Federal Bank Ltd Q2 FY26 — When Kerala’s Favourite Banker Tried to Out-Yoga HDFC and Ended Up Doing Surya Namaskar on Margins
1. At a Glance
Federal Bank — born in 1931 as Travancore Federal Bank, now Kerala’s biggest private sector darling and India’s most disciplined middle-class banker — just dropped its Q2 FY26 results. The market yawned. CMP ₹212, Market Cap ₹52,235 Cr. In the last 3 months, the stock basically did a yoga stretch — up 0.2%, which is banker language for “I’m trying, okay?”.
NIM slipped to 3.12% (the financial equivalent of a diet cheat day), while profit fell 9.5% QoQ to ₹955 Cr. Deposits? ₹2.84 lakh crore. Advances? ₹2.43 lakh crore. Gross NPA: 1.84%, Net NPA: 0.44%. CRAR still a robust 16.4%. In Kerala, this is the “mother-in-law-approved” bank — safe, steady, not flashy, but always somehow better than your cousin’s stock pick.
2. Introduction – The Bank That Became a Habit
Once upon a time, Federal Bank was that conservative uncle who always wore tucked shirts, quoted RBI circulars at weddings, and refused to buy crypto. Fast-forward to FY26 — the uncle learned APIs, RPA, and even has 790 of them. But he still eats his payasam on time.
In a world where HDFC marries HDFC Ltd, Axis tries to look cool, and Yes Bank goes to therapy, Federal quietly compounds at 15% CAGR. No scandals, no tantrums, just good old South Indian compounding — the sambhar of the banking world.
And let’s face it: being the second-largest bank from Kerala is like being the second most famous actor from Trivandrum — Mammootty exists, but you still show up in commercials.
3. Business Model – WTF Do They Even Do?
Federal Bank runs a perfectly predictable playbook. It takes your deposits, lends to gold borrowers, small businesses, and the occasional over-leveraged wedding planner, and earns 3.1% NIM. The split is elegant:
Retail (56%) – where EMIs are like temple bells: regular, rhythmic, holy.
Wholesale (44%) – where corporate clients still send balance sheets in Excel 2007.
Gold Loans are Federal’s love story — ₹30,505 Cr worth, at 10% yield and 62 tonnes of shiny insurance against stupidity. Microfinance adds 4,110 Cr, because someone has to lend to the real Bharat.
Corporate tie-ups? All the usual suspects — DRDO, ISRO, L&T, and now Chola Insurance for CV loans. Because even trucks need blessings before potholes.
4. Financials Overview
Source table
Metric
Latest Qtr (Q2 FY26)
YoY Qtr (Q2 FY25)
Prev Qtr (Q1 FY26)
YoY %
QoQ %
Revenue
₹7,216 Cr
₹6,728 Cr
₹7,151 Cr
7.25%
0.9%
Net Interest Income (NII)
₹2,495 Cr
₹2,328 Cr
₹2,466 Cr
7.2%
1.2%
Profit After Tax (PAT)
₹955 Cr
₹1,115 Cr
₹992 Cr
-14.3%
-3.7%
EPS (₹)
3.88
4.47
4.03
-13.2%
-3.7%
Commentary: The PAT graph looks like Kerala’s monsoon: heavy at the start, drying up by September. Interest income grew slower than inflation, but fee income saved the day with ₹885 Cr — meaning more people paid charges than ever. Who said inflation hurts everyone equally?
5. Valuation Discussion – Fair Value Range Only
Let’s use our three holy grails of number-worship:
(a) P/E Method
EPS (FY25): ₹16.1 Peer median P/E (ICICI 19.2, Axis 14.3, HDFC 21.3, Kotak 22.9) → let’s be realistic — Federal doesn’t get the posh Mumbai premium. Assign 11–14× P/E range. 👉 Fair Value Range: ₹177 – ₹225
