The Federal Bank Limited

Ladies and gentlemen, good day and welcome to the Q4 FY24 earnings conference call of the 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 any assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sauvik Roy, Head, Investor Relations, the Federal Bank Limited.

Thank you, and over to you, sir. Thank you, Father. Good evening to all of you, and welcome to our next call to discuss the results for the quarter that went by. I'm sure you all had a chance to go through the results, Dick, reviewed them well, and also heard our post-results press con in which our MD has probably answered a lot of questions already. We have had a strong year of performance and we have delivered on most of our aspirational return ratios with the right consistency on earnings while maintaining a very good balance sheet as well. During the year, we also maintained the right growth trajectory, if you have seen in our deck, of course, across all our focused business segments. We scaled up the branch network as we crossed the milestone of 1,500 branches, and that's almost a 10% increase in our network. We exited the year with an all-time high annual profit. Our total business crossed 4.6 lakh crore, and our balance sheet also crossed a milestone figure of 3 lakh crores. The last quarter in particular, as MD already mentioned during the press con, was operationally one of our strongest ever. Some of the numbers, as mentioned in the deck, we did give a call out there, had slight wrinkles due to a one-off impact on account of certain wage-related matters. I'm sure most of you have noticed that and, you know, made the right calculations already. Our margins did expand marginally, but it did. And our asset quality continues to remain pristine. With this, I'll hand over the call to our MD, Mr. Shyam Srinivasan, who's also joined by the entire senior team. Thank you. Thanks again for joining and over to you, sir.

Thanks, Shauvik. Good afternoon, everybody. I think Shauvik mentioned the high points of the financial outcome. I just draw our attention or take us back to March 23, when we had our investor and spoke about our outlook and our aspirations over the two, three year period. And one of them was to ensure, if you all recall, or many of you may recall, we talked about the three ends that are non-negotiable. One is around NPS improvement. Second is around the NPA being best in class. And the third is accretion in net worth. And those are obviously driven outcomes, but driven by meaningful improvement in our return ratios. So I'm happy that in FY24, along those lines, we did deliver. While Q4 reported net profit is 906, it did have the one-off impact of the pension effect of about 160 odd crores. So barring that, I think the quarter was quite a long predicted line. Growth has been consistently good. Expansion in the margin is beginning to trickle through, even though the cost of deposits remains elevated.

That's because of the pivot in business. But at the scale we operate, it takes a while for margin expansion to happen while the cost of deposits remains high. But the trajectory, the turn has happened, and we believe that

going into FY25, that should sustain. Operationally, a strong quarter like Shavik pointed out, but I just want to call out the remarkable consistency and quality of credit is something that we are very proud of.

And Q4 was particularly, you know, exaggeratedly good. I've said this in three, four earlier calls, so it looks like it's a repeat, but in Q4 in particular, our slippage is lower than the recovery and upgrade, and the recovery and upgrade didn't have any one of chunky cases that came through. It's more the structural, granular, regular accounts that sort of recovered or upgraded.

So on balance, the year that went by was strong. Our outlook going into FY25 remains quite confident. We are entering 25 with some industry-level tailwind and headwind, I would say.

Tailwind in terms of credit growth looks quite promising. There's demand that is consistently good across business segments. Deposits are growing, but the quality of deposit or the cost of that deposit structure is something that we have to deal with. In particular for us, thankfully our footprint expansion across the country has played out well.

You may have noticed our rate of growth of our CASA in the geographies that were not traditionally our stronghold is now, you know,

mid to high double digit, sorry, high teams. And that's something that we are confident of keep that trajectory up while we deal with some structural changes that have happened in how the non-resident flows come in.

Flows are coming in, but it comes in the form of term more than savings. So I think we enter FY25 quite mindful of The business model that we're pursuing, the commitments we've made in terms of return ratios, ROA expansion was guided for about four to five basis point improvement sequentially every year.

I think for the seventh year on Trot, ROA expansion has moved up. We are now correcting for the one-off.

It would have been a strong quarter, but full year was 1.32 in ROA. Previous year is about 1.28. I see that expansion continuing into FY25 and beyond. So with those sort of opening words, as usual, we have the entire senior team. We'll be happy to take calls, take questions, and give insights wherever you guys want to. So I'm opening this up, operator, you can open it up for questions.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets only while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Sir, I think we can start. We already have you in the queue. The first question is from the line of from Nuwama. Please go ahead.

Yeah, hello, sir. Good evening. So, I have three questions. So, the first question is on your recovery upgrades, which are almost at an all-time high for you. So, congratulations for that. But would there be an impact of these recovery and upgrades on the NII? Because a lot of PSU banks take some amount of recovery income through the NII. So was there any interest, recovery interest income in the NII? And then if there was, what was it, last quarter or some comparison like that? That's my first question.

Yeah, go ahead. Complete the questions. I'm sure between Venkat and others, they'll answer.

