Ladies and gentlemen, good day and welcome to the Q2 FY 2027 conference call hosted by Federal Bank. 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. I now hand the conference over to Mr. Souvik Roy, Head, Investor Relations, The Federal Bank Limited. Thank you, and over to you, sir.
Thanks, Ryan. Good afternoon, everyone, and welcome to our earnings call. We have announced the results. I am hoping all of you have gone through it already. We are pleased to share that the bank has delivered a strong performance this quarter. We have with us today our MD & CEO, Mr. K.V.S. Manian , along with the entire senior leadership team, who will take you through the performance and the key developments that happened in the quarter that went by. With that, I will hand it over to Mr. Manian for his opening remarks. Over to you, sir.
Thank you, Souvik. Good afternoon, everyone, and welcome to Federal Bank's quarterly results call. Let me begin by briefing you on some changes to our board. Virat Diwanji, who has been our National Head of Consumer Banking, joins our board, and we look forward to his continued leadership. I am also pleased to welcome Rajesh Varrier to the board. He is strong as an independent director. His strong technology background and experience will be valuable as we continue to strengthen our capabilities in the technology and AI areas. I would also like to place on record our sincere appreciation for Ramanand Mundkur for his valuable contribution and service to the bank over the past five years. We thank him for his guidance and association with The Federal Bank and wish him the very best.
Coming to the quarter, we have delivered a strong performance underpinned by sustained momentum on the liability side, disciplined growth on the asset side, and continued focus on fees and operating efficiency. A significant milestone this quarter has been our average CASA deposits crossing INR 1 lakh crore. This reflects the progress we have made in strengthening our liability franchise and improving the quality of our deposit mix. We have also garnered our meaningful share of FCNR(B) deposits under the special window, participating at a quantum and economics that we believe are appropriate for us. On the asset side, we have continued to grow in a calibrated and disciplined manner with healthy momentum across our chosen segments. Our focus remains on pursuing quality growth while maintaining the discipline on risk-adjusted returns, which continues to improve each quarter.
As we have articulated in our annual report, sustained momentum and discipline remain central to our approach. The progress we are making on both sides of the balance sheet reflects this commitment. A stronger liability franchise, combined with disciplined asset growth, is helping sustain our NIM trajectory, and we remain confident in its underlying resilience. The evolving interest rate cycle should provide an additional supportive factor as we move forward. Beyond margins, we have delivered a strong performance on fee income. Fee income as a proportion of average assets has reached an all-time high, with performance broad-based across various fee-generating businesses. At the same time, we have maintained discipline on operating expenses and kept our cost-to-income trajectory under control.
If you look at the guidance we provided about a year and a half ago, we have by and large tracked well against our stated objectives on NIM, ROA, and fee income, with certain parameters actually outperforming the anticipated metrics. Our profitability trajectory and PAT growth reflect the underlying strength of the franchise and progress we are making towards our strategic objectives. Our reported profitability for the quarter also incorporates the impact of the change in accounting policy related to ESOP expenses. Venkat will later explain on this call the accounting treatment and its implications in more detail. Looking ahead, we remain constructive about the balanced quarters of the financial year. We will continue to pursue growth with discipline, strengthen the quality of our earnings, and remain focused on delivering sustainable value for all our stakeholders.
With that, I will hand it over to Venkat to take you through the financial performance and the key numbers in greater detail. Venkat?
Thank you, Manian, and good afternoon, everyone, for joining this call. I'll focus on the key financial developments for the second quarter. As usual, before that, a quick overview of the macro environment. In the last call, we flagged on the inflation trajectory, and you would have noticed that the headline CPI rose in each of the months, July, August, and September, from 4.45% in July to 4.83% in August and 5.54% in September. It averages approximately 4.94% for the quarter. The September reading was the highest so far in 2026 under the revised series and the fourth consecutive month above RBI's 4% target. Food inflation remained the main driver. It was 5.52% in July, 5.97% in August, and 7.74% in September. Whilst in August, the MPC held the repo rate at 5.25% and retained its neutral stance.
On October 7th, they unanimously raised the repo rate by 25 basis points to 5.5%, and it also changed the stance to calibrated tightening. RBI raised the FY 2027 growth projection to 7.1% from 6.7%. It also raised the FY 2027 inflation projection to 5.2% from 5%. The growth base remains strong. Real GDP grew at 7.8% in June quarter, ahead of RBI's estimate of 7%, and the March quarter was revised up to 8.6%. Most of the benefit from the easing cycle has now passed through to our liability book. From here, the margin mix will depend on improvement in assets and the strength of our liability franchise. Now, coming to the performance overview for Q2. Our net profit for the quarter was INR 1,386 crore, the highest in the b ank's history. It is 45.1% up YoY and 17.77% QoQ. Earnings per share stood at INR 22.26, up 44.34% and 16.25% QoQ.
