1,427

2,637

25,012

19,410

4,822

15,512

9,500

2,286

290

390

1,536

11,786

6,172

3,005

3,168

5,614

5,324

1,624

1,200

3,990

1,390

2,600

25,480

19,511

5,170

16,148

9,332

3,142

220

560

1,822

12,474

6,588

3,308

3,280

5,886

5,666

3,715

2,600

2,170

721

1,450

26,674

20,794

5,072

16,873

9,801

2,709

490

470

1,609

12,509

6,480

3,450

3,030

6,029

5,539

1,992

1,660

4,038

1,411

2,627

27,649

22,105

4,883

17,425

10,225

3,229

510

610

1,999

13,454

6,478

3,089

3,388

6,976

6,466

2,888

1,560

4,088

1,427

2,660

FY19

29,544

23,866

5,056

18,771

10,773

3,456

550

740

2,056

14,228

7,150

3,537

3,614

7,078

6,528

1,901

1,750

5,177

1,841

3,336

30,323

24,131

5,364

19,358

10,965

4,117

540

2,547

15,083

7,535

3,702

3,834

7,548

7,008

1,778

1,370

5,770

1,955

3,815

32,293

26,061

5,552

20,751

11,542

3,915

910

430

2,175

15,457

7,629

3,978

3,651

7,828

6,918

1,920

1,770

5,907

2,065

3,842

32,543

26,377

5,274

21,305

11,238

4,209

820

640

2,529

15,447

8,259

4,407

3,852

7,188

6,368

2,518

1,750

4,670

503

4,167

FY20

33,304

27,028

5,361

21,754

11,549

4,079

650

560

2,549

15,628

8,190

4,148

4,042

7,438

6,788

1,609

2,420

5,830

1,423

4,406

33,968

27,244

5,653

21,808

12,160

7,111

3,690

760

2,651

19,271

9,678

5,191

4,487

9,593

5,903

5,675

4,170

3,918

906

3,012

Change (%)

YoY QoQ

583

-16

219

204

-32

(54)

-21

468

-13

253

-33

-36

-32

28 May 2020

Federal Bank

Quarterly snapshot contd.

FY18

Balance sheet (INR b)

Deposits

CASA Deposits

% of overall Deposits

Retail Deposits

% of overall Deposits

Investments

Advances

Retail

Total Assets

Asset Quality (INR m)

GNPA

NNPA

Slippages

Ratios

Asset Quality Ratios (%)

GNPA

NNPA

PCR (Calculated)

Slippage Ratio

Credit Cost

Business Ratios (%)

Fees to Total Income

Cost to Core Income

Tax Rate

Loan/Deposit

CAR

Tier I

Profitability Ratios (%)

Yield on loans

Yield On Investments

Yield on Funds

Cost of Funds

Cost of Deposits

NIM

RoA

RoE

Others

Branches

ATMs

958

320

33.4

927

96.7

267

763

222

1,164

972

320

32.9

943

97.0

263

806

233

1,218

1,005

333

33.0

966

96.1

298

850

243

1,282

1,120

373

33.3

1,049

93.7

308

920

256

1,383

1,112

372

33.5

1,070

96.2

283

943

261

1,367

FY19

1,182

395

33.4

1,119

94.7

282

1,009

278

1,444

1,235

412

33.4

1,158

93.8

292

1,056

297

1,498

1,350

434

32.2

1,228

91.0

318

1,102

317

1,593

1,325

417

31.4

1,230

92.8

318

1,120

328

1,603

FY20

1,395

440

31.6

1,282

91.8

311

1,159

349

1,664

1,446

455

31.5

1,315

91.0

310

1,192

366

1,728

1,523

465

30.5

1,367

89.8

359

1,223

379

1,806

Change (%)

YoY

QoQ

-165

-96

-118

-2

(1)

-17

-48

Change (bps)

YoY

QoQ

-8

-15

-17

-32

435

812

-115

-313.2

957.9

-1,075.9

-138.8

21.0

-9.0

-19

-27

-11

-6

-19

-13

-33

-345

268

-255.1

725.1

-129.3

-216.8

71.0

67.0

-9

-15

-21

-34

-10

-35

-409

-28

18,679 19,490 21,612 27,956 28,688 31,845 33,612 32,607 33,947 36,121 36,187 35,308