Sure. Then the second question is on fees. So if you see on an annual basis, your fee growth other than investment profit is strong, you know, at just a little under 30% other than investment gains. But the problem is that just like in the fourth quarter, there's been some softness. So while the card fees have been strong, para-banking has been softer, and, you know, there's a lot of movement across segments. So any longer-term guidance we can get on fee income and what drove the YOY growth and the QOQ growth in the fourth quarter to look a little softer than earlier quarters, if there's any seasonality or any reason, and what growth do we build in the next year or so? Does it be 25% up or what? And then the third is on OPEX. So if you exclude the employee provision from your annual OPEX, right, of 1.62 billion, you still have a growth of around 25%, a little higher than 25% year on year. So will that run rate continue or how does it moderate from year on, on an annual basis? These were my questions, sir.

Okay. All useful and good. On the fee income, I think it's, no, I don't believe you can sort of sequentially plot it and say this will grow. But a why-on-why basis, anything between 20% and 25% is very much on the cards, and we believe FY25 will also see that kind of momentum. Q4, you did see pickup in card fee going up, loan processing fee going up materially. But, you know, some of the lines like para banking was slightly lower. But that's only a, you know, sort of modest change versus the sequentially previous quarters is much higher. Q3 was a little higher than Q4. Otherwise, it's been on trajectory, you know, around 50 to 55 or 60 crores. So you could, we believe the core fee income growth roughly about 20, 25% is something that minimally what we will do. We will seek to do it even higher. without any one-offs. The one-offs should hopefully be positive and ticket up higher. So that's on the free income. On the first question on recovery upgrades, yes, when recovery and upgrades happen, certain degree of interest income benefit also comes through because the URI benefit also comes through. And the third question was on, sorry, remind me the third question. Yeah, go ahead, Venkat. Maybe you can take the next one. Yeah, so thanks, Sam. Maruk, on the OPEX growth, if you exclude the staff cost one-time impact, the growth levels will probably be around the same, considering the fact that we'll continue to invest in new branches. Our investment in technology will continue at pace, and there'll be a small uptick in the staff cost with all these recent changes also, which will come through next year. So a combination of all this will see the OPEX around the same levels. But what is important to note is that the branches which we are investing, you notice that the payback is now getting faster. It's approximately 18 months. Of the 75 branches we opened in last year, FY23, almost 55% of them, about 40 plus branches have already are now profitable. So it's encouraging to see that the pace at which we are able to make the branches productive is But having said that, we will continue to be investing in these areas as we believe that this will be the drivers for the strategic levers which we have outlined in terms of NII growth, CASA, and distribution.

Thank you, sir. That was very helpful. Thank you.

Thank you. The next question is from the line of Regin Shah from IIFL. Please go ahead.

Thank you for the opportunity. I have a few questions. So the first one is on the restriction placed on the co-branded credit cards. May I check what are the corrective actions which are underway and how soon do you expect that to resolve? So that's question number one. Question number two, an extension of the first one, if you could help us think through the financial impact of the same, right? While the proportion of that credit card book is less than 2% of the total loans,

the card fee income has been growing at a very strong rate of 50% YOY and even the digital personal loan which we believe is the cross sell to those customers has been growing north of 50%. So how do you think about that going ahead? The third question is on the yields. So if we look at the increase in the yields since the rate hike cycle started, the yields have gone up around 150 basis points in total for you which is the least among the most of the banks and this is despite we having the highest share of floating rate loans. So is there any pressure points in some of the segments that we operate in or are we pushing on growth at the expense of profitability? That's the third one. And the fourth one is on the asset quality. If you look at the provisioning part, there was expected to be AIF-related provision in 4Q as that come through in fourth quarter. And the presentation you have mentioned, there is some reversal of provision even on other purpose loans.

So, if you could elaborate what is that? Those are my questions. Thank you. Okay.

Shalini, you want to go on Cobran?

Sure, Sam. Thanks. On the Cobran credit card, as you rightly indicated, we have paused the Cobran credit card. We are in the process of working through the details of what RBI has requested us to look at. And, you know, we've worked through most of the details that need to be done in the next few days. We will be going back to RBI and presenting our plan, indicating where the corrections have been made. If all goes well, RBI should be able to allow us to resume. I can't give you dates and timelines as to when RBI can come back because that's really dependent on RBI's review thereof. In terms of financial implications, you know, as you indicated, it's contribution from an overall asset perspective. Cards are really small in its overall perspective, and there are other products that are able to kind of lift the potential slack that will come from non-availability of credit cards or the co-brand cards. In the fee-income side also, as Shyam referred to when he was answering the question from Malik, we do expect that the overall fee-income will continue to keep up the pace of growth we've seen so far. Cards will definitely, whatever we don't get on credit cards will get compensated by other products. On personal loans, you referred to that also. Our personal loans are not necessarily tied into our credit cards. The personal loans and books that we have built had two kinds of fundamental pillars. One is cropped into our existing savings bank customers who've been with us and, you know, who we can assess through various means from a credit perspective. That's one part of the book. The other part of the book is new to bank customers who are coming in for a personal loan through our digital lending partners. So summary of kind of A and B put together is we don't expect too much of an implication either on the balance sheet or on the fee income. We will be going back to RBI and if all goes well, I'm sure RBI will bless our resumption very shortly.

