The Federal Bank Limited

gentlemen, good day and welcome to the Q2 FY24 earnings conference call of the Federal Bank Limited. As a reminder, all participant clients 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 call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is speak-recorded. I now hand the conference over to Mr. Sawvik Roy, Head, Investor Relations, the Federal Bank Limited. Thank you, and over to you, sir.

Thank you, and ladies and gentlemen, thank you for joining us on this busy results afternoon. We hope you've had a chance to review our latest quarterly figures. It's my pleasure to share that we have had an outstanding quarter, and I would like to highlight some key points. First and foremost, we have reported broad-based growth across all segments and businesses, which is a clear sign that our strategies are yielding positive results. In particular, our net profit number for this quarter is the highest we have ever achieved. Our ROA continues to trend well, and our ROA certainly underscores our commitment to efficient and sustainable operations. We have also successfully completed a significant capital raise in Q2, which now bolsters our financial position and allows us to pursue growth opportunities more aggressively. I'm also pleased to report that our NP numbers remained well under control, which is a testament to our proven interest management practices. Overall, we can confidently say that this quarter was a good one for us and the positive momentum continues. To provide further insights and discuss, you know, these results in detail, we have our entire senior management on this call. And I'll now hand over the call to our MD for a more in-depth analysis and to answer any questions you may have. Thank you again for being a part of this call. And please feel free to ask any questions that you may have as of now. Over to you, sir.

Yeah. Thanks, everybody. Good evening. This is Shyam here. Like Charik mentioned, the entire senior team is there. We'll be happy to answer questions. I think the key messages, he did read them out, but I just reinforce the fact that many of our initiatives, I think there's a stigma of all our initiatives coming together quite well. Over the last six, seven quarters, sequentially every quarter has been strong performance. In Q2, environment continued to be challenging, as it is likely to be for the periods ahead in certain areas. We've seen good progress on all counts. Credit and deposit growth has been quite consistently good. I do believe structurally the deposits market has been changed probably globally, certainly in India, certainly for us. And not daunted by that, we are reorganizing ourselves to make sure that through this period also we will be able to grow and expand both the balance sheet and also the quality of assets. And this quarter is a good testimony to the pivots that we've had in terms of kind of businesses that we are ramping up on with a keen eye on the credit quality being intact. Notable in Q2, other than the features that Shauiq just spoke and the provisional results that we shared early in the part of the quarter and the results that we announced today, the NII for the quarter grew quite smartly. In fact, it grew 7% sequentially. Credit grew about 5%. Evidently, the higher yield businesses are beginning to make an impact of the overall numbers. And we do think that is sustained. Free income for the quarter and generally online, the trend lines have been quite encouraging. And here again, our philosophy of being a, moving from being a pure lender to a banker, particularly as we seek out our business model, just at the cost of repeat, is about getting the better risk-rated clients pricing competitively, but asking for more business from the same client. I think the last two, three quarters are beginning to show results. Earlier in the financial year when we were meeting some of our potential investors, I explained the theory of trying to migrate from being a pure lender and being a peripheral banker to a more important banker. We are seeing traction on that count. Fee as a share of assets is almost near 1%, and we believe we have paths to get to 1.1 or better in the coming years. So the environment for deposits continues to be challenging. Our term deposits have grown remarkably well through the quarter. Wire on wire grew 33%. Domestic savings has grown reasonably well at about at our market kind of growth rate at 11%. What traditionally used to be a materially big part of our portfolio NR savings is seeing degrowth in some sense. We also quickly and constantly keep checking to see how the NR performance is. Remittances have moved up materially. Our share has gone up substantially. So there is a pivot from NR savings to NR term or NR business money going into consumption and or investment and or setting up a new business and or paying off loans. So there's some structural change happening and we have organized ourselves to make sure that we get more prominent in the domestic business. We've seen good footprint expansion and our fintech partnerships, particularly on deposits, are beginning to give us some domestic savings increase. So unbalanced Q2 has been good. We have seen progress on all counts. There are challenges in terms of growth in deposits at a price. We have organized ourselves for that. And at the beginning of financial year, we did say that H2, we will see data pickup in margins. We had also said that our dip in NIMS will be faster than the others, which it did. I do believe we've toughed out on NIMS and the increase can happen here too. So having said that, I must quickly add that the rate of growth of expectation in terms of NIMS expansion will be more moderate. I don't believe some of our numbers that we visualized to get the C25 full year. This is using the old compute. We have re-computed and present both the old and new formula. Our new formula gives net earning assets. So you will see our NIMS showing a C22. But in the spirit of full transparency, we have showed the equivalent in both formats so that nobody needs to worry that the bank is trying to outsmart and trying to show different formats. No, we are representing both formats. But here on, we will present with net earning assets, which seems to be consistent with market practice. So this expansion from here on, we do believe will be inching up, but the level of inching up, I'm not yet able to digest or comment, only because cost of deposit is yet to take more down. Though Q2 versus Q1, the rate of increase was consistent. It was not much higher. Ease on advances has moved up from seven basis points in Q1 to 14 basis points in Q2. So that trend line is quite encouraging. So let me just pause here with the following messages. Growth, 18, 20% quite possible. Credit quality holding well. ROA and ROE expansion on track. We believe we will, we've been growing quite smartly on our net profit and traction has been strong and we believe that will consistently hold. and the pivot in some of our high yield businesses is working well. Deposits continues to be a higher cost item, and we are organized for that. So let me just pause here, and Tim and I will be able to answer questions or clarify anything that's required.

