Please note that this conference is being recorded. I now hand the conference over to Mr. Souvik Roy, Head of Investor Relations, Federal Bank Limited. Thank you, and over to you, sir.
Thank you so much. Ladies and gentlemen, thank you for joining us today. Apologies for the slight delay. We were facing some tech glitches. Pretty sure you have seen our deck. We have delivered quite well this quarter. It's been a quarter of several all-time highs, reflecting our strong operational excellence. We have achieved the highest-ever quarterly net profit of INR 1,010 crores and the highest-ever operating profit of INR 1,501 crores. Additionally, we have recorded our highest-ever NII and other income as well. You know, this further underscores our financial strength as well as our strategic execution. Our Q1 performance sets a robust platform for the financial year ahead. As our MD had mentioned, it has, you know, released to the media. Despite the challenging environment, we have led the market in both credit as well as deposit growth.
Our business strategy, focused on diversification across products and segments, continues to yield positive results, with nearly all our businesses showing sequential growth of 4%-5%. Noteworthy among our achievements this quarter is the significant recovery in deposit growth, driven by our recent expansions and product launches. We have also successfully reversed the previous challenges in our growth as well. In summary, Q1 has been a quarter of exceptional, you know, operational performance, and we are confident that this momentum will sustain through the year. I have the entire senior team here with me, to answer your queries. But before that, I, you know, before I hand over the call to Venkat, I would like to make a short comment. This success, you know, of our entire franchise is definitely a tribute to the exceptional leadership of our MD and CEO, Mr.
Shyam Srinivasan who, for 56 quarters, has guided our bank to unprecedented levels of success. His vision and direction have always been instrumental in navigating us through various market conditions and consistently achieving superior results. With this, I'll hand it over to you, sir. Thank you. Thank you again, sir.
Thanks. Thanks, everybody. Thanks for joining in. Thanks, Souvik. Yes, like Souvik pointed out, I think we had a good quarter, and I would like to believe operationally it's a very strong quarter. Sets the tone for a strong FY25. You all cover the market, and you know it very well. It has been challenging, and it is likely to remain in this kind of environment. So through this, Federal Bank's capabilities are now getting well recognized, and both growth in credit and liability deposits have been strong, almost 5% sequentially, and that sets the tone for a strong financial year. Importantly, market share gains are visible. The one thing that I did want to call out, which Souvik referred to, is on the deposits side, through what arguably is a challenging period for everybody.
Not only did we grow higher than many, but I think the important driver for us is what we've been struggling with for almost 2+ years, is the non-resident domestic money, as in the money they put in India, not through FCNR or NRO, but the NRE-led deposit growth was kind of, sort of tapering off, and we've seen good pickup on that count. And I think that, over as well, we've reversed that trend. Barring that, our expansion has helped us grow our deposits well. Credit quality, something that we take great pride in, has been stable for long periods of time, and I believe outlook remains quite, quite robust. There are, at best, some glitches here and there, but nothing that, at this point in time, we are flagging as any kind of risk. So we are setting the stage for a good FY25.
We've opened well on many counts, interest income being recording the highest. And importantly, interest income growth has matched credit growth. Often the question is, is credit growing but not interest income? We believe that the structure and the business mix is influencing that outcome, and I suspect that momentum should continue. There are, there are, you know, further opportunities of how we get some of our higher-margin businesses growing through periods that are both, opportunity is high, but, you know, one has to keep tight vigil on all the businesses that are relatively higher margin. We have never shied away from slowing down if we see any kind of environmental, sort of stress building out. At this point in time, we are encouraged by all that we see. The team is quite excited about the opportunity ahead.
I'm also happy that, you know, through this period, we have got a successor identified, so the transition should be relatively smooth. The team that helped me build the bank is intact, and they will work with a new leader to take it to another level. So let me just open for questions, with the summary being we've begun well, this financial year. The underlying indicators, both on the credit and deposit side, look quite encouraging. Momentum is with us, and financial outcomes you've seen. So let me just pause here and ask the operator to open for questions. As always, the entire senior team is there to take questions and give responses on areas that may require attention. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Mahrukh Adajania from Nuvama. Please go ahead.
Yeah, hello. First of all, congratulations, Shyam, on a very successful journey and a very successful stay in that Federal Bank. And thank you for the interactions and sharing your expertise with us. So thanks a lot, and we'll miss interacting with you.
Thanks, Mahrukh. Thank you so much. Thank you.
Yes, hi. And congratulations on this quarter as well. I just had a few questions. Firstly, in terms of the other miscellaneous income, if you could quantify what the PSLC income was and what the revaluation on investment was. So if you could give a breakdown, because it's much stronger even than last year, which was INR 1.6 billion. So a breakdown of the INR 2.2 billion. That is the first question, and then I have two others.
Between the investment revaluation and PSL, the net benefit incremental to last year would have been about INR 75-80 crore. PSL last year was around INR 52 crore. This year, I think, is about INR 90 crore. And the investment revaluation net is about INR 45-50 crore.
Got it. Got it. Got it. And the other question is on slippage and credit costs, right? You've done very well, your slippage, and even your credit cost is contained within 30 basis points. Of course, you guided to strong risk matrix, but even so, it's really much lower than normalized. So where do you think the normalized level settles at, and when do you reach it?