A couple of clarifications, please. When you say that the corrective actions are underway, would the partnership with OneCard continue or this is something wherein you can fix it?

For us, all our partners are critical. As much as the partners invested in it, we have also invested in it. We will be going back to RBI with corrective actions on the partnership. We do expect that with the corrections we have taken, RBI should be able to. It's really a discussion that we will have with RBI when we are ready.

Just to add, I think the question was, will partnerships continue? I don't believe either the regulator was just to stop partnerships and or we are looking at that direction. Certainly when we started out our FinTech partners and where we are now, a lot of evolution has happened. We have learned, they have learned, regulations have changed. Now we are continuously readjusting to it. But the fundamental objective of expanding reach and digitally using partners has not evaporated. The scale size Quantum will vary based on how much filters and how much guardrails are there. But structurally, we are not saying we're going to shut out our partners, unless there's a regulatory requirement to do so. Hopefully, that won't happen.

So, one card should be able to share the customer or transfer the customer data back to federal bank and give away that data.

Unfortunately, what gets reported, written about is all conjecture. It's never the full fact, right? It's not like we were lax about letting somebody else take our data and so on and so forth. But there was some additional firewalling that had to be done, additional controls that had to be put in place and those are effectively happening. Got it, sir.

And Shalini, if you could just give a number as to what kind of cross-selling do we do to the credit card customers for personal loans, that number would be helpful as well.

Like I said, both our credit card proposition and our personal loan proposition are currently cross-polls to our savings bank customers. We honestly don't do much of a cross-poll between the two. I don't have the number readily available, but it's not a very large number. Our cross-poll is primarily to our savings bank customers.

Got it. Okay. Thanks for the question, the remaining two. Yes, we've gone long ahead. You have to remind us the question three and four of yours.

Question number three was on yields, I think, Shah. Correct, correct. The increase in yields of, you know, between the record price hike and, right? That was the question number three on yields.

Yeah, I think I'll take that. On yields, the expansion, like you pointed out, is more modest than it has been for some other banks, which it may be. I think we have to understand that our structure of how we do business is we don't trade risk for growth. I've said this for 14 years and I'll say it for the remaining five months. We are very clear that we will do business from segments that we can manage well and our credit costs have held admirably because of that. So to that extent, ability to go and demand, command extremely high, you know, sort of readjusting to prices is not that easy. Within that framework, our expansion has been quite considerable, keeping the risk profile in mind. So as we pivot more into the newer, higher-yield businesses, which we are, you are seeing through these last four quarters, once the businesses like credit card, microfinance, personal loans, commercial vehicles are ticking in better, we are seeing the yield uptick in the blended margin increase, and I believe as we go into FY25, that will get a little more pronounced. So we have to deal with a rising cost of deposit situation, which thankfully I think is moderating at this point in time. As we do that, our business pivoting into the higher yield businesses, combined with our repricing wherever possible without compromising on risk, we'll see pickup. But yes, I agree, the yield pickup that you may have wanted us to see may not be fully playing through. But our overall ROA and ROA commitments are factoring in for all of that. That's why the blended rate of growth we are committing for and we think we are honoring that, delivering it and hopefully deliver even higher in the quarter ahead. Got it, sir. And then the last question on provisioning AIF and reversal in other purpose. There was no AIF provisioning in Q3 nor in Q4.

Okay.

And the reversal for other purpose that we saw in the... Yeah, the other provisioning of 67 crore reversal that you saw was... we have taken an extra provision in Q3 which now has been reversed out and that has hit our income line because there were some excess fee charges that had to be reversed that were not crystallized so we took the hit in Q3 on provision line so the profit was correct and that has since been corrected in Q4 so you will see a reversal interest in provision line but corresponding hit on the fee income also. Got it sir. Thank you for patiently answering all the

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

Yeah, hi. Am I audible?

Yes.

Thanks for the opportunity and congrats on a good result, sir. So a couple of questions. First is like on the recovery is taking it forward. Like what has really driven this strong recovery and upgrades this quarter? Is there any one-off in this number?

Nitin, I said it up front. There were no one-offs, no chunky gains. Raj, if you are on the call, you can come back, but none of them, Nitin.

Okay. Yeah, thank you. So, there are no chunky calls. This has been completely granular and all the regular recoveries in a place.

Okay. And second, sir, is on the succession planning. Like, if you can talk about where are we on that and by when do we plan to submit the names to the RBI and Any progress, if you can comment around that?