Thank you very much. Hello? Shall we begin with a question and answer session?

Please.

Thank you very much. We will now begin with a question and answer session. Anyone who wishes to ask questions may press star and one on their touchstone 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 questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

The first question is from the line of Gaurav Kochal from Mire Asset.

Please go ahead.

Hi, good afternoon, team. Congrats on the quarter. I have three questions. Firstly, on margins, I think Shams alluded to the movement in margins here too. I just wanted some sense on the cost of funds repricing. In this quarter, we've seen around 20 basis point kind of repricing. So is it done fully now or there is still some repricing on the cost of funds side, which is yet to come in the third quarter?

Victor, do you want to go?

Mr. Venkat is not yet connected. We're trying to connect him. Okay.

I think the rate of growth of deposit cost is beginning to moderate, but I think it will be a little more contingent on how the environment is shaping up. It is certainly not yet cooled off. So to that extent, we have to be ready for one or two quarters of more higher cost of deposits. because the bulk of, as you will notice, this quarter we grew our deposits Y on Y 23%. And 97% is core deposits of that, and large part is in term. Term grew 33% Y on Y. So there is money, but it's at a cost. And we are, given everything that we are facing in the market, we believe we should tank up when the money is available. Of course, we are finding alternate ways to ensure that the blended cost of funds is in control. I am, that's why I caution saying that the increase in NIM that was realized may not really play through, but certainly it is starting to go in. The trend line is reversed for us. In Q2, it improved, and we think it will improve in Q3 and Q4 too. Sure, sure. And just on the yield on advance bit, you pointed out that the higher interest-bearing assets are sort of seeing improved traction. As a result of that, the yields have improved 14 basis points. So we'll be taking a step further. Let's say the mix improves by 100 basis points. What is the data we get on the margins? On one of the slides, you have disclosed that on a YY basis, there has been a 300 basis point improvement in the yield on assets. or interest income coming from that asset. So, just wanted some context for every 100 basis point kind of, you know, improvement in mix, what is the delta on margins? We should see similar kind of traction, the higher used businesses as they grow. But here again, I'm caution saying, these are businesses that also have higher risk associated. So, we've been quite watchful about it. But yes, to So the increase in NIM and the increase in yield and advances, we saw sequentially seven basis point improvements. So we think that kind of momentum going into the second half also will sustain.

