What explains Nirmal Bang's BUY on Federal Bank

Federal Bank's retail-to-wholesale share is expected to stay the same at 55:45. However, the portion of more profitable loans, such as credit cards (1.2 per cent), personal loans (1.6 per cent), MSME (Business Banking + Commercial Banking) (18.2 per cent)), CV/CE (commercial vehicle and commercial equipment) (1.4 per cent), and microfinance (1.2 per cent), is increasing and currently makes up about 23.6 per cent of the bank's portfolio, up from 21.3 per cent four quarters ago, says a Nirmal Bang report.

"These segments now contribute 26.2 per cent to the bank's interest income, up from 23.7 per cent in the same period. The bank is also expanding its offerings in retail loans, including CV/CE, credit cards, personal loans, and microfinance. The CV/CE segment provides a fixed interest rate of around 9 per cent and adjusts every two years, providing stability to the bank's overall earnings when interest rates decrease," says the report.

"We have rolled forward our valuation to FY26E and continue to maintain ‘BUY’ rating on Federal Bank with a revised target price (TP) of Rs 182," the report adds.

Read Nirmal Bang report here.