The third message is that we enter FY 2023 well provisioned on books that we feel any kind of stress, we have addressed it robustly and importantly dealt with the having to take the you know sort of strain of having to provide for pension. We've provided that upfront, so we upfronted that as well. The fourth, I think, what is going to distinguish quite materially in FY 2023 among banks, and particularly banks like us, is people who have a liability franchise that can withstand and deliver at times like this. All of us know interest rates are going up. There's going to be a war for deposits. There is going to be.
To support the nascent credit pickup, you need a high quality liability franchise, and I've for long maintained that our liability franchise is among the most granular, most retail in the market. I believe we think we have a good story going, and this year will probably show the fact that our liability franchise will hold better than anybody, many other banks and help us grow mid-teens in credit, funded by our own, you know, non-bulk liability franchise. The last, which supports the earlier point on deposits, is the fact that we've invested very materially in fintechs. I would like to believe we are the absolute go-to bank for the fintech partnerships, not just because it's glamorous, but because we have a model that works for both us and the fintech partners.
I'm quite committed and believe that FY 2023 will see that fan out in terms of both ability to grow and monetize these relationships. As we enter FY 2023 on the back of good credit quality, a team that is strong on asset quality, well provisioned, an ability to grow liabilities and meaningful, you know, thoughtful fintech engagements that we are preparing for, and we believe that it will start distinguishing our bank quite substantially. These were some of the sort of entry opening remarks I wanted to make. The numbers are there for you to see, and we'll be more than happy to answer questions, you know, any clarifications that are required.
We had said that we will be on a trajectory to delivering 1.2-1.25% ROA by the two financial years out, which means in FY 2023, we are committed to being closer to 1.1% or thereabout, slightly better. At this point in time, our line of sight and our trajectory points to the fact that it's quite possible and we are, you know, barring any extraordinary external environment changes, we should be on course to delivering that. It's also, I think, that in FY 2022, our capital adequacy went up by about 100 basis points.
We did have a new anchor investor who came in, and outside of that, our retained earnings and our overall performance helped us as we shaped the credit book, helped us raise our capital adequacy to 15.77%, if I recall right. Lastly, but not any less important, has been this is the second year on a run we've been chosen as a Great Place to Work.
This is relevant for a bank like us, which is traditionally seen as relatively an old-world employer and don't have both talent and focus around these aspects. I do believe that we can proudly say that we're both Great Place to Work and we attract good talent. I'll just pause here and open it up for questions, and I'm sure Ranmi, Ashutosh, Shalini, Harsh, Venkat, Ajit, Babu will be able to answer any questions that anybody may want to ask or clarify. Thank you very much.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. 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. The first question is from the line of Gaurav Kochar from Mirae Asset. Please go ahead.
Yeah, hi, good evening, team. My first question is on the OpEx front. I mean, we took a one-time hit of around INR 145-INR 150 crore in this quarter. If I remove that, I'm assuming that this has come in the employee expense line. If I remove that from the employee expense, it shows that the run rate is closer to INR 480-INR 490 crore. Is that the way to look at it for the next year? The employee expense run rate of sub INR 500 crore?
Around 500 would be, you know, within the, you should assume 500, 510. That's all. Yes.
Around 2012 plus here.
Yes.
100 plus here and there.
Yes.
Okay. I remember, I mean, earlier you alluded to, you know, in previous calls, that FY 2023 onwards, some benefit of, you know, some of the employees retiring, older employees retiring, that benefit would come in the form of lower pension liability, and also the yields are moving up. Is this 500 number net of all that?
Yeah, you could say that, yes.
Okay, sure. Got it. Also, another point on the balance sheet front. I mean, if I look at the borrowings, they were up around INR 7,000 crore sequentially. I mean, our LCR is probably best in class. We have a very high LCR. I'm assuming the SLR component is also above the regulatory limits. Then why exactly was there a need to borrow? Is it some sort of NHB borrowing or lower cost borrowing that we did in the quarter end?
Yes. There was an opportunity to borrow three-year money from NABARD, and that's what we did.
Okay. Sure.
Which in hindsight turns out to be a good choice in the context of the rising rate business fixed income. It's turned out well for us.
Yes. Yeah. Just that brings me to the question on growth. I mean, to deploy that excess borrowing or excess liquidity, what kind of growth are you, are we looking at for fiscal year 2023, given that large banks are already growing 15%+, any sort of growth outlook that you'd like to talk about?
May I step in?
Go ahead, Ashutosh.
Basically, if you see our CD issuance, CDs we allowed to mature and all. Number one, it brought, you know, longevity as far as the resources are concerned. It is refinance and therefore exemption is available. CRR SLR exemption is available. In retrospect, when we see CRR has gone up by 50 basis points, it looks like, you know, that was a good call made in January 2022. I think, to answer your question, part of it was, you know, replacement of CDs.
Sure.
From a credit growth point of view, we believe this year anything north of 15% is what we should be targeting. We are not, you know, internally we have higher aspirations, but I think, yes, 15%+ is something we are pushing for, and we believe it's very possible. Year-on-year we grew by about 10%. We did close to 1.5% of securitization. So to that extent, we reduced our credit book by about INR 150,500 crores. So we did grow close to 12% last financial year. We believe this year it should be well north of 15%.
Okay, sure. On the repo rate hike and given that our EBLR is also linked to repo rate, will the EBLR rate go up or the spread will be adjusted accordingly?
Spread will be adjusted. Large part we've already increased EBLR by 15 basis points against a 40 basis point increases. We are yet even after that, the lowest EBLR in the country and growing at 18%-19%.
Sure. Sure.
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Thank you. The next question is from the line of Mahrukh Adajania from Edelweiss. Please go ahead.
Hello, sir.
Hi.
Hi. Sir, I had a couple of questions. Firstly, that you talked about mid-teens credit growth. This time around it was 10%. What gives you the confidence? Will it be inflation or market share gains or how do we look at it?