Thank you. Yeah, the board has set up the search panel. The search panel has been doing a great job. They have gathered a good slate of candidates from outside, inside. They are processing through it. I do believe in the next week, fortnight, two weeks, three weeks, they will be able to be in a position to share with RBI.

And once it goes into RBI, you know the process works and they do their due diligence. So it will take its own between three and four months for clarity around who the candidate is. But at this point in time, it's going well. We are quite encouraged by all the developments.

Okay. And so the other question is on the branches. We have been opening branches at a healthy rate, and this quarter, we have opened at a very accelerated pace. So how are we looking at, in FY25, the pace of branch expansion, and related to it, how do you see the cost-income ratios moving from here?

But four years back, just coming out of COVID, we had said, three years back, we'd like our expansion to be between 5% and 7% increase in network every year. This year was closer to 10% because we saw some opportunities and we were willing to put in that extra energy to get that going.

So we think FY25, we will do certainly between 5% and 7%. If P&L can accommodate, we will do a little more. But the consequence of that, like Venkat said, that breakeven is turning to be faster. And if that stays, because those are businesses that are microfinance, gold loans, and deposits, then maybe the business case for expanding it will be higher. But I would think in FY25, about 100 branches minimally. More than that depends on what kind of P&L space we have.

Sure. And lastly, one observation on the business concentration. If I look at the deposit concentration, it has been inching up over the last two, three years, and it has almost doubled in the last two years. So generally, as the banks gain size, this is either in control or it improves. So why is it so, and how do you really see that internally?

Sorry, I didn't get the question, to be honest.

Sorry, this is in respect to the deposit and advances concentration, one of the slides in the presentation. The top 20 depositors concentration has been like on a rise. And if you see like the trend over the last two years, this number is going up significantly. So how do you see, read that while there is no harm as such, this number is still pretty much in control, but how do you read this trend internally and any level that you will want to watch out over here?

Nothing to comment on, nothing. There's nothing, at least in our dashboard, nothing shows anything that is alarming or change in direction. If we are going at term deposits, which is the trend of the market, then there will be some kind of concentration, but largely customers who are consistent. But apart from that, honestly, there's nothing to add as an insight here. We still would like to be granular, but retail in nature.

Sure, sir. Thank you so much and wish you all the best.

Thank you.

Thank you. The next question is from the line of Param Subramanian from Nomura. Please go ahead.

Hi, good evening and thanks for taking my question. First question is on provisioning. So we've, this year the standard asset line, standard asset provisioning line has seen 200 crore of write-backs and I'm assuming it's coming from the restructured asset provisioning reversal. So just try to, you know, get a sense on, you know, what is the PCR we have on the restructured assets? And we're seeing 200 crore of reduction in this restructured portfolio every quarter. Is that something that will continue, you know, going over the coming year? That's my first question, yeah. Outlook for FY25 looks consistent to 24. So, and, Shyam, what is the provision cover we have on the restructured portfolio? And as it changes through the year?

Raj or Venkat?

Yeah, we are maintaining the regulatory minimum provision for them. So they are well above that for the restructured fund. So it's close to 10%, is it? Because I remember it used to be 20%. 15 plus. Okay. Okay, fair enough. And secondly, again on the provisioning, so because some of these, you know, unsecured portfolios have become, you know, have grown quite a bit like credit cards, and they tend to be higher credit cost businesses once they get seasoned. Do you see any upward delta on credit costs as such going into FY25, or would you like to put some outlook on credit costs going into FY25? If you normalize for FY24, overall credit cost is about 24, is it, Venkat? 24 base points? 23. I've said that that is... low, but I'm happy that that low may not dramatically alter and shift up.

But yeah, you could argue that somewhere around 30 basis points is what we would push, you know, try to deliver in FY25. But that's the run rate.

Fair enough, Shyam. And one last question, again, on the corrective action we've taken on the partnership. Is there, on the FinTech partnership, is there any OPEX that one should expect related to that. Yeah, that's my last question. Not significant in OPEX, right? It's only a model of where data resides, how it's accessed, who holds it. To that extent, we don't believe in any cost impact should be there.

Okay. Fair enough. Thanks, Shamanthi. Thank you. Thank you.

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

Yeah. Hi. So firstly, just with respect to free income on the general banking charges. So is it like we need to add this 60 to 67 crores of reversal to it or there was no impact in this quarter and that free income was also in Q3 itself?

No, no. The reversal is from the free income in Q4.

General banking also there is a similar gap on a quarter on quarter basis of 60 odd crores. So is that the impact?

Yes.

Okay. So last time we just made the provisioning of 62 maybe the other provisions were almost like 62 odd crores in Q3. So last quarter we merely made the provisions out there and was it booked in some other line item maybe in OPEX also and this quarter we are doing it in say more of a fee income and reversing the provision. How is that happening?

