Ladies and gentlemen, good day and welcome to the Federal Bank Limited Q2 FY26 earnings conference call. 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Souvik Roy, Head of Investor Relations, Federal Bank Limited. Thank you, and over to you, Mr. Roy.
Thank you so much, and good afternoon, everyone. Thank you so much for joining us on a Saturday. We truly appreciate you taking the time. Today is Dhanteras, and with Diwali just around the corner, we wish all of you and your families health, prosperity, and a wonderful festive season ahead. We remember the fact that today is a crowded results day for all of you, so we actually thought to start a bit early and give you enough time for the other calls. Many of you had actually mentioned in the last call that weekend calls are tough. We do understand that, but unfortunately, given the results calendar this quarter and the number of moving parts, we couldn't shift it around this time. We did, however, want to get all the fireworks out of the way before Diwali. Hopefully, absek abhi har, no more shaniwar.
All our Senior Management members are on the call with me, including our MD, our EDs, and the Business Heads, and they'll be happy to take your questions after the opening comments. With that, let me hand it over to our MD, Mr. KVS Manian. Over to you, sir.
Thanks, Souvik. Good afternoon, everyone. Thank you for joining us for our Q2 earnings call. I have now spent over a year in this role. I can say with conviction that I feel confident both about where the bank stands today and about our collective ability to steer it steadily towards the goals we have laid out. The results this quarter reflect the structural improvements we have been working hard to embed in our income and balance sheet profile. Let me take a few minutes to walk you through the four levers that continue to drive this structural change. The first lever is strengthening NIMs through CASA, especially current accounts. Our CASA growth this quarter has been very encouraging, both sequentially and year-on-year.
Even more importantly, the average CASA balances have risen meaningfully, even more than what the EOPs reflect, showing that the growth is not just at the quarter end but sustained. Within that, our current account growth has been strong. We have also gained share in our NRI franchise on the savings side, which remains one of our natural modes. Our remittance market share has climbed back from 18.5% to 21%, showing renewed momentum on that front. On the corporate CAF front, our cash management business is an area of progress. With the complete migration of customers to our new platform, FedOne, we are seeing higher engagement and improved transaction flows. To sum up this lever, our average CASA ratio has improved by over 120 basis points over the past year and over 100 basis points quarter over quarter.
Overall deposit growth might look moderate because we have deliberately rationalized wholesale and financial sector deposits. That is a conscious choice to strengthen the quality and not just the quantity of deposits. The basket of CASA and retail term deposits continues to show a healthy growth trend of over 11% year-on-year. Coming to the second lever, improving NIM through asset mix. As you know, nearly half of our loan book used to be concentrated in low-yield assets, which was corporate and home loans. Over the past few quarters, we have been consciously recalibrating this mix. In the higher-yield segment, our portfolio continues to grow strongly, while we remain calibrated in the MFI and personal loan space, which we will consider scaling up once the external environment stabilizes. Our medium-yield book has been a key focus area, and its share continues to improve.
Businesses like commercial banking and commercial vehicle finance are growing at healthy double-digit rates, and our lab business and BUV business units are regaining growth momentum. We have also pilot-launched our tractor business in the last quarter. On the retail side, gold loans are expanding at a smart pace of 7% quarter on quarter, excluding the DGB segment, which we are running down as per the new gold loan guidelines of RBI. We are gearing up for stronger growth in auto loans and LAC in the coming quarters, which will support our full-year guidance. The combined impact of these actions, both on asset and liability side, has been tangible, and our NIM performance has exceeded our earlier guidance. The third lever was building diversified sustainable fee income.
In a quarter where treasury income was muted due to market movements, our fee income still grew 13% QOQ, demonstrating the resilience of our core franchise. Our fee-to-average assets ratio crossed 1% for the first time, a milestone we have been targeting for some time. Initiatives in wealth management, trade, and forex revenues are gaining momentum, and we expect them to further strengthen the fee trajectory over the next few quarters. The final lever, of course, is maintaining strong asset quality and prudent provisioning. After a slightly elevated credit cost in Q1 due to MFI stress, we had earlier guided that our full-year credit cost would remain around 55 basis points. This quarter, the credit cost moderated to 50 basis points, and we remain confident in holding to our earlier guidance.
We have also taken a management overlay of INR 46 crore approximately this quarter on some standard accounts even before reclassification, where we have observed stress in connected exposures. This is a proactive precautionary measure. Slippages continue to be under control, and the underlying credit quality remains stable. In summary, we are executing exactly in line with our strategic priorities. The shifts we have made in liability mix, asset composition, and fee diversification are visible in our numbers and in the growing consistency of our performance. Thank you for your attention. I will now open up the call for questions, which my colleagues and I are happy to take.
Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press STAR and ONE on your touch-tone 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'll wait for a moment while the question queue assembles. The first question comes from the line of Akshay Jain from Autonomous. Please go ahead.
Hi, Akshay. Yes.
Mr. Jain, please go ahead. Mr. Jain, please unmute your line and go ahead with your question.
Hello. Am I audible now?
Yes, Akshay.
Yeah.
Okay. My first question is on margins. Can you talk through the moving parts of the 12 basis points NIM improvement this quarter? There was an expectation that this quarter will again be slightly negative, and from 3Q onwards, margins will start to improve. Secondly, how should we look at margins going ahead? You mentioned that, should we look at like you are already close to the 3.1% levels, which you reported back in 4Q 2025. What should be a sustainable level of margins going ahead?
Yeah. Hi.
Second. Should I ask my second question or should I ask the second question?
Let me answer your question on margins. Let me answer your question on margins first. The movement from last quarter 2.94 to 3.06. You should also keep in mind that we are one of the few banks where we do T plus 1 refreshing on the RepoLink book. A large part of the hit on the 50 basis points has been taken in last quarter. Having said that, the main reason for movement this quarter is our deposit cost was lowered by about 19 basis points. In addition to that, our cost of borrowing was down by about 3 basis points. Together, that's 22 basis points on the liability side. Our yield on advances dropped by 14 basis points. We gained 1 basis points in CRR and another 2 odd basis points from optimization of other assets and liabilities.
That is how the movement is from 2.94 to 3.06, largely driven by lower deposit and borrowing costs because we also dropped our savings rate, if you remember, last quarter in June, mid-June.
Yeah. Akshay, going forward, of course, our intention is to change our NIM profile over a period of time by continuing to focus on what I call the mediating assets. We do expect improvement in NIMs going forward as well, of course, subject to further rate cuts and things like that. Yes, our attempt will be to continuously look at improving the NIM profile to beyond what we started this exercise from, right?
Okay, so parted. Secondly, sir, on the growth, growth has been pretty low this time at around 1.5% QOQ, which is almost half the system. How should we see growth going ahead? Are we comfortable enough to meet the 1.2x nominal GDP target, which you had quoted for this year?
Akshay, just some background to growth, which is very important for us to understand. When we started this trying to restructure our asset side, 50% of our asset book was in the low-yielding segment, what we call the low-yielding segment. That is, corporate and home loans constituted over 50% of our book, yeah? They still do very close to that. That is one. Second, you also know that we had a 53% one year back, we had 53% of our book in RepoLink assets. What we are trying to do is a structural shift over a period of time, and these structural shifts need time and effort over a period of time to correct.
If 50% of your book is such that you do not want a double-digit growth on them, and/or you don't want aggressive growth on them, you need to do doubly more on the rest of the 50% to get a particular growth rate. Please keep that in mind. If you see, even there, there are segments where we do not want to press the accelerator yet, like for example, microfinance or personal loans, areas which we did not want to press the accelerator. Wherever we have chosen, the way to look at it is in our chosen areas of growth, we have been able to grow quite handsomely. If you look at our commercial bank, it is growing at a late 20s kind of growth rate. Our cards is growing.
Our gold loan, as I mentioned, if you take away the DGB's business, that is the wholesale part of that gold business, which has to be run down because of the RBI new guideline. If you take the retail gold, we are growing at close to 7% quarter-on-quarter on that. The way we look at it is we need to grow, of course, we need to grow, and we need to grow profitably in line with the structural objectives we have to build a sustainable, good-quality franchise over a period of time. Therefore, we continue to remain bullish. I think there are areas like LAP and BUB, which have just about reversed their negative trend over the last quarter to positive territory this quarter. We do expect these to grow faster in the coming quarters and build momentum through that.
We are quite clear that in our chosen areas of growth, we will grow. I hope that answers your question.
Yes. On asset quality, last quarter was impacted by microfinance (MFI) and partly by business banking. This quarter, is it safe to assume that, you know, all things are back to normal?