Operating profit was INR 2,225.37 crore, up 35.35% YoY and 17.29% QoQ. In fact, if you look at our OP, if not for the one-time impact of the income tax refund which we had in Q4 of last year, if we exclude that, OP also has been the highest ever for the b ank at INR 2,225 crore. Total business crossed INR 6 lakh crore and gross advances crossed INR 3 lakh crore. Net interest income was INR 3,153.4 crore, up 7% QoQ and 26.38% YoY. NIM was 3.32%, down only 1 basis point QoQ and up 26 basis points YoY. Our cost of deposits declined 3 basis points during the quarter and 39 basis points YoY. Last quarter, we said that the pace of decline in deposit costs would moderate, and it has. The cost of deposits fell 3 basis points QoQ against 22 basis points in Q1.
With the October rate increase, the externally benchmarked part of our loan book will reprice ahead of deposits, which will reprice as they mature. We also expect competition for deposits to intensify once the liquidity situation normalizes. On the deposit and liability franchise, our total deposits closed at INR 304,269 crore , up 7% QoQ and 18.6% YoY. Our CASA balances stood at INR 109,803, up a very impressive 6.44% QoQ and 22.56% YoY. That is approximately 395 basis points faster than the deposit growth. Our CASA ratio improved 103 basis points YoY. Another important milestone was the average CASA crossed INR 1 lakh crore during the quarter. NRE and NRO deposits together reached INR 119,055 crore, up 13.25% QoQ and 26.6% YoY. Savings balances grew close to 4% QoQ and 19.6% YoY.
Last quarter, we addressed the sequential dip in current accounts, and we did say that traction would resume as the March quarter seasonality washed out. It has. Demand deposits grew 14.04% QoQ and 33% YoY. CASA itself grew by 6.4% QoQ, and there is no change to our guidance on CASA. The 103 basis point improvement in the ratio YoY reflects the trend in the growth. On advances, our gross advances closed at INR 301,687 crore, up 7.27% QoQ and 21% YoY. We have grown on the chosen segments, and our stated focus remains on the high-yielding granular assets that improve the risk-adjusted return profile of the book. This granularity also feeds into our [inaudible] . Gold loans grew 37.13% YoY and 6.67% QoQ. LAP grew 32.21% YoY, and credit cards grew an impressive 28.27% YoY.
Commercial banking continues its strong growth trajectory over the years, and in this quarter also grew 6.99%, almost 7% QoQ, and 25.46% YoY. CV/CE grew 21.74%. Corporate and institutional banking grew 17.19% YoY. We continue to engage where pricing and counterparty quality meet our thresholds. Business banking grew 12.39% YoY and QoQ 7.48%. We did mention in the last quarter that we would grow this book as the risk-adjusted returns justify. We are seeing directional change coming through now. Retail banking grew by 17.92% YoY. The average CD ratio for the quarter was 86.22%, and we continue to operate within the band which you have set for us. On fee income, our fee income was again INR 1,167 crore, up 22% QoQ and 31.86% YoY.
The total other income at INR 1,490 crore is the highest in the bank's history. Our fee income to assets is at an all-time high of 1.11%. Last quarter, fee income was seasonally lower against strong March base. This quarter has been a very strong growth, and it is well distributed, as Manian mentioned. Our cost-to-income ratio improved to 52%, down 196 basis points YoY and 42 basis points QoQ. We will continue to operate in the range of 52% on the CI ratio. As explained in the past as well, the focus will be on ensuring that the revenue growth is faster than cost growth. We will be investing in technology, in new branch openings, and other initiatives which will position us well for the future. Manian also mentioned that I will explain about the ESOP employee cost-related change.
Until last year, we followed the intrinsic value method for ESOPs granted to non-material risk takers. For the material risk takers, it was at fair value. From 1st April 2026, we have standardized this, and this is in line with best practices, and we are moving to fair value accounting for ESOPs across all employees. This change has resulted in an incremental employee cost of INR 32.7 crore and a consequent PAT impact of INR 24.5 crore. So when you are comparing year-on-year movement in employee cost and profitability, please keep this accounting change in mind. On asset quality, our GNPA improved to 1.32%, down 20 basis points QoQ and 51 basis points YoY. Our NNPA continues to be the best in class in the industry at 0.17%. Both GNPA and NNPA are at decadal lows.