It is a combination, Mahrukh. There are all businesses that are positioned for growth. Last year, because we didn't go slow on gold loan for the first nine months, the market also slowed. We saw lower traction. It picked up quite meaningfully in Q4 and I see that continuing in FY 2023. The previous year we had grown 70%, so this year it should be well north of 20-25%. Almost every business line has both potential opportunity and risk appetite to grow north of 15%. There are some very nascent businesses like credit cards and commercial vehicles which may grow at an astronomical, maybe even hundreds of %. On balance, we believe that the INR 130,000 crore credit book should grow north of 15% across the spectrum.
There may be only one business where we may see a lower than mid-teens, depending on the size and ticket and competition. We may choose to dial up, dial down on the corporate credit depending on the opportunity in the market. Otherwise, granular organic businesses all see huge potential to grow.
Sir, a lot of banks, including PSBs, are complaining about very aggressive competition in well-rated SMEs and of course in well-rated corporates. What are your thoughts there? Do you think, with such stiff competition, is it possible to grow in these segments or the aggressive guys are not in the segments you operate in?
Well, I think, you know, the good segments are always fully flooded with good players, right? It's never going to be vacant for somebody else to steal. I think the current interest rate environment and typically the rush to grow credit that a few banks were, you know, sort of gung ho about, we do see and I am quite sure you will see that behavior will change in a year like this. That's why I said very early in the call that deposit franchise banks will grow better. Those who can garner good, low-cost quality granular deposits. We believe that we have that tool in our hand and we've demonstrated that for many years and I believe that will help us grow. Yet despite everything growing at 15-odd%, in this environment looks very possible.
Thank you.
I do have to add your point of, you know, a few banks cornering, because of their, you know, sort of overall strength is indeed true. I do think sanity in pricing is coming now.
Okay, sir, that's helpful. My last question is if you could give the breakdown of loans by rate to how much is MCLR, repo and then fixed and other variable?
Very broadly, our repo book is about 45%. Venkat, am I right?
The external benchmark is 46%, the MCLR is 18% and fixed is 27%.
Yeah.
Okay, sir. Thank you so much.
Thank you. The next question is from the line of Nitin Aggarwal from Motilal Oswal Securities. Please go ahead.
Yeah. Hi, sir. Congrats on a steady quarter. I have two questions. One is on margins. Like, we have seen an 11 basis points decline this quarter, so any color on this and how do you see this faring over FY 2023?
Nitin, I request you to not look at a quarter, look at the longer period. 3.20 was the number we looked at, and we landed at 3.20. FY 2023, we believe that should shoot up by at least another 7-8 basis points. We think blended FY 2023 will be closer to 3.25+.
Okay. Secondly, now that we have already absorbed the family pension cost this quarter, so how do you see the cost income ratio now?
We should normalize back to the early 50s%, and as I've mentioned in earlier earnings calls in prior period, we are pushing very hard to get it to below sub-50%, closer to 48%, but I think we need one extra financial year for that.
Sure, sir. Thanks so much.
Thank you. The next question is from the line of Renish Bhuva from ICICI Securities. Please go ahead.
Yeah. Hi, sir. Congrats on the great set of numbers. Again, just might be bit big in nature, but on the margin front, you know, despite our high lending books growing faster, let's say, Gold loan or CV up 40%, those, I understand that base is very low. But incrementally, if the growth in these segments are higher, why should margin fall in Q4, I mean, sequentially? Is there anything which we are missing or any one-offs there?
Not missing anything, Renish. If you see our slippages in Q4, there was a little exaggeration on the agri side, and that typically in an agri portfolio you will see a bunching up of interest, and when there's a slippage it tends to eat up a larger share of the revenue reversal. To that extent.
Got it.
That would have taken away 4, 5 basis points.
Got it. Okay. That's very helpful. Sir, just, you know, on your opening remarks, you have said that the fintech partnerships have to some extent been matured now and we'll see the P&L benefits start flowing in, you know, from FY 2023 onwards. Any ballpark numbers you have in mind? Maybe it will flow through the other income or NIM. I mean, where it should reflect in P&L?
No, it will see the liability growth and asset growth both. There is a, you know, dependency on this as a distribution, right? We've seen our epiFi, Jupiter, and potentially a few more that are partners, they are largely a liability origination relationship. We think about 25% of our incremental deposit growth will come from these partnerships, incrementally.
Got it.
Likewise, on the lending side, between 40% and 50% of the incremental lending in some products will come through these partnerships. These therefore will stack up for our growth in credit, growth in liabilities.
Got it. Sir, any cost benefit analysis we have done, let's say, whatever incremental business either on the liability side or on the asset side we get, is we are getting it higher than 50% cost to income or lower than 50% cost to income?
The revenue sharing and the cost model with the partners, as I've mentioned in the previous calls and now is getting sharper, is a fair amount of it is variable. It's linked to the volume that is generated and it's not a fixed cost. In fact, most 95% of relationship is variable. One or two, there's some fixed element. Importantly, for FY 2023, for the incremental business, it will come at roughly at about 60% cost income ratio, trending towards 45% in the following financial year.
Okay. FY 2022, I'm assuming it was 60-65.
Pardon me?
In FY 2022, the same value more than 65% cost to income.
FY 2022?
Yeah.
Roughly you could say. FY 2022, the pickup for revenue was latter part of this year. On the incremental it was about 65%, but on the full year basis it was closer to 70%.
Got it, sir. Thank you so much, sir. Very helpful, sir.
Thank you. The next question is from the line of Kaushik Poddar from KB Capital Markets. Please go ahead.
Shyam, with whatever HDFC and HDFC Bank mergers being there, I mean, it's quite clear that banks need to get bigger to take care of the economies of scale. Is Federal Bank, that is its board of directors thinking in those terms?
Nothing at this point in time. Neither do we have opportunity to buy, nor has anybody approached us to be bought. At this juncture, it's heavily organic with opportunities to look at integrating microfinance portfolios or any higher margin portfolios to our companies, for which we have a marching order to go and find. Unfortunately, we haven't found any of size or scale, or if they are very good, then it's not an affordable price.
