Ladies and gentlemen, good day, and welcome to the Q2 FY2025 Earnings Conference Call of the Federal Bank Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Souvik Roy, Head, Investor Relations, the Federal Bank Limited. Thank you, and over to you, sir.
Thank you, Sagar, and thank you, everyone. A warm, warm welcome to all the participants. Really appreciate your taking the time to join us today. Now, as you're aware, there has been a recent transition in leadership, with Mr. KVS Manian assuming the role of MD&CEO from Mr. Shyam Srinivasan as of the twenty-third of last month. On behalf of the entire bank, we extend a heartfelt welcome to Mr. Manian, and we are confident that under his guidance, we will reach new heights of success. We have just uploaded the results and our presentation on the exchanges, and in case you could not review them prior to this call, please feel free to call me once this call is over. As always, I'm joined by the senior management and other members of our leadership team to address any questions you may have.
I will begin by providing an overview of our progress on key broad-based parameters. Our total business has now reached INR 4,99,419 crore, with the last 1 lakh crore added in just over 4 quarters. This kind of demonstrates a strong foundation for sustained growth. We achieved the highest ever net profit of INR 1,057 crore, reflecting a YoY growth of 10.79%, alongside a record operating profit of INR 1,565.36 crore. Our ROA for Q2 stands at 1.28% with an ROE of 13.65%. In terms of asset quality, we made good strides by bringing down our GNPA to 2.09% and net NPA to 0.57%. Our PCR has also reached a 16-quarter high.
Additionally, our NII reached its highest ever level at INR 2,367.23 crores, marking a YoY growth of 15.11%. Our deposit base also saw growth, with total deposits increasing by 15.56% YoY, while total net advances grew by 19.45%, reflecting our strong customer engagement and trust. CASA also showed some solid growth, rising by 11.5% YoY, including a 5% growth in Q1 and 4% in Q2. This positions us among the industry's leaders in CASA growth rate, with our CASA ratio increasing by eighty basis points QoQ. Now let's move to NR.
The inflow in NR accounts has been noteworthy, resulting in a 6.8% growth in NR savings during the first half of FY 2025, which is a significant turnaround from last year's decline of about 1.5%. This positive trend spans across our portfolio with an 8.34% YoY increase in NR savings and a 14% YoY growth in FCNR deposits. Our branch banking business remains a strong contributor as always to our granular deposit growth, demonstrating improved accretion despite a challenging deposit environment. Notably, we have achieved this growth without significant concessions on deposit rates, diverging from the broader industry trend of elevated rates. Meanwhile, our wholesale banking business consistently generates stable profits through a diversified revenue base. This strategic breadth mitigates reliance on asset-led revenues alone, strengthening our overall financial resilience.
With this, I'll hand it over to our MD&CEO, Mr. KVS Manian. Over to you, sir.
Thank you, Souvik, and good evening, everyone. Welcome to this post-results call. As this is my first call in the current role, I'll be leaving the substantive part of the heavy lifting of the quarter's results and its analysis to our capable team. However, I would like to share a few thoughts on the transition. It has been a month since I stepped in and close to into this role and about seven weeks since I joined the bank. I had the opportunity of working with Shyam for three weeks during this period of three weeks of transition, and it was invaluable for a smooth transition. I would like to extend my heartfelt thanks to Shyam for his contributions over his fourteen years tenure in the bank.
I know Shyam will be logged into this call as an investor now, and thank you again, Shyam. I must say that the teams here have given me a very warm welcome, and I feel both optimistic and confident about the path ahead. Over the past weeks, I have embarked on what I call listening tours across the country, meeting with senior zonal teams, bright young managers in the firm, and holding open house forums with a very large cross-section of our employees. These sessions have given me deep insights into the team's aspirations and also the exciting opportunities to work with for the bank. In fact, the energy of our teams has been remarkable, and I must admit that their enthusiasm has rubbed off on me, and I feel younger.
In addition, I have been conducting deep dive sessions with each business unit and functions to understand our current position and identifying growth opportunities. I have also met with customers and key stakeholders and partners, and I expect to complete this structured outreach program somewhere around mid-November to third week of November. These engagements are helping me shape my understanding of the company businesses and will be foundational to a strategy refresh that we as a team are working on, which we'll present to our board somewhere in the month of December, and this in turn will guide our future discussions with all of you. On a lighter note, I have also encountered many people eager to set new targets for me.
Jokes aside, I understand external expectations around key metrics that are used to evaluate banks and the aspirations you hold for this bank's future. Of course, that's just the beginning, identifying the metrics. The key lies in the plan on the how side of it. I am pleased to say that our team is ready to push forward on this journey. We are aware of the broader challenges facing our sector and recognize that the path may not exactly be what we thought of it a year ago. Nevertheless, we remain confident in our direction. Together, we are constantly thinking about the next level, as we all call it, and we have already begun to implement new strategies. For example, we are placing renewed focus on CASA and deposit growth, supported by our newly secured AAA rating on the deposit program.
Our goal remains to be the most admired bank, and we are committed to adding momentum to this vision. But of course, more on this and details on this in the next meeting we have. We are grateful for the support of our board, and the trust all of you, shareholders place on, us as we embark on this journey. I seek your continued patience and support as we work towards an exciting future from here. Thank you, and we are now open for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wants to ask a question may press star and one on their touchtone phone.
Sagar, Sagar?
Sagar, can you mute all the people?
Somebody's got some line open, and I think there is a line call. Can you just check that?
From the management side, it was from Mr. Mahesh's line. I'll mute that line.
Please do. Please do mute the lines, yeah.
So we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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.