Our PCR, excluding technical write-offs, is at 86.78%, and including technical write-offs, coverage is at 94.4%. Credit cost is at 0.31%, down sequentially by 10 basis points and 19 basis points YoY. Our ROA improved to 1.32%, up 10 basis points in this quarter and 23 basis points YoY. You will recollect that we had given a guidance of ROA of 3- 4 basis points per quarter, and we did mention that it will not be on a quarterly basis, but it will not be in every sequential quarter, but for the year we have given the guidance. And our ROE improved to 13.57%, up [160 basis points] QoQ. Last quarter, we did explain the sequential dip in ROE reflected the share warrant subscription money received ahead of deployment.
And we said that it is expected to reverse as the capital was deployed. Our book value has grown to INR 166.32, and CAR stands at a very healthy 16.84%. In closing, the b ank has delivered its highest-ever profit and highest-ever other income. Total business crossed INR 6 lakh crore and advances crossed INR 3 lakh crore. Over the year, profit has grown 45%, margin expanded 25 basis points, cost-to-income improved by 196 basis points, and credit cost declined by 20 basis points. Our provision coverage ratio has improved by 1,300 basis points. GNPA and NNPA are at decadal lows. The macro picture ahead carries higher inflation and tighter policy and also the overhang of [inaudible] prices. Competition for deposits will intensify with this. Our priorities are unchanged.
Deepen the liability franchise, grow in our chosen segments at the right risk-adjusted return, and hold the line on cost and credit policy. The granular and secured character of this balance sheet is what allows us to come to this. Thank you all, and we will now open up for questions.
Thank you. Ladies and gentlemen, we will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
Ryan, one quick thing before we begin. A quick request to everybody. Please limit yourselves to one question per participant so that we can allow most people to participate in the discussion. Please bear this in mind. Yes, please go ahead, Ryan, and open the line.
Thank you. We take the first question from the line of Mahrukh Adajania from Tara Capital Partners. Please go ahead.
Yeah. Hi. Congratulations. Actually, I had a few questions. My first question is on general asset quality. Given inflation trajectory, does that affect any of your segments, especially the high-yield segment? Have you seen any stress in any of these segments so far?
That's my first question. My second question is on your leveraged FCNR deposits. The leverage seems to be lower than other banks. Any thought process behind it? My third question is on talks about M&A. You've already clarified on exchanges, but what I want to understand is why would the bank be keen on acquiring an MFI given that the cycles may be too short, they are very volatile, and they're very steep and deep bad cycles. Just your thought process around it.
So your first question related to asset quality, we have not seen any impact on our asset quality of the environment that you were talking about yet. Having said that, we remain watchful. As you know, we have also been cautious about growing certain segments. If you look at our agri book, we have not pushed the pedal on that. For example, our microfinance book, we have not pushed the pedal on that. Therefore, we have been cautious about some of those segments, and we continue to watch the outcomes of El Niño, geopolitics, all of that, interest rate scenario, inflation, all of that. Just now, we don't see any impact on our portfolio. That is your first question.
The second question related to we disclose our leveraged FCNR, and I think what we focused on was the right quantum, right economics, and right granularity of that exercise was important for us, and I think we did what is appropriate in those contexts. Rest of the questions, they don't need an answer because there is nothing to discuss right now, so we do not discuss that.
Okay, sir. Thank you.
Thank you. Operator, next call please.
Thank you. We take the next question from the line of Akshay Jain from Autonomous. Please go ahead.
Hi, sir. Thank you for the opportunity, and congratulations on a great quarter. My first question is again on FCNR. Given The Federal Bank's strong NRIs, one would have expected it to have a much higher share of FCNR. What is driving this number? If you can provide margins excluding the FCNR impact. What is the FCNR funds which have been deployed in loans or bulk deposits which have been repaid, and what is still sitting in liquidity? That's my first question.
I think this is similar to one question. Like I said, I think what we wanted to ensure was there was right granularity to it, right economics to it, and we think what we've done is appropriate given our size of the balance sheet. It's appropriate given our ALM economics granularity, all of that put together.
Deployment opportunities, tenure, all of that. I think we did what is appropriate from our point of view. Rest of it, deployment into what and all is a matter of a lot of detail, Akshay, so I will leave that to, if you require a one-on-one discussion, we can do that. A lot of that is not really value additive. Finally, all of that is reflected in the mean figure that we have reported, right? Finally, it bakes in all of that.