I don't want to be the higher number, Mahrukh. Our business has been, I think, underlined by our conservatism, often for which I've been criticized. But I think it pays off when things are not looking good. We believe 30-35 basis points credit cost is what we should operate at. And this quarter was, if I remember right, 27 basis points. So we are in that ballpark, and the credit quality should hold because we've been quite thoughtful about where we write the credit, how we write the credit. And we also upfronted our collection capability even more materially. So I think, at this level, 27 being what it is, maybe 30-odd basis points, 30 basis points ± a few basis points is what we will be fully at FY25.
Okay. And just last question on the new investment norms. So what has been the impact on net worth? Of course, on revaluation, you explained, but on net worth and on investment yield. And is the improvement in investment yield, if any, because of this sustainable?
Venkat, you want to take that?
Yeah, let me answer that. On the results, it's about INR 339 crore net of tax. That's the impact which we have due to the new investment guidance.
In terms of investment yield?
We haven't quantified that. We're not discussing that.
Because that seems to have gone up, right? The investment income is up quite sharply.
Okay. I can say approximately, like, you can say around 10 basis increase.
Okay. Okay. Thank you. Thanks a lot.
Welcome.
Thank you. The next question is from the line of Rikin Shah from IIFL. Please go ahead.
Thank you for the opportunity. I had two questions. First one, Shyam Sir, you had alluded to in your opening remarks that the interest income has kept pace with the loan growth in this quarter. However, if we look at the yield on advance disclosure as per the PPT, it has gone down by five basis points sequentially. So if you could just explain what's happening there, that's number one. And number two, just wanted to get an update on where are we in terms of the RBI embargo on the co-branded cards. And more importantly, once whenever that gets lifted, is there going to be any fundamental change or shift in the strategy of sourcing the cards and personal loans over a medium term?
On yield on advances and interest income, you do not see much variation. I mean, yield on advances is only one element of the interest income number, right? Interest income has a few other elements also playing around in it. So it's not that grossly variant.
Advances yield went down, so, and the high-yielding portfolio has been growing barring the slowdown in personal loan, credit card. So just wondering, why is the yield on advances going down if, you know, the high-yielding portfolio is growing faster?
Venkatraman Venkateswaran.
Yeah, let me just comment here. See, Q4, well, usually the yield on advances is on the higher side, including higher recovery. So it's not fair to compare Q4- Q1. So to that extent, if you exclude some element of that, the 3.16 is where we have landed this quarter.
Okay.
On the co-branded card and, you know, I think, I did mention in an earlier engagement with the media, we are working with RBI. It's not a one pass, you know, one letter, one response. I think it's an active engagement with the regulator. We believe we are in, you know, sort of good discussions. Sometime between now and, you know, end of Q2 or early Q3, we should have some clearance. Does it change the way we do business? We just want to remind ourselves that co-branded credit cards with fintech partners was, to increase reach and distribution. So as we get the approvals again, we'll certainly work with them. In all instances, the risk is ours. The underlying criteria is ours. So that should not alter anything.
We want reach and distribution, which we were getting through our partnerships, which is now going through whatever the regulatory changes, which has to be guided by co-branding guidelines, has to be by technology outsourcing guidelines, and IT outsourcing, and financial outsourcing guidelines. So there are three guidelines that we will work through, which is what we are doing. So I think between Q2 and Q3, we should get, hopefully, a majority of the clearances, and then we'll be back in business. Like Shalini explained in an earlier thing, we are actively pushing our organic, which is doing well, but hard to match up the gap that has come up, which we'll work through in the quarters ahead. On PL, it has nothing to do with the outsourcing guidelines or co-brand.
It's just, we are being quite thoughtful about how much incremental risk we want to take in PL, given all that we see in the environment.
Noted, sir. Thank you very much, and, wishing you the best for future, sir.
Thank you.
Thank you. The next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Yeah, hi. Am I audible?
Yes, Nithin.
Yeah, hi, sir. Congrats on a good quarter. A few questions. Firstly, on the cost-income ratio, like, while, sequentially, of course, there is an improvement, but still we are fairly elevated at around 53%. So how do you see this over the medium term, and what will be the drivers of, potential improvement in this metric?
You know, we are targeting 50 over a longer period of time. You would have liked it earlier. But it will require us, income momentum, you know, further gathering steam because some of the costs are good costs, and we don't want to cut down on that, technology people and branch expansion costs. So the income flow-through on that may be a little lagged, but we have seen good pickup in deposits, as you saw, observed in this quarter. That is a consequence of almost 210 branches we added in about 18-month period. So we were mindful of this balancing out that we need to do. So we see improvement of about 100 basis points every quarter, every one or two quarters. So I think getting to 50 will take. It's taking longer. We would have liked it to happen earlier.
But in the context of having to invest behind these three areas, we can't believe that we can shave that cost off. So I think, over the next, you could say, four quarters, five quarters, we will start seeing closer to 50. Venkat, you want to add?
Yes. Yes, I'm just to lay out another data point, to add to what Shyam said, Nitin, the spend, since the bank has incurred on, you know, two of the large elements, good costs, IT and distribution, Q1-over-Q1 is almost a 75% increase in costs in just these two lines. It just goes to show that the focus we have on making sure that the spend is in the right area. And these are costs which are required to ensure that the ecosystem is in place to sustain the growth rates which we envisage.
Nitin, as a boring old hat in the system, I want to comment. This slight fixation on lower cost income is probably a thing that will change in the industry.