The MFI, of course, that continuing 50% provision that happens, you know, we provide over two quarters on the unsecured. That hit has, of course, come this quarter, right? Last quarter's slippages do hit this quarter. If you look at the slippages, they have dropped, but are they in comfortable zone? I don't think so. MFI stress, I think, is still playing. It is easing for sure. I mean, we have seen the peak already last quarter, not this quarter. Month on month, we have seen easing of that. Has it completely come to a territory where we are comfortable? The answer is no. The rest of our asset book actually has stood rock solid on the asset quality side. We have no reasons to be concerned about anything on the asset quality or any other business other than just the MFI-led business.
Understood.
The credit cost, credit cost excluding MFI has actually slightly declined. In fact, our credit cost excluding MFI has slightly declined, if at all.
Yeah. Understood. Thank you. Just last one clarification. There's an exchange notification on capital raise. Is it just an enabling resolution, or is there something more to read into it?
Since we have given a notice for a board meeting on 24th, let's respect the board's authority to make decisions and then talk to you on that. We will just now leave it at that.
Is it enabling or like it's not an enabling one? Is it?
Let's wait for the 24th, please.
Okay. Fine, sir. Thank you.
Yeah. Yeah.
Thank you. Next question comes from the line of Mahrukh Adajania with Nuvama. Please go ahead.
Yeah, hello.
Hi, hi.
My first question is on margins. We've already done a good job on margins. They've come out better than expected or even better than guidance. Do you expect them to improve further in the second half? In terms of the CASA ratio, once balance sheet growth picks up, you've consolidated in the segments which were low yielding and grown in medium to high yield. Once overall balance sheet, once that consolidation is through, and I believe it should have been through last quarter, but once that is through and when overall balance sheet or loan growth picks up, how will CASA behave? Just now the growth is also low, so overall deposit growth is low. That is also helping the CASA ratio. That's my first question.
Right. On NIM, Mahrukh, of course, as you know, our deposits reprice over a 12 to 14-month period, and we are six months into that. Therefore, there is, of course, deposit repricing that will continue to play through the next six months. Of course, assuming our CASA trajectory continues, our desire will be to grow the margin from more than here, of course. Hopefully, our execution keeps in sync with our desire. That's about the NIM. On your CASA, you're absolutely right. We are very much aware that as growth picks up, our CASA momentum has to be even better to maintain the ratio. We fully understand that, and we have to build in our execution template to make sure that we deliver on that. Having said that, these are also times when overall industry CASA and deposit growth has been meet.
One is also hoping that tide will turn a bit also on that, and deposit growth will, in general, pick up. That will also give us some tailwind to do better. A mix of tailwind and better effort, there are many other initiatives we have in the pipeline to drive our CASA trajectory forward. I mean, there are hundreds more things to do, and we will definitely keep that in mind while executing going forward. It's a good point you raised. Yes, we have to keep that momentum stronger.
Okay. From 3.06, so 3.06 is the current NIM. What is the normalized level of NIM, say, over the next one to two years? I mean, would it be 3.3 types or you know what is the normalized level of?
All I can say is it is upward.
Yeah.
All I can say, Mahrukh, is that it is definitely upward. I don't want to limit myself with any number that I tell you. Let's say it is upward, and we will continue to see, Mahrukh, the reason I am also hesitant to tell you is there are many moving parts in this game, right? One, like I said, we are trying to restructure liabilities. We are trying to restructure assets. It's a mixture of things that is happening. There are external factors like rate cuts, further rate cuts that can happen. I think there are many moving parts. The way I look at it is we have to remain agile, keep executing and doing our best, and let the outcomes play out. Clearly, we would like to see NIMs higher than this, obviously.
Sure. In terms of asset quality, you know the microfinance (MFI) stress has peaked, but it's still there. Hopefully, in the second half or by the fourth quarter, it'll decline much more. In that context, at least for the next two to three quarters, can we see a sharp reduction in credit cost? I know you had guided to 50 basis points or 45 to 50 basis points as the normalized range. Next half, will we see a substantial reduction as MFI recovers, or it'll be 50 only?
No, Mahrukh, let me correct you first. We have never guided 45 or 50. Last call also, we said our full-year guidance is 55 basis points. Last quarter was 65. This quarter is 50. For the two quarters put together, we are at 58. We'll still maintain our full-year guidance of 55 basis points. Obviously, endeavor would be to try and come below that. At this stage, I'm not giving a guidance different from what we have stated earlier.
Okay, even with the MFI recovery, it'll be round about here only?
Let's see how it goes. We have two more quarters, so yeah. Like I told you, Mahrukh, I am not yet in the comfortable zone on MFI. I do not know how that plays. After we get a comfort on that side, we can consider on revising our guidance. Just now, I don't have that level of comfort on the MFI side to give you a revised guidance.