Fine. Second is on the loan growth. Loan growth, if I remove the FCNR leverage, is now around 18%. How sustainable is this loan growth, and is there any revision in growth guidance?
We continue to maintain what we had guided as mid-teens as a growth rate guidance. We continue to maintain that guidance.
Okay. Understood. Sir, lastly, on the inorganic growth, I understand that you may not be able to comment on any specific deals, but what is the philosophy when you refer to any inorganic acquisition? Given the hard work you have put in strengthening the asset quality over the years, will you be comfortable in going into segments like MFI or similar segments?
From our point of view, I think I have stated this earlier on our inorganic philosophy, what we want to follow. One is we are quite clear that whatever we do, we must see it as accretive, and we are very disciplined about that. There are instances where we have given up opportunities where we have found it not accretive enough, and some of them are known. Therefore, the first principle is that it should be accretive.
We remain focused on areas where we think we can acquire newer capabilities or scale remains the second area. And of course, our preference is core. Over a period of time also, the universal banking franchise, that will determine the opportunities we evaluate and take forward. And I have earlier said that we also believe that a string of pearls strategy is probably better than a big bang strategy. And these are some of the guiding philosophies we will follow as and when we look at an opportunity and close that.
Understood, sir. Thank you. Those are my questions.
Thank you. We take the next question from the line of Kunal Shah from Citigroup. Please go ahead.
Hi, Kunal.
Yeah, hi. So firstly on OpEx, even if I adjust for the overall mix of, OpEx appears to be quite high, both the overhead cost as well as the employee cost. I do understand we added almost 75 odd branches. Would this be largely the infra-related spend which would have been there, which is leading to this kind of a rise in OpEx ?
Kunal, first of all, you have to see it in the context of cost-to-income and our past guidance on that. We have always maintained that don't bake in advantages on cost-to-income, and therefore, first of all, it is in line with our guidance, the cost-to-income guidance that we have given, number one. Number two, this of course includes extra branches, extra people. As you know, we have added a new sales channel. We are investing in technology. So there are several lines of expenses. And of course, there is some actuarial impact that has happened. So it's a combination of things. But I would say that remains within the overall guidance that we issued.
Yeah, the question was more in terms of ROA levers, looking at OpEx . So we have seen this getting towards 2.3 now, more than 2.3 on average assets. So, would this kind of investments continue and would we see limited levers on the OpEx side towards the ROA? Or maybe a negative lever to the ROA. Yeah.
Not negative. Kunal, you would recall all our calls over the last several quarters, we have maintained that please don't bake in benefits out of cost on ROA, and that guidance remains as of now. That was a two-year. We had at that time indicated that for a couple of years, we'd like to invest for a sustainable future protection, and that guidance continues.
Sure. Second question is on fee side. Does this include the fee on the leverage, the book which is leading to the higher fee income? Or this is more, I would say, more business as usual and we should continue to see the traction because again, fee income was something wherein we were expecting a build-up out there. Is there any one-off in the fee income or it is all structural? Yeah.
If you have seen the document we have given you, the disclosures we have given you, almost every line of the fee income-
Yeah. Totally it is processing fee and other service charges, if there is any component within that. Yeah.
Yes, there is some component of the FCNR there. But it is not there. I mean, if it was that significant to call out, we would have called out.
Okay. Any reason to book this treasury of INR 238 odd crore even when yields have hardened? Overall, the other income, there is a good support coming in of INR 238 crore. Any gains which have been booked even from maybe the portfolio which has been there, investment portfolio?
It is a combination again of some investment that we encashed during the quarter. In treasury, I would say we had a good quarter. I don't know what to call one-off, but clearly we gained out of IPOs, we gained out of some other one particular investment, and of course, there was an FR that was encashed during the quarter, which also contributed to it. More importantly, when you are looking at the numbers, please remember that you are looking at it from a very low base in the last two quarters. Last two quarters were super suppressed because of NOOP and other issues, and therefore, to some extent, it is also retracing back to normal that is contributing. If you go back to earlier quarters, our treasury incomes were not as low as the last two quarters, right? It' s a combination, I would say.
Yeah, to some extent, it is a good treasury quarter. Whether we can assume that the same will repeat, yes, it may not repeat.
Okay. Thank you. Thanks and all the best.
Yeah. Thank you.
Thank you. We take the next question from the line of Nitin Aggarwal from Motilal Oswal Financial Services Limited. Please go ahead.
Yeah, hi. Good evening, and thanks for the opportunity.
Hi, Nitin.
Hi, sir. Congratulations on a good quarter.
Thank you.