10,613 10,664 11,567 15,520 16,202 17,963 18,173 16,262 16,728 18,436 19,410 16,072

4,250 2,840 4,120 8,720 4,610 4,770 4,270 2,560 4,340 5,710 6,030 3,120

FY18

FY19

FY20

2.4

2.5

3.0

3.1

2.9

3.0

3.1

3.0

2.8

1.4

1.3

1.4

1.7

1.8

1.7

1.5

1.6

1.3

2.9

1.8

2.4

4.8

2.4

2.0

1.1

1.8

2.3

1.1

1.3

0.7

0.6

1.2

0.7

0.6

0.7

0.5

0.6

0.8

1.4

12.9

60.4

34.6

79.6

15.3

14.7

10.0

6.8

8.8

6.0

6.1

3.1

0.8

8.3

1,252

1,678

13.0

57.3

35.1

83.0

14.6

14.1

9.5

6.8

8.8

5.6

5.8

3.3

0.9

9.0

1,252

1,678

13.0

55.9

34.8

84.5

14.4

13.8

9.5

6.9

8.8

5.6

5.7

3.3

0.9

8.7

1,252

1,679

14.6

59.1

33.2

82.1

14.7

14.2

9.1

6.8

8.4

5.2

5.8

3.1

0.5

4.9

1,252

1,696

12.9

56.8

34.9

84.8

14.5

14.0

9.1

6.9

8.5

5.6

3.1

0.8

8.6

1,252

1,684

14.9

53.0

34.9

85.4

13.3

12.8

9.2

6.9

8.6

5.5

5.7

3.2

0.8

8.5

1,252

1,683

14.4

55.7

35.6

85.5

13.0

12.4

9.3

7.0

8.8

5.7

5.9

3.2

0.9

10.5

1,251

1,669

16.9

55.8

33.9

81.7

14.1

13.4

9.4

7.0

8.6

5.4

5.9

3.2

1.0

11.9

1,251

1,669

14.1

55.6

35.0

84.5

14.1

13.0

9.6

7.0

8.8

5.8

6.0

3.2

1.0

11.4

1,251

1,934

16.4

60.0

10.8

83.0

14.0

12.9

9.3

6.7

8.8

5.8

5.9

3.0

1.0

12.1

1,251

1,942

16.3

58.1

24.4

82.5

13.6

12.6

9.3

6.9

8.7

5.7

5.8

3.0

1.0

12.5

1,255

1,965

13.8

65.3

23.1

80.3

14.4

13.3

9.2

6.8

8.5

5.4

5.7

3.0

0.7

8.4

1,263

1,937

Highlights of management commentary

COVID-19 related



Overall, 35% of the bank’s loan portfolio has availed moratorium as at 27

May.

Over the past two weeks, there has been no major change in the moratorium

value.

Within the retail segment, self-employed customers generally prefer

maintaining liquidity, and thus, have availed moratorium.

A very small proportion of NBFC customers have availed the moratorium.

Government Guarantee MSME Scheme



The bank would focus on the Government Guarantee MSME scheme. It would

be done on a case-to-case basis.

Risk charge attached would be zero, and thus, no capital would be consumed.

Overall, INR20b of lending opportunity is available over the next 6-8 months.

28 May 2020

Federal Bank

Balance sheet related



Liability franchise remained robust during April and May. Retail deposit growth

trends have been better in both months.

Gold loans’ portfolio stands at ~INR93b.

On the liquidity front, the bank wants to preserve liquidity till the operating

environment normalizes. The bank plans to bring down the LCR to ~150-160%.

~25% of the loan book is linked to the external benchmark, 40% is linked to the

MCLR, 5% is linked to the base rate and the rest are fixed-rate loans.

Further, 30% of the retail portfolio is NR linked.

Retail portfolio



Gold loan portfolio has been stable.



LAP/Home loan portfolio:

5-7% of the portfolio needs attention.



Unsecured portfolio proportion remains small.



Overall, 5-7% of the retail portfolio remains at risk.

Operating metrics



The purpose of booking treasury gains was to utilize it for enhancing PCR.

Wage hike provisions made during the quarter stood at INR450m. This is based

on 15% wage hike negotiation.

NIMs would remain stable over the next two quarters and could see some

pressure from 3QFY21, depending on the macro environment.