Okay. Got it. Just last question, I know the board will decide and then you will communicate on the capital raise. Theoretically speaking, since you are consolidating on areas you don't want to grow, and even if growth picks up, it can be self-funded through internal accruals because your margins are improving. Why would you need capital lateral? Are you seeking to expand in any capital-consuming business? Most of the other lending businesses should be self-funding. That was the broader question.
Mahrukh, let me first correct you that we don't want to grow is an incorrect statement. Like I told you, we have intention to grow in our chosen areas of assets on the asset side, which are profitable to grow.
Not the low yield.
Yes. Mahrukh, mediating segment also requires higher RWS, so we will come back after the board meeting and talk about update on the capital part of it. Let us leave that discussion out for today's call.
Got it. Got it. Okay, thank you so much and all the best. Thanks a lot.
Yeah, thank you.
Thank you.
Thank you. Next question comes from the line of Sumeet Kariwala with MS. Please go ahead.
Hi, am I audible?
Hi, Sumeet. Yes.
Hi, congratulations on a great quarter.
Thank you.
If I can get some initial estimates on the impact from the new guidelines, ECL, and the guidelines that RBI is going to put out on operational and credit risk, revised standardized approach, some initial estimates that you might want to share.
On the ECL, Sumeet, of course, the draft guidelines is out now, which we are examining. Based on the earlier submission, we are given an indication that it will not be a substantial impact to us. It'll be low, less than 0.2% on the capital. This was the estimate as per the March performance submission. We need to study in terms of what it will be. We don't expect any significant impact due to the ECL transition.
And the benefit from operational risk and characteristic guidelines? The standardized model to revised standardized approach, what could be the relief? Any sense on that?
It will have some benefit. It is too early for us to give out a number on that or an estimate, Sumeet. We will have, obviously, there will be benefits coming out of that. I don't want to put a number at this stage.
Okay. The OLA provisioning, that's with respect to which segment?
This is actually home loan, retail segment.
Retail.
Retail segment.
Retail segment. Can you give us some color on MFI portfolio in terms of SMA or collection efficiency, how it has behaved in September versus June?
Harsh, you want to take that?
Yeah. Hi, Sumeet. Harsh, yeah.
Sure.
First, we have observed the slippages have been coming down after peaking in May, month on month, in June, July, August, September, with each month being lower than the previous month. That's one part. Secondly, we have seen some reversal in terms of moving to a lower bucket from the higher bucket. That's the second part. There has been a higher collection also in this area. These three things do look positive at this point in time, Sumeet. A total book, or actually, VC-driven book is less than 1.7% of our total book. We have not been growing. It's almost flattish. The VC book is about INR 3,300 million, VC-driven book. That's JSD loans. There's a small portion that is SSG loans, which we have not seen any major concerns over there. This is broadly what it is.
We do see signs of trending downwards, but there's external stress because the number of borrowers the person can borrow from and the quantum he can borrow from has been capped. There is external pressure for him to repay. As you know, the overall outstanding of the microfinance (MFI) sector has come down significantly. That has also come out from the system, which is causing a bit of stress. That's the reason why we are saying that we would like to be a little cautious in terms of pressing the pedal or commenting on the asset quality going forward. At this point of time, it's trending downward.
Got it. Very helpful. Thanks, Harsh.
Thank you. Thank you. Thanks, Sumeet.
Thank you.
Thank you. Next question comes from the line of Rikin Shah, with IIFL Capital. Please go ahead.
Good afternoon, team. Thanks for the patching.
Good afternoon, everyone.
Good afternoon.
Sir, the first one is on margins. It seems like across the sector, the deposit repricing has been better than banks' own expectations. Even you had indicated potential mid-single-digit NIM contraction last quarter in this one. What has changed in your own assessment? What has surprised positively on deposit repricing? That's number one. I have a couple of other questions as well. I'll ask them a bit after that.
Rikin, it is not only about pricing. Pricing is, of course, we were quite agile on the pricing side. It also, as I had mentioned in my this thing, the CASA ratio, 1% improvement in a quarter also makes a big difference, right, to the cost of funds. Therefore, it's a mix of volume and rate actions. Like I also mentioned that we cut our wholesale deposits and went more retail on the wholesale side. Whatever we did, we did on short term. There are several rate actions we took, which has basically dropped our cost of funds. Like I said, while we gave a guidance last quarter after the last quarter, through the quarter, of course, we remain agile and do stuff which we look at as opportunities in the market.