I have couple of questions. One is on the lending yields. If I see, while our focus has been to go the mix of high-yielding deposits, but given how the repricing has been playing out, the lending yields has been coming down bit by bit every quarter. Not counting in any rate hike-related gains from here, can we say that the lending yields now have bottomed, and therefore, how do you expect the margins to play out now over the coming quarters?
Yes, you can say that. If you see last quarter, the lending yield was almost, if you adjust for, there was an FCNR impact on that. But if you adjust for that, it was more or less constant or slightly higher, I would say, compared to the last quarter. So, we have already seen the bottom of that cycle last quarter, I would say. This quarter is more the FCNR impact, but I would say last quarter, we saw the bottom of that cycle.
Okay. On the margins, this quarter we have held essentially flat. How should one look at the margins over the coming quarters?
So broadly, Nitin, I would say for the year, we gave a broad guidance that it will be 5- 6 basis per quarter improvement, and we had said that it will not be linear. It will vary from quarter to quarter, but on an average, we should get that. We are still striving to get that number.
Okay. Second, just as a data point on the LCR ratio, if you can share that number.
LCR ratio is-
[inaudible] average.
Average LCR? One, one.
119.8%.
119.8% . 120%.
Okay. So it has improved 3 odd percentages this quarter. Am I right?
Yes, that's right.
Okay, great.
See, our desired band of 110%- 120%, we are continuing to operate within that kind of a band as an intention. I don't see 17%- 19% as an improvement. It is just that we are operating in that band, so it is sometimes 117%, sometimes 120%, or 115%. It could be anywhere between 110%- 120%.
Got that.
That's our targeted band at which we want to operate.
Got it. Thank you so much, sir. Wish you all the best.
Thank you.
Thank you. We take the next question from the line of Piran Engineer from CITIC Securities International. Please go ahead.
Yeah. Hi, team. Congratulations on the quarter.
Hi, Piran.
Hi. Just one thing, just as a clarification, is there any one-off OpEx from raising of USD bonds for the FCNR issue?
We have not raised bonds. There are some loan processing transactions which are built in. Yeah, which are built in.
Got it. Could you help me understand the NIM thing in totality? If you had not raised FCNR, our NIM should have been at least 8 basis higher. Is that a fair conclusion? So it is flat because you raised FCNR and X of that is higher.
Piran, that is a slippery slope of calculation. All I can say is it would have, of course, been higher for sure. How much is a matter of what all assumptions you make. If FCNR scheme did not come, does not mean no FCNR would have come, right? In normal course of business. All those are very complicated calculations to make. All I would say is, yes, has the FCNR impacted NIM? Of course, it has impacted NIM, especially the lending side or the leverage side has impacted the NIM. But how much is a matter of what all kind of assumptions you make.
Thank you. We take the next question from the line of Jai Prakash Mundhra. Please go ahead.
Hi, Jai.
Yeah. Hi, sir. Just a few questions, sir. First, on gold loan, we have yield at around 10.4%. If you can specify what is the usual average tenure of this product, because I believe the rates are fixed here, and how quickly or how easy or difficult would it be for you to change the rate in rising rate cycle? Or you believe because it is a short tenure product, it may not have any issue from the NIM accretion perspective.
Jai, if you look at overall structure of our book is fairly healthy. 33% of our book is fixed, 45% is repo-linked, and the rest of it is MCLR-linked. So we have a good mix of floating and fixed book in our balance sheet now. And gold loans are typically a one-year kind of product. So we don't see an issue. And I think this mix overall, it's a fairly good mix for us to work with NIM in over cycles.
Right. No, sir, I'm saying the yields on gold loan are higher than the blended yield. When the other floating rates will go up in line with repo, do you think that this product can also see similar upward movement in yield or this may not happen because it's a fixed loan product?
No, it's a fixed loan, but every month something matures, right? So it is like the maturity will be repriced at the higher levels. Yeah. And it is a one-year maturity product, largely. We have a little bit of long-term loans. Otherwise, it is a one-year maturity product and every day some new loan matures, which will obviously be priced at higher interest rate if interest rates go up.
Right. No. So sir, that is the precise question. When interest rate were to go up, do you see a scope to increase the price?
Of course. Why would we not?
The only thing is, sir, there are a lot of competition from PSU banks which charge less than 9%. So that is the background of the question.
But they were always charging less than us.
Right. Okay, sure. Secondly, sir, on OpEx, right? So apart from this INR 32 crore of ESOP provisioning change, how to look at the staff cost incrementally? Was there any INR 32 crore pertain to only this quarter or maybe some backdated? Is this the new normal for staff cost or how to think about this, sir?
