Q1 24/25

Jul 19, 2024

Summary

Q1 AUM rose 40% YoY to INR 13,188 crore, led by gold loans, while PAT grew 30% YoY to INR 70.2 crore. FY25 guidance: 25% AUM growth, 0.8% credit cost and 56% cost-to-income.

Ladies and gentlemen, good day and welcome to the Fedbank Financial Services Limited Q1 FY 2025 results conference call hosted by Equirus Securities. 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 the operator by pressing * then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Shreepal Doshi from Equirus Securities. Thank you, and over to you, sir. Thank you, Siddhant. Good evening, everyone. I welcome you all to the earnings conference call of Fedbank Financial Services to discuss the Q1 FY 2025 performance of the company. We have the senior management team of Fedbank Financial Services represented by Mr. Anil Kothuri, MD & CEO, Mr. CV Ganesh, CFO, and Mr. Amit Singh, Head, IR. I would now like to hand over the call to Mr. Anil for his opening comments, post which we can open the floor for question and answer. Over to you, Anil sir. Thanks, Shreepal, and welcome everybody to the Q1 earnings call of Fedbank Financial Services Limited. As you're probably aware, we are in business to empower emerging India with easy access to loans. We cater to the small self-employed customer and for this we have a twin engine strategy, which basically consists of loans against gold and mortgage loans. This strategy played out well and was validated during the quarter gone by. In the quarter gone by, we've seen an AUM growth of INR 996 crores. So that is an 8% growth quarter-on-quarter and year-on-year it is about 40%. The bulk of this AUM growth came from the gold loan business. The gold loan business grew by 15% quarter-on-quarter and 46% year-on-year. We benefited from an increase in gold prices and the productivity of our gold loan branches also shot up during this quarter. In fact, on a year-on-year basis, our tonnage of gold actually increased about 26%, while the AUM went up 46%. So that's the gold loan business. We also made progress on our off-book strategy and increased our off-book AUM from 18.7% in the quarter gone by to 20.7%. So as a result, the increase in our balance sheet was about INR 590 crores, of which INR 560 crores or so was the gold loan business. So the quarter gone by has seen very strong growth, unlike a typical quarter one that is on the back of the gold loan business. As a consequence, our AUM grew by 8.2% quarter-on-quarter INR 996 crores. We delivered a profit after tax of INR 70.23 crores. That is up 30% year-on-year and 3.8% quarter-on-quarter. Our cost-to-income also improved from 57.3% in the previous quarter to 55.4% in the current quarter, and our ROA and ROE were 2.4% and 12.3% respectively. These were the highlights of the quarter gone by in terms of growth and disbursements. Our GNPA increased by 30 basis points in the quarter gone by. This is in line with what happened in quarter one last year where we also increased by about 30 basis points. So a challenging collections environment in quarter one, and we are hopeful of consolidating from here on. The other update is that from a system standpoint, we implemented Salesforce across the 180 mortgage branches on our network. So all our throughput is on Salesforce right from the login stage to the disbursement stage. From a regulatory standpoint, on the 8th of May, the Reserve Bank mandated disbursements only through electronic form beyond a threshold of INR 20,000 for the gold loan business. We cut over to 100% electronic disbursals regime the very next day, so all our disbursements on the gold loan business are entirely through electronic form. And we are entirely in compliance with the RBI directive. So that's the update on regulations there. What I'll do now is to hand over to CV Ganesh, who will take us through the financials and the numbers with a little more detail, and I'll come back to taking questions. Yes. Thank you, Anil, and thanks everyone for your participation on this call. This quarter in specific was a momentous one for us and we crossed at least three milestones. The first one was that our gross disbursements crossed INR 5,000 crores for the first time in our history. The second is that our AUM growth during the quarter came in a whisker under INR 1,000 crores. And the third milestone was that our average gold loan AUM per branch has now crossed INR 10 crores per branch. So across these three milestones, we have had a good quarter. Coming on to disbursements. Our gold loan disbursements for quarter one stood at INR 3,970 crores, which was up 39% quarter-on-quarter and 73% year-on-year. Mortgage loan disbursements at INR 737.6 crores were also up 74% year-on-year. And business loan disbursements grew 21% year-on-year. On the AUM side, at the end of the loan book side and on the overall balance sheet side, as of June 30, our balance sheet is just shy of INR 