The bank has affected sharp drop in bulk deposit rates.

Asset Quality related



The bank would continue to make higher provisions over the next two quarters.

The bank has a floating provision buffer of INR20m.

The bank has INR20m exposure to the UAE exchange.

The bank has nil exposure to tours and travels business.

28 May 2020

Federal Bank

Key Exhibits

Restructured account

continues to decline

Exhibit 1: Net stress loans decline to 1.8% of total loans

Total NSL (INRb)

as a % of loans

Exhibit 2: Fresh slippages declined to INR3.1b

8.7

5.4

4.6 4.8 4.3

2.6

5.7 6.0

4.3

3.1

3.2

4.0 3.9

4.3

2.8 2.7 2.7 2.4

2.8

4.1

Exhibit 3: Corporate book forms ~41% of the loan book

Retail

SME and Agri Loans

Corporate Advances

Exhibit 4:

C/I ratio improved ~220bp QoQ to 50.2%

CI ratio

Opex to avg assets

35 35 37 37 39 39 40 42 43 44 44 43 42 41 41 41

36 35

34 32 32 32 30 30

29 29 29 29 29 29 29

29 31 31 30

27 27 27 28 28 29 30 30 31

Source: MOFSL, Company

Exhibit 5: Share of A & above remains healthy

A and above

BBB

< BBB

19 16 17 10 12 12 11 9 16 17 17 16 14 13 12 11

19 18 18 17 15 13 12 11 11 10 10 11 11

14 12 13

67 72 70 71 70 70 72 76 71 71 72 73 76 77 77

Exhibit 6:

GNPA ratio moderates; PCR improves sequentially

GNPA (%)

NNPA (%)

PCR (%)

50 51

46 43

45 46

44 44 44 46

43 43 44

Source: MOFSL, Company

28 May 2020

Federal Bank

Valuation and view



Net stressed loans decline to 1.8% of loans; credit cost to stay elevated:

FB has

reported sharp decline in net stressed loans (NNPA + standard restructured +

net SRs) to ~1.8% of loans v/s 5.4% during FY16. Going ahead, the bank has no

big ticket (>INR1b) accounts in its watch-list. However, the outbreak of COVID-

19 has disrupted business activities across segments while the moratorium book

of ~35% could witness further increase as the period gets extended by another

three months. This could result in higher slippages while credit cost is likely to

stay elevated at 1.5% for FY21 as the focus remains on strengthening the PCR.

Strong liability franchise:

CASA + retail TD constitute ~91% of total deposits. The

bank has lower cost of funds’ advantage compared to other mid-sized banks and

is focused on cross-selling liability products to corporate clients to garner salary

accounts, which could support margin in the near term. However, muted macro

environment could result in some pressure on margins. Management has

highlighted that the bank would witness some pressure 3QFY21 onwards.

Lending toward better rated corporates; business growth to remain subdued:

FB has been taking a cautious approach in building the loan mix toward high-

rated corporate and secured retail loans. The proportion of retail loans has

improved to ~31% in 4QFY20 from 27.4% in FY18. However, business growth is

likely to remain subdued affected by the outbreak of COVID-19, which could

moderate the overall operating performance.

Buy with a target price of INR65:

FB has reported moderation in business

growth, reflecting a challenging economic environment impacted by the COVID-

19 outbreak. We expect overall loan growth to get affected due to reduced

economic activity and the ongoing lockdown. Though the bank has lower

quantum of stressed assets, we nevertheless expect credit cost to stay elevated

due to the COVID-19 related provisioning. FB has been taking a cautious

approach in building the loan mix toward high-rated corporates and retail loans.

Also, the bank’s liability franchise remains strong with CASA + Retail TD of 91%

and one of the highest LCR amongst banks. We cut our FY21E estimates sharply

by 19% as we factor in higher credit cost and slight moderation in business

growth while maintaining our FY22E projections. We estimate FB to report

RoA/RoE of 0.9%/10.9% by FY22E. Maintain

Buy

with a revised TP of INR65 (0.8x

FY22E ABV).