Mm-hmm. Okay, sir. And, sir, like, on, on slide 15, there are, there are details about the high-margin business. So most of the high-margin segments are between now INR 3,000 crore-INR 4,000 crore. So what is the cost-income ratio in these businesses which all have break-even? How do you see the, like, break-even points for them? So will this be, like, a material thing, from this, cost-income reduction perspective?
It should, but these things, by the nature of what it is, I've said in a few in earlier engagements, they are still size-wise relatively small compared to our close to INR 220,000 crore, right? So for it to have a bearing on the overall dynamic will take a fair bit of doing, but that requires us to be a little more courageous on the level of growth, which I think is not our DNA. We have to be a little more calibrated on it. So on by themselves, these are certainly way more, way more, you know, income-generating relatively lower costs as long as collections is well in control. And we are putting in collection costs there. On the blended cost income, will this have a material bearing in the nearest term?
Like I said, that's the numbers I promised of 4-6 quarters coming closer to 50 is a consequence of all this thing working through. By themselves, they are yet not of such size that they can swing it one way or the other.
Right. The last question is on the rating distribution. As in, like, the BBB and below, this quarter has come down materially. So it's like a 4%-5% drop sequentially. So what has really driven this?
Sorry, you want to give last thing? Yeah, I heard you. Can I audible?
Yeah, go ahead.
Yeah. Yeah, so last thing, there were some issues with the corporate required rating with the names captured. As a result of that, last quarter, we couldn't get the benefit of rating which we were pursuing. This is what the steady state would be. Apart from that, we are very clear about in terms of the segment which we are pursuing, even above the most preferred segment, and triple B followed by that. So part was a correction of rating which were not because there were new guidelines that required a specific name of the banks to be there. So that was the reason why it was a little lower in the last quarter.
Okay. Sure. Thank you so much and wish you all the best, sir.
Thank you.
Thank you. The next question is from the line of Pratik Chheda from Guardian Capital Partners. Please go ahead.
Yeah, hi. Thanks for taking my question. So I have a question on the gold loan yield. So if I look at the gold loan yield that has been coming off for the past six, seven quarters, you know, consistent basis, and now it is sort of below 10%. So I just want to understand, what is the reason? Is it, are you lending to higher ticket sizes in gold loans or is there any specific other reason? And, I mean, I understand obviously NBFC is a way ahead in terms of yields, but even if you look at some other banks, mid-size and larger banks, even they are slightly ahead in terms of gold loan yield. So, what is the reason for, you know, such a decline in these numbers?
I can explain. Yeah. If I share two reasons. One is the ticket size which we have as compared to that of NBFC is almost three-fourths. And as a result of that, the cost-income is also different. So not technically comparable. Then we have different cost structures. We have a different one. And I definitely are, ticket sizes are definitely larger than there. The corporation which we get is largely from the PSU banks. That was one. Second point which I would like to add that if you recall, a year before, there was almost a price war where everybody was falling over each other because of which significant price cuts have been given. This seems to be getting corrected.
Another point which is not covered over here is that the fee, the average fee, to asset ratio in gold has been steadily rising in about 85 basis points at this point in time. Apart from that, there are certain benefits in terms of capital requirements, in terms of PSL benefits, and other, and low loss ratios. So has the rates bottomed out? The answer is yes. And we actually studied, I think, within a year that what is not shown over here is the increase in the fee income which is also contributing towards the overall yield on the portfolio.
Sure. So, you know, what I'm understanding is the direction, at least this is bottomed out, and the direction is on the upward side going forward.
Yes. Yes. Absolutely.
Okay. Great. So the second question, you described one of the reasons as for the good growth in deposits as branch addition. So I just wanted to understand in the next, say about, 20-24 months, what is the branch addition plan?
We added, like I said, 114 last financial year. We are targeting in that zone to 100 or plus, depending on our, our, cost shape up. But we believe about 100 branches this FY. We will do about 40 odd in the first half and the balance in the second half. That's how the teams are preparing for. And I think that's what will happen. Shalini, would that be right?
Yes, it sounds so, around 40 by the end of September, and then the balance somewhere between 60-65 in the second half of this financial year. So, that's the plan. You know, in a slightly more longer term, we will continue to look at this, calibrate it. I just want to add that distribution branches are very critical and form a very core component of our distribution strategy. But there are other components of distribution also which we refer to in our deck, whether it's in the form of, you know, relationship managers, expansion, whether it's in the form of more effective utilization of our very, very good BC network that we have. So a combination of all that will ensure distribution is expanded. Branches per se, the numbers are as Shyam and I refer to.
Okay. Perfect. Thank you very much.
Thank you.
Thank you. The next question is from the line of Param Subramanian from Nomura. Please go ahead.
Yeah, hi. Good evening. Thanks for the opportunity. First, Shyam, congratulations on a, on a fantastic tenure at the bank, and congratulations on a great quarter as well. So my first question is on the deposit growth again. Now, I think, so if you look at your deposit growth, you're tracking at 20%. Even quarter-on-quarter, it's very strong. The system, you know, is tracking at something like 11%. So you're growing at double that pace. So what are the, you know, what's driving this outperformance on deposit growth? I think in your initial commentary, you spoke about NR flow. The data you've given in the presentation, it's only showing 1% quarter-on-quarter on NR. So if you could expand on that and between that and the new branches contributing, you know, what's driving this outperformance?
Yeah, that's my first question.