12,000 crores, an increase of 27% over Q1 FY 2024. Our AUM as of June 30 stood at INR 13,188 crores, which is an increase of 40% over the corresponding quarter of June 2023, and an increase of 8% over the last quarter. Of the total AUM growth we achieved in quarter one of INR 996 crores, 59% of that AUM growth was contributed by gold loans alone. The fact that this happened after a transition to a fully digital disbursement mode in a cash-intensive industry vindicates the headstart we had in this matter. The gold loan AUM grew 46% year-on-year and 15% sequentially over last quarter and now stands at INR 4,562 crores, constituting 35% of our AUM and 38% of our on-balance sheet loan book, which is up from 33% of AUM and 35% of loan book in the March 2024 quarter. The mortgage AUM grew 40% year-on-year and 5.88% sequentially. As Anil Kothuri articulated, the financial sector and NBFCs in particular had multiple regulatory headwinds in Q1 2025. Mentioning a few, there was the cap on gold loans in cash. Then on April 29, RBI came out prescribing new guidelines on fair practices to be adopted by regulated entities in terms of when interest can be charged from collection of advanced installments, modus of charging for interest in the month of disbursement, et cetera. The minutiae in the new guidelines may have some impact on revenue and asset quality for NBFC sector in the transition period. Our results also need to be seen in that context. I now come to the profit and loss account. Our net interest income at INR 249.6 crores grew 19% sequentially quarter-on-quarter and 41% year-on-year, outpacing the loan book growth. This included a net gain from direct assignment of INR 21.5 crores. Adjusted for the same, the core net interest income has grown 7.5% sequentially and 28.5% year-on-year, which is again more than the loan book growth in the corresponding period. As against this net interest income growth, operating expenses grew 9.7% quarter-on-quarter and 31.5% year-on-year, some of which is a wage-related quarter one impact. This resulted in pre-provision operating profit, PPOP, growing 18.6% quarter-on-quarter and 55.7% year-on-year to INR 128.8 crores. Credit cost came in higher at INR 35.2 crores, up 98% quarter-on-quarter due to a one-off write-off of a trade receivable amounting to INR 3.7 crores, technical write-offs of INR 16.7 crores during the quarter, and the overall increase in ECL provisions due to bucket delinquencies, especially in the mortgage book. Consequently, PAT was INR 70.2 crores, up 30% year-on-year and 4% quarter-on-quarter. Due to our income expanding at a higher tax than expenses, our cost-to-income ratio has improved to 55.4% from 57.4% in quarter four 2024. We expect to continue to scale up our branch infrastructure over the next two quarters to aid a sustained AUM growth, and that investment may temper the cost-to-income in the short term, but will be medium and long-term accretive. The company continued to move forward in its policy of de-leveraging through co-lending and direct assignment of installment loans. As on June 30th, our off-balance sheet book stands at INR 2,725 crores, up 168% year-on-year from INR 1,039 crores in the previous year, and up 20% quarter-on-quarter. Of this, gold loans held in partner books accounted for INR 630 crores, while mortgage and unsecured business loans accounted for the rest. While this earns us a spread while needing to devote only limited capital, it has helped us manage a relatively lower debt equity ratio at 4 and enhanced capital CRAR at 22.8% without needing to compromise on the exciting loan growth opportunities. On the NPA front, our gross Stage III assets stood at 1.97%, with net Stage III assets being 1.60%. These are attributable to higher mortgage delinquencies, but our comparatively lower LTVs on the mortgage product, which is mentioned in our presentation, give us comfort on our collection stability. On the treasury front, on a quarter-on-quarter basis, our average blended interest cost on overall borrowing has gone up 3 basis points from 8.75% in the last quarter to 8.78%. The rise is attributable to a full quarter impact of rate resets on borrowings in the last quarter. Our incremental cost of borrowing for quarter 1 2025 was 8.63%. Around 88.7% of our borrowings are on a floating rate benchmark, which should help us when rates start to moderate downwards. Also, roughly 30% of our borrowings are on external linked benchmarks, namely Repo or T-bill, which should accelerate the downward journey from a benchmark perspective. In quarter 1 2025, 68% of the incremental borrowings in the quarter or INR 1,415 crores to be exact, were at external benchmarks, which are either Repo or T-bill linked. Lastly, our net worth as of June 30th 2024, was INR 2,322 crores, and our book value per share was INR 62.60. With that, I now hand over to the moderator for inviting questions. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the 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 Mr. Renish Bhuva from ICICI. Please go ahead, sir. Yeah. Hi, sir. Just two, three questions from my side. One on the asset quality. We have seen some deterioration this quarter on most of the asset quality metrics, whether it is credit cost, GNPAs, one plus DPD, et cetera. Especially in the mortgage book, so I know there is a seasonality. In the last quarter we saw something to enhance. There was a sharp fall in the gross NPAs. But if you can throw some light on what is leading to this deterioration, or this is purely because of seasonality? All right. You look at Q1, typically we have the highest GNPAs of the year in Q1. I will just give you numbers that we had last year. In Q4 2023, our Stage III was 2%, which went up to 2.3% in Q1 2024. Correspondingly, in Q4 2024, we were 1.7% and we have gone up to 2%. So a 0.3% increase is something that we have seen the past three years in Q1. Seasonally, I think this is a slightly tougher quarter to collect. Also, the fact is, operationally, after a hectic March, people take their leaves in April and all that, and that does have an impact. Q1, seasonally, is bad. That is the way it is. Having said that, our understanding and the progress that we are seeing in June, July and all that suggests that our annualized credit cost should be as envisaged. We have guided 0.8%, and we should stick to that number is my guidance. Got it. Basically, the trend which we have seen this quarter is only because of either due to some seasonality or due to some operational that should reverse in that for the three quarter only. Is that the current understanding, sir? Yeah. From the field, people said things like it was very hot and there were elections and all of those kind of things, but that has been Correct that is the reality. Got it. But having said that, I think we should fix this in the coming quarter. Got it. The second question is on the asset yield. This quarter, we have seen a very sharp increase in the asset yield of more than 90 basis points sequentially. After some bit of this is because of the high growth in gold loan usage, almost INR 16,000 crore is now given fully to the bank. How do you see the asset yield settling over next three quarters from this base? You are referring, I presume, to the numbers on slide 35. Is that right? Yeah. Correct. Yeah. So Q3 shows 17.4, Q4 shows 16, and Q1 again shows 17.4. So our daily average portfolio yield is reasonably constant or has been over the past three quarters. So the undulations that you see, which is 17.4 going to 16 and going to 17.4 is actually a Q4 quirk where we had a blowout March. So the 2-point average of the interest income divided by 2-point average actually comes to 16%, where a lot of the business was back ended. Correct. So that's just a statistical quirk which shows the impact between the cents there. But otherwise, if you look at it on a daily average basis, it has been rock solid. Our yields were 16.21% in Q4 and 16.1% in Q1 FY 2025. So there has been no change as you would expect in an actuarial business. Got it. So it's just a mathematical aberration. Absolutely Otherwise, trying to have pretty much solid. Okay. My last question is on the cost of borrowing. So again, now we have seen a very sharp increase to 9.3% and I'm assuming maybe some part of the borrowing might have come for the repricing that I read. If that is the case, then if you try to assume that the bulk of repricing is behind and now the cost of funds should stabilize at around 8% in Q1. Actually, this is again 2-point average. You look at slide 45, we have given the daily average cost of borrowing. And Ganesh also articulated this. In Q4, our daily average cost of borrowing was 8.75% and in Q1 that is 8.78%. Yeah. So that 9.3%, the 2-point average, what happens is that on the last day of the month you end up taking banks' disbursements so that just distorts the 2-point average. Got it. And sir, just last question on the branch expansion part. One, Ganesh sir was highlighting, right? So Ganesh also mentioned that cost increment will go up. Would you like to put any numbers around it? At what level you see the cost inking up once you start the branch expansion plan? I think our branch opening agenda for the year, we have not embarked on in Q1. Okay. We envisaged opening 50 gold loan branches and 30 small mortgage branches. Now while those have got identified and work is underway, the costs have not hit us yet. So obviously the new branches will be a drag on cost-to-income. So that was the point that he was making. My sense is that the impact should be at about 1.5 percentage points in terms of cost-to-income when we open those branches. Got it. In a Q2 or Q3, depending on how we execute and open up, that should be the kind of impact is what I think. Yeah. Got it. Sorry, sir, just last thing. On