Federal Bank Q3 Profit Jumps 9% to ₹1,041 Crore in FY26

Introduction

Private sector lender Federal Bank announced a solid financial performance for the third quarter ending December 31, 2025. The bank reported a net profit of ₹1,041 crore, marking an 8.98% increase from the ₹955 crore earned in the same period of the previous fiscal year. The positive results were driven by healthy loan growth, stable margins, and a significant improvement in asset quality, leading to a strong rally in its share price.

Robust Earnings and Income Growth

Federal Bank's total income for the third quarter of FY26 rose to ₹7,968 crore, compared to ₹7,725 crore in the corresponding quarter of the previous year. A key driver of this performance was the Net Interest Income (NII), which grew by 9% year-on-year to ₹2,653 crore. This growth was supported by a healthy expansion in the loan book and a stable Net Interest Margin (NIM), which improved to 3.18% from 3.11% a year earlier.

The bank also reported its highest-ever quarterly fee income at ₹896 crore, a 19% year-on-year increase. This surge was primarily driven by loan processing fees, service charges, and income from insurance distribution. Consequently, other income for the quarter increased by 20% to ₹1,100 crore. The operating profit showed a robust 10% growth, reaching ₹1,729 crore for the quarter.

Significant Improvement in Asset Quality

A major highlight of the quarter was the continued strengthening of the bank's asset quality. The Gross Non-Performing Assets (GNPA) ratio improved significantly, declining to 1.72% from 1.95% in the same quarter last year. In absolute terms, Gross NPAs stood at ₹4,447 crore, down from ₹4,553 crore a year earlier.

Similarly, the Net Non-Performing Assets (NNPA) ratio saw a notable improvement, falling to a decadal low of 0.42% from 0.49% in the prior year. The bank's provision coverage ratio (PCR) also strengthened to 75.14%. Despite the better asset quality, overall provisions, excluding tax, increased to ₹332 crore from ₹292 crore a year ago, reflecting a prudent approach to risk management.

Key Financial Highlights: Q3 FY26 vs Q3 FY25

Healthy Balance Sheet Expansion

Federal Bank demonstrated balanced growth on its balance sheet. Total deposits grew by 12% year-on-year to reach ₹2.98 lakh crore as of December 2025. The bank's CASA (Current Account Savings Account) ratio improved by 191 basis points to 32.07%, indicating a healthy inflow of low-cost funds.

Total advances increased by 15% year-on-year to ₹2.66 lakh crore, with growth witnessed across retail, business banking, and corporate segments. This balanced expansion in both deposits and advances contributed to the bank's stable financial footing.

Strategic Developments

During the quarter, Federal Bank continued its calibrated expansion by adding six new branches to its network. In a significant strategic move, the bank increased its stake in Ageas Federal Life Insurance Company from 26% to 30%. The acquisition of 3.2 crore shares was completed in November 2025 after receiving all necessary approvals from the RBI and IRDAI, further strengthening its presence in the life insurance sector.

Market Reaction

The strong quarterly performance was well-received by the market. Following the announcement of the results on January 16, 2026, Federal Bank's shares surged by over 9%, hitting a record high of ₹271.5 per share. This positive investor sentiment reflects confidence in the bank's consistent performance and future growth prospects.

Management Commentary

Mr. KVS Manian, Managing Director & CEO, commented on the results, stating, "Our Q3 performance reflects the continued strengthening of the Bank's underlying fundamentals. The improvement in margins, reduction in funding costs, and sustained stability in asset quality are the direct outcome of the balance-sheet discipline and execution focus we have maintained." He emphasized that the bank's focus remains on the consistency and quality of earnings to deliver sustainable performance across market cycles.

Conclusion

Federal Bank's third-quarter results for FY26 underscore a period of strong, sustainable growth. With improved profitability, strengthening asset quality, and strategic initiatives taking shape, the bank is well-positioned to navigate the competitive landscape. The positive market reaction further validates its robust operational and financial discipline.