Last quarter, provision was made. This quarter, the provision has been released and the fee income has been hit by that amount.

Okay, okay. So, 62, 62. So, ideally, when we look at it in terms of the fee income, it should have been near 680, 690 odd crores.

Yes. You see general service charges for three preceding quarters were in the region of about 100.

Yeah, yeah, that's right. So, that 60 crores need to get added out there. Okay, okay. And secondly, in terms of the overall OPEC, so last quarter also there was some provisioning towards the wage revision. This time it is towards the retirement benefit. So we need to adjust almost like say 200 odd crores in the employee costs just to make sure that the entire wage provisioning impact gets over and that should be the normalized level of employee cost for full year FY24, just deducting 200 odd crores.

Yeah, that's correct. Yeah, it's approximately around 200. The 162 plus there was some arrears and all which we had and there were a lot of other new things which had come in with the wage agreement. So we factored all of that.

Yeah, so if we have to look at it, ideally the normalized OPEX for FY24 in terms of be it either cost to assets and where should we see it settling if you can just guide in terms of how it should move in FY25.

FY25 excluding this one-off impact, you know, you should look at similar levels. I would add probably another 5% more to the OPEX cost.

Okay. Okay.

So 5% to the overall OPEX cost.

Overall OPEX, yeah.

Okay. Okay. Got it. And there were no one-offs during the year on the overhead side.

In the overheads, there was no major one-offs. Because the spend, like I said earlier, the spend on branches, technology, all of them have been happening, which will continue as well.

Yeah, so more business-related without any one-offs.

Yeah.

Okay. Okay, yeah. Thanks, thanks, and all the best, yeah.

Thank you. The next question is from the line of Mona Ketan from Dollop Capital. Please go ahead.

Yeah, good evening. So firstly, you mentioned about this ROA expansion continuation that's going to be in FY25 as well. So given that, you know, credit costs will ideally normalize at higher levels and there could be some headwinds to margin with, you know, interest rates may be declining and then that comes floating rate loans. So, what according to you would be the key levers with the assumed expansion here on?

To rewind two years, one year, three years, your credit costs are low, you don't have much space left, how will ROA expand? You have seen ROA expand over the last three years. But we've always maintained it a little bit, a few basis points here. We don't have one silver bullet which will change the narrative. For new expansion by a few basis points, credit cost holding well, efficiency is good, free income growing should be the driver of this.

Okay. I'm sorry, you guided for credit cost of around 30 bits for FY25, if I got it right.

Yeah, in that range. Yeah, you're right, in that range.

Got it. And just finally, on this OPEX growth guidance that was talked about in the previous question, so X of the 200 crore one-off, what you're saying is OPEX could rise by about 5% year-on-year. Is that what I understood correctly?

Yeah, excluding the 162. See, there are costs which are directly proportional to business growth. That will continue to rise in line with business expansion, but the other overheads and OPEX costs, overall increase will be curtailed within a 5% of the Q4 exit run rate.

Got it. Okay. Thank you so much. That's also my point.

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

Just one question. On your current accounts, normally, you know, you see seasonality in Q4. You are flat. I mean, is there something happening there? No particular answer. Actually, I'm quite pleased it didn't show any swing because usually it tends to bulk up at the end of the quarter and fall off. I'm pleased that Q4 didn't see anything and nor have we seen any fall in Q1. So it's a more sustainable outcome, I would believe. Harsh or Shalini, if you want to comment.

No, Shalini is powerful. Sorry, Harsh, go ahead.

Yeah, sure, Shalini. Yeah, more or less for some things, right? We have been increasing and focusing on current account balances, but there's no bulk up which is happening. And the current account balances average is showing a steady increase.

Yeah, just to add to what Harsh says, our entire kind of focus has been that on an average is what we measure ourselves on. So we don't, I mean, we don't see too many month end or quarter end or year end kind of spikes, you know.

Okay. Got it.

Thank you. Thank you. The next question is from the line of Pritesh Boom from Dam Capital. Please go ahead.

Hi, sir. Good evening. Two questions from our side. One is on the retail gold loans. This quarter also we have not seen any material growth despite gold prices being up, RLTV being stable. Any strategy on that? Because this is one important piece for a high-yielding growth strategy.

Is that true, Vahash? No, it's not.

27% is what is grown.

Yeah. Sequentially it grew 6%.

I think this question is on retail gold, which is separately shown in the investor deck. Retail loan growth. Retail gold. If I recollect, it was 4.50 to 4.572 or something like that. It was flattish, like a 1% odd quarter on quarter, despite gold prices being so high in the last quarter. So anything on that?

Nothing specific over here. First year. And in specific over here, we have been tracking the entire overall portfolio. We've been monitoring the LTE. We do not encourage top-ups just because the gold prices go up because it tends to hurt us when the reversal happens. So that's there. So from that point of view, we've been monitoring it. Our organic growth was robust. The one which you're seeing in the middle has a mix of both, which the organic growth has shown robust growth over there on the retail gold side.