Mm.
Outside of that, nothing, Kaushik. We don't have any, at this point in time, dialogue with anybody one way or the other.
Okay. Basically, you're talking of purchase of financial asset, I mean, in the sense of some,
if a, you know, sort of a well-run microfinance setup is available, we will be happy to consider a transaction. I have to add quickly that nothing is in the cards.
Okay. This cost—I just wanted to confirm. Cost to income ratio for this year, you are putting it at 50%?
In FY 2023? Yes.
Yeah.
We look at 50%-51%.
50%-51%.
Yeah.
Okay. Thank you.
Thanks.
Thank you. The next question is from the line of Manish Dhariwal from Fiducia Capital. Please go ahead.
Yeah. Very good afternoon.
Hi.
Now, see, my whole question is surrounding the question that's been asked about the growth. You know, like this particular quarter, our yield reduced and the cost increased. In this quarter the NIM was also quite at the lower end, so about just 2.16% and you're saying that affordability is 2.2%. Basically, we see the environment is gonna be remaining challenging. Now, you know, already the provisions are down to INR 75 crore. I don't know whether they can come even further down. Where is it that we're gonna get the PAT from?
I think, you know, I did mention a little while earlier, our NIM expansion to 3.25-3.27 is something that by the business mix change, and the prevailing rate environment looks very possible and it will happen. The cost this quarter was a little exaggerated because of the one-off event. We do believe that there will be a positive job, as in the revenue will outstrip the cost growth. Credit quality will continue to hold as well as it does. That's how we are expecting a 10 basis point improvement in our margin expansion, ROE expansion.
So, see, you know, we are at a very, very solid platform in terms of our asset book, the quality of our asset book. You know, don't you think that we should be kind of using that to step up on our growth aspirations?
I did mention we will grow very handsomely. As a conventional
15% is something that's like organizing it.
No, no, I respect your observation. You know, there have been stories of people doing 30%, 40% growth and having them going to jail. We have no such aspirations. I'm also acutely aware there are some banks at the scale of an HDFC growing at 20%, but we will be honest and real about where we can do business and how we should do business. You will not hear Federal Bank trying to talk itself into a position which then looks ugly a few years later. Will we seek out 20%? Absolutely, yes, we will. I mean, we are not any less ambitious about growth. I think.
Wonderful.
We ought to be quite honest about the way we do business. If you heard us, our partners tracked us for as long as I've been, we've never made false commitments. We don't intend to also.
I mean, that's a good sign. And also see, this is like, you know, we've been also developing our FinTech side of our book. So far, the costs actually have gone up despite the fact that, you know, our branch expansion has not happened. We usually say that, you know, a lot of our business is gonna come from the FinTech relationships. I mean, so this year, FY 2023, you think is gonna be the year of inception where the money is gonna flow in, the monetization is gonna happen?
Yeah. I did mention just a few minutes ago that we will see a meaningful part of our incremental growth coming through these partnerships, and it's trending towards the 60% cost income and the following year towards the 45% cost income or even better. If you know, we look at this the following way. For about 5 years plus, we've added 20 branches, but we've doubled the bank in almost every dimension. We are now these branches. In fact, I'm very happy to report at this point in time, we just reported to our board today, we have only one branch that is non-profitable, and that too only because it's less than 2.5 years old. We have every branch in the bank at good efficiency and productive and going ahead.
We have told ourselves two things. One is, we will dial up our FinTech partnerships, which is typically if you open a branch, it takes about 18 months or so to break even. Our FinTech partnerships will break even even faster. When we grow 25% in incremental deposits, it's almost like adding 300 branches. Right. One. Second is in addition, for distribution, our strategy was branch-like distribution heavy. We have flipped it around to light branch, heavy distribution, which means we will start adding branches maximum. About 5% of our network will increase every year, and that again will start giving us distribution. Both counts, we are doing work this year and beyond.
Wonderful. Thank you for this, you know, detailed reply. We look forward to, you know, improved numbers. Thank you.
Thank you. Thank you very much.
Thank you. The next question is from the line of Sagar Shah from Alphaline Wealth Advisors. Please go ahead.
Hello, sir.
Hi.
Yeah. Hi. Actually, I just had one question ask you. Actually, based on the past performance of your agri banking portfolio, your NPAs seem to be highest in that front, actually. In spite of that, in this quarter, your agri portfolio you have grown by 20%. Do you feel that going ahead, this portfolio would see some improved asset quality or we will see the same growth rate going ahead also?
This must remind us that it has got gold on it, so when you see 20% growth, it includes agri gold loan also.
Okay.
The point about agri portfolio facing higher losses is new to me. Maybe I'm not fully informed. I didn't realize it that way. In this quarter, there was a one-off transaction higher than normal. This quarter was INR 140-odd crores. Normally, it's never been that high.
Okay.
It includes agri, and in the past, it used to be agri and SME. In a reporting sense, if you look back in time, it was agri and SME integrated. But now we.
Okay.
We partitioned that.
If you look at it, I don't recall ever Agri being a big problem except for this quarter where we took a larger hit of INR 89 crore one-time.
If I may add, this is because of, you know, I think basically you have special dispensation for Agri. You have two crop sort of, you know, permissibility wherein, you know, after one crop season if it is not paid, the account is not classified NPA for another crop season also. I mean, these are some peculiarities with Agri loans. Therefore, there is an aftereffect of COVID, which got materialized here with delay. In other segments, it happened, you know, then and there. This is
You expect this portfolio to do well in FY 23 also, right?
Yes. Yes. In FY 2023 we'll not have that legacy, COVID legacy, you know, affecting the Agri portfolio also. There is, this is something, you know, I mean, which is peculiar to, you know, agriculture and therefore even interest reversal because you are, maintaining that account as standard for say two crop seasons. The accumulated accrued interest also needs to be, you know, I mean, realized interest also needs to be reversed and that has impacted the NII also. Somebody had asked this question about NIM. Partly this NIM contraction by 3-4 basis points is an outcome of that, you know, Agri, slippages also. I hope that clarifies.