Hi, good evening. Congratulations, Manian. Basically, I have three questions. My first question is on deposit growth. So the total deposit growth in the quarter was 1%. How do you plan to accelerate it in third and fourth quarters, given that competition is still high? Your deposit cost hasn't risen much quarter on quarter, so that's of course positive, but from here on, how do you take it forward? That's my first question on deposit cost. Deposit growth, sorry.
Hi, Mahrukh. This is Shalini here. Good evening.
Hi.
Hi. At this point in time, you would have noticed, and you've split it into two parts. If you look at the CASA growth, we've maintained the momentum that we've had on CASA growth between quarter one and quarter two. We are amongst probably the top three or four in the private sector banks that have announced results on a QO new CASA growth. Our focus remains on ensuring that we are able to get primary bank status with customers, both existing customers and new to customers, driving greater CASA growth through them, and this is true both for the wholesale banking side of things as well as for the retail side of things.
On deposit growth, which is term deposits, and I'll call this really the hardcore term deposits, as you rightly pointed out, we've calibrated our costs in such a way that we don't really kind of pay abnormally high rates. We peg ourselves very clearly against a competitor set of banks that we want to peg ourselves against and make sure that we don't take in high-value deposits at a cost which is, to some extent, not sustainable in the long run. So keeping our cost of deposits in mind, keeping both the requirements of CD ratio and LCR in mind, but with a higher focus on the CASA growth, which is kind of core to the business, we do believe that we should be able to withstand any liquidity concerns that may potentially come up in Q3 and Q4 .
We will continue to be competitive on certain tenors. If you look at some of our tenors on the website, you'll see that there are one or two tenors that we always remain competitive on from a rate perspective, and we direct our re-distribution capability to make sure that we get more new funds from customers in those. So there is no one single kind of strategy that will work, but it's a combination of CASA, both existing to banks becoming primary bank partners, new to bank, more acquisition, keeping ourselves competitive on one or two tenors at the maximum on interest rates and calibrating our growth in that way. We remain confident that we will be able to, you know, demonstrate the success of this in the coming quarters, Mahrukh.
Okay, fine. And in terms of, fees, there has been, sharp movements in quite a few buckets, right? So general service charges have gone up a lot, para banking has gone up a lot. Any special things you need to call out here? I mean, how is the stretching being so strong in these buckets?
Uh, inaudible.
Yeah.
I'll try and address that, and maybe, you know, Harsh and Venkat may be able to add something. First, on the general service charges, as you know, from first of July, there has been a change in the fact that penal charges are now reflected in this, rather than in the penal interest portion of it, for primarily impacting or rather working through our business banking with small and medium enterprises and commercial banking. So probably not a like-for-like comparison strictly on that note, Mahrukh, but you'll see this for every bank. That's the first point. Para banking is core to our business, very, very clearly something that we're very, very close to, and we've been driving higher productivity.
You may have recognized that, I think it was in May and then in June, we announced two new corporate agency partnerships with Tata AIA and with Bajaj Allianz Life. Two new corporate partners were added to our portfolio of life insurance. That has definitely given us a kind of more distribution capability, more products, and therefore more income. So, we remain committed in ensuring that quarter on quarter, our core fee income shows an improving trend. There are still many opportunities out there, and we will continue to work on those. So these are the two main kind of highlights I would give you, Mahrukh, yeah.
Okay, and what would be the impact of penal interest on NII this quarter, in terms of how many basis points of margin?
It will be close to about 7%, Mahrukh.
Seven bps.
Seven basis points, sorry, seven basis points. What we should understand is the NIM, if we had not moved to this new system, actually, our NIM has moved up from 3.16 to 3.19. Whereas the reported NIM is now 3.1. That's the seven basis points which I explained. If you're looking at like for like, our NIMs have actually improved.
Okay, makes sense. Makes sense. And just the last one on LCR. Sorry, what is the LCR during the quarter, and how do you manage it when guidelines change?
During the quarter, the average LCR was 115, Mahrukh. And, in terms of how do we manage it, it's a, we have, there are multiple levers which we need to pull in terms of managing LCR, which are what the tenor of the loan, the profile of the loan, retail versus, high value, the mix change, the callable, non-callable. So there are several factors which we are working on. There's some disturbance in the line, Sagar.
Sagar, operator, Sagar, there's some disturbance coming on the line. Is it from our line?
No, that is from Mahrukh Ma'am's line.
Okay, Mahrukh Ma'am's line. Okay, Mahrukh.
Yeah.
Yes.
So there is multiple levers which we are working on, and including what Shalini said earlier about increasing the CASA and the deposits in, you know, which will continue to be an area of thrust. So a combination of all this is what we are confident of maintaining and improving the LCR level.
Mahrukh, you might notice that the average has gone up from 112 to 115 for the quarter, LCR.
And, if I may add one more thing, Mahrukh. The future guidelines, they're still draft guidelines. There's some feedback that has gone back to RBI, through IBA and directly. Some amount of maybe, you know, we do think that the treatment of digitally-enabled accounts may need a little bit of review at the RBI level. Not sure what will happen, but happy to, you know, kind of, look at the impact, the potential impact of that. But I think what Venkat said, calibrating the distribution to, you know, between callable, non-callable, short tenor, long tenor, many, many levers are being worked on. Yeah.
Okay, thank you. Thanks a lot.
Thanks, Mahrukh.
Thank you. Our next question is from Kunal Shah, from Citigroup. Please go ahead.