Thanks. Thanks, Param, for all the nice words. I'll give you one line, and then Shalini, she explained it beautifully in the board, so she'll give it to you. Firstly, on the NR, you mentioned 1%, but remember we were degrowing for two quarters. So the comeback is quite strong. We've reversed the negative growth. So that is a, a positive. But Shalini will give you more texture around how scorecards have been altered, how products Shalini, maybe you can comment on that?
Yes. Thanks, Shyam. Thanks for the kind words on the deposit growth, something that we've been working on. As I said at the board earlier, internally, as well as as I tell my team very often, there is no one single silver bullet that works for this for deposits. Over the last, probably three or four quarters in particular, we've been very, very focused on making sure that the franchise as a whole, you know, kind of calibrates ourselves towards deposit growth. So in that direction, a few initiatives that have been taken, that have taken place, and, you know, we are bearing the good benefits of that. One, we are still, you know, the distribution is largely branch-led. In addition to the new branches that we spoke about, our existing branches are obviously a treasure trove for catchment area banking.
And therefore, we've done some calibration on their scorecards which recognizes the role that they play on deposits and how we can make sure that we get more deposits through them. This is both new-to-bank customers, which has been specifically kind of highlighted in the scorecard, and deepening of existing relationships. We've done a range of changes that we needed to do from a process standpoint. In particular, non-resident was something of concern for us. So we streamlined a large part of the account opening process on the NR front, both for non-resident NRE accounts and NRO accounts. Both are now very heavily digitally oriented, subject to large KYC requirements, which has helped us from a process standpoint. Digital, a large part of our customer base is very dependent on using digital. In particular, our non-resident customers are heavily dependent on digital technology.
We've calibrated and introduced a range of capabilities through WhatsApp, through FedMobile, etc., to cater to them. The new products we launched, Stellar which is a very unique savings bank product. We launched that in February of this year. We added, you know, for the current accounts, we added sound boxes as a capability. So, many, many initiatives. Like I said, you know, if you put it across product, process, digital, scorecards, all of that coming together has truly helped us. We do believe that this trajectory will continue. The teams are well geared to do that. And it's also evident in the fact that we're gaining market share on deposits. So we'll continue that. Every quarter, you'll see some product innovation or the other, as well as some process changes and some digital capabilities being launched.
Thanks, Shalini, that was really helpful. So it would be fair to say that this sort of 18%-20% deposit growth is something that you think is sustainable, right?
Yeah, that's what we're working towards. We're gaining market share with literally every fortnight. We look at it like a very, with a microscope as to where we've gained market share, but that's the expectation, yes.
Perfect. Perfect. Thanks for that. My second question is on asset quality. So, Shyam, Shyam, we've actually heard quite a few banks, and even the NBFC we've called out, you know, credit cost pressures in unsecured retail, in credit cards, in personal loans. So, I, I know we have a small, a small portfolio, but it's been growing very fast for us. So if you could shed a, you know, some light on how the asset quality is showing up in, in, in our own portfolio. Yeah. Yeah, that's it from me.
No, I think, overall, the mix of slippages in a quarter in retail, if you see for almost six, seven quarters, has been in the 210-240 kind of growth per quarter, despite a good denominator growth. So it's only a sustained outcome. Now, within that 240, you could see some ±, you know, some home loan reduction, but increase in credit card slippages. But I don't see it going out of hand and turning the, turning the tide. So in the, in the ballpark, in the vicinity of about 240, which is roughly about 55%-60% of our overall slippages, our book slippage is about 0.8%, this quarter. You know, normally we are well below 1%. So I think in that 0.8%, we may see about 60% coming in from retail.
Of that, the mix could be plus minus depending on how our home loan slab, credit cards, personal loan is. But at this juncture, it doesn't look anything substantial.
Great. Great. Thanks a lot, Shyam. All the best. Thank you so much. Yeah.
Thank you. Thank you, Param.
Thank you. The next question is from the line of Jai Mundhra from ICICI Securities. Please go ahead.
Yeah, hi. Good evening. Congratulations, Shyam, for a very long and satisfying career. Thanks for all your wisdom and insights shared. I have a few questions, sir. First on, you know, I mean, the previous participant also asked on the deposit growth, which, so you have been industry-leading so far on both YOY and QOQ basis on the deposit growth. At the same time, your cost of deposit has also seemed to have declined, right? QOQ. Now in the previous quarter, you know, SBI and maybe some other large private banks, they had raised their TD rates, minor, minor upwards. With your expectations of, you know, continued healthy deposit growth, would you believe that your you need not tinker with your rate, and your cost of deposit is broadly flattened, at, at, at your end?
Thanks, Jay. Thanks for the nice words. See, I think it's really hard to say that it will be, we can't tweak with rates because these are super dynamic. We have made a general criteria that we don't want to grow credit too far ahead of deposits. So fund before you lend is one. Two, we want to respect our LCR and CD ratio criteria. If that means we need to price some buckets more attractively to get deposits, we will. What we are trying to stay away from going into large category bulk deposits or purchase deposits, but go after clients' deposits. Thankfully, in the quarter that went by and even the previous, we've been able to deliver on that. I think that capability will continue into Q2 and Q3.
We are also attractively retiring some of our high-cost borrowings and replacing with relatively attractive for the customer, but lower-cost for us blended rate. So we are able to manage the cost of deposits, but yet keep the momentum going.