No, INR 32 crore is the one-time impact of change of accounting policy. So it's a one-time impact of INR 32 crore . Just to go back to your question, you asked others were charging. No, there were many people charging higher than us also in the market on gold loan.
Right. Right. No, I understood, sir. On this staff cost, so INR 32 crore is, let's say, one time.
Yes.
The rest of the base is reasonably the new revised base, right? That is the way to look at this.
No. It has a combination of two or three things. One is, of course, we are adding people, and that is adding to cost. As we are adding branches and people, therefore it is adding cost. Second is that actuarial impact is there, and that keeps fluctuating a bit as interest rates rise. Some of that will get written back in the next few quarters. That retirement cost will fluctuate a bit with the market.
Right. Last question, sir. We had around INR 390 crore of bancassurance fee last year. What would be your rough cut impact of this fee and under the revised, under the light of draft regulation? How do you intend to sort of offset that? Thank you.
Too early to answer that question just now, because we have many options like changing the mix of products we sell, all of that. Yes, volume can go up, and therefore we have to see what is the impact. Is there an impact? Of course, there is an impact. But how much is something that we would get a better handle as we go. Of course, we must remember this is just a draft guideline yet, and we don't know what the final outcome will be. But having said that, we will be in a better position over the next quarter or so to be able to estimate this better.
Right. Sir, if I may ask the last question on ECL. I think last quarter you had mentioned that the impact is less than 2% of net worth. I believe there is no change in that. But just because the yields have hardened by 40 basis points, does that impact the ECL transition impact at all? Or that less than 2% number was only for loan loss and hence that ECL impact is because of HTM hardening is a separate impact, right?
Yes. We talked about the ECL credit loss impact and that doesn't change with this.
Right. Okay. Thank you and all the very best, sir.
Thank you.
Thank you. Participants, in the interest of time and fairness to others, we request you to restrict to one question per participant and rejoin the question queue. We take the next question from the line of M.B. Mahesh from Kotak Securities. Please go ahead.
Hey, hi. One more question then it is. Sir, on the gold loans, quarter-on-quarter, the LTV has moved up from what used to be around the mid-50s to, let's say, the early 60s in about a quarter. Just if you can clarify what is happening this quarter. And just additionally on that yield question, you have also seen an improvement in lending yields for the past couple of quarters in this portfolio. Suggesting that you have taken some rate actions on the portfolio, which I think you will probably see for the next couple of quarters. Is this two assumption right that is happening here?
Mahesh, yes, 65 has moved to about 60 or 61 or so. Some movement has happened there. But having said that, we have also grown tonnage in the last quarter. This quarter, we have grown tonnage. I would say it's a mix of things. And yes, we have taken rate actions, which we are trying to get better yields on the portfolio.
Just to clarify, if you were to increase, I don't know, 100 basis points, you see sensitivity on the customer base or is the pushback is more at the field staff level rather than the customer level? What is your sense there?
Mahesh, we play the fine balancing game between what NBFCs do and what the PSU banks do. Somebody asked this question earlier also. We play the middle band, right? We play the middle band where we try our rates are better than NBFCs but they are better than the lowest cost providers. This is a fine game to play. We are able to do that. Marginally, we keep pushing a bit to improve our rates there. There is no perfect answer to your question. [inaudible], you want to add something?
I just have one more thing. We are also focusing a lot on income-generating loans, which typically give us a higher yield also over there. That is another complex bit over there. When you were doing agri with gold loans earlier, there are micro-based gold loans also under the income-generating loan, which give typically a higher yield.
Which is a product we just launched in Q2.
Sorry, I didn't get that. You said income-generation gold loans.
Income-generating gold loans. In the sense the customer segment designing the product purpose. Purpose of the loan is for productive purposes of generating income. That is a new classification. RBI has come back with certain dispensation around that in the new gold loan policy. So we launched a product around that in the last quarter, and that gives slightly higher yields. Yeah.
Okay. Thank you.
Thank you. Thank you, Mahesh.
Thank you. We take the next question from the line of Gaurav Jani from PL Capital. Please go ahead.
Thank you, sir, and congratulations.
Thank you.
Just two quick questions. The first is, this quarter has been pretty-
Hello? We lost you.
Sir, we have lost the line of the participant.
Hello.
We will move on to the next question, which is from the line of Param Subramanian from Investec. Please go ahead. Param, please unmute your line and proceed with your question.
Hi. Good evening.
Hi. Good evening.