Yeah. Certainly. My second last question was related to your business banking and commercial banking portfolio. Basically the your commercial banking portfolio I think so you have been growing at almost eight percent in the last five years, 8% CAGR. As you said in your last comments on an average you will be growing around 15% on almost all the segments. Are you confident in spite of such heavy competition in the business banking and the commercial banking segments actually throughout the banking system? Are you still confident of delivering 15% growth in both the segments?
I think we're well positioned, Sagar. In Q4 these are two businesses that grew, I think, for the quarter 4%.
Yeah.
In the most intense competition period.
Yeah. Absolutely.
We remain confident on that.
Okay. Sure. Thank you, sir.
Thank you. The next question is from the line of Krishnan ASV from HDFC Securities. Please go ahead.
Just one very quick query around deposit side. This was more to do with the fact that you mentioned about the fact that branches, except for one, have kind of broken even. I was looking at more the productivity of these branches. Have you seen a marked improvement in say the potential upfront productivity of, say, for Federal Bank, kind of your branches compared to peers, and what are you doing to build that potential?
I think, firstly, for quite a while now and each passing year it gets better, the sharp focus on products that we want our branches to be doing and branches, how much of their time is spent on sales, service and operations. We've carved that out quite nicely. The reward mechanism for branches are driven by, what their job objectives are in terms of product productivity. You may have noticed our fee income ex-treasury has grown 25% year-on-year, 10% sequentially. Largely, fee income on wealth management and life insurance are branch led and has done a remarkable job. Productivity on business banking, gold, collections where they need to step in and fee income products in addition to CASA growth is their job. On all counts there's very, very meaningful progress.
Each year they are being triggered to perform even better. Their scorecards are sharply focused on this.
Absolutely.
Listen guys, somebody need to mute yourselves. Go ahead, Krishna. Anything else?
Yeah. The other bit was around just, I mean, the growth environment itself. Generally, we have remained fairly conservative even when, you know, when other peers are able to sequentially grow faster. You have been very picky because you are quite selective. I just wanted to understand, do you see, from, say, a pricing perspective, any competitive intensity easing in any of the key segments that you are definitely looking to grow in?
I don't see easing, but I think there is some sanity coming in this very aggressive pricing that was happening in Q3, Q4 of last financial year. Of course, April is usually a bad month to make any determination because there's a slowdown of varying nature. Given trends, conversations and the general interest rate environment, we believe that some pricing power will come back to lenders. Within the same risk appetite framework that we have, we believe our growth numbers that we spoke about 15%+ is very possible. Without busting our boundary conditions on lending.
Right. Just one last query. I mean, you've built a fairly granular book on the asset side of the balance sheet as well. It's very carefully crafted for the last few years. I just wanted to understand what kind of wallet share, I mean, your assessment of where you are on wallet share and where can Federal Bank potentially take this over the next maybe two, three years?
Did you mean product per customer? Is that what your question is?
Not necessarily on just the individual side, but even on the commercial banking, business banking side, the SMEs that are typically where you can still exercise some element of, say, the pricing power.
See, as a thumb rule, I want to say that good customers, irrespective of which segment they believe, are able to command pricing, right? Then it comes to the relationship potential and our frontline guys' ability to work with them and get more business. Now, as we get more RM and outward client focus, as in we go to the client as opposed to client comes to us, we are seeing that capability drill deeper and get a larger share of the wallet. In small business banking, commercial banking, I think our share of business is increasing with every passing. I mean, Kapil, Rakesh, Shalini, Harsh are on the call, they may also add, but that's increasing. On the corporate where, you know, it's only a big-ticket lending, that's a fight.
Even there, we've seen very sharp growth in fee income this year and driven by these initiatives. I think there's work to do on that count.
Just to add, Harsh here. On the commercial banking, business banking side, we are typically in most cases sole bankers or dominant banker and other ancillary business follow suit. In the mid-corporate segment, the large corporate, obviously we are gaining share. Just to give an indication, our trade volumes, our cash management volumes, and the fee growth has been significantly higher than our asset growth, obviously indicating gaining market share over there as well.
This is self-wallet share.
Yeah.
It's helpful. Yeah, sure. Many thanks, Harsh. Many thanks.
Yeah. Thank you.
Thank you. The next question is from the line of Kashyap Javeri from Emkay Investment Managers. Please go ahead.
Thank you so much, sir, for this opportunity, and congratulations for good set of numbers in challenging times. Just two questions from my side. One, if I look at fees, you know, there is this, you know, general commissions which have grown almost, you know, 50% run rate from about INR 45 crore to INR 70 crore. You know, last four quarters run rate has been about INR 45 crore. You know, what has driven that number? And which seemingly is the primary driver besides cards of, you know, 25% growth in fees. Second question is on CASA. Now, if I look at last three quarters, you know, the CASA is now pretty much at about INR 51,000-54,000 crore. And CASA is also pretty much stagnant at about 11-12 thousand crore.
You know, any color on the client acquisition on both sides, both card and, you know, if you can offer. Because what I understand is that with the, you know, the fintech partnerships that we had, the number of client acquisition has gone substantially. You know, that's not pretty much probably reflecting in the overall float available. These are the two questions.
Sure. I think on the CASA, we can't expect the fintech to give us much in the first period. In fact, at this point in time, incremental growth from fintech business origination and CASA would be like, you know, less than 5%, which is what we said it will go up to 25% in FY 2023 of the incremental balances that get built out. Because the profile of these customers come in and they are more transactional and they start building over a period of time, I don't believe that they will all be coming with large balances up front because the nature and profile of that base is very different, right?
That will continue, but it's giving us access to a new generation of clients which we would not have otherwise to bank, and therefore the ability to cross-sell a bunch of products kicks in, and that's something that we worked on. That's why I said 25% of our deposit growth incremental and 50, around 50% of our incremental credit growth for some products will come through this segment. Sorry, I missed the earlier part of the question, if you wanna remind me.