For example, if you look at the average CASA growth, it is 6% QOQ, which is much more than we would have estimated in the beginning of the quarter. That makes a big difference to cost, right? Therefore, there are mixed actions. I would say partly good execution, partly markets, partly secular trends.
Yeah. Got it, sir. That nicely rolls into my second question. Clearly, the average CASA balances have picked up in the recent quarters. You had laid out in your strategy a few quarters ago what you aspire to do in the medium term. In your opening remarks, you did mention that NRI and remittance market share has improved. Any other levers beyond that that have started working in terms of government balances, etc., that has already started to yield results? If you could elaborate on that.
Yes. You know, government business is also doing better. In fact, some of the CASA uptake has been driven also by that. We have multiple initiatives like that, which are, some have started playing out, some are yet to play out. For example, FedOne is, we have launched essentially our payment side, right? We have yet to launch our collection side products on the corporate side. I think as we do many of these initiatives, there are multiple initiatives in the pipeline. As we start building our wealth proposition, which we have not yet gone live with, as we build our wealth proposition, we will again share on that. There are other product variants we have launched, which we will focus on. Therefore, there are many things in the pipeline.
Answering partly to the earlier Mahrukh's question as well, we have to keep executing to get CASA trajectory going all the time. We do have initiatives in the pipeline, which will continue to drive this.
Got it. The second last question is on asset quality. You know, the aggregate slippages have been high in the last couple of quarters. What explains that? More specifically, write-offs are very high in this quarter, driving your credit costs while your slippages have come off. Which segments have you written off more aggressively in the quarter, or has there been any change in the write-off policy?
Two things, Rikin. What we show as agri MFI, that is the MFI piece I was talking about. The elevated slippages were only arising out of MFI, as we said. That is easing. Has it eased enough? No. Is it easing, and are we seeing a definite downward trend? Yes. That is what the asset quality is about. On your point, there has been no change, Rikin, on any write-off policy. It has been the same. We have a kind of policy in place. We are consistently following that, and there is no extraordinary change. Nothing extraordinary we have done to change the write-off and things like that. Rikin, again, you must remember that as the unsecured stress started showing one year back, right? Some of those write-offs are happening out of that portfolio, and therefore, that is consistent with the other things we have been telling you.
Got it.
Nothing unusual or extraordinary that is to be noted.
Okay, sir. Noted, sir. The last question is, you know, the capital raise. I'm guessing you may choose to not answer that again. Is it fair to say that given your earlier articulation of building new line of businesses on the wealth management side or investment management side, the potential capital allocation is not only for the organic growth but also seeding some businesses? Just trying to understand what could be the potential capital allocation plans here.
Rikin, let me put it this way. Let the board make a decision. After the decision, all these factors will be considered while making a decision. The rationale of that decision, I promise you that as soon as the board makes that decision, we'll come in front of all of you and explain our rationale, whatever, whichever way we decide on that. Hang on for just have your Diwali, come back, and then we will see what to do about that.
Sure, sir. Happy Diwali to you and the team.
Thank you. Thank you. Thank you.
Thank you. Next question comes from the line of Nitin Aggarwal with Motilal Oswal Financial Services Limited. Please go ahead.
Yeah, hi, sir, and congrats on a very good result.
Hi, Nitin. Thanks.
Hi. Sir, I have a couple of questions. One is around the ECL impact, wherein you mentioned that the impact is going to be quite small or manageable. Do you think that this will come in the way of the targeted ROA improvement? We have laid out a target to be somewhere in the middle of top three and the next three in terms of ROA and our number that we look at. Will covering up this provisioning gap come in the way of us achieving that target over the next two years?
Let me put it this way, Nitin. Of course, one-time impact, whatever happens, that Venkat did give some guidance on. That anyway is one time. We do not expect on a running basis the ECL methodology to end up giving a significantly higher kind of credit cost. We do not expect our fundamental credit costs to change, right? Just because the methodology of accounting them changes, our fundamental credit costs should not change. This is early stages. Like Venkat said, we are analyzing that. In principle, if I were to respond without getting into the details and the mechanics of the numbers, new methodology should not typically result in a higher credit cost just because of some mathematics, right? Truly, we should lose more money for our credit costs to go up.
Yeah. Right. Yeah. Right, sir. The other is on the Yes Bank stake sale. If you can help us know how much is the gain and how have they reflected that in P&L or balance sheet, how is that accounting done?