Got it. Got it.

Thanks. On the OPEX, my second question is on the other OPEX bit. There was a sequential jump of around 100 crore. I see that you've added around 23 branches in this quarter, but just wanted to get some sense what was this 100 crore incremental about? Was it largely because of branch expansion, or some of it was one-off? Just wanted some color on this. There is no one-off in any branch. It is a sequentially many things that have all volume increases and material cost. The branch expansion is only one element. All of the branch expansion code will play through. It's a mix of all the businesses that are growing, and there is a volume-related expense. There is the marketing and spend increase that increases about 15-odd crores during the first two seasons. We had some very aggressive growth field-related events. So it's a blend of a few things. I don't think there is any one-off expense. I can come in here. Sam Gaurav, this is Venkat. This is largely volume-related increases in the OPEX, which you have seen. There are no one-offs in that. And like Sam said, some elements of marketing. Branch-related cost is not a significant sum in this increase. Okay, got it. So fair to assume this 100 would continue in 3Q, 4Q? Something more than this, given the volumes, if it grows beyond what we do? Assuming the same growth in credit and NII, we should continue to see similar increase in variable cost. Got it. And on the fee income bit, I mean, the last question that I have on this, we did about 660 crore in the second quarter. Given the third party related fee and even generally the volume related fee is much better in second half, is it fair to assume that our fee income, because if I look at last four quarters before this, we did about 540 crore of fee income. This quarter it has jumped to 660. So just wanted to ensure that the next two quarters also can we expect a similar 660 kind of a run rate or more given that second half is typically better? There are no one-offs in this. The lender-to-banker strategy is playing through. Most of our corporate and retail customers are concentrating, are giving us a larger share of their business. That's why if you see slide number 19 in the deck, it's quite explanatory in terms of its diversity and granularity, and that should sustain. Sure. And just on this, the cost to income in this quarter was 52.5. Earlier, I remember, I mean, you have guided that every year, probably 100 basis point kind of improvement. Let's on a full year basis this year, can we see similar sort of what we did in FY20 at least on the cost to income side, given that we've seen some inch up in cost in this quarter? Sure. Yeah, I agree. There is some inching up of costs that have happened. The volume-related costs have gone up. Second is some of the businesses that we do with our partners requires us to take, you know, the accounting requirement is how the expenses, service charges come as a cost and the interest income, the income comes. So to that extent, these are relatively higher cost-income businesses but higher ROAs. So we've made that conscious call saying for a couple of quarters or for a period of time, we may carry some extra costs because these come at about 65, 70% cost income, but are ROA accretive. So we've made that call and it's visible. You would see our ROA expanding, interest income expanding, income expanding, but unfortunately the cost also does. So till that normalizes, we may not be struggling to pull back to the 50%, but that's what we're working towards. To back up some of these expenses, it's still tracking to the 50%, but yes, on a blended number, the 52 number that you see is a little higher than our original assumption. Sure. Very helpful. Thanks a lot. Thanks.

Thank you. Thank you.

The next question is from the line of Maruk Adajania from Novama. Please go ahead.

Hello, sir. So my first question is on credit costs. So you've done a good job and credit costs are really low this quarter. Where do they normalize? I mean, last quarter it was around 39 basis points. Now it's much lower. So where does it normalize and how long do they stay so low? Given that high yield businesses are also increasing.

This is a question that I wish I had an answer very easily because you certainly don't want to reverse the trend of improvement, right? That said, at 13 basis points, it's particularly low. We had said at the beginning of the year somewhere 35 to 40 basis points per year credit cost. First half, as you noticed, blended in on the 20s. 21.5 may be a little more challenging, but somewhere late 20s, early 30s. It might have been where we had originally visualized the year to start. I'm happy that that trajectory will continue. We've had no corporate banking losses for long periods of time. I hope that it will change like that, but there can always be some challenges in the market. They can run unsecured and granular credits We are tracking well. Our SMA book is at its lowest in many quarters, SMA 0, 1, and 2. And we believe that even through this period of growth in unsecured and higher margin businesses, it should not fall off. We are not doing new to bank aggressively on unsecured. We are doing existing to bank and pre-qualified databases. So for the next two, three quarters, this trend line will continue and should be in the zone of 25, 30 basis.