Second question was on fees. You know, the banking commission and exchanges run rate was about INR 45 crores a quarter, and suddenly this quarter it's almost about INR 70 crores.
I think the growth on our fee income products like life insurance, mutual funds have all picked up and, you know, doing extremely well, and that's all branch led. I think when Krishnan asked, I didn't answer that in terms of these products are branch distribution led, which is doing very well. Penetration into existing client base is increasing. Shalini, you want to come in on that and give your insights on that, Shalini?
Thanks, Sham. I think there are a couple of drivers for driving up the fee income, taking off from where Sham left. One is on the card side. While credit cards is still a very small percentage of the portfolio, on debit cards we've been kind of very good from a spend perspective. You know, we rank amongst the private sector banks, so we are first in terms of monthly spend. That has its own benefit in terms of interchange fees. That's one part of the fee income.
The other part of the fee income that is growing at a very steady pace is the entire suite of products that we offer under para-banking, which is life insurance, non-life insurance, health insurance, wealth management and products like, you know, depository, Demat, sovereign gold bonds, et cetera. That's grown 10% Q-on-Q, 25% year-on-year. Combination of these kind of factors along with normal, you know, debit, the ATM fees that we get, et cetera, has helped us to grow our fee income. Very much driven by customer behavior, very much driven by the use of analytics to cross-sell products to the customer, and very much driven by branch productivity.
Sure. One last question. Will you be able to disclose monthly client acquisition on the liability side?
Roughly a day we do between our organic plus the two partners, we are doing closer to 17,000-18,000 new customers.
Okay, sure. Thank you so much.
Welcome.
Thank you. The next question is from the line of Shalini Vasanta from DSP Mutual Fund. Please go ahead.
Hi. Good evening. This is Vivek Ramakrishnan. My question was on the deposit side. This year seems to be the year where there'll be a bit of a scramble for deposits. Since you are using Fintech and everybody else is also gonna be using similar Fintech, what causes the stickiness in your deposit base, and how confident are you that you can grow it in the scramble for deposits? I'll also ask a second question so that I can do it sequentially. In terms of you have a NBFC that is doing small finance business and is doing quite well. So how important is FedFina to your overall targets of ROE and growth aspirations? Thank you.
From FedFina, every number of that other than the consolidated number is an independent entity, chief. We have none of that including, except for some retail distribution they do for home loans. Other than that, they are an entirely independent entity run by their board. Just the consolidated number is what you see in our numbers, but that's a very marginal number in the scheme of things for us as of now. If they're doing well, I'm happy they're doing well and they should do well. For the first part of your question, stickiness, I think for a long, long period that has been the strength of our bank. I mean, the remittance business that comes in, Middle East Kerala, Middle East non-Kerala, non-Kerala, non-Middle East, all of that are tracking well. Domestic franchise across the country are non-Kerala.
Deposit growth is higher than our deposit growth in Kerala, driven by, A, a lower base, B, a higher presence and productivity. Third, as we step up and see more Fintech engagement and this client base starts maturing, we believe there will be an incremental opportunity, but that is to be yet proven and tested. Why would we grow and why would customers stick with us? With some confidence, I can tell you, if you are a Federal Bank customer, rarely do you leave us. Our NPS, and this is not by my measure, NPS scores as measured by Nielsen for the industry, we rank amongst the top two, three NPS scores. For common understanding, Net Promoter Score is the best measure of customer referencing us or promoting our case and sticking with us.
Thank you and all the best.
Thank you.
Thank you. The next question is from the line of M. B. Mahesh from Kotak Securities. Please go ahead.
Yeah. Hi. Good evening. A couple of questions. One is on slide 23 on the retail book. Shyam, this growth that you saw in housing seems to be very, very weak. It's down on a QOQ basis. Any-
Mahesh, I think there is the, we have got the numbers slightly wrong on that slide. We will update that slide and we'll probably update the presentation.
On the second question, you had kind of indicated this breakup between MCLR repo. That number adds to 90, not 100. You said 45% repo, 18% MCLR, 27% fixed.
The rest of them are like staff loans and FX and a few other small, 1%, 2%. I gave you the bigger ones.
Okay, perfect. One last question is that on the pension related cost, how much was it for the full year that you had provided? Okay.
INR 185 crore on the family pension.
No, no. If I include the overall, the entire provisions that you made, if I look at-
It would be north of INR 350-400 crores.
A comparable number, this would be INR 500 crore last year, if you just kind of look at the annual report and kind of compare it with the number that you have given.
Let me not try to guess that. Where Venkat can or he can give you.
You need to check that also. Previous year.
Around 490.
Around 4:40-4:50, M. B. Mahesh.
That is last year or this year?
Last year.
This year the number is 350.
No. This year, if you add the family pension will be higher.
Pension alone is INR 185. Yeah.
Okay. Sorry.
I'll have to look into what it is currently. I haven't checked that.
Okay, perfect. Thanks a lot.
Thank you. The next question is from the line of Rushab Inderkar from Guardian Capital. Please go ahead.
Hi. Good evening to the management. I just had a couple of questions. First, could you take me through what reason for a decline in treasury profitability?
Ashutosh, you wanna come in?
I think basically when interest rates start moving up, you do not have the opportunity to really make, you know, profits on bonds. Through shorting, some part of it has been compensated and through some, you know, Forex volatility was there. But that trading gain cannot substitute the investment related, you know, opportunities, you know, profit on sale of investments, which is classified under profit on sale of investments. I think when you see yields going up, the risk is on the other side that you are required to provide for it rather than, you know, earning, you know, profits there. We had been maintaining very low PV01 or very low modified duration in our HFT and AFS portfolio.
As a result of that, the hit is minimal. But at the same time, the opportunity to make profit reduces that much. If you see for the year as a whole, Q1 has been very, very good. When you compare year versus year, I think you would find this year to be quite okay. I mean, the year that has gone past has been quite okay on that front. FY 2023 may have challenge.
Okay. Any guidance on what sort of profitability we are looking at in treasury business next year?