Right. And sir, if you can call out your average LCR for the quarter. And in your view, you know, what kind of changes could there be in LCR framework, if you know, if RBI were to strengthen it, maybe in terms of runoff rates, or it could be, you know, something else?
Yeah. I'll give you the sort of basic logic on LCR, right? If we are getting good quality, attractive client, sticky money, it's a big plus. So we are going after that, quite, intensely. Second, as a consequence, if we have lesser short-term borrowings, it helps again. Third, if the borrowing is not from a financial services institution, it's even better. So there are many constituents of this LCR, and our teams track it, you know, up to me on a daily basis. We watch it and take very instant corrective actions should things start looking out of range. We are in. We have a threshold in the bank in the 105-120 kind of band is where we want to be. We are right now operating in that band, in that band.
We have to keep sort of constantly calibrating, like I said in an earlier instance, the LCR, CD ratio, and the eagerness to grow credit too far ahead of deposit. We have to rein in. So broadly with this criteria and the LCR band between 105-120, we are operating.
Right. Okay. And sir, there was a question on non-staff OPEX. I think you mentioned something, but I just want to check. The growth has been like 30% YOY. Partly we have been growing high-yielding, high-touch retail segments. So is this, you know, is there any one-off, or, you know, how should one look at the non-staff OPEX growth for the next maybe one year, two-year types?
Venkat, do you want to come in?
Yes, Shyam. Yeah. I think there is no, firstly, Jay, there is no one-off in the non-staff OPEX which you see in this quarter. And to your question about how do we see this going forward, it would be in the similar lines and on the themes which we mentioned earlier in terms of investment in distribution, technology, and control systems, whether it's audit systems or compliance systems, combination of all this. And we don't see the rest of the cost would all be directly variable to the business growth. So largely, if you see the cost pertaining to distribution and tech would be ahead of other spends in terms of percentage. But most of the other way of spend would be variable to business growth and in line with the current around the same levels of cost income ratio. Sure. And lastly, sir, what would be your total?
I think we used to give the total employee number. I think that is not given this quarter. What is the staff count? And if you were to bifurcate to IBA-linked and maybe CTC model, a broad number?
Total headcount is about somewhere in the vicinity of mid-15,000, 15,500 and change. We are largely IBA-linked, Jay. We don't have a maximum of about 1,500 people. 10% is not in the IBA.
Right. Okay. Sure, sir. And lastly, sir, if you, if you could answer, I mean, this is a bit, intriguing question that, you know, you have appointed your successor, KVS Manian, but he had resigned much earlier before taking this job and getting an RBI approval, you know, final RBI approval. So if you would like to comment, here, do the next one possible. Thank you.
two, three things, three things here. First, I did not appoint my successor. My board and IBA did, and we certainly welcome and he's a high-quality professional, as you mentioned. On, I think you're asking the question, he resigned there, and he joined, he got the appointment later. It's probably the question. I don't even know if they're linked, Jai Mundhra. I think he resigned. Maybe he did not want to hold any job while he's in discussion with another opportunity. I can't quite comment, but, other than that, I really have nothing to offer other than say that I've known him for long and he's a high-quality professional, and I'm sure the bank will greatly benefit by his presence here.
Thank you and all the very best, sir.
Thank you. Thank you, Jai Mundhra.
Thank you. The next question is from the line of Rakesh Kumar from B&K Securities. Please go ahead.
Yeah, hi, sir. Hi. Thanks a lot for the opportunity, sir. So sir, firstly, like, you know, on the, on the net worth side, so, like, if we exclude the profit for this quarter and the accretion that we have done INR 339 crore, there is some more addition to reserves is there. So what is the reason behind that, sir? I couldn't get it completely. So, so I am deducting the profit and INR 339 crore that we have accreted to the AFS reserves. So, what is the residual number could be?
Venkatraman ?
Well, if it's only the 339 and profit is not something else material which is coming.
Okay.
Yeah. Okay.
Shyam Srinivasan.
Shyam Srinivasan will be there.
That's good.
Yeah.
That's in the normal case.
So Shyam Srinivasan will anyway come into the total reserve. Anyway, okay, I will discuss it offline, sir, maybe. So this total miscellaneous income, sir, as you explained, sir, we have PSLC gain, but this number is quite volatile. Like, you know, the full year, FY24, we had INR 335 crore. In this quarter, we have INR 227 crore. So how do we, like, see this number? And out of this INR 2,700 crore total written-off pool that we have as of March 2024 approximately, what is the recovery number that is sitting in here, sir, from the written -off pool out of 227?
That's about INR 30 crore, approximately INR 30 crore is from the written -off pool.
INR 90 crore from this PSLC, sir?
Yeah, 90 PSLC and approximately around 50 from Reval.
The remaining, sir?
Last year, last year also we had. There's a dividend from our AFLIC, which is our,
Life insurance partner.
Yeah, insurance, associate company.
So, remaining dividend, sir, like excluding dividend, how do we see this number, sir? Like the PSLC gain and recovery on written-off pool, for the remaining three quarters?
Like we said earlier, every year in Q1, you would see the PSLC account coming in, dividends coming in. So incremental, what you should see is around that 50-odd number on Reval and INR 40 crore which we got from the additional PSLC. And as we grow, the PSLC income will also continue to grow. We'll be able to get more income from it. And recovery from written-off is again something, these are all small accounts, and we continue to, you know, recover from it. There is no big chunky number in this quarter's recovery from written-off .