But your question on can retail growth happen? I think there is certainly an opportunity, but there is a pricing game there. People are tending to price this and take share there. It is not as easy as it appears, but certainly, yes, there's an opportunity. What I see is that the ticket sizes are falling quite sharply. It's from about Rs. 40,000 to below Rs. 30,000 now. So just wanted to check what are we thinking on that, right? Yeah, I mean, since we are all giving you an answer, which is kind of, you know, not very researched, it's best we come back to you. Got it. Second, sir, you mentioned about the partnership correction in terms of co-branded. Are we taking a corrective action if any in the other partnerships as well, lending or otherwise? Yes. apart from the co-branded cards? Let me help you with this. We have on the lending side, on the credit card side, two material co-brand partners. One is one card and the other is KPR. The others are more the deposit side into which we cross sell. On both these things, the corrective actions are happening. On the personal loan side, they are really not impacted by this process. So, That said, all our fintech or partnership, any partner, we are subjecting it to the same level of scrutiny to ensure that gaps, if any, are addressed. Got it. And the last question was, basically, our retail share of deposits slightly dropping from a few quarters and bulk has been now at about, I think, 20%. So, anything gap there we want to put in terms of how much we can go to in terms of bulk deposits and retail deposits? I think I mentioned it earlier when one of your colleagues asked this. Yes, we are probably at the top end of it. Around this number is where we will be. Sir, given that this is more likely a top end, the retail term deposits are quite high in terms of reach. Where do you see our cost of funds? This quarter also we've seen 20 basis points up. So how do we see that going in FY25?

Venkat, do you want to comment?

Yeah, Shah. Yeah. In terms of cost of funds, you know, as we are seeing how the market is and the demand for deposits continues to be quite tough. While they will see the pressure on deposit pricing, and there'll be some impact of that translating. What we are trying to mitigate that is with the yield side, as mentioned earlier by Shyam and others, working through the mix and making sure that we are able to maintain the NIMS, either at the current level or improve it. So we will see the cost of funds moving up marginally, going ahead, at least for the next couple of quarters. Got it, sir. Thank you, and all the best.

Thank you. The next question is from the line of Rakesh Kumar from BNK Securities. Please go ahead.

Yeah, hi. Thanks a lot, sir. So slightly broader question.

So one thing that for this quarter, the calculated term deposit cost has not increased. So correct me if I am wrong or if there is a flat number on the term deposit cost. So this quarter TD cost has gone up. I don't know how you arrive at a calculated number of being flat. Last quarter it was 7.06 cost of term deposits. That has gone up to around 7.25. Okay. So we have calculated on the based on the quarterly average balances. But thanks, sir. The second thing, sir, like if I see how that's what translates to the cost of funds, right? Because savings is pretty much flat. True, true.

So what I was looking at is that, you know, like for the last three years, like, you know, whatever increase in credit yield has happened, that has largely happened with, you know, the increase in credit risk rate that, you know, credit risk rate density that has increased. Now, With this, we have around 25, 27% of the loans which are on the fixed rate basis. And with the 170 bps, 175 bps increase in the cost of deposit, we have transmitted around 155 bps in the credit yield. So is there any scope to further enhance the margin at this level without increasing the credit risk rate?

As we account portfolio by portfolio managed, besides that, we have to look at, not we have to, we are looking at opportunities to find how we can hedge some of our portfolios to ensure that we are in a falling rate environment, reasonably well protected. We believe we are getting to good success on that count by managing it through multiple levers as opposed to just one that may be very visible.

So, it has to be seen as we slice the book, the entire 200,000 crores into multiple buckets, find opportunities for each of them, and all of them are in play.

So, net net margin, how do you see that, you know, giving these numbers, like for the last three years, or maybe after May 22, when the, you know, interest rate cycle rises started? So, If we see since then, now, how do we see the, you know, the margin panning out?

I thought I mentioned at the earlier part of the call, we think that 320 should, in chapter, have a two to three basis point.

Understood, sir. Thank you. Thank you so much, sir. Thank you.

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

Hi, good evening, sir, and thanks for the opportunity. I have a few questions. First, I think it was asked a little bit earlier on yield.

So, apart from the loan exchange and maybe the, you know, the usual MPLR pricing, is there anything else which could help on the yield side?

Maybe if there are few loans which are hybrid or maybe, you know, which may convert from fixed to floating, is there Is there such meaningful quantum of such load? Venkat, do you want to go?