Yeah, hi. Congratulations for good set of numbers. So, the first question is on the divergence between the loan growth and the deposit growth. So how should we look at it going forward? This quarter, it has widened a bit. So overall, would it be fair to assume that we might slow down a bit on the loan growth side, calibrate with respect to some of the high return focus areas? Or maybe we are confident of pulling back the deposit growth? Yeah.
Yeah, hi, this is Harsh here. Two things. One is obviously we're pushing the deposit growth rather than pulling down the loan growth. Loan growth, we will continue to pursue wherever we see growth opportunity without impacting asset quality. So that will be our focus area. That hasn't changed much, and we remain confident now, continuing with what we had earlier guided for. The focus will be more on increasing our deposit mobilization, CASA as well as total deposits. Like Shalini clarified earlier, CASA has grown in the last two quarters, reasonably, healthily, and we'll continue that, and we'll put some more focus on the term deposit side, too.
Yeah.
Reduce the gap and risk.
Yeah.
Sure.
Deposit growth.
Oh, okay. Okay. And, secondly, with respect to, Fedbank Financial Services and, the investment norms. So what would be our thoughts, in terms of, conducting that business? Because, most of the lending can be done at the bank's end as well, and, given being a group entity, any early thoughts or maybe any discussions out there on this?
I think it's too early. Just now, it's in a draft stage that RBI is, it's a draft circular, and RBI has sought comments till twentieth November. So we intend to make our representation, as would most of the industry participants who are impacted by this. Let's see how it pans out. Depending on, how it finally takes, shape and form, we will decide our course of action. Just now,
Too early.
Too early to comment on that.
Sure. And just last one with respect to asset qualities are quite robust one with respect to the slippage run rate being low, credit cost still continuing at the lower levels. Any segments wherein we are seeing any kind of a stress on a low base? We are still growing our MFI pool, some of the high-yielding products, but would we look at a recalibration of the proportion of the high yielding, given the operating environment currently?
If you notice, growth in the high-margin products has always been cautious, including in the MFIs. While I must say that in the MFIs, we do see the heightened slippages, but to us, we have been kind of protected because the states we operate in, more than two-thirds of our portfolio are in the southern states. So to that extent, we have selected geographies which have been quite favorable. Secondly, quite a few steps taken in terms of how we go ahead, in terms of some of the suggestions made by MFIN was something which we had implemented quite some time back. And that is the reason why, while the slippages in the MFI sector has increased, it is well below the levels which we see in the industry, significantly below.
And Kunal, just to add to what Harsh said, you would have seen that our total slippage ratio is even below what we had-
Yeah.
in the quarter and the year before, it's around 0.73% of assets. Which goes to show that the asset quality continues to be pristine and credit cost is well within the 29-30 basis points which... And for the full year guidance, we are not making any change to it.
Okay. Okay. Yeah, thank you.
Thank you. The next question comes from Param Subramanian from Nomura. Please go ahead.
Yeah, hi. Thanks for taking my question, and congratulations on the quarter. Firstly, again, question on asset quality. So in the MFI portfolio, are we seeing any of the FLDGs being invoked? And how do you account for it? And also, if you can speak about the asset quality in the credit cards portfolio that we have here.
Yes, again, the first point, you said FLDG in MFI?
Yeah.
No, no, it's not. Our GNPA numbers are what our actual numbers are, what we have reported. There's nothing, there's no impact of that on account of any FLDG, because we don't have that, that's not permitted, and we don't have that either. So GNPA numbers, which I was talking about, which has marginally increased for us also, is at the gross level, it's there.
If I can add, Param, to,
Yeah.
CC and PL. First of all, I think all of us recognize the fact that both credit cards and personal loans are a very small percentage of our overall portfolio, extremely secured, and they've been secured for a very long time, and we've pivoted towards unsecured only recently. Having said that, within that ambit, yes, we've seen a slight uptick in our slippage rates for both credit cards and personal loans, both the organic one and the ones that we do through some of our partners. It's not material enough to call out, because in the overall scheme of things, you know, it's still a very small percentage of the overall portfolio. We've been also benefited by the fact that we've had better than expected slippages on our home loans, car loans, and LAP .
Having said that, given the fact that we've always had a cautious approach to these assets, we have calibrated it. As an example, I can tell you that sometime in May or June, we introduced a new scorecard for our entire personal loan booking, and the new scorecard is much more discriminating and differentiating, and therefore, it slowed down some of our disbursements, but we believe that's a good thing to do in PL. Credit cards, we continue to remain confident that, you know, our portfolio is under control. We do believe there are still growth opportunities over there, because it's a product that you can easily control much more effectively through effective line management. Summary of it is, yes, slight uptick, too small in the overall scheme of things. We do believe we have effective controls in place.
As an example, we continually do interventions on PL through, as an example, the recent scorecard that we've done, CC, credit line management. So that's what I would say, Param, for CC and PL. In all cases, there are no FLDG's, there are no FLDG's or any other kind of criteria.
Okay. Perfect. Perfect. Shalini, thanks, that's really helpful. If I heard correctly, so our asset quality in MFI is tracking better than the industry, and we expect that to continue. That is how we are looking at it.
Significantly better. Just to give you some insight, against the industry approval rate of 45%, our approval rates are 33%. So we have been quite conservative right from throughout, whether it's multiple-
Yeah
... lenders, overall indebtedness, or we do not lend at all to delinquent customers. And we have a single loan to every single customer, so there's no top of loans. So those things have actually helped us out in terms of maintaining asset quality.
Perfect. That, that's really helpful. My second question is on the credit card embargo. So, where are we in that process currently?