On the Forex side, there would be, you know, normal growth of 15%-20%. On the investment side and all, there are some opportunities, but that would depend on what call we take depending upon the then prevailing scenarios and all. Investments in some of those, you know, strategic investments and all. That's something, you know, which we would decide in the Q4 . Overall, you know, I think, if profit on sale of investment has not been as such, you know, budgeted at the same level that which it was, the actuals that come for FY 2022.
That would be compensated through the core growth of core fee income growth, which has trended very well in third and Q4 of the previous year, FY 2022. In FY 2023, we can take it forward to you know, compensate and that's going to be more sustaining.
Got it. Okay. The second one being, do we have a break-up of, you know, the fixed rate in terms of loan book, fixed rate and floating rate loans?
That I think what CFO had given, you know. Venkatraman Venkateswaran, you can repeat that. I think it's fixed rate is 27%.
Yeah. 27%. 18% is MCLR and external benchmark is 46%-47%.
Yes. Rest is, you know, advances against specified securities, NFCs, shares, your bank's own deposits and all that, which.
Foreign currency also, Ashutosh.
Huh?
Foreign currency loans also. Foreign currency base rate, a few small, 1%, 1.5% like that. Yes.
Got it. Earlier during the call, it was mentioned that from FY 2023, we would start monetizing the fintech relationships. Do we have a, I mean, what is the model that we are using for monetizing these?
No, I think when I said monetizing, it means that the investments may start fetching revenues. I said this year, broadly, the cost income should be closer to 60%.
Oh, okay.
Every rupee we spend, we expect at least 60 paise our revenues or more is what we're pushing for.
Okay, perfect. Okay, thank you.
Thank you. Before we take the next question, a reminder to the participants, please limit your questions to two questions per participant. For any follow-up, may we request you to rejoin the queue. The next question.
Yes. My apologies. For every 61 rupee we spend, we earn more, not INR 0.60. We earn more than that. 1.0, 1.5 or whatever. 1.5. Sorry, I apologize. Yeah, go ahead, please.
Thank you. The next question is from the line of Franklin M. from Equitas Wealth Advisory. Please go ahead.
Yeah, thanks for taking my question. Just on the, you know, deposit trajectory last, you know, two, three quarters we have seen a slowing trajectory in the overall deposits. We are likely to grow our advances by 15% plus in the next year, which means that, you know, our deposit base also needs to start picking up. One is like, what is the reason why the trajectory has slowed and what, how is this trajectory likely to pick up?
I think this question had come earlier. You know, I think, part of the deposits is your certificate of deposits and all those. We have reduced our so-called bulk and wholesale segment. In fact, part of it has been substituted by the refinances from the refinancing institutions like NABARD and all. But that doesn't come under deposit, that comes under borrowings. Though it is longer term, I mean, very competitively priced and all that. The thing is, you know, I think you may see a reduction in total deposits or rather slower growth in total deposits. But if you remove this, you know, conscious substitution and all, the deposit growth is matching the advances growth, loans growth. Retail deposit growth is in double digit.
Okay. On the NIM trajectory, you said that, you know, around 3.25% is where you are looking to, you know, maintain the NIMs for next year. Is there scope for further improvement like, you know, the year after that? Or is this 3.25% likely to be more of a sustainable number?
No, I think, I mean, the effort of the bank as the mix of the business changes and in a rising rate environment certainly to go higher than the 3.5%, closer to 3.30% or beyond. I think these are best delivered and then spoken of the next milestone.
Yeah. Thanks a lot.
Yeah. Thank you. The next question is from the line of Gaurav Jani from Prabhudas Lilladher. Please go ahead.
Thanks for taking my question. Firstly, you know, question to Shyam Srinivasan. On the CASA ratio, we're at about 37%. In the coming year, as we are staring at a higher interest rate environment, generally for us and for the system, I mean, how do you know customers behave? You know, could we retain these customers or should we logically see a reduction in the CASA ratio?
No, we are looking at. See, even CASA, we have to look at two things, when you look at a ratio of both the numerator and the denominator. What we are aspiring and working on is to get the CASA growing at the north of 17 with a 8%-18% growth rate. The term is a function of both pricing and demand that we want. CASA ratio can swing, but preferably we want to push it by another 100 basis points. In the last two financial years, we moved up 300 basis points in CASA.
We believe that we should get it closer to 39, but we are working on that, over a period of time it will happen. More than the ratio, please focus on the net blended cost of funds and CASA growing. Having said that, the ratio will improve, because that's also a focus area of the bank.
Yeah.
Our cost of money is now in the top quartile, 4.3% or whatever that is.
That helps. The second question is to Shalini ma'am. On the credit cards front now, you know, first we wanted your views on the new credit card guidelines and considering we had, you know, tie-ups with fintechs for co-branded cards. How would that, you know, sort of shape up in terms of growth?
Thanks. Thanks for that. I think two parts to it. One insofar as our organic credit card portfolio is concerned, which is our own portfolio, which is growing at a good rate. From the directions, there are a range of items which RBI has introduced in the new direction, primarily driven by the need for transparency from a customer standpoint, making it easier for customers, making it more convenient for customers. Examples being really you can change your billing cycle, if it's not been activated within 30 days, it needs an OTP to do it, et cetera, et cetera. There are about maybe 10 or so items which are primarily operationally required to be delivered on, none of which we find challenging from a delivery perspective.
Yes, it will potentially increase a little bit of the cost of processing. In the overall interest of customer stickiness and growing balances and getting the credit card as a trusted instrument, I think that's a good balance to strike. That was the organic one. Insofar as the co-branded one is concerned, we have a partnership with OneCard and that's a partnership that has been live for probably about eight or nine months now. From our standpoint, OneCard currently plays the role of both in supporting and acquiring cards for us as a brand partner for us, as a co-brand partner. The entity also plays a role as an outsourced TSP or technology service provider.
Under that role, you know, OneCard ensures an end-to-end customer experience, mobile first kind of customer experience. The market direction has made certain areas a little more explicit in terms of what can be done, not done, et cetera, with the co-brand side of it as well as the TSP side of it. We don't believe any of them are, you know, showstoppers of any kind. We do believe that we will be able to deliver on those with our partners.