Got it. Got it. Okay, sir. Okay. Thanks a lot, sir. Thank you.
Thank you. The next question is from the line of Krishnan ASV from HDFC Securities. Please go ahead.
Yeah, hi. For many thanks. I hope I'm audible. First and foremost, hearty congrats to Shyam and the team you have built up over the last many years. The true test is how you leave the organization from the time how you found it. I think you're leaving it in much, much better shape. So I think all credit to you. You don't get due credit. You don't even seek it. But I thought that was relevant. You'll be missed. I just had one query. I mean, in the last three, four years, and probably even earlier than that, you have been very particular, particularly focused on making sure risk is the first thing that you tend to address. There is now a tendency that your, you know, your yields are sometimes probably the lowest in the system.
I'm not talking about the yields that you report, but I'm saying in general, when you look at asset classes, we tend to find that Federal Bank is amongst the lowest priced, lowest priced banks, right? So you get, of course, the creamiest assets, but it comes at the cost of you probably underpricing yourself. Is there good risk you're leaving on the table sometimes? I mean, I mean, could you just throw some light around how you, how you want to triangulate, re-risking the portfolio versus not taking, you know, the unacceptable risk?
Thanks, Krishnan. I think we've tried very hard to ensure that balance between risk and growth, and we want both, as in low risk and high growth. But it's always a tough act. In each business, we have very tight criteria for how much we want to take. But the idea of our growth, and I hope it's vindicated and validated across time, we want to be banker and not lender. So if I give a triple A or a double A or an A, a very attractive credit pricing, then we ask for more business from that customer. As a consequence, if we see our corporate banking, commercial banking, other income is growing quite smartly.
Our PSL, which was we were deficit 2.5, three years back, is now a revenue-generating opportunity only because we have gotten those assets which are helping us, our PSL go up, and therefore we are able to sell and make. I'll explain the gold loan philosophy of how price right on the interest rate, but 80-odd%, 80, 80, 85 crore is free income. So I think we are trying to keep that balance. So I want to believe that lagged credit cost on our book, applied on our margin, we are not wildly off from better banks. You, you know the industry better, but somebody has a NIM of 375 and a credit cost of 75 on a sustained basis; in our case, 320 NIM and 30 basis point credit cost. We are not, like, wildly off.
that we are not recognized for it is a quirk that I've never been able to explain, but I think the reckoning has come. We will get recognized and probably rewarded too. But, we've held quite tight on that, and I think, we shouldn't go away from that. It's our belief, Krishnan.
Understood. That's helpful. I mean, if I have room for one more question, maybe, you did mention something about NRE deposits in your opening remarks. I don't know if this was addressed subsequently. I might have lost it. Just wanted to understand, you know, what helped you claw back your way into the NRE deposits this quarter? Why is, why do you believe that's, that's sustainable now?
Yeah, I think, maybe Param from Nomura asked a question and Shalini to extend, but I'll try to add some value. First is, we didn't lose share of NRE as much as NR deposits were coming down into India. It's not like we were gaining share, but the quantum was coming down. What has changed and improved in the quarter that went by and even in the first month of this quarter is encouraging is that to some extent, money has started flowing in, probably because one, our own tweaking of our scorecard of our people, encouraging them to go much more into deposits than any other product. Second, these are all sort of, are guessing, but borne out by some data.
The period that we started post-COVID, right, towards the back end of 2022, 2021 and early 2022 is when this two-year period of people, NRI is bringing in less money was visible or whatever was coming in, remittances were not coming into deposits because people were paying off loans, you know, setting up small businesses, doing whatever that money goes into for various other instruments. We are now thinking that era is over. Their loan payoff is, typically two years into that. They've probably sorted that out. So money, the remittances coming into deposits also. Remittances were not shying away. Remittance was not converting into deposits. I think that's the biggest change that has happened in the last 100 odd days.
And that, and that's largely the system tailwind rather than Federal Bank having had to do something, right?
No, no, no. Federal Bank's strength has been great ownership and relationship and percentage of clients who bank with us. So what Federal Bank is benefiting by, that, that is aiding the money client behavior shifting from only into paying off loans and spending into deposits, and we are benefiting from that.
Okay. Very helpful. Thanks a lot. And, yeah, sorry, Shalini, I think,
No, I think, Shyam supplementally addressed it, Krishnan. So, it's not just the, kind of only the, environment changing, but a lot of interventions from our side have also helped.
Okay. Very helpful, Shalini and Shyam. Thanks a lot. Wish you all the very best, Shyam, personally, in your personal capacity and obviously to Federal Bank as a franchise.
Thanks, guys.
Thank you.
Thank you.
Thank you. The next question is from the line of Prakhar Agarwal from Elara Capital. Please go ahead.
Yeah, hi. Thanks for the opportunity. Just a couple of questions, and sorry if I'm being repeated. Why, what would explain the cost of deposit decline on a sequential basis? We probably have around three basis points of reduction. What would rather explain this?
Venkat, you want to go?
Yeah, Shyam. Sorry, can you just repeat? I was just talking.
Yeah, I was saying there was a six basis points of decline in cost of deposit on a sequential basis. What would explain that?
Just one second there. To a large extent, you know, in our case, the interest payable is once a year in March in Q4, which we, which we saw in last quarter. So if we exclude that, that's the reason why you see the difference in this quarter. That's the main reason.