Param, I'll take that question. So you are, you're aware of the fact that our co-brand credit cards through Fintech partners, RBI had come back and, you know, said that we should pause reissuance. Since then, we've been working internally, obviously, also with our partners and with RBI, to make sure that we are completely, you know, the framework is completely compliant in all respects. While we do believe we were quite compliant. There were areas that RBI had re-requested us to review. We have done that entire review, but we are taking it in steps. The first thing we do, we want to do, is we have one model, which is the model we have with an entity called Scapia, which runs on a third-party service provider, M2P.
That, we believe, is closest to the model that RBI had in mind, and this is based on conversations we've had with RBI. We're very close to crossing the t's, dotting the i's on every aspect of what RBI has requested us to look at. In the imminent couple of weeks, you know, we should be able to approach RBI with the confirmation that we've done all that is required to be done on this model, and, post that, really, it will be for RBI to review and come back, but our conversations with RBI have indicated that we are on the right path.
Couple of other models that we have, in particular, the OneCard FPL, may take a little longer because there are some more changes that we need to do to the configuration to ensure that it is completely in line with RBI's directions to us. That may take a little longer. I'm not able to tell you the timeline because we are still working through some elements. But we do believe that, you know, the model that we have should be the first one that I said, should be in RBI's hands very shortly. Thereafter, Param, I'll have to really wait for RBI to come back, but the conversations and discussions with RBI so far have been quite productive.
Perfect. Perfect, Shalini. Really helpful. If I can just squeeze in one question. So on the NR deposits, right, over the last two years, we've been seeing, softer loan, you know, softer growth for you as well as, you know, at an industry level. Now, going ahead, you know, when you expect global rates, say, to come down maybe faster than in India, do you think this, this sort of number picks up going ahead, say... and gives support to your deposit growth going ahead? You know, how, how do you look at it based on your experience?
Param, that is, in fact, it's, you know, something that was always troubling me personally, as well as a lot of the people. Couple of years, we've been seeing a lot of slowdown, as you rightly said, in NR, primarily driven by the opportunities they've had for overseas investments, other consumption requirements in the Middle East and other things. But, as Souvik said in his introductory remarks, happy to note that our remittance volumes have gone up, gone up, and our, you know, NR, particularly in non-resident savings bank accounts, has gone up quarter on quarter. Come out with various things. One, we've increased the pace at which, and the number of accounts that we open in the Middle East. We've deployed a few more capabilities, like online account opening, including with, you know, with, attestation processes that are more robust.
We've increased the number of relationship managers we have. So in fact, I looked at some data recently, and we've seen at least a 15%-20% uptake in the number of accounts opened itself. So we've also looked at opportunities outside the GCC Kerala corridor, because we have now branches in other geographies in the north of India, where there is a non-resident population. That, you know, we've redesignated branches as NR branches. We've increased our feet on street, et cetera. That's giving us something which reduces, to some extent, our dependence on the GCC Kerala corridor, so that's the second. The third intervention we've done is, our existing customers. We've, you know, revamped some of our products.
For example, we have a fairly good product called NRI Eve, which we launched last year, and that has started picking up good momentum. So several actions, and we have seen, you know, the mojo is coming back, as I say, in NR savings. We do believe, in fact, just as we speak, we've looked at some data on market share. On normal NR savings accounts, our NRE accounts, which is both savings and term, our market share has actually been going up quarter on quarter, month on month. So yes, Param, to a long answer to a short question, but, okay. The, the part that we don't participate in is, FCNR. We are very conscious of our strategy on FCNR. We don't, you know, kind of pay high rates and take FCNRs. We don't believe that's the right thing.
That's a more opportunistic thing than thing. Our focus has always been: How well can we do our NRE savings account and NRE term deposits? Last point that I'd like to add is, when there is a declining rupee, much as I think that's not an appropriate, you know, overall, there may be other implications of it, but the NR customer tends to react positively to a weak rupee and increases his remittances to India. So to some extent, that may be a topical or a tactical advantage, but we take advantage of that also.
Yeah. Perfect. Perfect, Shalini. Thanks, really helpful. Congratulations to the entire team, on a great quarter. Thank you so much.
Thanks, Param. Thank you.
Thank you. The next question comes from M.B. Mahesh from Kotak Securities. Please go ahead.
Hey, good evening. Manian, just one question for you. Given that you have not seen the bank, one area where we've kind of constantly found it difficult for Federal has been on the margin side. If you look at most of the large private sector banks and even regional banks, margins are much higher as compared to what Federal has delivered. Some initial thoughts on how are you seeing this part of the P&L?
Yeah, Mahesh, yeah, like I said, of course, I am aware of this as a parameter, but there are several levers, right? I think, to improve net interest margins, there are several levers on the asset side and liability side. And I think we will deploy a mix of these strategies. Like I said, a detailed strategy discussion we will have maybe next quarter, but I'm quite clear even improving CASA on it is effort in that direction, right? So I think there are multiple levers. We will, I will make sure that we are using all the levers, and I'm fully aware that this needs to get better. So, you know, of course, the first thing everybody thinks of is doing the high-yield unsecured loans.
But you know, given the environment, we have to be cautious about that, so we have to use a mix of levers, not necessarily only high-yield assets as a strategy to get better. But let's talk more about it in quarters to come.
Perfect. Just one additional question. At the leadership level, is there a need for further strengthening, or you think that you're quite comfortable with what you have today?
No, so there will be areas of talent gap and in areas that we want to focus in the future. I am in the process of assessing that. And we may add people in specific areas where talent is necessary. On a broad basis, at the senior level, I don't think there is a significant infusion required of any magnitude.