Just to tell you, Yes Bank was taken into our AFS in the balance sheet when the revised accounting norms were announced. That has gone direct, that is what they call the designated equity. It went into the reserves, the profit on sale of that. Actually, in the year, it was a negative. As of March, it was restated at a particular price, and there was a small loss, which went directly into the reserves.
Reserves directly. Okay. Sure, sure. The last question is on the credit card, wherein we have made a very strong progress. It is also helping us improve the fee intensity. If you can talk about where we are in the profitability journey in this segment and how is the sourcing mix now between internal and external customers?
Yeah. I'll ask Venkatraman to address that.
Yeah. Strategically, we are moving into acquisition by our own team. Our organic card number is growing. At the same time, we have tightened or revised our policies on the fintech, the cards that we were sourcing. These two steps, on one side, the organic sourcing is helping us to get better customers. Most of them, the bulk of and almost 90% of the customers are our existing customers. From that point of view, it improves the stickiness of the customers with the bank. All in all, we will focus on how do we grow our organic card acquisition as a business going forward.
Right. In terms of product profitability, where are we on the ROA journey in this segment?
Nitin, the way we look at it is there are two parts to this, organic and inorganic. Our organic strategy is, of course, all upside ours, all downside in the beginning ours, right? All acquisition cost goes into us. Of course, as long as we keep our acquisition internal, we can control that. All the upside is us. When we work with fintech partners, we share some upside, right? It is a mixed strategy we follow. A mix between the organic and fintech will give us a balanced strategy of building ROA. I would say we are not yet in a big profit zone. We are in the mild loss, mild profit kind of zone just now. I think scale is important to build profits in this business. I think these are early days from ROA perspective. Moreover, we have recently embarked on this growing our organic cards.
As the card age grows up, our spend will go up. As the spend will go up, eventually, it will translate to the profitability of the card. Early days, I would say. Yeah.
Sure. Thank you so much, and wish you all the best.
Thank you.
Thank you.
Thank you. Next question comes from the line of Kunal Shah with Citigroup. Please go ahead.
Hi, thanks for taking the question.
Hi, sir.
Firstly, given that maybe going slow on the low-yielding asset is weighing some way on the overall loan growth, if you can just highlight in terms of the proportion up to which we expect the overall low-yielding advances to come down from the current levels of more than 50% odd, say, over the medium term. Maybe how long could it weigh on the overall loan growth compared to our guidance of 1.2x, 1.3x, the GDP multiplier, maybe average, which we are indicating? Kunal, let me play the contrarian on that with you. Why do you call low-yield assets growth weighing down? I think it weighs up on the profitability front. In any case, I think it's a balance. We need to grow the balance sheet, but yet we have to grow profitability. Our intention is to change the structure of our earnings. That's the goal.
You know, corporate, for example, if the corporate credit growth comes back, nothing stops us. If our liability profile continues to improve, there's nothing that stops us from pressing the accelerator on the corporate side, right? I think it is a question of the cycle. In a cycle where corporate credit cycle is not very favorable and you try to grow, it can only come at extremely low yields and ROA-destructive manner. We don't want to play the price game, right? By the way, if you go back to our history, there have been times when we have grown our asset at 20% and still our ROAs have not grown. If you trace back our own history, that has been the case. I think finally, we have to do things in a logical growth-oriented manner. Even in corporate, we are saying mid-corporates, we want to grow.
It is harder work than doing a large INR 2,000 crore transaction with a large corporate. You have to do 10 corporates at INR 200 crore. That's the way to go. That's the way we will go. Therefore, I just want to clarify that it is not that we are against growth, right? I told you that in chosen segments, we want to grow. Those are aggressive growth numbers. Those are not small. If you look at credit card, it is in 30%. If you look at the commercial bank, it is in late 20%. Gold is, as I told you, 7% QOQ if I take the DGS aside. It's not an issue about having a mindset to grow. We want to grow, and we will press the accelerator where we see the opportunity to grow profitably.
Got it. Perfect. Secondly, on the fee income side, the ramp-up has been quite strong. We are already seeing it upwards of 1% and I think a lot many levers are kicking in. If we look at forex, that's contributing. Distribution fee has gone up quite significantly on a quarter-on-quarter as well as year-on-year basis. Where do we see and how quickly can we see the overall fee-to-average assets ratio ramping up? Maybe you have indicated in terms of the medium-term guidance, which you have across the board. Is it coming too quickly than the expectations? The initiatives have already started to yield, and we might reach sooner, and that could be the support to the ROA?