As we stand right now with a couple of months more left for the implementation date, we're quite confident that the trajectory will continue. Both ends we've had a very detailed look at it and we do believe that it is in the general health of the industry. I think both are made, I mean the measures are good and we can deliver on that. Yes.
Ma'am, just one question on the credit card growth bit. Considering we are looking at again, you know, rising interest rate environment, should we sort of assume that we have this, you know, slowdown on growth or how should we look at this? Obviously we're on a low base, but I mean.
Yeah, we are very aware of low base. We are exactly what you say we have a low base and also the overall penetration in the country all of us know it's still very, very small, right? I certainly don't think we will see any material slowdown in the credit card growth because the penetration is so low in the industry as a whole. For us the base is anyway so low, so small that we have an opportunity to grow. What could potentially get impacted is within that we obviously look at revolvers as well as our revolvers on the outstanding as well as those using balance, you know, transferring the balance to an EMI. That may see a little bit of a you know, reduction. Honestly, in the, for us at least the portfolio being small we still see a growth there.
I'll just add what Shalini said, Gaurav. I mean, the only product which is reasonably rate agnostic is credit cards. Rising rates doesn't necessarily mean because they're already at 24%, 25%, 25% if the revolving guy is already paying that rate.
Sure. That helps. Thank you. You know, final one if I can squeeze in. One is what percentage of our liabilities would sort of mature within one year and the update on the FedFina listing, please? Thanks.
FedFina listing, I have nothing to add than what I had said. It's SEBI is yet to come up with the approval and then post that, you know, the company has up to a year to list, so there's no timeline date for it. On liability, what was the question? Profile that is maturing?
Yes. Yes. What proportion of the liabilities would mature, say by FY23? Within a year from now.
That's in the fixed deposit portfolio, right? Ashutosh or Venkat, anything that you want to, you can share off the top of your head.
Sorry, please. Repeat query. FD portfolio
Yeah. From an ALM standpoint, what proportion of the liabilities would mature within one year?
I think on the term deposit side, nearly 60%-65% of term deposits have the original maturity of one year. Nearly two-thirds of the term deposits have the original maturity of one year. Remaining maturity could be, you know, few days to, you know, 12 months.
Okay. Got it. That's good.
Thank you. The next question is from the line of Anand Dama from Emkay Global. Please go ahead.
Yeah, thank you, sir, for the opportunity. The housing book and the P&L book both have declined on a quarter-on-quarter basis. Is there any reclassification which has happened?
I think Anand mentioned there's an error in reporting there, chief. Sorry, that needs to be corrected.
Yeah, on the personal loan side, I think there, last quarter also, we had said that basically.
Personal loan has declined. Rate of growth has slowed down because we did not grow that business aggressively in FY 2022 for the purpose of credit quality and comfort that we get. We see that happening going into FY 2023.
Shyam, basically, when we look at other banks, you know, be it HDFC, ICICI and all, they are all growing into the personal loan segment, which they believe is largely mainly focused on the captive customers. What really makes us so concerned about that book?
Anand, I think the question on why they are growing or why we are not growing, we can only answer why we are not, why we did not push that hard for the very reason that we tightened our criteria for existing customers. We do only pre-approved, digitally originated personal loans, which was growing at about INR 100 crore a month pre-COVID. During COVID, we tightened the criteria quite materially, so the book started running down. The backfilling of the book is now running at about INR 60 crore a month. As we go into, you know, we are now getting more comfortable with the environment, so we're unleashing some of the parameters back, so growth will come back.
Okay. When we said that we are looking to grow at somewhere about 15% or so, I mean, even at the top end, about 20-odd%. How will the retail look like and how will basically corporate-
The businesses like credit card, personal loans will grow well. I mean, credit card will grow, you know, well about 100% or even more, because the base is small. Personal loans, which is close to about INR 2,000 crore book, will grow at about 18%-20% this year.
Okay. How about mortgages? Because that book also. In fact, if you look at the other bank, they have been growing at a much faster pace.
Just on the previous question, roughly 40% of the liability is mature in next 1 year. Just wanted to make that point clear.
Sir, I have the question on your mortgage is different. Why are-
That 40% is natural, you know, in such because you remove nearly 40% of CASA, the remaining one, if you take 60% of that, I mean, say almost two-thirds of remaining 60% comes to 40%. That's the same number remains the same.
Shyam, the question was on mortgages. What kind of growth rate are we looking at in that segment?
This year grew close to 14%. We think that will grow back to last. The previous year grew about 18%. We think that'll happen.
On the corporate front?
Corporate business, I mentioned a while ago. We grew this year more at the back end. We started growing. We believe this coming financial year we should grow well into the early teens. I would be cautious about the opportunity in terms of pricing. We will pick that. We'll be picking and choosing. Last year we sanctioned but did not disburse INR 3,000 crore of corporate credit. If we had disbursed it, we would have had another 3% growth, but we chose not to. Harsh, am I right? Harsh?
We had. That's right. You are right, Shyam. We had done that. Apart from that, we had done some sell-down of assets, which is another 2.5% of the corporate portfolio.
Okay. Which means that the portfolio mix is going to shift more towards retail and I think SME. In that case, we should see a margin uptick.
Yeah. We said 55, 45 retail wholesale. Within retail we will have a higher mix of retail, higher margin businesses. Likewise, in wholesale the commercial banking will pick up. We also said the portfolio NIM will move up to 3.25 or so. Must add that 10 basis points from 3.69 basis points increase on a whole portfolio of INR 130,000 crore is a lot of heavy lifting to do.
Okay. Thanks, Shyam.
Welcome.
Thank you. The next question is from the line of Darpan Shah from Haitong Securities. Please go ahead.
Yeah. Thanks. All my questions have been answered.
I think, operator, we should bring this to a close if there are no other major questions.
We have few participants in the queue, sir. If you allow me, I can promote them.