Perfect. Question to Harsh or Shalini, whatever is it. If you look at the... Well, you've answered the question on MFI. Is it, at this point of time, sitting in the SMA book that we could potentially be surprised in the next quarter, or the book is, the overall book of the portfolio, including the SMA book, looks fairly comfortable across the bank right now?
If you look at the SMA book as well, apart from the slippages which we have seen, there is definitely a mild uptick, but definitely far lower, like I've guided in the industry. We are far, far lower. We don't ... Two-thirds of our portfolio resides in the southern, yeah, geography, and our credit filter is not now, but all along has been a little conservative, and which is what is helping us. We do see this MFI issue hopefully kind of being sorted or getting, stabilizing in the next two quarters. Hopefully, I don't see in depth here any significant uptick in the subsequent quarters on this front.
Okay. So just to clarify, in your assessment, the current run rate of slippages should hold?
Yes. The margin, there'll be a marginal uptick, but nothing more than that. Definitely nothing more than that.
Perfect. Perfect. Thank you, Harsh. Thank you.
Thanks, Mahesh.
Thank you. The next question comes from Piran Engineer from CLSA. Please go ahead.
Yeah, hi, team. From the quarter, just had one question on gold loans. You know, what percentage of your book comes through fintech partners, and how are you thinking about RBI circular last month on irregular gold loan practices? Are we making any operational or process changes, in that regard? So just some qualitative and maybe quantitative, commentary would be good.
The share of our partners' share is largely organic. About 90-odd% will be organic for us, so that's not a challenge. That's number one. So while there are certain guidelines which have been issued, both in terms of how we view our partnerships, but it's not something which will be disruptive for us. Coming to the RBI letter to all the banks on this one, we are also every bank has to kind of confirm and get back to RBI on all these points which we have highlighted, confirming whether it's on end use, whether it's on renewal and all those things. We don't see an issue in terms of not being able to comply with.
The goal of entire industry has to align to that part, and this will ensure a level playing field, and that places banks and other players who are kind of doing this and have been doing this in a better position to leverage on this. So there is something with the review which we are doing at this point in time, and as directed by RBI, I have to do this by end of quarter.
Okay, sure.
Just to clarify, the fintech gold is honestly extremely low in our overall-
Six percent.
Yeah, it's up 10%, as you know, Harsh said, so for us, a very large percentage of it is actually originated by our branches.
Okay, fair enough. But just even then, given that, let's say it's only a sign that the credit appraisal valuation when the fintech guy goes to the borrower's house, the fintech does the valuation of the gold and therefore disburses the loan, right?
We are not doing doorstep.
Oh, you're not doing doorstep?
No, we are not.
So then the fintech model is what exactly?
Sorry?
If the fintech model is in doorstep?
No, it's no longer doorstep. No, it's not.
One moment. Operator, can you just check the line quality? Is it,
Yes, ma'am. So, Piran sir, when the management is answering the question, could you please mute the line? There is background noise coming from your side.
Sorry.
So does it answer your question? You have any more queries?
No, my question really was, what is the fintech model, if it's not a doorstep, you know, delivery model?
Sourcing a distribution model, the entire valuation is done in front of the customer at the branch itself.
Okay, got it, got it. I'll take it offline. Thank you so much, and wish you all the best.
Yeah, thank you.
Thank you. The next question comes from Rikin Shah, from IIFL. Please go ahead.
Thank you for the opportunity, and, Manian sir, wishing you the best for your tenure ahead. I will look forward to you outlining the strategy next quarter. Just a few basic questions. The first one, if you look at the wholesale banking self-funding level, is there a further scope of optimizing it from current, thirty-three percent levels, and if we do the peer benchmarking, is there a possibility to improve that? That's number one. Number two, wanted to clarify that yield on advances have further decelerated sequentially. Is it only due to the change in the penal charge regulation or anything more than that? Thirdly, it is, pertaining to, the one-off gain from the sale of stake in ECPL. If you could quantify the gain coming from that. That's all from my end.
This is Harsh here. I think the point, the first one about being self-funding, you are at 30%-33% of self-funding, right? And there's definitely scope for more. And if you will see the trend in the last eight or nine, 10 quarters, we have been trending upwards. So we are confident that we have more scope left, move that much further and more so given the focus on deposit mobilization. On your second point, the gain has actually increased and not decreased, as what Venkat had guided for. I mean, impact of, of the, yield is, like you said, Rikin, is only because of the penal interest. And the last point was on the provision for 2023, it's approximately around INR 9 crores realized in Q.
Perfect. Thank you very much.
Thank you.
Wait, I think the line problem is not just necessarily the speaker's problem. Is it coming from our line?
Yes, ma'am. Now I can see there is a static which is coming from your line. You want me to reconnect your line?
Where the static is coming from?
Yeah, go ahead.
Okay, go ahead.
So I'll just disconnect this line and I'll reconnect your line.
No, no, no. It's okay. It's okay. We need some laptops and from vicinity.
Right. So see, now it's not coming that much. So we'll move on to the next question. The next question comes from Jai Mundhra, from ICICI Securities. Please go ahead.
Hi, good evening, and thanks for the opportunity. So, first question on deposits. So, is there any specific reason why, you know, deposit growth and especially PD growth was more flat earlier versus earlier trend and also seen in conjunction with the higher loan growth?
Sorry, I think I, yeah, so thanks. I'll add, I mean, I covered some of it when Maruf was saying, but I'll just repeat some key aspects of it. I think the line is giving me some trouble, but thanks. So to your question, Jai, we, if you split it into two parts, insofar as the core CASA is concerned, you would have seen that Q-on-Q growth has been pretty good. In fact, we've, you know, across market players who have announced the results amongst various private sector banks, we rank somewhere quite good on the Q-on-Q growth.
