This Jhunjhunwala stock is under pressure despite decent Q4 business update – what's hurting the stock?

Federal Bank – a Rekha Jhunjhunwala-owned stock – slipped as much as 4 per cent to Rs 128 apiece on the exchanges during Wednesday’s trading session, a day after it released its March quarter business update. 

Shares of the mid-cap private lender traded nearly 3 per cent to Rs 129.5 on the BSE at around 12:30 PM as compared to a 0.7 per cent rise in the S&P BSE Sensex.

So, what's hurting the stock?

The private lender has reported strong overall growth for the quarter that ended on March 31, 2023; however, among all metrics, the CASA (current and savings account) ratio of the bank declined to a multi-quarter low, according to Zee Business research.

According to the Federal Bank’s exchange filing, the CASA ratio of the bank was at 32.68 per cent in the March quarter as compared to 34.24 per cent in the previous quarter and 36.94 per cent in the corresponding quarter of the previous fiscal.

What is CASA ratio?

CASA stands for current and savings accounts. it is aimed at combining the features of savings and checking accounts to entice customers to keep their money in the bank.

Different kinds of deposits – current accounts, savings accounts, and term deposits – form the major source of funds for banks. The CASA ratio shows how much deposit a bank has in the form of current and saving account deposits in the total deposit.

Why CASA ratio is important?

The growth in the CASA ratio directly translates to a higher portion of the deposits of the bank, which may come from current and savings deposits and this is also seen, generally, as a cheaper source of funds for banks.

Several lenders don’t pay any interest on the current account deposits, while savings accounts attract an interest between 3.5-6 per cent. Therefore, a higher CASA ratio translates into a growth in the net interest margin, which could also help a bank to have better operating efficiency.

Where do other private lenders are in terms of CASA ratio?

Among private lenders, HDFC Bank – India’s largest private lender – tops the list with a 44 per cent CASA ratio, as per Zee Business research, followed by Bandhan Bank (market cap Rs 33,231 crore), at 39.3 per cent. Bandhan Bank is seen as a rival of Federal Bank (market cap Rs 27,402 crore) in the mid-cap banking space. 

Industry trends

Source: Zee Business research

Jhunjhunwala’s favourite stock

Rekha Jhunjhunwala owns 48,213,440 crore equity shares or a 2.3 per cent stake in Federal Bank, as per the shareholding pattern of the bank.

Till June 2022, Jhunjhunwala had around a 1 per cent stake in the bank; however, she inherited the remaining 1.3 per cent stake in the lender after her husband Rakesh Jhunjhunwala died in August last year.

Rakesh Jhunjhunwala, who was called Big Bull of Dalal Street, passed away on August 14, 2022, due to a heart ailment in Mumbai’s Breach Candy Hospital.

Federal Bank stock movement

Federal Bank shares in the last one year have jumped nearly 32 per cent as compared to over two per cent rise in the Nifty50.

The stock grew over seven per cent in the last six months against a per cent rise in the benchmark index. 

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(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)