Exhibit 8: One-year forward P/E

Exhibit 7: One-year forward P/B

2.3

1.8

1.3

1.0

0.8

0.5

0.3

0.5

P/B (x)

Min (x)

1.5

1.2

Avg (x)

+1SD

1.9

Max (x)

-1SD

31.0

24.0

P/E (x)

Min (x)

Avg (x)

+1SD

Max (x)

-1SD

23.9

17.1

17.0

10.0

3.0

12.4

7.6

4.8

5.0

Source: MOFSL, Company

28 May 2020

Federal Bank

Story in Charts

Exhibit 9: NIM improves to 3.04%

NIMs (%)

10.6

Exhibit 10: Yield on loans decline by 10bp QoQ to 9.2%

Yield on Loans (%)

10.3

10.0

Cost of Deposits (%)

10.5

9.5 9.5

9.6

9.3 9.3 9.2

9.1 9.1 9.2 9.3 9.4

6.5 6.4 6.3 6.1 6.1

5.8 5.7 5.8 5.6 5.7 5.9 5.9 6.0 5.9 5.8 5.7

Source: MOFSL, Company

Exhibit 11: Loan growth moderated to ~11% YoY

Loans (INR b)

YoY Gr. (%)

20 19

15 13 11

Exhibit 12: Deposit growth moderated to ~12% YoY

Deposits (INR b)

23 23

15 16

YoY Gr. (%)

21 19

29 25

22 25 24 25

Source: MOFSL, Company

Exhibit 13: CASA deposits growth moderates to ~7% YoY

CASA Ratio (%)

CASA growth YoY (%)

Exhibit 14: Proportion of retail deposits strong at 91%

Retail Deposits (%)

97 96

94 96 94 97

91 89

91 93 92 92 91

23 24

17 16

12 12 10

Source: MOFSL, Company

28 May 2020

Federal Bank

Exhibit 15: DuPont Analysis – We expect return ratios to remain under pressure in the near term

Y/E March

Interest Income

Interest Expense

Net Interest Income

Core Fee Income

Trading and others

Non-Interest income

Total Income

Operating Expenses

Employee cost

Others

Operating Profits

Core Operating Profits

Provisions

PBT

Tax

RoA

Leverage (x)

RoE

FY15

9.42

6.40

3.02

0.66

0.46

1.12

4.14

2.07

1.13

0.94

2.07

1.61

0.14

1.93

0.65

1.28

10.7

13.7

FY16

8.89

6.01

2.88

0.68

0.25

0.93

3.81

2.17

1.21

0.96

1.63

1.39

0.81

0.83

0.28

0.55

11.0

6.0

FY17

8.41

5.45

2.96

0.70

0.35

1.05

4.01

2.14

1.13

1.01

1.87

1.51

0.60

1.27

0.46

0.81

12.1

9.8

FY18

7.70

4.87

2.83

0.73

0.19

0.92

3.74

1.94

0.98

0.95

1.81

1.62

0.75

1.06

0.37

0.69

12.0

8.3

FY19

7.67

4.87

2.81

0.75

0.15

0.91

3.71

1.86

0.93

1.86

1.70

0.58

1.28

0.45

0.84

11.7

9.8

FY20

7.77

5.04

2.73

1.00

0.13

1.14

3.87

1.99

1.04

0.94

1.89

1.75

0.69

1.20

0.29

0.91

12.2

11.1

FY21E

7.50

4.86

2.64

1.04

0.12

1.16

3.80

1.95

1.04

0.92

1.85

1.73

1.04

0.81

0.20

0.61

12.5

7.6

FY22E

7.45

4.75

2.70

1.12

0.11

1.23

3.93

2.01

1.06

0.95

1.92

1.81

0.78

1.14

0.29

0.86

12.7

10.9

28 May 2020

Federal Bank

Financials and Valuations

Income Statement

Y/E March

Interest Income

Interest Expense

Net Interest Income

Growth (%)

Non-Interest Income

Total Income

Growth (%)

Operating Expenses

Pre Provision Profits

Growth (%)

Core PPP

Growth (%)

Provisions (excl. tax)

PBT

Tax

Tax Rate (%)

PAT

Growth (%)

Balance Sheet

Y/E March

Equity Share Capital

Reserves & Surplus

Net Worth

Deposits

Growth (%)

of which CASA Dep

Growth (%)

Borrowings

Other Liabilities & Prov.