Absolutely. I mean, that is our intention. I had always, even two, three quarters back, talked about this, saying that trade, forex, trade and forex, wealth, and cards being key drivers of this, apart from, of course, growth in many other areas that you have seen where it has continued to grow. I think the runway is still completely open on wealth, for example, while in parabanking, in insurance distribution, we have already started showing traction. I think the core wealth business is yet to go live technically. Therefore, there is a runway ahead. On forex, while we have seen progress, we have seen progress on the corporate side. We have not yet seen progress on the retail side. On trade, we still have a runway to grow that going forward.
I think there are enough levers yet to pull for us to improve this trajectory, and we will continue to do that.
Got it. Last time, you had indicated a host of initiatives which you had taken structurally. Any new initiatives, maybe after being there, maybe any incremental initiatives which you think that you have thought about over the last two months and which are getting implemented now?
Kunal, we already told you that we have 50 odd projects, large projects, which we are running as what we call the project breakthrough. Yes, of course. Maybe after the December quarter, we'll come with I had given a kind of a small update, an early-stage update in the last quarter. We will come back to you with the December results and give you a more comprehensive update. There are initiatives always in the pipeline, and of course, we have to keep doing what we have to do. We will come back with a full update. There are many initiatives that are, of course, in the pipeline.
Got it. Okay. Yes, thanks and all the best here.
Yeah. Thanks.
Thank you. Next question comes from the line of MB Mahesh with Kotak Securities. Please go ahead.
Hi, Mahesh. A few questions. Sir, just you or Venkatraman, one of the two on the questions on margins again. When you look at the yield on advances, decline of about roughly about 20 and corporate deposits on 20, how do you explain margin expansion here?
Venkat, see, Mahesh, what you are looking from that, don't derive the number from that. You'll have to look at it from a NIM perspective. From a NIM perspective, the deposit and borrowing cost, clearly, we have a 22 basis points save there, whereas the yield on advances has dropped only 14 basis points. You get a clear 6 basis points out there. Paid. In addition to that, there is a 1 basis point from CRR, which I told earlier. We also did, you know, we continue to do optimization of a balance sheet in terms of other assets and other liabilities. We have got about a couple of basis points from that. That is an ongoing exercise. We will see how, you know, there are still some more assets which we feel we can get returns out from or dispose and all that. That is work in progress. That's how the.
Just to clarify.
Sorry?
Just to clarify, there's no one-off in the interest income on the.
Not at all.
No.
No.
Absolutely not.
Second question, sir. We missed the direction of margins this quarter. Just trying to clarify here, if everything were to remain as what it is today in terms of interest rates, does margin go up or go down, or it remains flat next quarter or in the next two quarters? How does it move from here onwards?
Mahesh, it does go up, obviously, for the simple reason that, like we always tell you, our deposit reprices over 12 to 14 months, deposit side, the term deposit side reprices over 12 to 14 months. We are in the middle of that cycle. There is going to be repricing of our deposits for another two quarters, if not slightly more than that.
Right. That benefit will flow.
That benefit will flow. Of course, asset pricing will.
This is, as you know, no rate cut, like you said.
Yeah.
Rate cut is a separate, after you clarified, you are asking me a question. All remains the same. Yeah.
I mean, one last clarification. In your mind, do you think that the bank requires additional capital to do the current level of business, or do you have a capital adequacy in place in mind that suggests that this is on the lower side?
Mahesh, again, I will leave the question at that, answer at that, saying that let the 24th board meeting happen. Let us make that decision. The board will meet.
And whatever.
Discuss all issues. Whatever is the outcome, let's then come back and explain to you the update, rationale, all of that we will talk about.
Perfect.
Give us those few days to come back to you on that.
Yeah. Sure.
Happy Diwali.
Thank you.
Thank you. Next question comes from the line of Piran Engineer with CLSA. Please go ahead.
Yeah. Hi, team. Congrats on the quarter and happy Diwali. Just on the standard asset provision, once again, the management overlay thing, what exactly was that, and on what portfolio size did we take that INR 48 crore?
It's an INR 46 crore, the management overlay. It's a proactive decision which we have taken on standard assets which have not been reclassified, where we are seeing some stress on connected accounts. As a proactive measure, we have taken the INR 46 crore management overlay.
Okay, that part of that is in the retail side.
Largely in retail, yeah.
It's like the same borrower has another loan, which is, say, stage two. That's what you mean by stress, and that's not.