Okay, so makes sense. And Subha, has the recovery income dropped off so sharply this quarter?

Some parts of it is very, you know, if you have one good recovery, it plays out. So you can't quite model that. It's depending on when some charge-off happened and when the opportunity comes. So I would not put too much attention to, you know, whether it's high or low because these tend to be sometimes opportunistic.

For the answer, I just have one final question, which is that, sorry, you just mentioned that you would still end the year with 325 margin, which is kind of three basis points above the current level, correct?

If you take the current formula of our compute of 322, we are working to that 325 margin.

Okay. Okay. Thank you, sir. Thanks.

Thank you. The next question is from the line of Nitin Agarwal from Motilal Oswal. Please go ahead.

Yeah, hi. So, congrats on good results. A couple of questions. First is on the fee income side, if you can talk about what is this para-banking really including and there has been a strong growth that we have seen this quarter on a sequential basis. So, what has driven that even on a YY, this is a process very strong. How do you really see this? I think para-banking is basically our insurance, investments, wealth management. Largely, these three businesses are all tracking well. Basically, higher penetration, good distribution, and some level of product improvement and focus. That's been the focus and will continue to be. Okay. Secondly, on margins, while there has been a similar rise in cost of deposits between the first quarter and now the second quarter, how do you compare this outstanding portfolio deposit cost to the incremental cost so as to have a view as to how the margin can train in the coming quarters?

How much of the gap is there now?

You have to repeat that question. It didn't come through well. So actually, I want to understand as to how much is the incremental cost of deposits now, vis-a-vis the outstanding cost of deposits.

Because car permits have been under pressure and may likely remain so. So given that over the past two quarter, the rising cost of deposit has been pretty uniform. So how much is the gap between the incremental cost of deposit to the outstanding deposit cost?

Like I mentioned earlier in the call, I do believe that the cost of deposits, we are seeing the last of the story. It remains quite elevated for the industry. It could remain so if the new originations of deposits are also going to be at the higher price. So somewhere in the 18-20 basis point increase in the cost of deposits, we should factor for and work our other lines to ensure the margin expansion happens and the RO expansion happens, which is what we're doing. Some of the businesses, recovery update, improving the doing more high-end businesses, deep pricing existing assets, and a combination of that. And, of course, pursuing car growth more aggressively in the context of art writing, data credit, and becoming a larger lender to bigger banks, to bigger customers, we were able to get some car also. So, the blended outcome will be through that. Right. And, sir, on the asset quality side, we have seen a very strong recovery and upgrades and things are going really strong. So what has really driven this in this quarter, the recovery number? Any one-off there? No, just as I mentioned in the earlier response also, there are no, in this quarter, there's no one-off of any nature. In fact, this quarter, relatively, recovery was lower than the previous quarter. Upgrades were higher. Okay. And lastly, on the internal rating of the corporate book, there is a very sharp increase, almost 500 basis points.

What has really driven this? How do you see the trend there?

Harsh or Rashid, do you want to point out on that? Harsh, I suppose, sorry.

Hello?

Yeah, there has been a clear focus on the A category, triple B plus and A category customers, which is what is shown over here, which you see in a five-person optic. So our very clear target is triple A and double A customers we don't get the yield. So there's a clear focus on the A-rate category of customers, which is where we have seen the increase, and also an uptick in the yield resulting because of that part.

All right.

Yeah, that's right. Well done. Thank you so much. Wish you all the best.