Thanks for taking my question. Sir, congrats on the quarter. Sir, I just wanted to clarify on the other OpEx in the quarter. Do we have to look at it in conjunction with the higher fee also? Is that what you were trying to say? Are the two sort of linked? Is it a processing fees and a grossing that is happening over there, say, relating to general expenses, some of that?
No, not materially. But yeah, in the FCNR thing, there can be on the borrowing side some cost and the lending side some fees, but it's not material.
Okay. Is there any one of them that affects in the fee side? FCNR is not very material.
Not material.
Okay. That's it from me, sir. Congrats on the quarter. Thank you, sir.
Thank you.
Thank you. We take the next question from the line of Ravi Purohit from Securities Investment Management Private Limited. Please go ahead.
Yeah. Hi, am I audible?
Yeah.
Yeah. Hi. Congratulations on a good set of numbers. Sir, a couple of years back, I think we had outlined our strategy to kind of add financial services side. Be it wealth or also to tap the NRI segment. We had mentioned that we had significant large exposure to NRIs on the deposit side, but not so much on the product side. And I think there have been discussions and rumors about the Jana and so . But the two don't seem to go hand in. Just was wondering if you could share whether our thoughts on monetizing or utilizing the very strong NRI franchise remains a focus area or, if you could kind of share some more insights there. Second on initiatives that we have taken on the CASA side, which seems to have done significantly better in the last one year.
If you could just share some thoughts on both the sides. Thanks.
We remain steadfast on the fact that our NRI franchise needs to be holistically covered. One of the items there was building our wealth side of the business. We remain committed to doing that. Coming to initiatives on CASA side, there's no one silver bullet on initiatives on CASA. There are multiple things that we have done to get CASA right. Now we have got it right for last six quarters or so, and we will continue. There are still new initiatives happening. All the initiatives, it is not my intention to discuss that on this call here. I'm assuming that will be a long discussion.
Right. Sir, just under your ages in Kotak, I think the ING Vysya merger happened. But it was a painful merger for a few years. I'm sure investors are kind of a little wary about this Jana Finance news that has been floating around. I'm sure you'll have best interest of shareholders, but these mergers have kind of been very tough.
Thank you for your advice, and we will take a note. Thank you.
Sure.
Thanks a lot.
Thank you. We take the next question from the line of Gaurav Jani from PL Capital. Please go ahead.
Yeah. Am I audible, please?
Yes.
Yeah. So sir, two questions from my end. The first is, this quarter we have seen a pretty strong growth in our high-yielding segments. I think be it unsecured, be it business banking. Is it a fair assumption next quarter also given the impact of the repo hike on margins, the movement would be pretty positive? That's number one. The second is, if we could talk about, is this growth sustainable in these segments, I mean, the momentum? Just one data keeping question on the staff cost on the other OpEx. If you could call out the change due to the interest rate movement. Yeah. That's it. Thanks.
Your first question was on the asset side. Of course, we have always called out the mid-yielding segments as an asset, the category of assets that we want to grow. We had called out that in some we were successful and in some we were still trying to get that better. A few quarters back, LAP was not showing that action that we wanted, but it is now last two, three quarters you can see good growth. Similarly, in personal loans now for a couple of quarters, we have built a traction. Last quarter when we came here, we talked about DUB is a segment that we would like to build traction going forward, which you are seeing now.
Each of these are initiatives that we have put in through various quarters, and we are finding- I mean, it's finally about executing those initiatives in the right earnest and making sure that we see the outcomes. So that's what is happening. Of course, margin, I already gave a guidance. We'll stick to that guidance that we said 5-6 basis points, not necessarily linear, but on an average, that kind of improvement is what we are wanting to strive for. Growth guidance, again, I gave a specific guidance saying that-
Mid-teens.
Mid-teens guidance. So we'll stick to that. On staff costs, other than the INR 33 crore, like we mentioned about the ESOP accounting change. I mean, yes, interest rate fluctuations do cause a difference to that retiree cost there, but that is something that we take in our stride, and we don't call out that usually as a variation. It's too complicated to keep calling out that.
Okay. And sir, any one-off or other OpEx because of the interest rate fluctuation?
Nothing material.
Okay. Sure. Thanks. That is all. Thank you.
[inaudible]
Thank you. We take the next question from the line of Madhuchanda Dey from Moneycontrol. Please go ahead.
Hi. Congratulations on a good quarter once again. My question is very simple. If you could share your thoughts on the roadmap to a 1.5% kind of an ROA, especially given that your asset quality is very strong. There is not much of a headroom. You mentioned that you don't want to cut back on costs because those are necessary investments. So almost basically is on the interest margin and a bit on the fee. Given this scenario, what kind of a timeline do you see for that kind of a target?