Not the same. The same borrower is very clear. The same borrower will be classified. Connected borrower. Connected borrower.
What do you mean by connected?
Sir, we will take you to that next slide.
Offline.
Offline and either, yeah, the technical terms are not there.
Okay. Fair enough. Secondly, getting back to this NIM thing because.
The promoter and the company of the promoter, private limited company of the promoter, are connected, just as an example.
Okay. Okay.
I'm saying there can be exclusion. Just as an example, there are scenarios there that we don't want to take you through the whole thing on a call like this.
No, no. Fair enough. Now I get it. One is corporate and one is the person. Fair enough.
That is one of the scenarios. Yeah.
Got it. Got it. Also, just on this NIM thing, is there some benefit in terms of day count accounting that has accrued this quarter?
No, no.
Usually, in certain quarters, there is a hit, and then some quarters, there's a benefit. Just want to make sure that this is an absolutely clean number.
This quarter, nothing correct.
None.
Nothing.
Perfect.
BAU in normal course. Yeah.
BAU in normal course. Okay. Perfect. Perfect. That was it. Thank you so much for this, and I wish you all the best.
Thank you. Thank you. Thank you. Venkat, can we take one more?
Sure. One more question, and probably we can wrap it up.
All right. Thank you. The last question comes from the line of Param Subramanian with Investech. Please go ahead.
Yeah. Hi. Thanks for taking my question. A couple of data-keeping questions first. What is your LCR for this quarter? What is your CET1, including profit?
129.
129.
Yeah, one minute.
One minute.
129. Yeah.
Okay. What is the CET1, including profits, as of this quarter?
CET1.
Did we give that?
We give that, which is 15.71.
None.
Yeah, it's given on an annual basis, but yeah.
15.71%, including profits, CET1, right?
Yeah, that includes CET1. That's CRA. 15.71% is CRA and includes CET1.
Without profits.
Without profits. The profits we do only at the end of the year. Blowback we do only in Q4. We don't do that calculation through the year. At this stage, we haven't taken profits.
We haven't done that.
Profit.
Okay. Fair enough. Lastly, this question has been asked in various forms, but I'll just, you know, again, how to think about the bank more from a medium-term perspective in the sense that, see, we are still in the midst of a rate-cutting cycle. Fully appreciate that you know you're solving for top-line growth and ROA delivery clearly. Since we are possibly still, you know, looking at further rate cuts ahead, at what point do you start thinking that, you know, balance sheet optimization as a lever is largely done, and we will start looking at growth as a driver of profitability going ahead? If you could give some sense on that, that, you know, I know this has been asked, but how we are thinking that at what point we are comfortable with mix and we want to start growing.
Clearly, as it has been asked in a few questions, you're also looking at, you know, October 24th, possibly raising capital. Yeah.
Param, all I will tell you is that growth in profits and growth in assets needs the right balance, right? One without the other is not possible or does not make sense. We remain very careful about how to balance these two. We understand that there are times when we'll have to drive profitability through asset growth, and there are times when we have to correct the profitability not necessarily through asset growth. All I can tell you is our strategy is not a thing that we will just hold tight whatever the situation of the market. We will remain agile. We will remain thinking about what is the right strategy to do in what environment, and we will act according to that. I do not want to pre-decide what we will do when. We will watch. We will react to the situation.
We will adapt and react to the situation.
No, absolutely, Manian. I fully appreciate that. It's just that your leverage is coming down. It has an ROE impact for you. You know that is why, just following up on this, that's something that you are considering as well, right?
Of course, all parts of the equation we will take into account. We need to take into account all parts of the equation. We understand that. Like I said, we will do what we think is sustainable and the right thing to do for medium-long-term benefit of the bank and the shareholders of the bank. We remain very conscious of that.
Thank you so much. Thanks, Manian. Congratulations on the quarter and happy Diwali to the whole team.
Thank you. Same to you. Thank you.
Thank you. Hopefully, with that, we'll probably close the call. Thanks, everyone, for joining us on a thunderous afternoon. 350+ participants today explains a lot. Thanks a bit. Before we close, one quick thing. Do look at slide number five in our presentation. It captures in a quick snapshot that's what we are truly focused on right now, which is execution. As always, if there's anything that's left out, we are always a call away. We can discuss offline as well. Thank you again for your time, and have a great rest of the day. Go ahead. Happy Diwali.
Happy Diwali to everyone.
Happy Diwali.
Happy Diwali. Thank you. Thank you for joining us.
Thank you. On behalf of Federal Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.