Thank you. The next question is from the line of Kunal Shah from Citigroup. Please go ahead.

Yeah, thanks for taking the question. So firstly, any impact of ICRR we saw this quarter, or it was hardly, maybe not even one basis points or so?

No, no, the impact of ICRR was offset, the benefit of winter with capital was offset by ICRR, but both ways about three or four basis points.

Okay, so three to four dips on ICRR offset by?

The capital increase we had the QIP that came in the quarter.

Yeah, okay. So 3434 basis points getting offset. Okay. And secondly, just in terms of the overall cost to assets, so maybe I think you highlighted that there is no one-off as such and more marketing related. But overall, where should cost to assets settle when we guide for say ROA, ROA expansion as well? Because maybe margins are not too much of improvement, credit cost would also normalize. So now would there be any triggers for ROA, ROA expansion here on?

I've long said that we get to 1.4% ROA in FY25. Thankfully we are well on course much earlier. I think that gives us some latitude to allow for some of the expense in expansion and branching. We are upfronting some of our branch expansion. This year we may end up doing 100 branches or more in the full year or a little more actually. So to that extent, we are taking the luxury of spending a little more to ensure franchise expansion happens. So I would think the cost to assets where we are today can't be very much – they will become important but not materials.

Okay, okay, so should stay largely here, maybe somewhere around these levels.

Exactly, we're working to bring it to, earlier we thought 48% CI, given some of the ROA expansion coming through higher cost income on our fintech partnership, we are allowing us that little latitude.

Okay, okay, yeah, thanks, thanks.

Thank you. The next question is from the line of Saurabh Kumar from JP Morgan. Please go ahead.

Hi, sir. Sir, just two questions. One is, what will be your LCR this quarter? What is the LCR? Did you say LCR, Saurabh? Yeah. For the quarter, I think 121. 121 or 124, I'm not sure. Okay. Okay. And the second is that this NRI deposits not growing, I mean, do higher rates globally impact this growth, or will that not be sensitive to this? I think there are two parts to it, Saurabh. When you met us, we did explain. We are in the NR, there is SKNR, there is NRO, and there is NRE. The remittances-led businesses, which is our NR bread and butter business, remittances are growing very strongly, and our share is increasing even more However, the FCNR, we are not a big player, but we are slowly putting our foot in to try and grow that. We have not seen any dip in the NR remittances. In fact, it's growing. They are not converting into deposits either because savings. It's growing into deposits suddenly. It's becoming self-sufficient. because the rate differential between term and savings is quite high. People are moving into term, or they're using it for consumption, paying off loans, starting businesses, you know, committing to expenses that they had held back during the COVID period. Now, whether this is a sustainable change, we have to see, but I think six quarters is a good period to understand that something structurally has changed. And we are watching this, having set up our question, because speed is remittance share going up, which it is for us. The second and third part, which is the NRO and the FDNR, is not been our biggest strength we're working through. Maybe Shalini can also give some numbers in terms of deposit share, NRO, where we're gaining share. Shalini, maybe you want to add to this?

Sure. Thanks. Thanks for that. As Shyam mentioned, if you slice it into three parts, which is NRE, FDNR, and NRO, our focus has entirely been for very long on NRE. And there we have seen significant market share growth, roughly about 8.32% March of last year, 8.45% this year. FCNR, and that kind of addresses your question also, a lot of the customers who tend to put in FCNR are the ones who are now retaining their money abroad. And some of them are obviously using that as leverage to kind of get FCNR deposits in-country. We don't play too much in that space of FCNR. So on FCNR, we've actually seen a reduction in market share. NRO is not something we've been kind of, you know, working on for a very long time because our bread, butter, jam has always been NRA. The short point is FCNR and NRO is where some of the growth is coming, which we have not been playing in. Going forward into the next few months, we will be playing a large part of, you know, the market in those areas also. we will be working on those. But the bread, butter, jam really is NRE both term and savings. We find a lot of the movement is actually happening from savings into term, and that's because the differential in interest rates is high between the two of them.