Total Liabilities

Current Assets

Investments

Growth (%)

Loans

Growth (%)

Fixed Assets

Other Assets

Total Assets

Asset Quality

GNPA

NNPA

GNPA Ratio

NNPA Ratio

Slippage Ratio

Credit Cost

PCR (Excl. Tech. write off)

FY15

74,195

50,391

23,804

6.8

8,783

32,587

11.5

16,309

16,278

10.0

13,721

3.6

1,067

15,210

5,153

33.9

10,057

19.9

FY16

77,482

52,404

25,077

5.3

8,082

33,159

1.8

18,921

14,238

-12.5

12,963

-5.5

7,041

7,197

2,440

33.9

4,757

-52.7

FY17

86,774

56,247

30,526

21.7

10,818

41,345

24.7

22,095

19,249

35.2

16,163

24.7

6,184

13,065

4,757

36.4

8,308

74.7

FY18

97,529

61,701

35,828

17.4

11,591

47,419

14.7

24,509

22,910

19.0

20,521

27.0

9,472

13,439

4,650

34.6

8,789

5.8

FY19

114,190

72,427

41,763

16.6

13,510

55,274

16.6

27,643

27,631

20.6

25,347

23.5

8,559

19,073

6,634

34.8

12,439

41.5

FY20

132,108

85,619

46,489

11.3

19,314

65,803

19.0

33,756

32,047

16.0

29,763

17.4

11,722

20,325

4,898

24.1

15,428

24.0

FY21E

140,939

91,336

49,603

6.7

21,825

71,428

8.5

36,708

34,720

8.3

32,436

9.0

19,478

15,242

3,837

25.2

11,406

-26.1

(INRm)

FY22E

154,296

98,337

55,959

12.8

25,535

81,494

14.1

41,735

39,759

14.5

37,475

15.5

16,077

23,682

5,961

25.2

17,721

55.4

FY15

3,427

73,955

77,381

708,250

18.6

217,835

16.7

23,082

19,791

828,505

47,800

205,688

-14.7

512,850

18.1

4,666

57,500

828,505

FY16

3,438

77,474

80,912

791,717

11.8

260,526

19.6

21,766

19,905

914,300

54,198

222,175

8.0

580,901

13.3

5,200

51,826

914,300

FY17

3,448

84,108

87,556

976,646

23.4

320,528

23.0

58,973

26,594

1,149,769

74,522

281,961

26.9

733,363

26.2

4,895

55,029

1,149,769

FY18

3,944

118,158

122,102

1,119,925

14.7

376,867

17.6

115,335

25,777

1,383,140

92,034

307,811

9.2

919,575

25.4

4,574

59,146

1,383,140

FY19

3,970

128,760

132,730

1,349,543

20.5

437,314

16.0

77,813

33,313

1,593,400

100,668

318,245

3.4

1,102,230

19.9

4,720

67,537

1,593,400

FY20

3,985

141,191

145,176

1,522,901

12.8

464,500

6.2

103,724

34,579

1,806,381

125,746

358,927

12.8

1,222,679

10.9

4,800

94,229

1,806,381

FY21E

3,985

151,396

155,381

1,675,191

10.0

554,488

19.4

83,298

37,346

1,951,216

116,060

409,177

14.0

1,320,493

8.0

5,040

100,446

1,951,216

FY22E

3,985

166,714

170,700

1,892,966

13.0

670,110

20.9

87,463

41,080

2,192,209

126,747

462,370

13.0

1,492,158

13.0

5,241

105,693

2,192,209

10,576

3,733

2.0

0.7

1.9

0.5

64.7

16,677

9,500

2.8

1.6

3.7

1.3

43.0

17,270

9,412

2.3

1.3

1.9

0.9

45.5

27,956

15,520

3.0

1.7

2.7

1.1

44.5

32,607

16,262

2.9

1.5

1.6

0.8

50.1

35,308

16,072

2.8

1.3

1.7

1.0

54.5

55,520

22,019

4.1

1.7

3.2

1.50

60.3

64,288

26,373

4.2

1.8

2.4

1.10

59.0

28 May 2020

Federal Bank

Financials and Valuations

Ratios

Y/E March

Yield and Cost Ratios (%)

Avg. Yield-Earning Assets

Avg. Yield on loans

Avg. Yield on Investments

Avg. Cost-Int. Bear. Liabilities

Avg. Cost of Deposits

Avg. Cost of Borrowings

Interest Spread

Net Interest Margin

Capitalization Ratios (%)

CAR

Tier I

Tier II

Business and Efficiency Ratios (%)

Loans/Deposit Ratio

CASA Ratio

Cost/Assets

Cost/Total Income

Cost/Core Income

Int. Expense/Int. Income

Fee Income/Net Income

Non Int. Inc./Net Income

Emp. Cost/Op. Exp.

