Equity Strategy - India: Day 3: India Conference Takeaways

Research evidence excerpt

Equity Strategy - India: Day 3: India Conference Takeaways

Takeaways – Financials

Madhur Sharma >> Pujita Pasumarthi >>

BofAS India BofAS India

madhur.sharma2@bofa.com pujita.pasumarthi@bofa.com

Federal Bank Ltd (FB IN)

Focus on CASA, fees and productivity

• CASA ratio target of 36% - The bank has set target CASA ratio at ~36% from

current level of 33% (vs 29% five quarters ago). While SA has traditionally been

strong (NR/Kerala base), the focus has now shifted to improving CA. The focus is to

grow granular CA from MSME and mid-corp rather than large corporate CA.

• Fees – Bank is increasing focus on fee income and expects to improve fees/assets

to 1.5% from 1.07%.

• Productivity improvement – Bank is now trading productivity metrics such as PPC,

yield per RM/client, self-funding ratio, etc.

Corporate & mid-market – Moving from lender to banker

• The bank is not focusing on mid-corporate and commercial banking where it is

targeting smaller enterprises with 1-3 banking relationships, aiming to transition

from lender to primary banker.

• The strategy now emphasizes RAROC and relationship-led cross-sell (fees, FX,

trade).

Loan mix & retail segments – Rebalancing portfolio, improve branch

productivity

• Current loan mix is at ~45% wholesale: 55% retail (with wholesale skewed to mid-

corp). While broad wholesale:retail mix will remain same, the mix within these broad

buckets are likely to shift towards higher yield book.

• Key segmental trends: (1) Home loans – bank will keep home loan book flat and even

willing to downsize. (2) LAP – Preferred segment with better yields and similar

underwriting. (3) Gold loans – Strong growth (~26% YoY; ~33% adj.), LTV ~53%;

running down pawn broker book. The bank is investing in developing new loan