A part of it has been driven by the fact that we have been focusing a lot more right now to make sure we are core transaction banking to our corporate banking customers, core primary bank to our retail banking customers, as well as driving more productivity through our branches to get more accounts and get more accounts funded with a larger amount. We've also added a couple of new products in the previous quarters, the benefits of which we are getting in this quarter, like the NRI Eve product that I spoke about, the Stellar that I spoke about, and our savings has also shown an improvement. So, if I split it, CASA is definitely something that is improved and we will continue to improve. Term deposits, we've never been a player who's kind of, you know, looked at price as a weapon to get more funds.
If you see our cost of deposits, we've kept it quite moderate and controlled over the quarters, and the data is there on the investor pack. Yes, there are one or two tenors where we remain competitive. We try and drive more productivity and more funds into those tenors, because ultimately, term deposit is a pricing play. So we want to make sure that we calibrate it and really do it for, you know, customer, from a customer retention and acquisition perspective. Do we need to do more? Absolutely. I'm sure we all need to, we all agree that we need to do more. I'd like to make sure that we focus more and more and, more and more on getting a good growth on CASA, both, current and savings accounts, both resident and non-resident.
Term deposits will continue to be tactical interventions that we do based on rates.
Thank you.
So, yeah, especially the higher end purchase kind of deposits, it's honestly tactical. If we believe there is a need, we can always do that, but we'll do it more on an opportunistic basis.
Sure. Thanks. I mean, in line with that, the CD ratio, the LDR is now, you know, the way we calculate it, is now above 85%. So incrementally, should one look at it, that now the CD ratio has peaked and incrementally deposits, I mean, loan growth and deposits should grow, more or less hand in hand?
Yes. Yes, that has been our strategy and that has been the plan. The gap, we will ensure is narrowed or eliminated completely. But that, you know, as Harsh mentioned in response to, I think, Kunal or, one of the earlier questions, the intention is not to, you know, necessarily slow down our loan growth. We do believe there are opportunities, good quality opportunities, so it's a question of making sure that these two keep pace with each other, Jai.
Right. One last clarification. We, you said that we are maintaining our guidance on growth. Just to clarify, the guidance was 20% or 18%-20%? Just wanted to know.
16. 16, around 18%, Jai.
Sure. Thank you and all the best.
Thank you.
Thank you. The next question comes from Nitin Aggarwal, from Motilal Oswal. Please go ahead.
Yeah, hi. Good evening, everyone. So, Manian, sir, hi. We are excited to have you lead the bank to drive the next phase of growth and profitability expansion, and best wishes for the future. Thank you, sir. I have two questions, and like, one is if I look at the margins again, the two banks that you have worked with are at the two extremes when you compare among the, amongst the top private banks. So while there has been a very strong growth in high margin lending products over the years, but that has not reflected in lending yields over the last one year. So what is the actual, like, gap between the yields on these products combined versus the overall portfolio yield? That is question one.
Second is on the MFI segment, wherein you have reported strong growth even on a sequential basis, like most players that we are looking at have reported a sharp decline even during Q1 and more so in the second quarter. So are we not looking to slow down here? And what proportion of MFI book is via co-lending partners?
Yeah.
I'll take the second question first. If you look at the MFI also, if you look at YoY, if it's YoY, it's about 76%, and if you look at Q over Q, it's actually 8%. So there has been a definitely slowdown in terms of growth in what we have seen in this last quarter. Not just that, even the budget internal targets which we look at, we are not pushing for that and revising that internally given the external situation. Having said that, these high percentages look high, not because the growth is so significant, but because the base is also not very large. So that is the other reason why it is there. And the second point on the MFI was on partners. We are doing it through a BC model, which is what is working for us.
Yeah. I have to. I also wanted to check as to what proportion is our co-lending partners and, therefore, any credit risk that is evolving on us.
Co-Lending we just started. So it's a very, very small share compared to our entire book on JLG and SHG. It's a very small percentage.
Okay. Okay.
And in one case, our co-lending partner is also in another entity, also a BC partner, where is this alignment of our, the way we look at the credit filters, yeah, because.
Okay, got it. And the other question on the gap between the yields on the high margin lending book overall and the rest of the books?
Nitin, it is, of course, like I said earlier, a high yield book is one way to increase margins, which of course, given the environment, we want to do it, but do it in a calibrated manner. We'll continue to our ambition to grow that because we are relative to the industry, much lesser on the unsecured loans, right? So there is an opportunity. But having said that, unsecured loan is also BL and microfinance, right? So we can increase our BL without increasing necessarily the same pace for microfinance. Or in car loans, it is also a mix of new car and used car loans. So there are several levers to improve yields on the asset side and liability side. So, I understand.
So, for example, I would say a mix of old car financing or used car financing we have to increase. That will give us an uptick in the yield. A mix of LAP and home loans. So there are multiple levers. I understand that we need to get better at the NIM level. And, as I said, as we go forward, we will strategize suitably to make sure that we show an uptick on the NIM.
At the same time, we want to also ensure that our asset quality continues to be pristine and credit costs are well within how that's operated.
Yeah.
It all comes together.
Finally, it's about this risk return equations. We will suitably strategize as we go forward and as I also mentioned, NIM expansion is also about the right liability strategy, right? So we will do a combination of all that, and we are aware that we need to work on this. Yes.
Right. Right. Right, sir. Got it. And good luck to all the best.
Thank you. The next question comes from Madhusudan Kothari from FI Money. Please go ahead. Madhusudan, your line is unmuted. Please proceed with your question.
