The federal bank reported a profit of 2.66 billion rupees in the second quarter of fiscal year 19 (ie one year, 2.7% above JMFe). While NII was broadly in line with our estimates, a strong base fee performance (34% year-over-year) resulted in a PPP rate of 19%. Provisions for the quarter, however, were high (specific cost of credit at 0.9%), with gross slippages rising to 2.1%. The landslides (4.8 billion euros) were high due to floods in Kerala (about 10% of the slide). Management revealed that FB had a global exposure of € 2 billion to the IL & FS group (0.2% of loans), spread over 3 operational projects, where it did not foresee significant stress. Management expects the floods in Kerala to be contained at 1.5 billion rupees during fiscal year 19. We now generate slippages of 15.4 billion rupees ( unpaid 1.7%) during fiscal year 19, which resulted in a 3.4% reduction in our PAT estimates during fiscal year 19. We believe that FB can achieve a RoA / RoE of 1/13% for the 2015 financial year.
PPoP: FB posted growth of 14% year-on-year, while that of the NIM slightly increased to 3.15% and loan growth was strong (+ 25% year-on-year). Core fee growth (34% year-over-year) was driven by strong growth in loan processing fees (51% year-over-year) and foreign exchange revenue (49% year-on-year). The cost relative to revenues fell sharply due to the outperformance of commissions (down 365bp / q-o-q to 48%), as opex growth was rather flat q-o-q. Management expects NIMs to increase to 3.2% by the fourth quarter of year 19 as a result of reduced interest reversals and a better asset mix. We built 3.1 / 3.15% of NIM on the 19/20 exercise.