this one-off write off, which CV Ganesh sir was mentioning about the trade receivable, can you just throw some light on what kind of exposure this was? This was INR 3.5 crores. It was a trade receivable from a counterparty and it was due for a reasonably long while. The amount was a little larger, so we had provisioned some bit of it in the past. This quarter, we took a decision to write it off entirely. The accounting demands that comes on the credit cost line because that was a receivable. Sure. The objective of Ganesh articulating it is to say that it has nothing to do with the portfolio performance or that INR 3.5 crores has nothing to do with the portfolio performance. That is all. Yeah. That was a legacy item, Ganesh. It was a one-off. Okay. The idea of pointing it out or calling it out was that if you exclude the effect of that item, the credit cost would be lower by about 16 basis. Got it, sir. That has to be seen in that perspective and not to be confused with any loan quality in that regard. Got it. Thank you, sir, and best of luck, sir. Thank you. Okay. Thanks so much. Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Pranav Gupta from Aionios Alpha Investment Management. Go ahead, sir. Hello. Hello? Sorry. Hello. Just please go on. We can hear you. Am I audible? Yes, you are. Yeah. Hi. Good afternoon, and thanks for the opportunity. Congratulations on a decent set of numbers. Just a few questions. One is picking up on the asset quality bit. Like you mentioned, there was some seasonality that we saw in this quarter mainly coming from the mortgage loans book. Just to sort of cross-check that, have you seen any geographical skew or whether it is coming more from the small ticket mortgage loans or the medium ticket mortgage loans? Any deeper understanding on that bit, that will be really helpful. What we have seen in quarter one is an impact across the board, Pranav. It is not that any one geography has blown out or something. What we have seen is an increase across the board. This is basically due to the collection effort or the intensity or the difficulty of realizing money on Q1, whichever it is. There is nothing to call out from a geography standpoint. It is not that one geography has done significantly worse than the other. What we have seen is in the small mortgage loans business, because the number of tickets in the larger business tends to be lower, so therefore, the efforts are a little more concentrated there. Okay. Just to understand this a bit better, is it fair to assume that while we see improvement in Stage III through the year as we have seen last year because of the seasonality sort of going away, is it fair to assume that we should start seeing pullbacks in one plus DPD and 30-plus buckets as well going forward? Yes, most definitely. Most definitely, yeah. Okay. The second bit is on the branch openings. You mentioned that you will be opening 50 gold loan branches and 30 mortgage branches, like you had guided. Are we still sticking to our reduction of 40 basis points reduction in cost to average and guidance for 2025, or is there any change there? We are sticking to that. In fact, the branch openings were part of our long-term planning process. Okay? Right. Whatever guidance we have in terms of our cost to AUM or our cost to income include these initiatives. It is just that they haven't played out in Q1, and they will play out in Q2 and Q3. Understood. Just one last question on the Salesforce bit. You mentioned that now Salesforce is live on all the mortgage branches. When do we see this sort of being implemented fully on the gold loan bit, and also is there any additional cost that is sort of planned for Salesforce implementation in the year going ahead? The gold loan business is on a different system. It is called Prosper by LCode. This is something that we implemented in the year 2021, and absolutely everything we do in the gold loan business is on the system. It is probably the industry standard or industry-leading gold loan system implementation that we have. Which is why we are now a cashless, paperless gold loan business. Now the implementation is for the small mortgage business, which is where the bulk of the tickets reside. That one we have digested in the previous quarter. All our 180 branches are live, so that is behind us. Whatever costs relate to Salesforce implementation are there in the numbers that you see, and they will continue for the rest of the year. Understood. Thank you so much, and good luck for the future quarters. Thank you so much, Pranav. Thank you. Thank you. Just a reminder, participants who wish to ask questions may please press star and one at this time. Our next question is from the line of Deepak Mandhana from Avigna Investments. Please go ahead, sir. Hello. Hi, sir. Congratulations on the good set of numbers. My basic two, three queries were, one, what is the average tenure of the loans in each