Let's move to the next one.
Madhu, we can move to the next one, yeah. He may have to come back in the queue.
A reminder to all the participants, please restrict your questions to one per participant. If you have any follow-up questions, you can rejoin the queue. The next question comes from Rakesh Kumar, from B&K Securities. Please go ahead.
Yeah, hi, sir. Thanks for the opportunity. So, just, like, I have two questions. So firstly, the amortization of the premium on the investment. So has the, has there been a change because of the investment, you know, guideline? Or that bank is now taking incremental exposure in the shorter duration, you know, G-Sec or lower coupon G-Sec?
Lakshmanan, you want to take that one?
Hello?
Lakshman.
Yeah. Yeah. Am I audible?
Yeah.
Yes, you are.
Yes, sir. Yes, sir.
Yes, yes.
Yeah, so the amortization is happened as per the guidelines, so nothing different than what is supposed to be done over there. As regards, our overall investment book, it is happening in pace with the, overall growth in NDTL. We are not doing anything significantly different on the banking books than what we would do otherwise. Everything else in the, on the SLR side is otherwise-
... short-term hedging costs. Duration-wise, no serious change that we have undertaken in the last about three months.
So why there is so much change in the amortization of premium on a year-on-year basis, sir? So like, it has come down from INR 865 crore to INR 780 crore, INR 480 crore.
Just a moment, please.
Yes, ma'am.
Like I said, this is, this should be because of the discount amortization what we are doing.
Yeah. So what I suggest, can you take this offline and explain that to,
Rakesh.
Rakesh? Yeah. No, so sorry, I couldn't hear the question. You were asking about the, the reduction in the, in the discount amortization, right?
Correct, correct, sir. So why there's a change? Is there a change in the investment guidelines by the RBI or the, we have changed our strategy per se, you know, from the exposure point of view?
Our amortization guidelines haven't changed. It is as existing, but entirely driven by the change in the investment guidelines as applicable from the second of April.
Okay. And sir, just one question, you know, coming again, you know, back to what Nitin had asked, that, you know, if you look at, you know, the higher-yielding papers, high-yielding credit and low-yielding credit, you know, contribution on, from the loan composition to the NII, there's a stark change that is there, you know, from June to, pertaining to the NII contribution, interest income contribution, coming to the September. And if you look at, you know, there is a risk-weight increase also, but the credit yield has fallen. So just I wanted to know that what has happened to the relatively lower-yielding credit. So is there such a sharp fall that, you know, on an overall basis, there's a yield decline?
Rakesh, as we clarified, there is no overall decline in yield in credit on the asset side. The difference is fully explained by the final reclassification. So I haven't got your concern.
So, Rakesh, just to clarify, are you referring to sixteen?
Yeah, that is representation issue. Yeah, just explain that.
Yeah, yeah, of course. I'm referring to the same thing. So like, you know, if I look at the interest income contribution of 34%, and if I look at June quarter, the, you know, interest income contribution is 28%.
Yeah.
Basically, this is, this includes what we have given over here, is the net interest income. Earlier used to be gross. Net is the right measure for doing it.
It is a representation difference. Earlier we used to give the gross interest yield on the asset in this chart. Now we are giving the NIM. Obviously, NIM contribution is more.
Okay.
So there is no big change in terms of the strategy or complexion or yield.
Okay. Got it, sir. Got it.
Yeah.
Thank you. Thank you.
Thank you. The next question comes from Gaurav Jani, from Prabhudas Lilladher. Please go ahead.
Yeah. Thank you, sir. Just one question from my end, to you know, Manian sir. So while you did you know touch upon margins being work in progress, what are your thoughts on OpEx, right? That has also been on track, and just an extension to that, I mean, how are you looking-
No, you are?
OpEx.
Okay. Okay. Yeah.
Yeah, OpEx has also been on track, right? So, an extension to that is how are you looking at OpEx in the second half and in FY 2026? Thanks.
Yeah. Like I said, OpEx levels at what they are is... I do understand that. It is, if you benchmark it to the best in class, not measuring up. I'm aware of that. Having said that, like I said, I don't, I don't have a strategy as on date. Yes, OpEx is also a measure of what we do with the top line, rather than only the expenses. It, we have to work on a mix of improving the denominator income as well as work on the cost side. My guess is there'll be more work initially required on the income side than the cost side. Having said that, I am, I am still in my assessment stage.
We will come back in a more concrete manner in the next quarter. Yeah, Venkat, do you want to add something?
Yeah, just, just one other point. It was just, Gaurav, looking at quarter on quarter movement of the total, cost side. To a large extent, it's driven by the actuarial valuation, that the yields have fallen. So that has contributed some, to some increase in the staff cost.
Sure. And if you can just please comment on, you know, how would OpEx look like in the second half, given the fact that probably, you know, we're looking at a shift in the first season, right, in Q3. So would OpEx then go up in Q3 and then in Q4 because of better growth and/or how it should be looked at?
It will be overall, H2 will be around similar levels as H1. Because we do believe that while some of the income lines will play out.
On the cost side, if you have seen in the past, typically, Q4 is the one where we've seen some uptick. But at the same time, there's also a big uptick on the Q4 income as well. So we don't see a major shift in the cost on the cost-income ratio in between the two halves, and also, our distribution strategy remains the same.
Understood. Thank you so much. Have a good one, and all the best.
Thank you.
Thank you.
Souvik, may we have two questions?
Yeah, maybe we should wrap up, sir. We'll take the last two questions maybe. Yes.
Thank you. The question is from Yash Tantia from Tantia Equity Capital. Please go ahead.