Madhu, if you just go back and look at our ROAs, four quarters back, it was close to 1%, and we are today sitting at about 1.33%. So there are liability mix actions, asset mix actions which have resulted in that, and fee growth options. Therefore, the execution on those fronts continue and that's-
Would you like to give any timeline for that kind of a target?
We have given you a guidance on ROA in the past that 3- 4 basis per quarter is the improvement we want to strive for. That's the broad guidance that we have given earlier, and we stick to that guidance. Again, these may not be linear every quarter, but on an average, we will get there. This quarter we were 10.
Yeah. Got it. Thank you.
Thank you. We take the next question from the line of Jayant Kharote from Axis Capital. Please go ahead.
Sir, thank you for the opportunity. First question is on your thought process on risk-adjusted margins, sir. Given when you started this transformation, you had focused on mid-yielding books, and that sort of kept the investor comfort on the trajectory of credit cost as well. Of course, this is in context of the rumors around MFI. Want to understand if your thought process is still anchored around margins or it has been expanding to risk-adjusted margins. That is the first question.
We were reporting our risk-adjusted margins always. We were always focused on risk-adjusted margins. Every quarter from the last four to six quarters, we have seen improvement in our risk-adjusted margins.
Yes, sir. Philosophically, you are anchored to risk-adjusted margins incrementally as well.
I don't know how to answer. I have shown you last six quarters that it is-
It's happening.
It's happening, right? Proof of the pudding is in the action, right?
Yes. No, of course. The context is if you are willing to add more risk for more yield, and that's where the question was not what you've been reporting for the past.
Already we have said that we are keen on mid-yielding assets, and that is the method. Does mid-yielding assets add some risk? Yes, it does add some risk. Does it give improved yield? Yes, it does give an improved yield. The question is whether the net of the two, whether it works or not. So mid-yielding assets has been our focus.
No, sir. That's what we started the question with. Mid-yielding is what all of us are very comfortable with. The question was with high-yielding assets, where we are making very good working capital.
Why are you asking me a hypothetical question?
Agreed.
[inaudible] done.
No, I was just saying the comfort level.
Okay. Let's move on, please.
Yes. Sir, second question is on the OpEx piece. While you have guided on the cost-to-income in the past, I think what Kunal was also saying on cost to assets, this is quite a meaningful increase, especially when our asset growth is accelerated this quarter. Even if we do assume, if we are even holding the ship tight on our core PPOP ROA, QoQ movement seems hardly barely 2, 3 basis points, especially when our credit costs are below normal. That jaw doesn't seem to have played out this quarter. Am I misreading it? If you remove treasury income and looking at the core operating jaws.
Right. We have always been saying that this is a tightrope walk that we will do. We are working towards improving income and therefore being able to invest more through higher OpEx, and that remains our strategy. We are very conscious about what kind of costs we incur and what kind of income improvement we can get. Like we guided that we had said that we were operating at about 54-ish on cost-to-income, and we said we will continue to operate in and around that a few basis points here and there. You assume, please, that we will operate at around that kind of a cost-to-income for the time being.
Understood. Sir, just last question on the other OpEx. Is there any up-fronting at all for branch expansion on the other OpEx, not the employee cost?
No, a branch cost cannot be up-fronted. No.
Great. Thank you and all the best.
Thank you.
Thank you. We take the next question from the line of Jeet from Pinpoint Asset Management. Please go ahead.
Hi, sir. Thanks for taking my question and congratulations on a great quarter.
On? Hello. Sorry, we lost you.
Jeet, are you there? Jeet?
Hello.
Jeet, are you there?
We lost you.
Looks like we lost him.
Sir, we have lost the line of Jeet.
Wait for a couple of seconds. He is going to join back. Just two, three seconds.
Sure.
Hello.
Let's bring him back later.
Sir, Jeet has left the call, sir.
Right. Okay.
The next one?
That was the last question.
Okay. Great. Thanks, sir. On time. Thanks, guys.
Thank you, everyone, for joining us. Happy festival time to all of you, and thank you very much for the interest in the company. Thank you.
If you have any further questions, feel free to reach out to us offline. We will be more than happy to assist, and wishing you and your families a very happy Navratri. Have a wonderful weekend ahead.
Thank you.
Thank you. On behalf of Federal Bank, that concludes this conference call. Thank you for joining us, and you may now disconnect your line.