of the segments, business loans, mortgage loan, and the gold loan? The gold loan business has an average tenure of between four and five months. Having said that, about 70% of the customers renew their loans. They do a repledge or they simply renew their loans using the Fedfina app, so that is a second loan or a third loan they take. For the unsecured loan business, the door-to-door tenure is three years. Therefore, the average tenure is just shy of two years, let us say about 19, 20 months or something like that. Okay. The mortgage business, the larger mortgage business, the medium-ticket mortgage business tends to have a behavioral tenure of four and a half years, whereas the small mortgage business has a tenure of about seven and a half years. Okay. Those are the tenure dynamics. Okay. If we just continue to originate just the way we are doing, the portfolio will continually get biased towards small mortgages, simply because it has the longest tenure of all products. Correct. Is this a prime reason that obviously when I see during the quarter the disbursements have been of INR 50 crore and your AUM size have only increased by INR 10 crore? Uh- Your AUM has gone to INR 131 billion as compared to last quarter when it was I mean INR 10 billion. Your current AUM is INR 131 billion. Yes. Last quarter was INR 121 billion. Correct. If I see the disbursements is INR 50 billion during the quarter. The net impact of roughly INR 40 billion is the amount that you guys would have received back in terms of the people who would have prepaid or their loan tenure would have ended. Is that the correct thinking? That's correct. I'll just split this a bit for you, Deepak. So of the INR 5,000 crore disbursed, about INR 3,700 crore is gold loans. Okay? Okay. Now, of the INR 3,970 crore, beg your pardon. So say INR 4,000 crore out of the INR 5,000 crore is gold loans. That's fine. Okay. Now, the INR 5,000 crore disbursal for gold loan results in a roughly INR 600 crore balance sheet increase. The way to look at gold loan is how a bank would look at, let's say, a savings account or current account. Exactly. There are deposits and there are withdrawals. Both of which will be large numbers, but the net growth in balances is what is material for the bank. There is a lot of volume in the gold loan business when it comes to disbursements and repayments, including automatic renewals, which count as both disbursement and repayment, for instance. Okay? Okay. INR 4,000 crores results in about INR 600 crore of balance sheet growth. On the non-gold business, the installment loan business, we have about INR 1,000 crore of disbursements which result in a balance sheet growth of something like AUM growth of about INR 450 crore. Okay, I get that. The last question was, in the terms of borrowing, on the side of borrowing, how much is your borrowing assigned from Federal Bank in terms of percentage to overall? See, we have about 28 lenders at- Okay current date, and roughly 13%, 13. Okay. A little over 13% is from Federal Bank. Okay. Thank you. Thanks so much, Deepak. Yes. Thank you. The next question is from the line of Mayank Mistry from JM Financial. Please go ahead. Yeah. Hello. Hi, sir. Hi. Thanks for this opportunity. Sir, I had three questions. First is on the asset quality again. We had this high credit cost as per, we understand due to some seasonality there was also a one-off and so. But our PCR has dropped since last two quarters. What is the comfortable level of PCR that you are planning to achieve? Because you still continue to maintain the credit cost guidance at 0.8%. Isn't this the PCR at a slightly lower level? When we look at our overall PCR per stock is 1.2%, which is the same as the previous quarter. Okay? And you can see this on slide 43. The total ECL provision as a percentage of total asset is 1.2%, which is the same that has been in previous quarters. Okay? Now what happens quarter on quarter is that the mix changes. Okay? The gold loan business, for instance, did extremely well in the previous quarter, and because of the nature of security and the extreme liquid nature of the security, we are required to provision a far lower amount on, let's say, across Stage III or Stage II for that. Okay? Okay. So what I can confirm is that on a product-wise basis, our PCR has not changed. It is only the variance in mix that changes the PCR. Okay. So basically our gold loan mix is increasing because of that denominator, but the provision on this book is lower. So that's why the blended PCR is lower. Am I right? That's right. So if you look at it at a product-wise level, it has not changed and the product-wise mix contributes to any changes in this. Mayank, I'll just maybe add a little more light to this. Roughly on the gold loans NPAs, we carry a PCR of about a little under 8%. Okay? Which is much higher than what is needed. But traditionally, in the last many quarters, we have never