Investment/Deposit Ratio

Valuation

RoE

RoA

RoRWA

Book Value (INR)

Growth (%)

Price-BV (x)

Adjusted BV (INR)

Price-ABV (x)

EPS (INR)

Growth (%)

Price-Earnings (x)

Dividend Per Share (INR)

Dividend Yield (%)

13.7

1.3

2.0

45.2

11.2

43.7

5.9

19.7

1.1

6.0

0.5

0.8

47.1

4.2

43.5

2.8

-52.9

0.7

9.9

0.8

1.1

50.8

7.9

0.8

47.2

0.9

4.8

74.1

8.9

1.1

2.5

8.3

0.7

1.0

61.9

21.9

0.7

54.4

0.8

4.8

-1.3

9.0

1.1

2.5

9.8

0.8

1.3

66.9

8.0

0.6

59.1

0.7

6.3

32.2

6.8

1.2

2.8

11.1

0.9

1.5

72.8

9.0

0.6

64.9

0.7

7.8

23.4

5.5

0.0

7.6

0.61

1.0

78.0

7.0

0.5

67.6

0.6

5.7

-26.2

7.5

0.6

1.4

10.9

0.9

1.4

85.7

9.9

0.5

73.4

0.6

8.9

55.4

4.8

1.2

2.8

FY15

10.4

11.5

7.4

7.3

7.1

10.3

3.2

3.3

FY16

10.0

10.4

8.2

6.8

6.7

8.0

3.2

FY17

9.3

10.0

7.1

6.1

5.5

3.2

3.3

FY18

8.4

9.1

6.6

5.4

5.5

5.1

3.0

3.1

FY19

8.4

9.0

6.6

5.4

5.5

5.2

2.9

3.1

FY20

8.5

9.2

6.6

5.6

4.6

2.9

3.0

FY21E

8.2

8.9

6.4

5.4

4.5

2.8

2.9

FY22E

8.2

8.8

6.3

5.3

4.7

2.9

3.0

15.5

14.8

0.7

13.9

13.4

0.6

12.4

11.8

0.6

14.9

14.4

0.5

14.4

13.7

0.8

14.4

13.3

1.1

14.2

13.2

1.0

13.8

12.9

0.8

72.4

30.8

2.0

50.0

54.3

67.9

15.8

27.0

54.7

29.0

73.4

32.9

2.1

57.1

59.3

67.6

17.8

24.4

55.6

28.1

75.1

32.8

1.9

53.4

57.8

64.8

17.4

26.2

52.7

28.9

82.1

33.7

1.8

51.7

54.4

63.3

19.4

24.4

50.7

27.5

81.7

32.4

1.7

50.0

52.2

63.4

20.3

24.4

49.8

23.6

80.3

30.5

1.9

51.3

53.1

64.8

25.9

29.4

52.5

23.6

78.8

33.1

1.9

51.4

53.1

64.8

27.4

30.6

53.1

24.4

78.8

35.4

1.9

52.7

63.7

28.5

31.3

52.8

24.4

28 May 2020

Federal Bank

Explanation of Investment Rating

Investment Rating

Expected return (over 12-month)

BUY

>=15%

SELL

< - 10%

NEUTRAL

< - 10 % to 15%

UNDER REVIEW

Rating may undergo a change

NOT RATED

We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within

following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.

Disclosures

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Financial Services Ltd. (MOFSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOFSL, the Research Entity (RE) as defined in the

Regulations, is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial

products. MOFSL is a subsidiary company of Passionate Investment Management Pvt. Ltd.. (PIMPL). MOFSL is a listed public company, the details in respect of which are

available on www.motilaloswal.com. MOFSL (erstwhile Motilal Oswal Securities Limited - MOSL) is registered with the Securities & Exchange Board of India (SEBI) and is a

registered Trading Member with National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India Limited (MCX) and

National Commodity & Derivatives Exchange Limited (NCDEX) for its stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) National

Securities Depository Limited (NSDL),NERL, COMRIS and CCRL and is member of Association of Mutual Funds of India (AMFI) for distribution of financial products and Insurance

Regulatory & Development Authority of India (IRDA) as Corporate Agent for insurance products.

