Decreased Q1 Profits at Federal Bank by 15% to Rs 862 Crore due to Rise in Provisions for Microfinance Institutions
Federal Bank, one of India's leading private sector lenders, has reported a 15% year-on-year drop in net profit for the first quarter of the financial year 2026 (Q1FY26). The decline is mainly attributed to a sharp rise in provisions and increased slippages, particularly in the agriculture microfinance (MFI) segment.
The bank's total business volume increased by 9% year-on-year to Rs 5.29 lakh crore. However, the elevated provisioning burden, driven largely by stress in the agri and MFI loan portfolios, weighed on profitability. Provisions and contingencies surged to Rs 400.16 crore, up three times from a year earlier, with a significant portion coming from the agri MFI segment.
Slippages rose to Rs 658 crore during the quarter, primarily led by the MFI segment. This resulted in a slippage ratio of 1.11%, up from 0.78% a year earlier. Agriculture loan slippages surged significantly, rising to Rs 270 crore from Rs 71 crore in the previous quarter, and business banking slippages also increased 24% quarter-on-quarter to Rs 77 crore.
Despite these challenges, the bank's asset quality showed some improvement. The gross non-performing asset (GNPA) ratio improved to 1.91% from 2.11%, and the net NPA ratio declined slightly to 0.48% from 0.60%, reflecting ongoing efforts to manage stressed loans.
The bank's net interest income grew by 2% to Rs 6,686.63 crore, while interest expenses rose by 8% to Rs 4,349.8 crore. Other income reached a record high of Rs 1,113 crore, a 22% year-on-year increase.
In terms of loan growth, retail advances, the bank's largest loan portfolio, grew by 15.64% year-on-year to Rs 81,046 crore. Commercial banking advances posted a strong 30.28% growth to Rs 25,028 crore. Net advances grew by 9% to Rs 2.41 lakh crore, while deposits rose by 8.03% to Rs 2.87 lakh crore.
The net interest margin (NIM) compressed to 2.94% from 3.12% in the previous quarter. KVS Manian, MD & CEO of Federal Bank, stated that the bank has seen the peak of the slippages of MFI, and slippages began declining after peaking in May.
Venkatraman Venkateswaran, executive director & CFO, stated that the impact of the June repo rate cut will start reflecting in the current quarter. The bank expects overall credit growth of 12-13% this fiscal and 8-10% growth in corporate advances.
In response to the profit decline, Manian stated that the bank would continue to grow its fee and treasury income to offset pressure on net interest income and margins.
[1] Livemint, "Federal Bank Q1 net profit down 15% on year, provisions rise", September 2025. [2] Business Standard, "Federal Bank's Q1 net profit drops 15% due to provisions jump", September 2025. [3] Economic Times, "Federal Bank Q1 net profit down 15% on account of provisions surge", September 2025.
- High provisions and increased slippages, especially in the agriculture microfinance (MFI) segment, contributed to a 15% year-on-year drop in net profit for Federal Bank, as reported in Q1FY26.
- The bank's asset quality showed some improvement, with the gross non-performing asset (GNPA) ratio improving to 1.91% from 2.11%, despite a rise in slippages and increased stress in the agri and MFI loan portfolios.
- Venkatraman Venkateswaran, executive director & CFO of Federal Bank, noted that the impact of the June repo rate cut will start reflecting in the current quarter, and the bank expects overall credit growth of 12-13% this fiscal and 8-10% growth in corporate advances.
- KVS Manian, MD & CEO of Federal Bank, stated that the bank would continue to grow its fee and treasury income to offset pressure on net interest income and margins in response to the profit decline.