had any principal loss or interest loss in any auctioning of gold loans. But in spite of that, we have, as I said, a little under 8% of PCR on gold loans. On mortgages, we have around 20% of PCR, and that based on empirical data, is based on the way our LTV works, our recoverability data and so on. Right? And lastly, on the business loans, we have a policy of writing off once it crosses the 90 to 120 days. Right. On whatever residual, we have a PCR of at least 58%-60%. So that's roughly the split. Now, between this, as we articulated early in the call, there have been two things which have happened. I did mention that some of the higher provisioned loans, we conservatively took a technical write-off for it, which means we have provided 100%. What happens when such a thing happens is optically, since it goes off the loan book, the loan provision also goes off. So the PCR seems to optically drop. The second thing which I want to highlight is that, based on the tremendous growth we have seen in the gold loan book in the last two quarters, given that comes at a lower PCR, optically that's also at an entity level. It does not do justice when you look at a number in absolute. Okay. Got it. Sir, my second question is on the number of branches have declined for gold. Which geography has this occurred from? Basically, what can be the reason for this decline? These are two branches which we consolidated with neighboring branches in Tamil Nadu. Okay. It's just two branches because our density of branches was high, and it seemed more optimal to consolidate these two branches. Okay. And sir, my last question is again on the borrowings, the floating mix of the assets and borrowings that you mentioned. On the asset side, if I heard correctly, it's 88.7% is floating rate loan and on the borrowing side 30% is EBLR linked. On the borrowing side, only 30% is floating or what is the exact mix? Thank you for that question. It helps me clarify the matter. A little under 89%, 88.7% to be exact, of our loans are linked to floating rate benchmarks. These floating rate benchmarks are either linked to 3, 6 months or 1-year MCLRs of the respective lending institutions or linked to external benchmarks. Out of the floating rate loans linked to external benchmarks, we said 30% is on external benchmarks like Repo rate or T-bill rate, where your transmission is on a much more accelerated basis. On the MCLR front, we might see a slower transmission. So that was the limited point of providing that clarification. Okay. So these were totally on the liability side, right? Liability. Yeah. Okay. Got it. Thanks. Thank you. The next question is from the line of Harshit from Premji Invest. Please go ahead. Hello. Hi, Harshit. Hi, sir. Am I audible? Yes. Sir, just one data checking question. If you look at the breakup of asset under finance in the total, there is a slight mismatch. Yeah. Yeah. If you can just help clarify that mismatch to what exactly the balance is. Is it a little bit more mortgage, gold loan or business loan? You are talking about the balance 2%? Around INR 1,500 million. Yeah. That INR 150 crore balance. Can you just help with the slide number for our benefit? Yes, I will just help you. It is on slide 31. So these are basically some Ind AS adjustments, which is OCI gain and all that, which adds up to INR 154 crores. Sir, can you again repeat that part? What are these? Yeah. So basically, what we do is while you have the principal outstanding which flows from an Indian GAAP basis. Now the Ind AS accounting standard has certain accounting adjustments to the loans. Right. Now what we have done is we have aggregated that and held it separately at a bucket level. Okay. That is attributable to the loans, but it is coming separately as a line item in the statement. Got it. Okay, sir. So there's nothing else in the balance sheet other than what you see. Understood. I'm sure. Okay. Thank you. The next question is from the line of Rahil Shah from Crown Capital. Please go ahead. Hello. Hi, Rahil. Hi. Yes, good evening. Firstly, what is the outlook or guidance when it comes to AUM growth and return on assets for FY 2025? We have consistently guided an AUM growth of 25%, Rahil. We said that we will take advantage of any episodic opportunities to better that. In Q1, we saw the advantage accruing owing to rising gold prices and the absence of some competition. Our gold book and our gold business has had a good run. We do not know how long this will last, but otherwise we should be able to grow at 25% on a year-over-year basis from here on. That is growth. In terms of ROE, I think we should look at an ROE of between 2.7% and 2.75% for the entire year. Okay. In the beginning of the call, somewhere you mentioned once we start opening the new branches, you have a branch opening agenda. Once you start doing that you will see an impact of a certain percentage on cost-to-income. Then in the middle