Private sector lender Federal Bank reported a robust set of financial results for the third quarter ended December 31, 2025 (Q3 FY26), surpassing market expectations across key parameters. The Kerala-headquartered bank posted a net profit of Rs 1,041 crore, marking a nearly 9% increase both year-on-year (YoY) and quarter-on-quarter (QoQ), driven by strong core income growth, improved margins, and sustained asset quality enhancements.

The bank's net interest income (NII) reached a record high of Rs 2,653 crore, reflecting a healthy 9% YoY growth and 6% sequential rise. This performance was bolstered by an expansion in net interest margin (NIM), which improved by 12 basis points sequentially to 3.18% — well above street estimates of around 3.10–3.12%. Analysts attributed the margin improvement to a favorable shift in the liability mix, lower funding costs, and effective asset repricing.

Adding to the positive momentum, fee income (a key component of other income) surged 18–19% YoY, contributing significantly to the overall earnings beat. Pre-provision operating profit (PPOP) grew by approximately 10% YoY to Rs 1,729 crore, while the bank's operating profit also hit an all-time high, underscoring strong operating leverage and disciplined cost management.

On the balance sheet front, advances grew 4.5% sequentially and nearly 11% YoY to Rs 2.56 lakh crore, led by momentum in commercial banking and corporate segments. Deposits increased 3% QoQ and 12% YoY to ₹2.98 lakh crore, with the CASA ratio improving notably to 32.07%, reflecting better low-cost funding. The mid-corporate segment, a strategic focus area, continued to gain share, now contributing around 44.4% to the portfolio, up from 43% a year ago.

Asset quality surprised positively, with gross NPA declining to a decade-low of 1.72% (down 11 bps QoQ and 23 bps YoY), and net NPA easing to 0.42%. Slippages moderated sharply to around 0.7% from 0.94% earlier, while credit costs remained stable. These improvements highlight the bank's disciplined underwriting and effective recovery mechanisms. The strong performance translated into improved profitability ratios, with return on assets (ROA) at 1.15%