Federal Bank (FB IN) – Q2FY26 Result Update – Balance sheet mix improving – BUY
Published on 19 Oct 2025
FB saw a strong quarter due to 6.6% beat on NII as NIM increased QoQ despite estimate of a decline. Reported NIM did not contain any one-offs and rose by 12bps QoQ to 3.06% led by (1) reduction in higher cost liabilities over last 1-yr (2) increase in avg. CASA by 155bps QoQ and (3) better liquidity management. Balance sheet calibration is progressing well; low yielding corporate+housing share has fallen by ~100bps YoY to 49.6% and share higher cost liabilities has also reduced. Due to faster downward repricing of liabilities, NIM may improve in H2FY26. Hence, we raise NIM for FY26/27E by 14bps each to 2.9%/3.1%. Fee momentum is intact; we are watchful of opex. We raise core PAT for FY26/27E by avg. 5.8% due to increase in NIM by 14bps each. Keeping multiple at 1.3x we raise TP to Rs235 from Rs220 as we roll forward to Sep’27 ABV. Retain ‘BUY’.