Venkat or Harsh? I thought I answered the earlier part. That's why I'm saying one of you maybe I will say something. I think pretty much summarizes what we plan to do today and there isn't any other silver bullet which we have. It's all about looking at portfolio, make change, pushing through you know, are cutting the tail on low yielding. So a combination of all this only will help us ensure that we maintain them. I'll just add a few points here. What we are looking at, what you are articulating is increasing the focus on the high businesses, which you have spoken about. But even within each business vertical, the focus is shifting more towards one which will give us a higher yield. For example, goldfield banking, you clearly see a shift from the share of commercial banking increasing, which has been corporate banking. Similarly, in commercial vehicles, you'll see a shift, more increase in share towards used commercial vehicles.

That, in corporate banking, we're looking at increasing the share of supply chain businesses. In corporate banking, again, we're looking at leading out those very finely priced assets where there's no reciprocity.

So, this is a combination of these things which will help us in terms of pushing up the yield in general, apart from focusing on the high yield businesses.

So just to add to that, again, as Harsh and Venkat alluded on the retail side also, if you look at kind of home loans and slices into parts like just regular home loans and loans against properties, we've expanded our presence in the loan against property market where the margins tend to be a little better. Within the auto loan segment, we're gradually increasing our, you know, entry into the used car segment. Within business banking, for example, we're granularizing our portfolio because of the lower end, you can get slightly better pricing. So there's no silver bullet for it as I think we've all, I think many, many actions taken and you'll see the kind of, you know, the improvements on the yield coming out of all these multitude of actions.

Right. And if you can highlight the loan mix by benchmark, I mean by NCLR, EBLR fixed rate, you have that handy.

It's mentioned it's 51% is EBLR, 57 is fixed. 52, yeah. 51 point something and 27 is fixed. and the rest of them is correct links, staff loans and base rates. Deposits, right? So if I see that NR deposit has grown only by 8%, whereas the overall domestic deposit has gone up slightly higher and the overall deposit growth is 18%. I remember that, you know, that there was not too much difference on the NRTD and domestic TD. I wanted to check, is there any significant difference between blended NRTD and domestic TD?

And what is the reason that NR deposit is growing at a little bit slower pace or much slower pace?

Yeah, deposit rates are the same across whether it's domestic or NR. I think we've been mentioning for a few calls now Post-COVID, the nature of how NR remittances and behavior of remittances converting into deposits is material change. Remittances have gone up and our share has kept pace, but the remittances are not translating to deposits. Either, not either, our hypothesis is as follows. It's being used for paying off debt. That's why credit quality is improving substantially even in Kerala. One, setting up new businesses because many of them are probably returning and setting up some shop here.

And for consumption like family, wedding, marriage, school, college, whatever.

And the last is the non-middle East Kerala remittances probably have not moved much and is probably getting into FCNR. And we are not a big FCNR player because rates don't necessarily work in favor. Rupee deposits coming in, rupee remittances coming in are continuing to be vibrant. We are seeing a larger share of it. But unfortunately, they are not translating it to deposit directly. Indirectly it will because it creates commercial activity and it comes back as deposit. Directly it doesn't go into deposit. Which is why 4-5 years back as we started dialing up our outside of this norm business, and those are tracking quite well.

Understood. That is very good. Sorry, I have two more questions. One is, OPEC, I think, earlier you mentioned that, you know, X of this 200 crores of staff cost, which is one of, the growth should be 5% only, but then you sort of qualified that by saying that the usual business as usual costs will still be there. And so, if you can... help us understand how should one look at the OPEX growth for maybe 1-2 years. That would be helpful. Sankar, you want to go?

Sorry, I didn't get the last part of the question. What did you say? How should we look at our OPEX increase in the year ahead, years ahead? Two years, again, it's dependent on our strategy on investment in branches. That is one main part. For FY25, the current outlook is we will probably look at, like Shyam said, another 100 branches to be added. The technology IT spends as a percentage of OPEX, we are now close to around 6.7%. And that's an area where we'll continue to invest. And we would like that to be closer to around 8% of OPEX. So in the next FY25 and even FY26 early part, the current outlook is investments in these two will continue at pace at the same rate at which we have been doing. On staff costs, if you exclude the one-offs, like I said, there will be, I would put another 5% increase on a year-on-year basis. And the other fixed costs would be around capped at max 5% increase. But the variable costs related to businesses, would continue to be in line with business growth as long as it's, you know, positive jobs, we'll continue to invest those. So, overall cost, the controllable cost, staff cost would be about 5% more than the current Q4 exit trend rate.

And last question, sir, if you could highlight, is there any impact on the capital because of the new investment guidelines which were which were implemented with the . Thank you. No, nothing at all. Nothing.

No . Thank you.

Thank you. The next question is from the line of Saket Kapoor from Kapoor & Co. Please go ahead.

Yeah, namaskar team and thank you for the opportunity. Firstly, about the treasury part under the segment revenue, so what explains the deep in the profitability, if you could give some understanding on that thing.

Yeah, last quarter we had the Perfina listing gain, so that is not repeated in this quarter, that's the main difference.

