The credit rating agency said that reaffirmation of the ratings factors in the bank's long-standing track record of operations with strong liability franchise consisting of granular retail deposits, including Current Account Savings Account (CASA) and non-resident Indian (NRI) remittances, especially from south India, which helps the bank in generating fee-based income.

The rating also factors in the bank's diversification of advances into newer retail products, efforts to strengthen its management team, reduce geographical concentration and improving profitability and operating efficiency in the recent years on the back of stable asset quality and adequate capitalisation levels.

The rating remains constrained by moderate asset quality parameters, lower proportion of fee-based income as compared to higher-rated private sector banks and borrower as well as geographic concentration in the advance's portfolio.

Care Rating further stated that continued improvement in the scale of business while maintaining its asset quality parameters and capitalisation; and Sustained improvement in profitability with return on total assets (ROTA) of above 1% on a sustained basis along with scale-up in the non-interest income could be positive for the ratings.

However, decline in profitability with ROTA of less than 0.8% on sustained basis; deterioration in capitalisation levels with total capital adequacy ratio (CAR) below 13% and CET-1 below 11%; and decline in the asset quality parameters over with gross non-performing assets (GNPA) ratio of over 5% on a sustained basis or net NPA (NNPA) to net worth more than 15% on a sustained basis could lead to a ratings downgrade.

Federal Bank is an old mid-sized private sector bank headquartered in the state of Kerala. As on 31 December 2022, the bank has a network of 1,333 branches and 1,896 ATMs/recyclers. FBL's share holding pattern is well diversified with majority shares held by mutual funds (32%), foreign institutional investors (27%), financial institutions & banks (2%) and corporates & others (39%) as on December 31, 2022.

The total business of the bank stood at Rs 3.72 lakh crore with advances of Rs 1.71 lakh crore and deposits of ₹2.01 lakh crore as on 31 December 2022.

The scrip shed 0.55% to end at Rs 127.15 yesterday.