Details of associate entities of Motilal Oswal Financial Services Limited are

available on the website at

http://onlinereports.motilaloswal.com/Dormant/documents/List%20of%20Associate%20companies.pdf

MOFSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and

buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other

compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have

any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the

specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even

though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report

MOFSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report

should be aware that MOFSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific

merchant banking, investment banking or brokerage service transactions. Details of pending Enquiry Proceedings of Motilal Oswal Financial Services Limited are available on the

website at

https://galaxy.motilaloswal.com/ResearchAnalyst/PublishViewLitigation.aspx

A graph of daily closing prices of securities is available at

www.nseindia.com, www.bseindia.com.

Research Analyst views on Subject Company may vary based on Fundamental

research and Technical Research. Proprietary trading desk of MOFSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated

from MOFSL research activity and therefore it can have an independent view with regards to Subject Company for which Research Team have expressed their views.

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability

or use would be contrary to law, regulation or which would subject MOFSL & its group companies to registration or licensing requirements within such jurisdictions.

For Hong Kong:

This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong

Kong Securities and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst

Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of

research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity

to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these

securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not

located in Hong Kong & are not conducting Research Analysis in Hong Kong.

For U.S.

Motilal Oswal Financial Services Limited (MOFSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under

applicable state laws in the United States. In addition MOFSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers

Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any

brokerage and investment services provided by MOFSL , including the products and services described herein are not available to or intended for U.S. persons. This report is

intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as

"major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which

this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration

provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange

Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOFSL has entered into a chaperoning agreement with a U.S. registered broker-

dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this

chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S.

registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public

appearances and trading securities held by a research analyst account.

For Singapore

In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets

services license and an exempt financial adviser in Singapore.As per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and

Paragraph 11 of First Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary Authority of Singapore. Persons in Singapore should contact MOCMSPL

in respect of any matter arising from, or in connection with this report/publication/communication. This report is distributed solely to persons who qualify as “Institutional Investors”,

of which some of whom may consist of "accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“the

SFA”). Accordingly, if a Singapore person is not or ceases to be such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and

inform MOCMSPL.

Specific Disclosures

1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.

2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company

3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months

4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report

5 Research Analyst has not served as director/officer/employee in the subject company

6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months

8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months

9 MOFSL has not received any compensation or other benefits from third party in connection with the research report

10 MOFSL has not engaged in market making activity for the subject company

28 May 2020

Federal Bank

***************************************************************************************

*****************************************

The associates of MOFSL may have:

- financial interest in the subject company

- actual/beneficial ownership of 1% or more securities in the subject company

- received compensation/other benefits from the subject company in the past 12 months

- other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the

specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even

though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.

- acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

- be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the

company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies)

- received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.

The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report

Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not

consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from

clients which are not considered in above disclosures.

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the

research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

Terms & Conditions:

This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and

may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent

of MOFSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in

nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty,

representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The

report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial

instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as

customers by virtue of their receiving this report.

Disclaimer:

The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or

distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for

informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing

in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances.

The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment

objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this

document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this

document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views

expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade

securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of

the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and

should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make

modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from

time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to

perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a

separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of

information that is already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or

may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on,

directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or

entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law,

regulation or which would subject MOFSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in

all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost

revenue or lost profits that may arise from or in connection with the use of the information.

The person accessing this information specifically agrees to exempt MOFSL or any of its

affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOFSL or any of its affiliates or employees responsible for any such

misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses, costs, damages,

expenses that may be suffered by the person

accessing this information due to any errors and delays.

Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263;

Website

www.motilaloswal.com.CIN

no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road,

Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.

Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst:

INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company

Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth

Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is

a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt.

Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL.

Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no

assurance or guarantee of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance

Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.

* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National

Company Law Tribunal, Mumbai Bench.

28 May 2020