Just to add, I think the FCNR segment of NRI deposits competes with the global rates and all. Because there you have, you know, I mean, no exchange-related, you know, so-called gain or risk. So, therefore, you know, I think with interest rates going up overseas, naturally the impact on FCNR is there unless you are ready to pay that type of cost or make it – because it's a fixed rate. It's not floating. on the date of contracting for next one to three years, it's going to remain at that level. So I think even banks are not probably pursuing that much of, you know, FCNR deposit growth. On the other hand, on the NRE term and NRE savings bank interest differential, which used to be around 200 basis points now is about 400 basis points. So as a result of that, you know, I think part of NRE savings is moving towards NRE TD. And also from, you know, while remittances are increasing and all, they are getting initially parked in NRE SP for our clients. And then they are being used probably even for physical assets and consumption.

Okay. So SCNR will not like in the current rate environment. I mean, your on-book TDs, Domestic TDs will be cheaper than SCNRs. Will that be a comment? Yes. Talk to it and do it domestically. On a fully hedged basis, yes.

Thank you. Thank you. Yes.

I have said this three times already just to reinforce the same message. Deposits are available at a price, and we have to make a call at what price and how much you want. We saw significant growth this quarter on deposits, and we'll see. I mean, we've done 33 questions this year, this quarter, sequentially.

Yeah, next question, please. Thank you. The next question is from the line of Pranav from HDFC Bank. Please go ahead. Pranav from HDFC, you may go ahead with your question.

And now reporting this one number, these bank numbers are just on the screen.

There seems to be no response on the line-up channel. We move to the next question. The next question is from Rakesh Kumar from BNK Securities. Please go ahead.

Yeah, hi, sir. Thank you. So on the MSME loan, like, you know, we have seen some, you know, some reduction, some volatility there on the sequential basis. So, around 2,000 crores, like, you know, business banking plus commercial banking number.

So, could you tell us what is the reason for this, like, you know, this decrease from 33,000, you know, to around 31,000 crore number? Especially in the commercial banking, I think this dip has happened. So, any reason for the same, sir?

Sorry, I have to pick up the slide.

Where this slide are you referring to? So this is slide number 14. We have MSME business banking plus commercial banking growth of 16%, 31,000 crore number. And similar number in the Q1 results, 33,463 crore. So business banking has grown this quarter also.

So in this slide, are you referring to... I think I got it. Harsh here.

14. Harsha, I think what he's referring to is on slide number 14 regarding the MSME growth being at 19%. Business banking is growing by over 80-90% and commercial banking at 21%. The remaining portions are the non-MSME piece. What you see is the MSME piece. CP, commercial banking and business banking also have a very small portion which is non-MSME also.

No, no. So, firstly, this entire MSME book, which has come down to Rs. 31,447 crore. So, what is the reason, firstly, which part within that has come down and why it has, like, is there any, what is the reason behind it, basically?

I am not getting it. MSME piece has grown by 19%. So, Q&A.

Issues. I think there's some confusion, Rakesh. If you look at our presentation on page 14, we have mentioned MSME book as 35616. There's no reduction.

Exactly.

It's a 19% growth. Sorry. Just one point here. Just referring at our website, we may have to update that slide in the website. It's showing a different number.

That's already updated, sir.

Okay. Maybe he's referring to that Before the update.

Okay.

Okay.

There's a change in the slide. Okay. Okay.

So, nobody has been changed. Exactly.

Okay.

Okay. And so, in this credit trust rate density, like, so, we see, like, you know, there is, you know, some increase there.

especially in the market risk also market risk number is slightly on the higher side so is this because of investment book growth why is this not coming through you have to repeat the question so this market risk number which has gone up slightly so is it because of investment book growth or there is any other reason also to this investment book you know growth and the market risk rate number

Hello?