again, you mentioned, you stick to your guidance of cost-to-income reduction gradually. I am just clarifying the confusion. Can you please also suggest a certain outlook for cost-to-income for the whole year? What can one expect? So in Q4 2024, we were at 57.4. We should see a bettering of that and come in at 56 at least across the year. In Q1, we are better than that because we haven't opened branches as yet. Right. What Ganesh pointed out is that the quarter that we open the branches, we will have the cost but not the revenue from there. That could be Q2 or Q3. So that impact will be there. But if you look at our annual financials, we should be able to come in at 56%. Annually, we will be able to reduce over 5 and 4. There will be no change. But once you open the branches. Okay. Yeah. Got it. Perfect. Okay. Thank you and all the best. Thank you so much. Thank you. Just a reminder, participants who wish to ask questions may please press star and one at this time. Participants who wish to ask questions may please press star and one at this time. The next question is from the line of Arvind R. from Sundaram Alternates. Please go ahead. Good evening, sir. You were talking about IDMR borrowings and MCLR borrowings. Similarly, on the asset side, do we reset the rates for the products every year or something like that? Or is it always a fixed deal given to the customer? We have different kinds of asset products and I will lay them out for you. The gold loan is a short tenor product. There is a jumping interest rate regime in vogue where the customer can either service the interest on a monthly basis or service interest at a higher rate on a lump sum basis. That is gold loan. The unsecured lending business is entirely fixed rate business and given that the maturity of the loan or the weighted average tenure of the loan is under 2 years. That is the characteristic of the business. Our medium ticket mortgage business is entirely a variable rate business and it is repriceable depending on our reference rate. We have done I think four or five rounds of repricing between 2018 and now. Okay. The repricability of the portfolio is established. The small mortgage portfolio has some loans which are variable rate, some loans which are fixed rate. Most recently we have migrated to a regime where we have a three-year fixed rate and it is repriceable thereafter. That is what the certainty in the short term is what the borrower seems to like. It is a three-year fixed rate followed by the ability to reprice. That is as far as small mortgage is concerned. Yeah. Sir, when we talk about repricing like either in medium ticket or small ticket loans, is it like an MCLR for a bank? We have an internal rate, internal reference rate based on that we give a rate to them after that fixed rate period. Correct. We have an internal reference rate and which we change in line with our borrowing and the most recent change that we did was I think in April this year. Sorry. The repricing then followed depending on the movement in that rate. Understood, sir. Last time I remember asking you what could be the other source of other income, like fee income. You also mentioned about brokerage for insurance. Have we got that and have we started the operations on it? Yes. We got our insurance agency license in June, and we have tied up with insurance companies and the income for insurance should start creeping in this quarter onwards. Sure. We are in the process of formalizing agreements, Arvind. Okay. We have some lead time after which Yeah, sure. business would begin, but it is a slow but sure process. Understood, sir. Yeah, but it will be a structural income for us. Yeah. So the focus would be on general insurance, or would we be also interested in life insurance also? So there are different opportunities there. First is that a lot of our customer base is under-insured. Okay. There is life insurance that most definitely is an opportunity. COVID has brought to the fore the need for health insurance, so that is an opportunity. Plus, there is some credit protect kind of insurance product that we can do. All these opportunities exist. Understood. Yes. Thank you. Thank you. The next question is from the line of Sandeep Agarwal from Avigna Investment. Please go ahead. Good evening, everybody. I have two specific questions for you. Please confirm if I am audible. Yes, you are. You are a little blurred. I do not know whether you can get close to your instrument. It could be better. Sure. I think my system is having some problem. I am so sorry for that. The first question goes like this. Could you please throw some light on the competitive landscape on the gold loan business for your company? Sorry to interrupt, sir. Can you please use a handset before speaking? Sure. I'll paraphrase the question. He's asked me to throw light on the competitive landscape in the gold loan industry. Basically, there are banks