The Federal Bank Limited

Ladies and gentlemen, good day and welcome to the Q1 FY24 Earnings Conference Call of Federal Bank Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Suvik Roy, Head, Investor Relations, Federal Bank Limited. Thank you and over to you, sir.

Thank you so much and good evening, everyone. Thank you for joining us on this post-earnings call. We appreciate your time and continued interest in our bank performance. We are delighted to continue our tradition of reporting on numbers early and providing you with the timely insights into our financial results. Today, we are pleased to share, as you may already know, that our total business has crossed an impressive milestone exceeding Polacroil. This achievement reflects the exceptional momentum we have experienced across all our businesses, highlighting a strong start to this fiscal year. To address your questions and to provide deeper insights, we have our MD and our senior management present on this call. They're here to provide you with valuable perspectives on our performance and shed more light on our strategic direction. So, without further ado, I would hand this call over to our MD, who will provide you with additional, you know, details on our region's achievements. Thank you again for your participation, and we look forward to a fruitful discussion.

Over to you, sir. Good afternoon, everybody. Thanks. Thanks, Shavek. By way of introduction and updates, I thought I'd just begin by sharing some senior-level inputs on the bank. Chairman Mr. Bal Gopal retired about 10 days after completing eight years on the board. The next chairman, Mr. Hota, took charge on 27th of last month. He needs no introduction. Mr. Hota has been a pioneer and the original founder sort of father of NPCI, if you will, so we're quite pleased that somebody of his debut and capability is now the chairperson of the bank. And in the board, Ashutosh completed his term as executive director, has stayed on as the chief mentor for another year, and Harsh has become an executive director, so both thanks to Ashutosh and compliments to Harsh, and I thought that's an important starting point for our conversations today. strength and the depth of the team is now both durable and as known and they are executing uh quite well uh uh just now uh sort of shawit talked about the four lakh crore i want to point out uh the one lakh crore from three to four was done in two years and the previous one lakh took us i think three years and the previous one like took us five years so the bank is seeing consistent and steady growth. And it's important to point out that in Q1 of this year, at least in all my time, first time we saw sequential, you know, traditionally Q1 and seasonally a slow quarter. We saw strong momentum and we saw all our businesses growing roughly about 5% sequentially. It's not about the why on why growth. We saw momentum and we believe that that momentum should be sustainable into FY24 and probably beyond. I had guided at the beginning of this year, financial year, we would be able to grow 18 to 20% both on advances and on liabilities, and I'm encouraged to see that that momentum is well in grasp, and we've had a reasonably good start to the financial year. Normally, I resist giving commentary on the environment and the economy and Neither am I an economist, but I thought this time since we are the first bank to declare results, maybe I will just take the liberty of giving a couple of points in specific to the market and the environment as we see it from the ground. The credit growth opportunities, particularly for a bank like us, still is intact and growing quite well. Even through the early part of July or the Q2, we are seeing demand sustained credit opportunities to grow are there. And our choice has been that we don't want to dominate one business, as I've said for long. We have the retail mix, the wholesale mix, between them how it should be. And within those businesses also where the opportunities are. And we're seeing that sustained even in Q2, and I believe that should continue as we go into FY24 and beyond. On the liability side, I do think... and I would think many in the industry do concur. The worst of the rate war is probably behind us, and it did help that the Rs. 2,000 withdrawal aided us all with some additional deposit growing opportunity and provided some much-needed respite for that part of the bank. In particular, for federal, the remittance business, which remittance and the NR deposit business, which was kind of muted in most parts of FY23. Towards the back end of FY23, we started seeing it pick up. You may have seen our slides as well, the market share that had come off has come back to us now. And likewise, NR deposit share, particularly the rupee deposit share for us is growing, and we are seeing that momentum come back in. And it's an interesting dynamic. The period post-COVID, we saw some behavioral changes. I was quite surprised You know, we're watching it quite closely to figure out if there is a sort of a long duration change or is it just, you know, behavior correction. It appears to be the, you know, sort of the rubber band is back and growth on that front seems to be coming back up. And the last point, which is important, which I think I, we, over the last, particularly in the last three weeks of June, we had an opportunity to go out and meet many current or prospective investors of the bank. We did share our business plans and our commitments and our guidance, so to say, on how the year will shape up. And I do think on those points that we mentioned, the first quarter has pretty much stacked up on most of this count, be it growth or be it on the outlook on margins, the near-term impact and the longer-term outlook of margin, the business mix. and the steady overall credit cost that we will anticipate. So I just want to reinforce our Q1 in the context of the environment we are operating in. We remain quite confident that the growth momentum we saw will sustain in FY24. The margin outlook is playing to what I think our model had suggested. As most of us know that Federal Bank reprices T plus 1, so the impact on advance gain was earlier, so was the impact on margin compression. So between Q4 of last year and Q1 of this year, I think we have seen the impact play through. I did mention in my calls earlier today in some of the media interactions that we believe that the compression we saw should start turning the way, you know, there should be margin expansion that will come through because the tail end of the rate increase on deposits have played through, the yield expansion on both credit and also the business mix is beginning to show through. So our belief is that what we had said last quarter, that the full year margins will be somewhere around the 3.3 space, we will see that pick up from Q2 onwards. So in short, we have begun the year reasonably well. On guidance on most of the areas that we spoke of when we met, when we spoke in May 6th, I think, after the Q4 results and the conversations I had subsequently with many of our investors, analysts who were keen to understand us better, our outlook for FY24 remains reasonably intact. We believe 80-20% credit growth is okay, possible. The margin, we said, will be a year of two halves, the first half being softer and the second half picking up. I'm now encouraged to believe that in the second quarter itself, it will start picking up. And lastly, the credit quality and the credit costs are certainly going to be in and around the number which we talked about, about 40 basis points plus or minus. So with that, let me just mention that we are, as usual, the entire senior team is there, and all of us are happy to take questions or clarify. So I'm happy to open it up for 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 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 will wait for a moment while the question queue assembles. The first question is from the line of Nisar Parikh from Native Capital. Please go ahead. Yeah, hi. Thank you for taking my question.