Federal Bank shares dive 5% amid MFI stress, Q1 profit dips

Federal Bank’s fee income hit a record high, and CASA ratios continued to improve steadily.
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Dinakaran

Shares of Federal Bank crashed 5 per cent on Monday following a 14.6 per cent decrease in standalone net profit in Q1 FY26, elevated credit costs and MFI stress.

The bank posted a profit of ₹861.75 crore for the quarter under review as against ₹1,009.53 crore in the same quarter of the previous year.

As per the stock exchange disclosure, its Gross NPA rose to 1.91 per cent and the Net NPA inched up to 0.48 per cent in the said quarter. Credit costs increased to 65 bps and the net interest margin stood at 2.94 per cent.

The bank’s fee income hit a record high, and CASA ratios continued to improve steadily. On asset quality, while credit costs were elevated this quarter, they were largely driven by slippages in the Agri and MFI portfolios, said KVS Manian, Managing Director & CEO, Federal Bank.

“Based on current trends, we expect these slippages to moderate and stabilise going forward, leading to a normalisation in credit costs.

“With macro tailwinds building and our strategic themes gaining traction, we’re confident of accelerating growth in the second half while staying disciplined on risk and profitability,” Manian added.

Brokerages posed cautious tone, slashing target prices, amid the MFI and credit cost stress. Nuvama Institutional Equities has maintained buy at a reduced target price of ₹225 from ₹230 earlier.

Motilal Oswal believes that near-term headwinds will persist, but expects the trajectory to improve in the second half, supported by a recovery in margins and delinquency rate. The brokerage reiterated buy at a reduced target price from ₹250 to ₹235.

The brokerage observed that the NIM contracted due to repo rate cuts and T+1 loan repricing, with the bank guiding a further 5-10bp dip in NIM in Q2 FY26. The asset quality weakened due to stress in the MFI segment, resulting in elevated credit costs during the quarter, although the PCR ratio remained stable.

Nomura downgraded the stock to neutral at ₹195 target price. On the other hand, CLSA has maintained an outperform rating at ₹230 target price, highlighting that the profitability was maintained via strong other income and lower opex. 

Shares of Federal Bank traded flat on the BSE at ₹194.40 as at 10.39 am, hitting a low of ₹185.60 against the previous close of ₹195.95.

Published on August 4, 2025