Am I audible? Yes. This is due to growth and investments. We have certain growth and investments in NSLR book. Bonds and debentures.

Okay. Okay.

Okay, sir, maybe I will take it offline. Okay, thank you, sir. Thank you.

Thank you. The next question is from the line of Madhu Chandrade from MedPro.

Please go ahead. Hi. Congratulations on a very good set of numbers. I have a couple of questions. To an earlier participant, you mentioned that you do not expect meaningful reduction in the cost-to-income ratio. And you also mentioned that you're targeting an ROA of 1.4% by the end of FY25. Is my understanding correct, first of all, on this ROA?

Yeah, we had to remember when we started FY24, We had said over two financial years, we'll get to 1.4% ROA. Happily we're trending much earlier and certainly we now seek to do even better. Yes, I did say that the number of 1.4, that's what we had said at the beginning of the financial year. So thankfully the traction is good and we'll hopefully keep this momentum going.

Yeah, so my question is given that the credit costs are extremely benign, you know, can't get better from here. and your net interest margin is also going to kind of stabilize, you know, the high getting offset by a higher cost of deposit. So the only driver or meaningful driver could be cost-to-income ratio. So given that you're saying that it's likely to be sticky, are we to expect a more gradual or virtually very little growth, very little increase in the ROA going forward?

Yeah, I would think the improvement that you have seen, we should sustain them. There is opportunity to increase our fee as a share of assets by another 10-odd basis points over the coming quarters. And as we do that, by the window, we do believe cost of deposits will start trending down, which will again aid in expansion. The re-perveting of some of our businesses will again aid in expansion. These three elements, Higher share of fee as a share of assets. Deposit costs trending down or flattening out over the periods ahead. And higher margin, higher yield businesses picking up scale. All our opportunities for expansion. And I'm sure over a two-year period that we're working through, we will see even more efficiencies kick in. And the only reason we allow for a higher cost income is only because it's ROA accretive. We're not doing businesses that are ROA decretive or on the same margin not incremental, we won't do the higher cost income. So the blend is, ultimately the ROA expansion is the driver, and we're working through that. So at this point in time, our guidance, which is, you're not altering the guidance, 1.4 and looking up. Certainly we'll try to improve that in FY25, but yeah, that's the trend line. So there are levers available, but yes, there is no one single lever. We are a few basis points and across all parameters. And that's how we have become from 0.78 to 1.35 very steadily and consistently over five years.

Okay, got it. So is it, I mean, I'm not asking you for guidance, but is it reasonable to assume that from a 524 level, given all the factors that you outlined, 10 basis points kind of an increase in ROA is possible?

I got the answer.

Thank you very much and all the best. Thank you.

Thank you. The next question is from the line of Kaushik Poddar from KB Capital Markets. Please go ahead.

See, your operating expenses in the first half, both the quarters combined, has gone up nearly 25%. and even your cost-to-income ratio is at a high of 52.6% or 52.5%. So that seems quite high. So what's the road ahead?

I thought that's what we were explaining also. I am allowing for that higher cost income because these businesses are ROA-accretive. So we have to sustain the higher cost income because these are some of these partner-led businesses. which is like credit cards and personal loans and gold and microfinance. That's how the ROA expansion is also happening. If they were not happening and ROA is not expanding, we wouldn't be doing that. We would be going back to our 50-odd percent because some of these service charges that are hitting the expense line, that is the corresponding revenue. So the cost income is in the 60s or mid, almost 70s. So back that up, our core is structured, performing on course. And we are spending on certain initiatives like brand and branch expansion, both of which are good for the periods ahead. But having said that, getting to the 50% and improving in a year's time is what we would pursue.

You'd be able to achieve in 50, a cost-to-income of 50%?

Yes, we were trading closer to 49, but some of these developments and how accounting needs to be done for partner-led businesses is requiring us to take the cost income higher, but the only trade-off we're making is we are distinctly and definitely and compellingly ROA accredited.