Okay. In conjunction to that, the last time Shyam you mentioned that, margins probably for the full year maybe two-three basis points higher than where we closed for FY2024. Do we maintain that stance or probably given what we have seen in Q1 and probably some, what is our stance on that specifically?
Yeah, I think like what Shyam mentioned at the beginning, margin at this stage we expect it to be around this same levels, at least for the next couple of quarters. And then since, you know, entire, deposit pricing is very dynamic, we will review it post that. So at this stage, we expect the margins needs to be around similar levels as we saw in Q1.
Got it. Just one last housekeeping question. There seems to be some reclassification in the gross advances across various buckets, on full pay. Could you explain what is, what is the changes and what is the rationale around this thing? The prior period number has also been restated to some extent.
Sorry, I didn't get your question. Sorry.
No, I didn't get your question.
So when I look at your gross advances, and the composition of that, there seems to be some reclassification in the prior period quarters as well. What explains that and which are the segments that you've changed, so across various segments you have changed?
Let me check with you. Come back to you separately on that. I, I don't have the numbers in front of me now. Yeah?
Sure. Thank you.
I don't recollect any major reason for the reclassification, but I'll check and come back.
Sure, sure. That helps. Thank you so much. That is it from my side.
Thank you.
Thank you. The next question is from the line of M.B. Mahesh from Kotak Securities. Please go ahead.
Hey, hi Shyam. Thanks a lot for what you have delivered at Federal. Love the interactions that we've had in the last 15 years. A few very basic questions from my side. Just wanted to understand what are the LCR that you have reported for the end of this quarter?
I don't know if we've reported the number, but our guideline is that it's in the 105-120 bracket, which is our guideline. At period end, right, it's about 111 or 112.
Okay. So just checking on this deposits on the balance sheet, for the quarter, there has been an improvement in the deposit book as well as the borrowing profile, borrowing book, which was a bit more than what was the need for what the balance sheet was showing. Just trying to understand what you have, what you have done here. Because borrowings are up from INR 18,000 crore to about INR 22,000 crore, and the deposit book has also gone up. Any reason for the increase in borrowings from your end?
Lakshman, are you there?
Or Venkat?
You asked me to take the .
No, no.
That's my guess, yeah.
Yeah, we have had. Yeah. So we've had some number of refinance happening. Beyond that, our liabilities, how a lot of our activity goes into the emerging activity for the treasury book as well and some products around that. So the refinance was just enabled with answer of what I wanted to ask you.
Okay. Sorry, the second question was a continuation of the previous one. I think what you've done is that, you've reclassified the agri book as well as the gold loan portfolio within retail and, on the agri side. But if you look at these, the gross NPL line, which is in slide 34, that NPL number continues to remain the same at INR 930 crore. Whereas against that, if you look at the agri book, which is in slide nine, which is about INR 7,684 crore, the NPL ratios in the agri book looks to be fairly high. Are we all looking at the right set of numbers here?
Shalini, you can reconcile that and share it with him. Yeah, we'll come back to you.
Sure. I'll do that. Mahesh, I'll share it with you. It is, you know, it's not really reclassified. What we have done is we have just taken out gold as a separate entity. I'll have a separate chat with you.
No, you've taken it out on one side, whereas on the other side, when you look at the gross NPL book line and the slippages line, we don't know whether the two talk to each other. That's the only thing.
Understood, Mahesh. Understood. There, there is a rationale behind that. I'll come back to you.
Okay. Perfect. Last question, sir. Have you reached a point where, you've started, you've had to invoke FLDGs on your, let's say, MFI, partners or things on the ground continues to remain fairly okay? Just wanted to check on.
As of now, everything looks okay, Mahesh.
Okay, sir. Perfect. Thanks a lot for this.
Thank you. You and Krishnan, I think, are the longest in this conversation brigade we've had for 15 years.
Is it good or bad, sir?
Time will tell.
See you better.
You and I have served in the same company. Krishnan has had four.
Yeah. We shall cheer for that.
Thank you. The next question is from the line of Pranav Tendulkar from Rare Enterprises. Please go ahead.
Hi, Shyam. No questions this time. Just thanks a lot for being at it. And so I can certainly say that in that mid-cap range of banks, our bank is one of the best in terms of technology and various types and various improvements that we have done over 10 years. So just a thanks. Thanks. Big thanks.
Thanks, Pranav. I know one person who would have been happy with us was a big boss of your organization.
Yes, sir. Definitely. Definitely. Thank you, sir.
Thank you. The next question is from the line of Anand Dama from Emkay Global. Please go ahead.
Yeah, hi sir. Thank you for the opportunity and, really, you know, thanks for you being there. So my, my question is basically, you know, you had such a long career in Federal Bank. There were a lot of ups and downs that you have seen. Now that the new MDs have come, basically, what would be the ask from the new MD? Any unfinished business that you believe should be taken up on a priority basis, particularly on asset side, liability side, people don't know anything basically to be done on technology front because I think there we have done a lot. Then the another part is also basically the co-lending arrangement. I think you certainly led this co-lending, co-sourcing kind of arrangements very well on the liability and the asset side.
But somewhere it seems like, you know, RBI is not too happy with these kind of arrangements. And I think being in gold loan sourcing business or on card, something or the other has been opted up. So maybe a better engagement with RBI. So any ask or basically, you know, unfinished business that you would want that you want to take it up on that?
