Federal bank has received a maintained Buy rating from Prabhudas Lilladher, with the brokerage firm raising its target price to ₹275 from the previous ₹250, reflecting confidence in the bank's strong operational performance and improving financial metrics.

Strong Quarterly Performance Drives Optimism

The bank delivered an impressive quarterly performance with a 4.2% beat on Net Interest Income (NII), demonstrating robust operational efficiency. The standout metric was the Net Interest Margin (NIM) which rose by 12 basis points quarter-on-quarter to reach 3.18%, marking a seven-quarter high despite the repo rate cut implemented in December.

Organic Growth Factors Support NIM Expansion

The improvement in NIM was attributed to organic factors rather than external market conditions. The brokerage identified four key drivers behind this positive development:

• Fall in higher cost liabilities
• Reducing share of interest-bearing liabilities
• Better investment yield performance
• Benefits from the CRR (Cash Reserve Ratio) cut

Based on these positive surprises and superior balance sheet mix, Prabhudas Lilladher has raised its NIM projections by 5 basis points each for FY27 and FY28 estimates.

Asset Quality and Business Mix Improvements

The bank's asset calibration strategy is progressing effectively, with good growth observed across multiple segments during Q3FY26. The Current Account and Savings Account (CASA), Business Banking, and gold loan portfolios all demonstrated healthy expansion. Corporate lending accretion remained robust while maintaining focus on mid-corporate segments, ensuring that growth did not dilute the NIM performance.

Revised Financial Projections and Valuation

The brokerage has updated its financial projections based on the strong performance indicators:

The target price revision reflects the rolling forward to March 2028 Adjusted Book Value (ABV) with an increased multiple of 1.4x, up from the previous valuation framework. This adjustment is based on the improved core Return on Assets (RoA) projection of 1.2% for FY28E.

Key Monitoring Areas

While maintaining an optimistic outlook, Prabhudas Lilladher has identified specific areas requiring continued monitoring. The brokerage remains watchful of operational expenses (opex) trends and the bank's transition to Expected Credit Loss (ECL) methodology, which could impact future financial performance and risk management practices.

Federal Bank Limited has completed the allotment of 283,143 equity shares under its Employee Stock Option Schemes on January 19, 2026. The allotment was executed following the exercise of stock options by eligible employees and approval from the bank's Nomination, Remuneration, Ethics and Compensation Committee.

Allotment Details

The share allotment was conducted under two separate Employee Stock Option Schemes operated by the bank:

Scheme Implementation

Under the ESOS 2010 Scheme, the bank allotted 4,875 equity shares to option grantees who exercised their stock options. The significantly larger allocation came from the ESOS 2017 Scheme, under which 278,268 equity shares were allotted to employees.

All allotted shares carry a face value of ₹2.00 each and were issued after the respective option grantees made the required payments for exercising their stock options. The allotment process was completed on January 19, 2026, with proper regulatory compliance maintained throughout.

Regulatory Compliance

The bank has informed both the National Stock Exchange of India Limited and BSE Limited about the share allotment as required under Regulation 30. The communication was signed by Samir P Rajdev, Company Secretary of Federal Bank Limited, ensuring proper documentation and regulatory adherence.

The Employee Stock Option Schemes represent part of the bank's employee compensation and retention strategy, allowing eligible employees to acquire equity stakes in the institution through the exercise of granted stock options.