Yeah, hi. Congratulations on a great set of numbers. Am I audible?
Yeah, clear, clear, Yash.
Yeah. So I would want to know the percentage of secured and unsecured. And when I say secured, excuse me, when I say secured, I don't mean vehicle loans and those sort of loans. I mean, mortgages and LAP loans. What is the exact breakup of unsecured and secured today in our loan book?
Unsecured retail is about 4.6% of total advances, Yash.
Yeah, and going forward, where are we focusing? On what segment are we focusing our advances on, based on the current environment for Q3 and Q4 , based on the festive season, et cetera, like, which segment are we going to focus on? And this question also goes to Manian, in terms of which segments he wants to focus on going forward, where he specializes in or whatever. We need to understand, like, where the advance growth is going to come from this segment, and, how marginal feasible that segment is going to be.
Yeah. So, you know, like I said, I am in the process of assessing, what... how we should grow. And I do recognize there have been questions around NIM, there have been questions about, around yield and, cost to income. All three will play a role in terms of how we decide the mix going forward. It's something that we will deliberate upon internally and come back. But having said that, the fact remains that as on today, the unsecured mix is low, and like I said, there could be many other unsecured lines other than what we have seen already, which could yield better, give us better yields than this, but may not give the same yield as an MFI, kind of, product.
We need to carefully evaluate our mix. I think there are enough options in the middle without going to the extremes where we can work on improvement of yields and NIM. But, like I said, a more detailed strategy on this, we will talk next quarter.
I think just to emphasize the point made earlier, yield has also been impacted this quarter by the penal charge reclassification. We'll have to remember that.
Noted. Ma'am, any sort of ROE guidance for this financial year, ROE and ROA? Can you reiterate if you've already given it?
I just, ROE and ROA.
ROA and ROE, again, Yash, in line with what we have guided at the beginning of the year, we are at 1.8%, and we should be around similar levels. And if the interest... It also depends on when the rate cut happens. If that happens later in the year, it'll probably be going about another 1 basis point more. But based on current outlook, we'll be around similar levels, 1.8%. And ROE, again, 13.5%, 13%, around that levels.
Right. Right. Thank you so much for taking the questions. Have a great day. Bye.
Yeah.
Thank you. The last question is from Ishant Shrimali from Tara Capital. Please go ahead.
Hello, sir. Am I audible?
Yeah.
Yeah. Sir, with the current interest rate environment, like, how does the management foresee, like, NIM evolving over Q3 and Q4? Like, is there a target for maintaining or expanding margins in high-yield segments, like gold loans, personal loans? And just to, like, a follow-up on that, like, is there any specific product or loan segments which can boost the NIM?
Oh, you already talked about some products there, as options. Like I said, just now, yes, we will evaluate our mix, and see how, what can give us the right risk-return trade-offs. We need to improve our NIM with the right, control on credit costs. And I think, like I said, there are several options in between. You know, just to take an example, you can do HCV or LCV, and there can be a NIM and a yield difference, right? So there are multiple options across products. You can do business loans and personal loan mix. You can change in favor of business loan and improve the NIM. So there are multiple levers that are available to us as management, and, we intend to make use of all of those going forward.
Like I said, what exactly we'll do, we will think about it and come back to you next quarter.
Okay, sir. That's it from my side. Thank you.
Okay. Good night, sir.
Yes, that was the last question.
Sagar, one thing, Sagar, there's just one question left, I think, in the queue. Mr. Saket Kapoor is there. I think we can wrap it up after him. Just one last question.
Thank you. Next question from Saket Kapoor. Please go ahead.
Thank you. Thank you, Souvik, and thank you for the opportunity. My question is to the opening remark made by you, Venkat, when you said that the path may not be the same, so what were you alluding to, if you could just give a brief understanding, and also to the NCD issuance that we are going ahead with of INR 1,500 crore, if you could throw some light on the nature of the year. Yeah. Right. Thank you.
What I meant by saying that the path may not be similar is, environment has not worsened, right? Let's say on the unsecured side, right? Than we have done. You know, like, Harsh mentioned slightly earlier in this call, that, we are going behind our budgets just now because the environment is not necessarily conducive to being... Shalini also mentioned that, we tightened our personal loan norms, over the last quarter. And so, obviously, when we started the year or when we made the budgets for the year, environment was something that's seen deterioration in the environment. So that's what I meant by... In fact, if you see even in the secured side, there are products like CV, where the asset growth was short in the beginning of the year.
So there are several changes in the environment are happening, and we need to be conscious of that. So that's what I meant by the path may not be the same to get there. So yes, we do want to get higher NIMs, we do want to improve our unsecured mix. All of that is true, but the way we get there or the speed at which we get there different, given the environment. That's what I meant. On the bond issue, we are looking at doing an infrastructure bond to fund the infrastructure assets that are there in our books today, and some more revenue for raising funds, and we'll go out to the market and raise...
Many banks have already done it, so it's the first time for us, the Infrastructure Bond, but it's an instrument many banks have already used.
Yes. Yes, sir. Thank you. Thank you for this opportunity and other remaining question on corporate loan book growth and all, I will contact Souvik, sir, for the same. And, all the best to the team, sir, and Happy Diwali to everybody. Thank you.
Thank you.
Thank you.
Thank you to everybody on the call. Happy Diwali.
Happy Diwali to all of you. Thank you very much for joining us.
Happy Diwali again. Thank you. Bye. Thank you, Sagar.
Thank you, ma'am. On behalf of the Federal Bank Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.
Thanks, Sagar. Thanks, everybody. Happy Dhanteras and Happy Diwali! Bye-bye. Good night.