Why Did Prabhudas Lilladher Raise Federal Bank’s Target to ₹235?
Federal Bank delivered a robust quarterly performance, prompting Prabhudas Lilladher to revise its target price upward to ₹235. The bank reported a 6.6% Net Interest Income (NII) beat, supported by a 12 basis points (bps) quarter-on-quarter rise in Net Interest Margin (NIM) to 3.06%. Improved liquidity management, a 155 bps increase in CASA ratio, and reduction in high-cost liabilities collectively drove the performance.
The brokerage highlighted that the bank’s strong deposit franchise and prudent credit growth position it well for consistent profitability. Forecasts for NIM have been revised upward by 14 bps each to 2.9% and 3.1% for FY26 and FY27, while the core PAT forecast was raised by 5.8%.
Federal Bank’s strategy of focusing on high-quality retail and SME lending continues to yield stable returns. The balance sheet remains well-capitalized with comfortable capital adequacy and improving loan mix. Cost-to-income ratio moderation and digital banking efficiencies are expected to support further earnings expansion over the next few quarters.
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According to Prabhudas Lilladher, the key positives include a robust liability profile, improved funding costs, and strong operating leverage. The bank’s focus on digital transformation and expansion of retail product lines is expected to enhance fee income growth while maintaining asset quality discipline.
Federal Bank — Q2FY26 Key Highlights
| Metric | Value / Change | Notes |
|---|---|---|
| Target Price | ₹235 | Revised upward by Prabhudas Lilladher |
| NII Beat | +6.6% | Higher margins and improved yields |
| NIM (QoQ) | 3.06% (+12bps) | Quarterly improvement driven by CASA growth |
| CASA Growth | +155bps | Better retail deposit traction |
| NIM Forecast | 2.9%–3.1% | Revised upward by 14bps |
| Core PAT Forecast | +5.8% | Earnings growth outlook improved |
The brokerage expects asset quality to remain stable with credit costs below 50 bps in FY26–FY27. Loan growth is likely to stay in the mid-teens, led by retail, gold, and SME segments, while corporate loan yields are expected to improve gradually.
Federal Bank’s prudent provisioning and comfortable liquidity coverage ratio provide a cushion against market volatility. The rise in CASA ratio demonstrates enhanced customer stickiness, while technology investments continue to optimize operational efficiency.
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Analysts believe that sustained deposit franchise strength and cost efficiency improvements could help Federal Bank deliver superior return ratios in FY26–FY27. The NIM expansion trend and controlled slippages point toward a stable profitability trajectory, with a strong capital base supporting credit expansion.
The target upgrade to ₹235 reflects confidence in management execution, asset quality, and franchise scalability. The bank’s focus on expanding its retail footprint and enhancing digital adoption across business lines will likely sustain its outperformance among mid-tier banks.
Investor Takeaway
Indian-Share-Tips.com Nifty Expert Gulshan Khera, CFP®, who is also a SEBI Regd Investment Adviser, notes that Federal Bank’s re-rating is supported by strong execution, digital scale, and consistent NIM growth. Investors can view the current consolidation as an opportunity to accumulate quality private banking exposure for steady compounding returns.
Discover more detailed equity analyses and institutional-grade financial insights at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
Related Queries on Federal Bank
- What Is Prabhudas Lilladher’s Target for Federal Bank?
- How Did NIM Expansion Boost Federal Bank’s Q2FY26?
- Why Did CASA Growth Strengthen Federal Bank’s Outlook?
- Is Federal Bank a Good Buy After Target Revision to ₹235?
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