Now, including this incremental cost for this newer initiative, so this 50% will be at the firm level, at the bank level, or you are... Yes, yes, yes.

At the bank level, yes, going into FY25.

Okay. And these people, I think I remember you mentioning something about the older employee pension coming off or something.

Yeah, that started trending down quite substantially. Okay. FY25, a large part of it was that falling off. because the majority of the recruitments, and not all of the recruitments after 2010 have been on the new scheme. So to that extent, the retirement age of most of the people prior to that is beginning to taper off. Having said that, the last employee of that type will retire in 2037, but the bulk will retire, have retired, retiring. And to some extent, it swings with ease. Every time there is a deal movement up, you will see a higher cost of pensioning. and that's partly playing through in this quarter also. We are fully funded on our pension, so we don't have any lag on that. To that extent, it has some impact, but having said that, the incremental requirement for pensioning in the period ahead will start moderating.

Okay, so this 50%, you're talking last quarter of this financial year, right? Cost income?

We are working towards that. It's not last, it's first quarter of FY25.

Okay. Okay.

More towards FY25.

More towards FY25. Okay. FY25 as a whole, right? That's what you're speaking of.

Yes. Yes.

Okay. Okay. Fine.

Okay. Thank you. The next question is from the line of J.M. Mundra from ICICI Securities. Please go ahead.

Yeah, hi. Good afternoon and thanks for the opportunity, sir. I have three questions. First is if you can give the loan mix by benchmark. I mean, repo, EBLR, fixed rate.

Venkat, do you want to go? Yeah, yeah. 51% on the EBLR. 26 is our, about 26 is fixed. And 13 is the MTLR. These are the big ones. And then we have FX link of three, staff, one and a half, and IDPC 1.85. Sure.

And, sir, in this quarter, so the yields on advances have actually changed the trajectory. Earlier they were moderating for the last three quarters, but this quarter there has been a rise at around 14 basis point. Apart from newer loans which are high yielding, are you also seeing benefits on either fixed rate book or NCLR or, you know, T-bills linked repo or that benefit is not that much and the benefit is coming from, you know, high yielding book?

High-yielding book is only one element, Chief. There are elements that are across the spectrum, renegotiation, pricing of existing assets, negotiating better price requirements from customers. I think it's a combination.

Right, okay. And lastly, sir, on your deposit, right, so you mentioned that deposits are available at a certain rate. So when you intend to grow at 18-20% on loans, Do you see a scenario where the retail card rates on deposit may have to be increased? Or do you think that is an unlikely scenario in the near term?

Our philosophy on deposits, we won't lead the price increase. We are claiming to be competitive. We benchmark against five, six banks which we compete with. We won't be off because I can't have my field disadvantaged in growth of deposits. As long as we are competitive, we will keep going. I will keep pricing a property.

Right. Understood, sir. Yeah.

Thank you so much. Thank you very much. We'll have to take that as the last question. I would now like to hand the conference back to Mr. Souvik Roy for closing comments.

Thank you, and I want to extend my gratitude to all of you for joining us today, and your interest in the bank and your, of course, insightful questions are greatly appreciated. So before we close the answer to Rakesh's query, 35616 and what we have reported as MSME plus COB 31447, the difference of 0169 crore has been reclassified, which is why it is not a part of BUB or COB anymore. So which is why you see a 16% YY growth, but happy to connect after the call and explain further. And as we discussed throughout this call, the momentum is strong and we are committed to further improving our performance. And we firmly believe that the future holds better and greater opportunities for us. If you have additional questions or need further clarification, any further clarification, please don't hesitate to reach out to us and we certainly answer you. And thanks again for your time and attention. We look forward to a continued journey from Tehran. Thank you so much. Have a great day.

Thank you. Thank you. Bye.

Thank you very much. On behalf of the Federal Bank Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.