Federal Bank Shares Drop 5% Amid MFI Stress and Q1 Profit Decline

Federal Bank shares plunged 5% on Monday after reporting a 14.6% year-on-year decline in standalone net profit for Q1 FY26, driven by elevated credit costs and stress in its microfinance portfolio. Net profit fell to ₹861.75 crore from ₹1,009.53 crore in the prior-year quarter.

Asset quality deteriorated slightly, with gross NPAs rising to 1.91% and net NPAs inching up to 0.48%. Credit costs climbed to 65 basis points, though net interest margin held steady at 2.94%. The bank attributed the pressure to slippages in agriculture and MFI loans, but management expects normalization ahead.

Bright spots included record fee income and improving CASA ratios. CEO KVS Manian struck an optimistic tone, citing macro tailwinds and strategic initiatives that should fuel second-half growth. Brokerages remained cautious, with Nuvama trimming its target price to ₹225 while maintaining a buy rating.