and NBFCs which operate in this segment. NBFCs offer the promise of convenience and turnaround. Whereas banks offer lower rates and they typically cater to their existing customers. If you look at the structure of the industry, approximately INR 5 lakh crore AUM is with banks and about INR 1.3, INR 1.4 lakh crore is with NBFCs. So that's the structure of the industry. Now we compete within the NBFC space. Therefore, there are 2 large listed players, NBFC player and another third multi-product company which offers gold loan. These tend to be competition for us. South India is relatively over-penetrated in gold loans, the rest of India, less so. So the opportunities for growth are in rest of India. This is the competitive landscape. The gold loan borrower typically tends to be a habitual gold loan borrower. He seeks to maximize not just the emotional value of the gold that he has, but also the financial value. Which means he pledges it and takes money for working capital. When there's a festival, he releases it and uses the ornament. The women folk in the family use that. That is basically what it is. The opportunities include widening the base of gold loan borrowers, and that typically is happening non-South India. So that is basically the landscape. Going forward, on the second question, as you rightly pointed out in this market, when the gold loan prices have gone up this happens to be a favorable scenario for the company since the underlying assets put on mortgage by the clients are basically adding value or getting value added as such. In a kind of a downturn, how does the company-- I understand that the gold loans are for a shorter period, but still in such a shorter period, how is the company coping up with such a downturn in the gold prices? Because somehow the LTV would get impacted in such a short period of time. You're right. We have a robust risk management process which tracks the price of gold on a daily basis, and we take portfolio actions accordingly. The price of gold that we give is the average of the past 45 days. However, if the price of gold declines, then we use the latest price of gold. Now we run it like a margin finance product. Anybody whose LTV approaches, let's say 88%, he gets a margin call notice. He has 15 days to top up either cash or collateral. Otherwise, we auction the gold. This is a process that's been in place for over a decade now, and it has also got stress tested. I remember during, when was it? 2022, between the 15th of February and the close of March, the price of gold actually declined by about 70%, I think, in those 45 days. So that's a scenario that we've handled and we have some experience with that. Thank you, sir. Thank you for your time. You're welcome. Thank you. The next question is from the line of Harshad Bhagwan from Visolitech Investment Advisors. Please go ahead. Good evening, gentlemen. Anup Arvind? Yeah, barely. But go on. Perfect. Am I audible now? Yes. This is better. Yeah. I wanted to ask regarding the gross Stage 3 assets. They have increased from 2.2% to 3% on the mortgage side in this quarter. Could you just throw some light on this? Yes. Like I mentioned earlier in the call, it was a challenging collection environment in Q1. Typically in Q1, we see an increase in GNPA. We have seen that in Q1 last year and Q1 the previous year, which has also happened now. This year, the percentages have been aggravated by the fact that we have also sold down a lot of mortgage loans. The net increase in our mortgage portfolio is about INR 70 crores or something. I will give you the exact number, but it is about INR 70 crores for the quarter. There has been a numerator increase and a denominator stagnation, which has caused the percentage increase. Having said that, we are committed to resolving this in the coming quarter. Okay. My next question is regarding the, are we targeting any numbers for the ROAs and ROEs in upcoming year? Is there any target set out for targeted return on assets that we can achieve in upcoming year? Yes. The ROA target, and I mentioned this number, is between 2.7% and 2.75%, and the ROE for the year should be upwards of 14%. That is what we are targeting. For the next year or is there a time frame for that? Sorry? For the next year, upcoming year or- The current year, 2024/2025. For the current year. That is right. Yes. Okay. That is it from my side. Thank you. No problem. Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Shreepal Doshi for closing comments. I would like to thank the management of Fedbank Financial for giving us the opportunity to host the call, and we would like to thank all the participants for being part of the call. Thank you all, and have a good evening and good weekend. Thank you. Thanks, everybody. Thank you. Bye-bye. Thank you. Yeah. On behalf of Equirus Capital, that concludes this conference. Thank you for joining us and you may now disconnect your lines.