Federal Bank CFO explains three reasons for higher third quarter operating costs
In a post-earnings call with CNBC-TV18 Venkatraman Venkateswaran, Group President & CFO of Federal Bank also talked about the bank's branch expansion plans and investments in technology.
Venkatraman Venkateswaran, Group President & CFO of Federal Bank listed three key reasons for the spike in operating expenses during the third quarter: higher provision for wage revision, branch expansion costs, and investment in technology upgrades.
In a post-earnings call with CNBC-TV18, Venkateswaran said the bank increased the rate of provisioning for an upcoming wage revision to 17% from 15%. This led to a spike in the staff costs in the October-December quarter.
The bank also added about 65 branches in the first nine months of the year so far, which added to the quarterly costs.
He also noted that the bank is now able to achieve breakeven on new branches much faster than earlier. "Last year, we opened 75 branches, of which 41 have already turned positive in less than one year, i.e. it is at breakeven. This is something which we have seen improving over the years, it used to be two years prior or even more than that earlier. The fact that we are able to choose the right location, get the business, and see the branches turning profitable, is a healthy sign, which gives us confidence to invest more on the branches," he said.
He said the bank is also investing heavily in upgrading technology from cyber security, to compliance systems, and the audit systems.
Venkateswaran is confident the bank will be able to achieve credit growth of 18% to 20%. The credit deposit ratio is currently at 83%, he said.
Federal Bank reported its Q3FY24 earnings on January 16. The net profit rose 25% year-on-year (YoY) to ₹1,007 crore from ₹803.6 crore in the corresponding period of the previous fiscal year. The net interest income for Q3 stood at ₹2,123 crore, slightly below a CNBC-TV18 poll estimate of ₹2,125.6 crore.
The bank's deposit cost was up around 20 basis points. The net interest margin for the quarter was reported at 3.19%, reflecting a marginal decrease from 3.22% in the previous quarter. The bank's CFO expects NIMs to remain around 3.2%.
Also Read | Federal Bank responds to slashing of credit limits on Scapia cards — here's all you need to know
The bank's stock has gained about 5% in the past year, but is down nearly 8% year to date. The bank's market capitalisation is at ₹35,155 crore.
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