Why Federal Bank Share Price is Rising

The Nifty Bank index has underperformed the Nifty50 index considerably over the past one month.

During the said time period, the benchmark Nifty Bank index fell 4.2%, equivalent to a decline of 1,929.8 points.

In contrast, the Nifty50 index maintained a steady stance during the same period.

However, even in this challenging period for bank stocks, one stock within the Nifty Bank index has emerged as an exception, capturing attention with its 5% rally in the past 5 days.

The stock in question Federal Bank.

Here's why shares of the private bank are on a roll...

#1 Green finance push

Federal Bank plans to step up the number of branches and move aggressively on green finance.

The company plans to open 80-100 branches every year in the next three years. The focus areas for opening branches would be in the states of Gujarat, Maharashtra, Tamil Nadu, and Karnataka.

The bank also plans to go aggressive on green finance, with a sharp focus on technology-led banking.

The company also plans to soon come up with a policy on green deposits.

The decision to create such a policy comes after the Reserve Bank of India (RBI) in April 2023 brought in a framework for green deposits for banks.

#2 Ambitious growth plans

On 23 August 2023, the executive director of Federal Bank discussed its plan of actively working to attract a larger volume of low-cost deposits, driven by the persistent rise in the cost of funds.

The bank's NIMs were under pressure at 3.2% for the financial year 2022 and 3.3% for FY23.

However, the bank expects this phase to have passed, projecting a NIM of 3.4% for the ongoing financial year.

The bank is actively striving to enhance its Current Account and Savings Account (CASA) deposit ratio.

Presently, CASA constitutes about 32% of the bank's deposit mix. The bank is dedicated to significantly increasing this proportion.

One avenue that Federal Bank is exploring to achieve this goal is venturing into the realm of payment services tailored for corporate clients.

This digital platform for corporate entities is set to offer a comprehensive suite of services encompassing collections and payments.

To counter this, Federal Bank is raising funds through Qualified Institutional Placement (QIP) and preferential allotment. This strategy not only aids in raising capital but also contributes to reducing the overall cost of funds.

Notably, the International Finance Corporation (IFC) has recently invested around Rs 9.6 bn in Federal Bank through the preferential allotment route.

This move is part of the bank's efforts to raise approximately Rs 40 bn, with Rs 30 bn coming from QIP and the remaining through preferential allotment.

This infusion of funds is expected to positively impact the cost of funds for the bank. However, the cost of deposits appears to have stabilised at its current level.

Overall, the combination of these strategies, investments, and growth initiatives presents a positive outlook for the bank's financial performance.

How Federal Bank shares have performed recently

The share price of Federal Bank has surged over 5% in the past one week. While over the past six months, shares are up 11%.

Federal Bank has a 52-week high quote of Rs 143.8 touched on 24 August 2023 while the stock touched its 52-week low of Rs 105.2 on 23 August 2022.

The stock is currently trading at a PE (price to earning) ratio of 10.2x.

About Federal Bank

Federal Bank is one of the major Indian commercial banks in the private sector headquartered in Aluva, Kerala.

The bank operates in four segments: treasury operations, wholesale banking, retail banking, and other banking operations.

Treasury operations include investment and trading in securities, shares, and debentures.

Its products and services include working capital, term finance, trade finance, specialised corporate finance products, structured finance, foreign exchange syndication services, and electronic banking requirements.

The bank has 1,272 branches, 1,948 ATMs and cash recyclers as on 31 December 2020.

Federal Bank also has its representative offices in Abu Dhabi and Dubai and an IFSC Banking Unit (IBU) in Gujarat International Finance Tec-City (GIFT City).

For more details about the company, you can have a look at the Federal Bank factsheet and quarterly results on our website.

You can also compare Federal Bank with its peers.

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And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

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