Sure. Please go ahead.
Thank you.
Maybe we can pause here. Whatever is in the queue, we can close out.
Sure. The next question is from the line of Jai Mundhra from B&K Securities. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. On your exit ROA, sir, so adjusting for this family pension, we would have done 1.24, 1.25, which was we had said earlier. If you can refresh this exit guidance on exit basis or maybe full year basis for the next 1-2 year.
We had said 1.25%, 2 financial years out, and we are still holding to that. We think FY 2023 will be closer to 1.1% to 1.12%, 1.13%.
Sorry. The full year basis, right?
Exit ROA full year will be about 1.07%-1.08%. Five basis points more from the exit of this now.
Sure. Sir, within which, credit cost if I see for this year, what you've reported is 45 basis point. I mean, do you see any more scope to lower it or this should be, you know?
This will be reasonably optimum at this point in time, 45 or so. I don't see. I mean, we are working for an improvement on that, but, you know, let me be honest, we will add up a little in case things work in favor of us.
Right. The last two questions are on restructuring. How much of the, I mean, the performance looks decent, and I think you have also mentioned 95% collections. But just wanted to check, are the entire book out of moratorium and maybe, you know, how many customers are paying in full, et cetera? If you can share some details.
Our head of collections is on a PhD in it. Babu, if you're there, you can just quickly give a one-minute answer to this.
Yeah. As rightly asked, restructured book is primarily it is a quality book. I think that is of our normal asset book. That's why this better collection is happening and the slippage rate has also come down. 40% of the book has already there come in the standard book in March and there we are doing well. Looking forward also we are confident that we'll be able to close somewhere on those lines only. In terms of exact number of customers right now I don't have that number with me, but about 40% of the restructured book has come in the standard book in March and there we have done well with the support of the quality of our book as well as collection actually.
Sorry, actually I could not hear much, but did you say that 40% of the book has started billing, right?
There was moratorium. Once that moratorium is over-
You're right. 40% has started billing. That's what is the demand book. Yes.
40% of the book has demand in it, and there it has performed quite well.
Yeah.
Right. The same thing, sir, for ECLGS, if you can share what is the outstanding and, you know, how are you seeing trends there, shall you say?
The ECL book is also doing well, far better than that of the last quarter. ECL book right now it is already 100. Our maybe now slippage rate is far below than the average slippage rate of the bank. Quarter by quarter it is doing well.
Right. What is the amount, sir? INR 3,000 crore or something else?
4,300.
43, right? 4,300.
Yeah. Yeah.
That is actually if I look at my numbers, it looks like it has increased from last quarter. Is that right?
A little more disbursements are also there from GECL and there was maybe an extended regulatory dispensation was there, so something more of a disbursement. Including that it is INR 4,300, right.
Understood, sir. Yeah. Thank you so much, sir.
Thank you.
Thank you. The next question is from the line of Dhaval Gala from Aditya Birla Sun Life. Please go ahead.
Yeah. Thank you, sir, for the opportunity. I think you've already answered partly on net interest margin. Just wanted to understand bit of a outlook on your net interest margins for, say, next 12 months, and medium term.
No, I think you heard right. We are talking of, you know, it going up from where we are for Q4 on an average basis, 3.25 FY 2022 by moving by 5-7 basis points in FY 2023 on an average basis.
Okay. Just you mentioned about that in FY 2023 we could see monetization from a lot of your FinTech partnerships. If you could elaborate, when and how, what should we look at? What line item would we see the money?
No, I think it's not a line item. If the incremental cost income on this portfolio, we are talking, you know, looking at for every INR 1 spend, we should earn INR 1.5.
Okay.
We're looking at higher, but that's the minimum what we will push for.
It would be part of both margins as well as fee?
See, if we are building deposits, it will come into the income, interest income portfolio. On the credit card, it will be largely fee income. Actually mix, it will be spread income and interest income.
Got it.
Thank you. The next question is from the line of Prashant Kumar from Sunidhi Securities. Please go ahead.
Thanks for the opportunity, sir. Just one quick on one data point. On asset quality side, based on back calculation. The addition for FY 2022 is roughly around INR 1,840 crore and reduction is, on my calculation for 2023, INR 2,346 crore and write-off is around INR 800 crore. Actually, I need breakup of upgrade and recovery if it is handy.
It's there in the deck itself. All our numbers are there in the deck. By quarter, you will find it. It's in the point.
Yes. Yes, sir. Just upgrade and recovery, if by allocation, if I can get it.
You mean the split up between upgrade and recovery?
Yes. Yes.
How would you have it as a number again?
Sir, yeah. Sir, this INR 800 is, yeah. Including this INR 800, there was a sale of INR 70, a pool of bad debt stock.
No. He's talking of full year. Full year number he's talking about.
The full year, let me check, sir. I'll get back.
Maybe you can put that as a number in the deck so everybody will have access to it. You can put it in the deck in slide seven. We'll update it.
Sir, in slide seven I do have the total number. 1,258 is upgrade and recovery. Maybe now ARC total full year is INR 235 and INR 800 is the maybe write-off. [uncertain].
Sorry, again, can you repeat? Only upgrade.
1,250, 1,257 is the recovery and upgrade actually. Full. That is more than that of the last financial year or maybe for recent years this is the highest.
Babu, they are asking about the breakup of recovery and upgrade. How much is cash recovery? How much is upgrade?
Sir, 3.6. 3.6 is the recovery. 5.91 is upgrade actually.
Yeah. Now the number is. Break-up is given.
Okay. Thank you, sir.
Triple six and five nine one.
Yeah.
Thank you.
Okay, fine. I think operator we should bring it to a close, please.
Sure. I now hand the conference over to Mr. Anand Chugh for closing comments. Over to you, sir.
Yeah. Thank you so much, everyone for being on the call and participating quite actively. We will connect back with you probably next quarter. Thank you so much.
Thanks, everyone.
Thank you. Ladies and gentlemen, on behalf of the Federal Bank Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.
Thank you. Bye bye.