Anand, I think that's like a very difficult answer because I think the, you know, these are journeys, right? There's always something and something more to do. I'm sure when Manian sets this, comes in here, he will find through his pair of eyes many opportunities and things that can be dialed up. But I think all I would say, the core of the franchise is super intact and the team is like quite excited. There will be lots of things, right? How do we expand margins? Which other new geographies we can scale up? But at least for eight, 10 years, the board and we have been saying we want to be the most admired bank. And that is a hard journey. On every count, we want to be good on governance, on credit quality, on employee engagement, on client service, NPS ratios.
So I think it's going to be one sort of hopefully a good journey, but this is far from over. A lot can be done, a lot will be done. But margin expansion would be one big agenda item. And I would think, I would think, seeking greater market recognition also would be another one for him.
Thank you very much. The next question is from the line of Saket Kapoor. Please go ahead.
Yeah. Namaskar, Shyam sir, and thank you for this opportunity. Sir, as with the end of the first quarter, so what should be our NII, NII growth trajectory for the current year? And what should be the number for slippage and recovery as a percentage of book or a, or an absolute number if you could, give us some understanding?
Sir, I think the answer to that is, you know, we are guiding for overall credit cost to be around 30-35 basis points, right? So everything is subsumed in that. Interest income, I also said, will match credit growth. So those are the two metrics we are working on. And as a result of it, the momentum on profitability and ROA should keep flowing through.
In terms of exit for the year, what should be the numbers that we should keep in mind in terms of NII and ROA?
ROA, we've been saying we are at about 1.27. We believe we'll get to around 1.30, 1.35. That automatically means improvement in the run rate on interest income also.
Right, sir. Sir, on the employee cost, I think so Q4 we had higher provisioning of the early prior period also. So this number of seven, the current quarter number of employee cost of INR 738 is the one which we should analyze?
Venkat, would that be right?
Yeah, that's correct. Just some minor, you know, non-IBA stuff, if there are any changes that would come in. But largely, yes, that would be the staff cost.
Okay. In terms of the repricing of deposit, you did allude to the fact of 20% deposit growth that we are working with. So in terms of the repricing of the deposit, what percentage of the total deposit are being repriced to, and what are going to come for repricing for the current year in percentage terms or in absolute numbers?
I think that will come in our annual report very soon. You'll just see that in the, by vintage the book maturity. In the next week, you'll see. Next two weeks, you'll see that in our reporting.
Okay. And lastly, sir, question to you, Shyam sir, with closing remarks, sir. We know you being a banker for an elongated period. And what should we take into account going ahead? Because as an illustrious career, people will always be pursuing their ambition. So, there are regulatory norms and things which do not allow you to be, I think so, a part of this organization going ahead. Please correct me in my words and if the choice of words are wrong. So going ahead, can we look at Mr. Shyam as a banker with another institution giving his valuable insight and guiding another set of institution to another milestone, going ahead? Or are you on the verge of hanging up your boots once 22nd September comes in?
It's certainly calendar 2024. I have no other than working in Federal Bank and signing off. In 2025, we'll figure out. But I'll continue hopefully with the regulator permitting to be associated with the bank in some fashion or the other. Otherwise, I don't have any executive role responsibility aspirations.
With other institutions also, sir? You are not aspiring to lead any other institution?
Sir, this is my biggest baby in life. So this is my job with my bank.
Right, sir. So all the best to you, sir, and the best wishes from investing community shareholders at large. The last point on the other income, if you could give the run rate on, we have provided the granular details. So, on a consistent basis, what should this number be? Because we have highlighted this to be the highest other income number, wherein I think the major component has been the reversal, recovery from written-off asset at the highest at INR 227 crore. So, on the other parameters like loan processing, card, para-banking, and other ones, what should be this number that should be consistent going ahead depending upon the nature of the?
We are working to taking it to 1% of our asset. Currently, it's 0.8%-0.9%. We're working to take it to closer to 1% of asset.
Right, sir. Thank you once again, sir. And, all the best. And thank you.
Thank you, sir. Thank you, sir. Thank you so much.
Thank you.
Souvik, if there are no other questions, we can bring this.
Sure, sir. We'll probably wrap it up.
Souvik, just before we close, can I just take a couple of minutes?
Indeed, sir. Please.
Thank you. Shyam, on behalf of everyone in the bank and the investing community, I take this opportunity to thank you from the bottom of our hearts for the transformational journey which you have led this bank to from 2010 till now. Though we have these calls to the investing analyst community on a quarterly basis, it's only fair when we step back and look at what the bank was in 2010 and where we are today. It wouldn't have been possible without your leadership. So a big thanks from all of us, and we wish you all the very best in your future endeavors.
Thank you. Sure. Thanks, Venkat. You're very kind. But to our entire friends in the investor community, I've said this, and now I can say it with even greater courage and conviction. Don't look further. This is the best bank you'll ever see.
I genuinely mean it. Every time I've said, "You see what you see," it's the truth in this bank. I'm sure you will all accept the fact that at least, if nothing else, our balance sheet is playing out quite well. Thank you very much. And for those of you who've been with us throughout, thank you so much. Thank you.
Thank you all. Bye.
Thank you.
Thanks, everybody.
Thank you so much.
Thank you, sir.
Thank you. Thank you, Shyam. Thank you, everybody else. Bye.
Thank you. Bye.
On behalf of Federal Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.