Federal Bank Limited: Comprehensive Stock Analysis Report | Scrolls

by KarNivesh | 26 September, 2025

Comprehensive Overview

Federal Bank Limited, one of India’s most established private sector banks, has emerged as an attractive value proposition. Trading at a P/E ratio of 11.7 and P/B of 1.4, it offers significant value compared to larger peers while maintaining healthy asset quality (GNPA: 1.91%) and consistent profitability. Despite short-term challenges such as elevated provisions in Q1 FY26, the bank’s diversified business model, robust liability franchise, and new leadership under MD & CEO KVS Manian position it well for long-term growth. Federal Bank targets 16% ROE and 2.2% ROA by FY28.

Founded in 1931 and headquartered in Aluva, Kerala, Federal Bank has grown into the 6th largest private bank in India by market capitalization (₹47,500 crores as of September 2025). Its network spans 1,518+ branches and 2,079+ ATMs/CDMs, serving over 19 million customers nationwide. Notably, it dominates India’s remittance market, handling more than 20% of inward personal remittances, supported by partnerships with 110+ global banks and exchange houses. Nearly 29% of deposits come from NRE sources, strengthening its liability base.

Leadership and Strategy

The appointment of KVS Manian in September 2024 marks a major leadership transition. Bringing over 25 years of experience from Kotak Mahindra Bank, Manian has set ambitious FY28 goals: improving ROA from 1.2% to 2.2%, ROE from 13.1% to 16%, and NIM from 3.13% to 4.38%. Strategic priorities include enhancing CASA ratio to 36%, expanding into wealth management, boosting corporate banking, and reducing reliance on partner-sourced businesses.

Financial Performance

Between FY20 and FY24, Federal Bank’s revenue rose from ₹13,590 crores to ₹23,565 crores, reflecting a CAGR of 14.6%. Net profit nearly doubled from ₹1,590 crores to ₹3,964 crores, while EPS improved from ₹7.93 to ₹16.90. Q1 FY26, however, saw a 14.6% YoY dip in net profit to ₹862 crores, due to higher provisions (₹400 crores vs. ₹130 crores in the prior quarter) from stress in agriculture and microfinance portfolios.

Retail Banking contributes 57.4% of revenues (₹13,517 crores), followed by Corporate Banking (34.6%, ₹8,138 crores), International Banking (11%, ₹2,586 crores), and Treasury (6.5%, ₹1,530 crores). Non-interest income reached a record ₹1,113 crores in Q1 FY26, up 21.6% YoY, showcasing strong fee-income diversification.

Asset Quality & Ratios

Federal Bank has steadily improved asset quality, with GNPA falling from 3.15% in FY20 to 1.91% in Q1 FY26, and NNPA at 0.48%. CRAR stands at 16.03%, provision coverage at 74.41%, and Cost-to-Income ratio at 47.3%, supported by digital adoption (94.3% of transactions processed digitally). ROE is 12.9%, ROA 1.23%, and NIM 3.4%.

Market Valuation and Shareholding

Federal Bank trades at attractive valuations compared to peers like HDFC and Kotak, offering a dividend yield of 0.62% alongside capital appreciation potential. Mutual Funds (35.39%) and FIIs (26.86%) are the largest shareholders, while promoter holding is just 0.99%, ensuring professional management and strong governance.

Stock Performance & Outlook

The stock surged from ₹88 in 2020 to ₹191.50 in 2025, peaking at ₹220 in July 2025, delivering a five-year CAGR of 17% and outperforming the Sensex. Future growth will be driven by SME banking, wealth management, digital innovation, and new product segments like vehicle and housing finance.

Federal Bank 5-year stock price movement showing significant growth from ₹88 in 2020 to current ₹191.50, with peak at ₹220

Conclusion

Federal Bank represents a well-positioned mid-tier private bank, combining attractive valuations, improved efficiency, and a clear strategic vision under new leadership. Despite short-term risks like geographic concentration and rising provisions, its strong fundamentals and growth initiatives make it a compelling investment opportunity aligned with India’s long-term banking sector growth story.