Okay. And sir, in your opening remarks and also during the call, sir, Shamsa, you mentioned about we are looking for a 25% growth in the NII, the net interest income for FY25.

Free income, not NII. Free income.

Free income. Yeah. Okay. And what should be the NII trajectory likely, the growth in the NII?

This year we grew 15, our credit grew 20.

We would like to be better on both counts. But, you know, we just have to work through this cost of funds challenge. But, yeah, in that zone. Okay. We are very likely to remain in this trajectory, what we have performed for this time. Improve slightly. we will improve slightly.

Sir, on the cost to income ratio, where should we stabilize? This quarter was, I think, an aberration.

No, this quarter was an aberration. We were looking to be, last year was 49 and change. We were looking to be in that 49 or better. But some of these costs have come and impacted us. So, I think F525 should be back to about 50 odd percent and then improving from there. Okay. And two small points. Firstly, on the dividend payout part, sir, I think we have done the fundraising exercise also earlier. So I think we are very well capitalized. What have been the factors on which we have decided the payout to be lower than 10% of the EPS for this financial year, sir? And then one closing remark from Shyam. We are looking to preserve capital as we grow. We think... we should be able to strike a sort of a sensible balance between a plow back and also reward shareholders.

So the board has taken the decision to recommend a 60% dividend rate.

Because as you mentioned, rewarding your investors and shareholders, if you take the trajectory of the market cap change over the period, I think it has been subdued in comparison to the other listed banking space. So that was a very brief understanding on how well when you see the market cap or the

the type of net to book value that should stop trade going ahead.

These are a few of the parameters which investors also look in terms of the payout ratios also. And lastly, sir, your terms come to an end, as you alluded earlier, also five months.

And we have seen that in many of the banks, the people, the personnel have tried their hand at other small banks.

So can we look forward for your role in some other small banking entities who are also scouting for experienced people like you or veterans like you? And we can see you in other entity or together or is it cutting down for your career in the terms of being the MD? What's the thought process if you would like to share and any message to us?

Thank you, Kapoor sir. We'll talk on September 24th, 2024. Till that time, I'm in this seat and I'm enjoying this seat. Correct. Yeah. Okay, sir. Thank you. And for Kerala value creation idea, sir, I think so please dwell on the metrics.

I think so our banking, our bank is lacking on that behalf, on that council.

Let us feel that. Thank you, sir. Thank you. Okay. So we are just left with couple of minutes before. Yes, sir.

So Sagar, I think one more question and then we can wrap it up. Sure.

So the next question is from the line of MB Mahesh from Kotak Securities. Please go ahead.

Hey, hi. Congratulations on good results. Just one question.

Just a comment, if I missed it, on the non-staff expenses. It was up from 850 close to 950 close. I don't know if you made a comment on it.

Dr. Thomas.

We didn't comment on it, but I think Venkat alluded to the overall investment in technology and branch expansion as

Primary drivers are expansion of cost.

Is that high? Mahesh, typically in Q4, we normally see an uptake in the other operates. So it's in line with what we have seen. It will normalize in the first two quarters and then again pick up. Because there were some one-offs which, not one-offs, some IT spends which normally happen whether it's an EULA renewal or some infrastructure purchase which gets charged off, that usually happens. It's a timing of the renewal as well, which happens. So Q4 is usually the quarter where you see a higher IT spend.

Okay. Perfect. Thank you.

Thank you. Yeah. Ladies and gentlemen, we would take that as a last question for today. I would now like to hand the conference over to Mr. Sawvik Roy for closing comments.

Thanks, Avar, and thanks everyone for taking time and joining us on the call today. I hope we have been able to address all your questions, if not most. And if any questions remain unanswered, please feel free to reach out to our IR team. We'd be more than happy to take those questions on a one-on-one basis and offer further clarification. Going ahead, we definitely continue to drive risk-calibrated profitable growth, and our focus will definitely remain on market share growth as well.

Shauvik, one second. Good evening, everybody. Thank you. I just wanted to point out that our stalwart in the bank, Ashutosh Kajuria, after almost 13 years in various capacities, is retiring as a business close this evening. He'll be associated with the bank in some advisory role, but his formal terms end as of today. So join me in congratulating and thanking Ashutosh for an exemplar support and performance in the bank. Thank you. Thank you.

Thank you, Ashutosh sir. Thank you for all these many years of amazing service to the bank and to everybody. Thank you so much. And with that, ladies and gentlemen, we'll sign off for today.

I also wanted to add one more thing. Our senior colleague who has HR here is moving to another bank as an MD and it's a proud moment for Federal Bank. So I have to compliment our colleague Ajit Kumar for that.

Yes, sir. So, thanks, Ajit sir as well. Ajit sir, if you're on the call, thank you. Thanks again, sir.

Bye. Bye, everybody. Bye.

And see you all after even a, probably a better next quarter. Thank you. Goodbye. Thank you. Thank you.

On behalf of the Federal Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect.