The Federal Bank Limited

Ladies and gentlemen, good day and welcome to the Q1 FY25 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 assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Swavik Roy, Head of Investor Relations, Federal Bank Limited. Thank you and over to you, sir.

Thank you so much and ladies and gentlemen, thank you for joining us today. Apologies for the slight delay.

We were facing some tech glitches. Pretty sure you have seen our deck. We have delivered quite well this quarter. It's been a quarter of several all-time highs reflecting our strong operational excellence. We have achieved the highest ever quarterly net profit of 1,010 crores and the highest ever operating profit of 1,501 crores. Additionally, we have recorded our highest ever NII and other income as well.

This further underscores our financial strength as well as our strategic execution. Our Q1 performance sets a robust platform for the financial year ahead as our MD had mentioned in his release to the media. And despite the challenging environment, we have led the market in both credit as well as cost growth.

Our business strategy focused on diversification across products and segments continues to yield positive results with nearly all our businesses showing sequential growth of 4 to 5%. Noteworthy among our achievements this quarter is the significant recovery in deposit growth driven by our recent expansions and product launches.

And we have also successfully reversed the previous challenges in our growth as well. In summary, Q1 has been a quarter of exceptional operational performance and we are confident that this momentum will sustain through the year.

I have the entire senior team here with me to answer your queries. But before that, you know, before I hand over the call to them, I would like to make a short comment.

This success, you know, of our entire franchise is definitely a tribute to the exceptional leadership of our MD and CEO, Mr. Shamsi Nivasan, who for 56 quarters has guided our bank to unprecedented levels of success.

His vision and direction has always been instrumental in navigating us through various market conditions and consistently achieving superior results. With this, I'll hand it over to you, sir.

And thank you. Thank you again, sir.

Thanks. Thanks, everybody. Thanks for joining in. Thanks, Shauvik. Yes, like Shauvik pointed out, I think we had a good quarter, and I would like to believe operationally it's a very strong quarter. Sets the tone for a strong FY25. You all cover the market, and you know it very well. It has been challenging, and it is likely to remain in this kind of environment. So through this, federal banks' capabilities are now getting well-recognized, and both growth in credit and deposits have been strong, almost 5% sequentially, and that sets the tone for a strong financial year. Importantly, market share gains are visible. The one thing that I did want to call out, which Shabik referred to, is on the deposits side through what arguably is a challenging period for everybody. Not only did we grow higher than many, but I think the important driver for us is what we've been struggling with for almost two plus years is the non-resident domestic money, as in the money they put in India, not through FCNR or NRO, but the NRE-led deposit growth. was kind of sort of tapering off, and we've seen good pickup on that count, and I think that August, well, we've reversed the trend. Barring that, our expansion has helped us grow our deposits well. Credit quality, something that we take great pride in, has been stable for long periods of time, and I believe outlook remains quite robust. There are at best some glitches here and there, but nothing that at this point in time we are flagging as any kind of risk. So we are setting the stage for a good FY25. We've opened well on many counts, interest income being recording the highest. And importantly, interest income growth has matched credit growth. Often the question is, is credit growing but not interest income? We believe that the structure and the business mix is influencing that outcome, and I suspect that momentum should continue. There are, you know, further opportunities of how we get some of our higher margin businesses growing through periods that are both opportunities high, but, you know, one has to keep a tight vigil on all the businesses that are relatively higher margin. We've never shied away from slowing down if we see any kind of growth environmental sort of stress building out. At this point in time, we are encouraged by all that we see. The team is quite excited about the opportunity ahead. I'm also happy that, you know, through this period, we have got a successor identified, so the transition should be relatively smooth. The team that helped me build the bank is intact, and they will work with a new leader to take it to another level. So let me just open for questions with the summary being, we've begun well this financial year. The underlying indicators, both on the credit and deposit side, look quite encouraging. Momentum is with us and financial outcomes you've seen. So let me just pause here and ask the operator to open for questions. As always, the entire senior team is there to take questions and give responses on areas that may require attention. Thank you.

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 touchstone phone. 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. Our first question is from the line of Maruk Adichanya from Nuwama.

Please go ahead.

Yeah, hello. First of all, congratulations, Shyam, on a very successful journey and a very successful stay in that federal bank. And thank you for the interactions and sharing your expertise with us. So thanks a lot. And we miss interacting with you.

Thanks, Maruk. Thank you so much. Thank you.

Yes, hi. And congratulations on this quarter as well. I just had a few questions. Firstly, in terms of the other miscellaneous income, if you could quantify what the PSLC income was and what the revaluation on investments was, if you could give a breakdown, because it's much stronger even than last year, which was 1.6 billion. So a breakdown of the 2.2 billion. That is the first question. And then I have two others.

Between the investments revaluation and PSL, the net benefit incremental to last year would have been about 75 to 80 crores. PSL last year was about 52 crores. This year I think is about 90 crores. And the investment revaluation net is about 45 to 50 crores.

Got it, got it, got it. And the other question is on slippage and credit costs, right? You've done very well. Your slippage and even your credit costs is contained within 30 basis points. Of course, you've guided to a strong risk matrix. But even so, it's really much lower than normalized. So where do you think the normalized level settles at and when do you reach it?

I don't want to reach a higher number, Amaru. Our business has been, I think, underlined by our conservatism, often for which I've been criticized. But I think it pays off when things are not looking good. We believe 30-35 basis point credit cost is what we should operate at. And this quarter was, if I remember right, 27 basis points. So we are in that ballpark and credit quality should hold because we've been quite thoughtful about where we write the credit, how we write the credit. And we also up-fronted our collection capability even more materially. So I think at this level, 27 being what it is, maybe 30-odd basis points, 30 basis points plus minus a few basis points is what we will be full year FY25.

Okay, and just last question on the new investment norm. So what has been the impact on net worth? Of course, on revaluation you explained, but on net worth and on investment yield. And is the improvement in investment yield, if any, because of this sustainable?

Venkat, do you want to take that? Yeah, let me answer that. On the reserves, it's about 339 crores net of tax. That's the impact which we have due to the new investment guidelines.

And in terms of investment yield?

We haven't quantified that.

Because that seems to have gone up, right? The investment income is up quite sharply.

Okay. Approximately like around 10 bps increase.

Okay. Thank you. Thanks a lot.

Welcome.

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

Thank you for the opportunity. I had two questions. First one, Shamsa, you had alluded to in your opening remarks that the interest income has kept pace with the loan growth in this quarter. However, if we look at the yield on advance disclosure as per the PPT, it has gone down by five basis points sequentially. So if you could just explain what's happening there, that's number one. And number two, just wanted to get an update on where are we in terms of the RBI embargo on the co-branded cards. And more importantly, whenever that gets lifted, is there going to be any fundamental change or shift in the strategy of sourcing the cards and personal loans over a medium term?

On yield on advances and interest income, you do not see much variance. Yield on advances is only one element of the interest income number, right? Interest income and a few other elements also is playing around in it. So it's not that grossly variant.

Advance yield went down. So the high yielding portfolio has been growing barring the slowdown in personal loan credit card. So just wondering why is the yield on advances going down if the high yielding portfolio is growing faster?

Yeah, let me just come in here. See, Q4, usually the yield on advances is on the higher side, including higher recoveries. So it's not fair to compare Q4 to Q1. So to that extent, if you exclude some element of that, the 3.16 is where we have landed this quarter.

Okay.

On the co-branded card and, you know, I think I did mention in earlier engagement with the media, we are working with RBI. It's not one pass, you know, one letter, one response. I think it's an active engagement with the regulator. We believe we are in, you know, sort of good discussions. Sometime between now and, you know, end of Q2 or early Q3, we should have some clearance. Does it change the way we do business? We just want to remind ourselves that co-branded credit cards with fintech partners was to increase reach and distribution. So as we get the approvals again, we'll certainly work with them. In all instances, risk is ours. The underlying criteria is ours. So that should not alter anything. We want reach and distribution, which we were getting through our partnerships, which is now going through whatever the regulatory changes which has to be guided by Co-branding guidelines has to be by technology outsourcing guidelines and financial outsourcing guidelines. So there are three guidelines that we have worked through with what we are doing. So I think between Q2 and Q3, we should get hopefully a majority of the clearances, and then we'll be back in business. Like Shalini explained in an earlier thing, we are actively pushing our organic, which is doing well, but hard to match up the gap that has come up, which we will work through in the quarters ahead. On PL, it has nothing to do with the outsourcing guidelines or co-branding. It's just we are being quite thoughtful about how much incremental risk we want to take in PL, given all that we see in the environment.

Noted, sir. Thank you very much, and wishing you the best for future, sir.

Thank you.

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

Yeah, hi. Am I audible? Yes, Nitin. Yeah, hi. Congrats on a good quarter. A few questions. Firstly, on the cost-income ratio, like while sequentially, of course, there is an improvement, but still we are fairly elevated at around 53%. So how do you see this over the medium term and what will be the drivers of potential improvement in this metric?

We are targeting 50 over a longer period of time. You would have liked it earlier. But it will require us income momentum for the gathering steam. because some of the costs are good costs, and we don't want to cut down on that, technology, people, and branch expansion costs. So the income flow through on that may be a little lagged, but we have seen good pickup in deposits, as you saw observed in this quarter. That is a consequence of almost 210 branches we added in about 18-month period. So we are mindful of this balancing out that we need to do. So we see improvement of about 100 basis points every quarter, every one or two quarters. So I think getting to 50 will take, it's taking longer. We would have liked it to happen earlier. But in the context of having to invest behind these three areas, we can't believe that we can shave that cost off. So I think over the next, you could say four quarters, five quarters, you will start seeing closer to 50. Venkat, you want to add? Yes, Sam. Just another data point to add to what Sam said. The bank has incurred on two of the large elements, good cost, IT and distribution. Q1 over Q1 is almost a 75% increase in cost in just these two lines. This goes to show that the focus we have on making sure that the spend is in the right area, and these are costs which are required to ensure that the ecosystem is in place to sustain the growth rates which we envision. As a boring old hat in the system, I want to comment this slightly fixation on lower cost income is probably a thing that will change in industry.

Okay, sir. And, sir, on slide 15, there are details about the high margin business. So most of the high margin segments are between now 3,000 to 4,000 crores. So what will be the cost-income ratio in these businesses which all have break-even? How do you see the break-even points for them? So will this be like a material thing from this cost-income reduction perspective?

It should, but these things, by the nature of what it is, I've said in a few earlier engagements, they are still size-wise relatively small compared to our close to 220,000 crores, right? So for it to have a bearing on the overall dynamic will take a fair bit of doing, but that requires us to be a little more courageous on the level of growth, which I think is not our DNA. We have to be a little more calibrated on it. So on by themselves, these are certainly way more, way more, you know, income generating relatively lower cost. As long as collections is well in control, and we are putting in collection costs there. On the blended cost income, will this have a material bearing in the nearest term? Like I said, that's the number I promised of four to six quarters coming closer to 50 is a consequence of all this thing working through. So by themselves, they are yet not of such size that they can swing it one way or the other.

Right. And the last question is on the – Rating distribution, as in like the triple B and below, this quarter has come down materially. So, it's like a 4-5% drop sequentially. So, what has really driven this?

Salik, you want to give? Last time, Harsha, am I audible? Yeah, go ahead. Yeah. Yeah. So, last time, there was issues with required rating with the names captured.

As a result of that, last quarter, we couldn't get the benefit of rating. which is what was pursued. This is what the steady state would be. Apart from that, we are very clear about in terms of the segment which we are pursuing.

A and above is the most preferred segment and triple B followed by that. So part was a correction of ratings which were not because there were new guidelines which required the specific new of the bands to be there. So that was the reason why it was a little lower in the last quarter.

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

Thank you. The next question is from the line of Prateek Chheda from Guardian Capital Partners. Please go ahead.

Yeah, hi.

Thanks for taking my question. So I have a question on the gold loan yields. So if I look at the gold loan yields, it has been coming off for the past six, seven quarters in a consistent basis. And now it is sort of below 10%. So I just want to understand what is the reason. Are you lending to higher ticket sizes in gold loans or or is there any specific other reason and I mean I understand obviously MBS is a way ahead in terms of yields but even the even if you look at some other banks mid size and larger banks even they are slightly ahead in terms of gold loaning so what is the reason for you know such a decline in these numbers I can yeah I share Three, four reasons. One is the ticket size, which we have as compared to that of an NBFC, almost three-fold. And as a result of that, the cost to income is also different. So not technically comparable. They have a different cost structure. They have a different one. And I definitely are, ticket sizes are definitely larger than there.

The compensation which we get is largely from the TFC bank. That was one.

Second point, which I would like to add, that if you recall, a year before, there was almost a price war where everybody was falling over each other. because of which significant price cuts have been given. This seems to be getting corrected. Another point which is not covered over here is that the fee, the average fee to asset ratio in gold has been steadily rising at about 85, 86 basis points at this point in time. Apart from that, there are certain benefits in terms of capital requirements, in terms of PSL benefits, and low loss ratios.

So, has the rates bottomed out? Answer is yes. And we actually studied, I think, before we move up.

What is not shown over here is the increase in the fee income, which is also contributing towards the overall yield on the portfolio. Sure. So, what I'm understanding is the direction, at least this is bottomed out and the direction is on the upward side. Absolutely. Yes, it is. Absolutely. Okay. So the second question, so you described one of the reasons for good show on deposit as branch addition. So I just wanted to understand in the next 24 months, what is a branch addition plan? We added, like I said, 140 in last financial year. We are targeting in that zone 100 or plus, depending on how our costs shape up. But we believe what about 100 branches this FY. We will do about 40 odd in the first half and the balance in the second half. That's how the teams are preparing for. And I think that's what will happen. Shalini, would that be right?

Yes, Shyam. So around 40 by the end of September and then the balance somewhere between 60 to 65 in the second half of this financial year. So that's the plan. And, you know, in a slightly more longer term, people continue to look at this, calibrate it. I just want to add that distribution branches are very critical and form a very core component of our distribution strategy. But there are other components of distribution also, which we refer to in our deck. whether it's in the form of relationship managers expansion, whether it's in the form of more effective utilization of our very, very good VC network that we have. So a combination of all that will ensure distribution is expanded. Branches per se, the numbers are as Shyam and I referred to. Okay, perfect. Thank you very much. Thank you.

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

Yeah, hi. Good evening. Thanks for the opportunity.

Firstly, Shyam, congratulations on a fantastic evening at the bank and congratulations on a great quarter as well.

So my first question is on the deposit growth again. Now, I think So if you look at your deposit growth, you're tracking at 20%, even quarter on quarter, it's very strong. The system is tracking at something like 11%. So you're growing at double that pace. So what's driving this outperformance on deposit growth? I think in your initial commentary, you spoke about NR flows. The data you've given in the presentation, it's only showing 1% quarter on quarter on NR. If you could expand on that and between that and the new branches contributing, you know, what's driving this outperformance? Yeah, that's my first question.

Thanks. Thanks, Param, for all the nice words. I'll give you one line, and then Shalini, she explained it beautifully in the board, so she'll give it to you. Firstly, on the NR, you mentioned 1%, but remember, we were degrowing for two quarters, so the comeback is quite strong. We reversed the negative growth, so that is a positive. But Shalini will give you more texture around how scorecards have been altered, how products. Shalini, maybe you can come in on that.

Yes. Thanks, Shyam. Thanks for the kind words on the deposit growth, something that we've been working on. As I said at the board earlier internally, as well as I tell my team very often, there is no one single silver bullet that works for deposits. And over the last probably three or four quarters in particular, we've been very, very focused on making sure that the franchise as a whole, you know, kind of calibrates ourselves towards deposit growth. So in that direction, a few initiatives that have taken place and, you know, we're bearing fruit. the good benefits of that. One, we are still, you know, the distribution is largely branch-led. In addition to the new branches that we spoke about, our existing branches are obviously a treasure trove for catchment area banking, and therefore we've done some calibration on their scorecards which recognizes the role that they play on deposits and how we can make sure that we get more deposits to them. This is both new to bank customers, which has been specifically kind of highlighted in the scorecard, and deepening of existing relationships. We've done a range of changes that we needed to do from a process standpoint. In particular, non-resident was something of concern for us, so we streamlined a large part of the account opening process on the NR front, both for non-resident NRE accounts and NRO accounts, both are now very heavily digitally oriented, subject to large KYC requirements, has helped us from a process standpoint. Digital, a large part of our customer base is very dependent on using digital. In particular, our non-resident customers are heavily dependent on digital technologies. We've calibrated and introduced a range of capabilities through WhatsApp, through FedMobile, et cetera, to cater to them. And new products, we launched Stellar, which is a very unique savings bank product. We launched that in February of this year. We added, you know, for the current accounts, we added Soundboxes as a capability. So many, many initiatives. But like I said, you know, if you put it across product, process, digital scorecards, all of that coming together has truly helped us. We do believe that this trajectory will continue. The teams are well geared to do that. And it's also evident in the fact that we're gaining market share on deposits. So we'll continue that. Every quarter, you'll see some product innovation or the other, as well as some process changes and some digital capabilities being launched.

Thanks, Shalini.

That was really helpful. So, it would be fair to say that this sort of 18 to 20% deposit growth is something that you think is sustainable, right?

Yeah, that's what we're working towards. We're gaining market share with literally every fortnight. We look at it like a very, with a microscope as to where we gain market share, but that's the expectation, yes.

Perfect, perfect. Thanks for that.

My second question is on asset quality. To Shyam, we've actually heard quite a few banks and even the NDSCs call out credit cost pressures in unsecured retail, in credit cards, in personal loans. So I know we have a small portfolio, but it's been growing very fast for us. So if you could shed some light on how the asset quality is showing up in our own portfolio. Yeah, that's it for me. No, I think overall the mix of... Slippages in a quarter in retail, if you see for almost six, seven quarters, been in the 210 to 240 kind of crores per quarter, despite a good denominator growth. So it's only a sustained outcome. Now, within that 240, you could see some plus minus, you know, some home loan reduction, but increase in credit card slippages. But I don't see it going out of hand and turning the turning the tide. So, in the ballpark, in the vicinity of about 240, which is roughly about 55 to 60 percent of our overall slippages, our book slippage is about 0.8 percent this quarter. Normally, we are well below 1 percent. So, I think in that 0.8 odd percent, we may see about 60 percent coming in from retail. Of that, the mix could be plus minus depending on how our home loan, lab, credit cards, personal loan, but at this juncture, it doesn't look anything substantial. Great, great. Thanks a lot, Shyam. All the best. Thank you so much. Thank you. Thank you.

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

Hi, good evening and congratulations, Shyam, for a very long and satisfying career.

Thanks for all your wisdom and insights shared. I have a few questions here.

First on, you know, I mean, the previous participant also asked on the deposit growth, which so you have been industry leading so far on both YOY and QOQ basis on the deposit growth. At the same time, your cost of deposit has also seemed to have declined, right, QOQ. Now, in the previous quarter, you know, SBI and maybe some other large private banks, they had raised their TD rates minor upwards with your expectations of, you know, continued healthy deposit growth. Would you believe that you need not tinker with your rate and your cost of deposit is broadly flattened at your end? Thanks, Jay. Thanks for the nice words. I think it's very hard to say that we can't tweak with rates because these are super dynamic. We have made a general criteria that we don't want to grow credit too far ahead of deposits. So fund before you lend is one. Two, we want to respect our LCR and CD ratio criteria. If that means we need to price some buckets more attractively to get deposits, we will. What we are trying to stay away from going into large category bulk deposits or purchase deposits, but go after client deposits. Thankfully, in the quarter that went by and even the previous, we've been able to deliver on that. I think that capability will continue into Q2 and Q3. We are also actively retiring some of our high-cost borrowings and replacing with relatively attractive for the customer, but lower cost for us blended rate. So, we are able to manage the cost of deposits, but yet keep the momentum going. Right. And, sir, if you can call out your LCR, average LCR for the quarter.

And in your view, you know, what kind of changes could there be in LCR framework if, you know, if RBI were to strengthen it, maybe in terms of runoff rates or it could be, you know, something else?

Yeah, I'll give you the sort of basic logic on LCR, right? If you're getting good quality, attractive client, sticky money, it's a big plus. So we are going after that quite intensely. Second, as a consequence, if you have lesser short-term borrowings, it helps again. Third, if the borrowing is not from a financial services institution, it's even better. So there are many constituents of this LCR, and teams track it up to me on a daily basis. We watch it and take very instant corrective actions should things start looking out of range. We have a threshold in the bank in the 105 to 120 kind of band is where we want to be. We are right now operating in that band, and we have to keep sort of constantly calibrating. Like I said in an earlier instance, LCR, CD ratio, and the eagerness to grow credit too far ahead of deposit, we have to rein in. So broadly with this criteria and the LCR band between 105 and 120, we are operating. Okay. And so there was a question on non-stop OPEX. I think you mentioned sometime, but I just want to check the growth has been like 30% YOY. Partly they have been growing high yielding, high touch retail segments. So is this, you know, is there any one-off or, you know, how should one look at the non-stop OPEX growth for the next maybe one year, two year types? Venkat, do you want to come in? Yes, Sam. Yeah. I think there is no, firstly, Jay, there is no one-off in the non-stop OPEX, which you see in this quarter. And to your question about how do we see this going forward, it would be the similar lines and on the themes which we mentioned earlier in terms of investment in distribution, technology, and controls, whether it's audit systems or compliance systems, combination of all this. And we don't see the rest of the costs would all be directly variable to the business growth. So largely, if you see the cost pertaining to distribution and tech would be ahead of other spends in terms of percentage. But most of the other way of spend would be variable to business growth and in line with the current around the same levels of cost income ratios. Then lastly sir, what would be your total, I think you used to give the total employee number, I think that is now given this quarter.

What is the staff count and if you were to bicepcate to ideal link then may be CTC model a broad number?

Total head count is about somewhere in the vicinity of middle 15000, 15500 and change. We are largely IBA linked, Jai. We don't have, maximum about 1500 people are, 10% is not in the IBA.

Right. Okay.

Lastly, sir, if you could answer, I mean, this is a bit intriguing question that, you know, you have appointed your successor, worthy successor, but he had resigned much earlier before taking this job and getting an RBI approval, you know, final RBI approval. If you would like to comment here. Three things here. First, I did not appoint my successor. My board and RBI did. And we certainly welcome and he's a high quality professional, as you mentioned. I think you're asking the question, he resigned there and he got the appointment later. It's probably the question. I don't even know if they're linked, Jay. I think he resigned. Maybe he did not want to hold any job while he's in discussion with another opportunity. I can't quite comment, but other than that, I really have nothing to offer other than say that I've known him for long and he's a high quality professional and I'm sure the bank will greatly benefit by his presence here. Thank you and all the very best. Thank you. Thank you, Jay.

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

Yeah, hi, sir. Hi. Thanks a lot for the opportunity, sir. So, sir, firstly, like, you know, on the net worth side, so, like, if we exclude the profit for this quarter and the accretion that we have done, 339 crores, there is some more addition to reserves is there. So, what is the reason behind that, sir? I couldn't get it completely. So, I am deducting the profit and 339 that we have to the AFS reserve. So, what is the residual number could be?

Bank and money? If it's only the 339 and profit, there's nothing else material which is coming. Okay. Yeah. Okay. That's in the normal.

Anyway, I will discuss it offline. So this total miscellaneous income, as you explained, we have PSLs again. But this number is quite volatile. Like, you know, the full year, in FY24, we had In this quarter, we have 227 crore. So how do we see this number? And out of this 2700 crore total return of pool that we have as of March 24 approximately, what is the recovery number that is staying in here, sir, from the return of pool out of 227?

That's about approximately 30 crores is from the return of pool.

And 90 crore from this PSLC, sir.

Yeah, 90 PSLC and approximately around 50 from the reval. And the remaining, sir? Last year also we had the dividend from our athlete. This is our insurance partner. Yeah, insurance associate company.

So, remaining dividends are like excluding dividends How do we see this number, sir, like the PSLC gain and recovery and return of pool?

Like we said earlier, every year in Q1, you would see the PSLC upon coming in, dividends coming in. So incremental, what you should see is around that 50-odd number on reval and 40 crore, which we got from the additional PSLC. Okay. And as we grow, the PSLC income will also continue to grow. We'll be able to get more income from it. And recovery from return off is again something, these are all small accounts, and we continue to recover from it. There is no big, chunky number in this quarter's recovery from return off. Got it. Okay, sir. Okay. Thanks a lot, sir. Thank you.

Thank you. The next question is from the line of Christian ASV from HDFC Securities. Please go ahead.

Yeah, hi. For many times, I hope I'm audible. First and foremost, hearty congrats to Shyam and the team you have built up over the last many years. The true test is how you lead the organization from the time how we found it. I think you're leading it in much, much better shape. I think all credit to you. You don't get you credit, you don't even take it. But I thought that was relevant. You'll be missed. I just had one query. I mean, in the last three, four years, and probably even a year than that, you've been very particularly focused on making sure risk is the first thing that you tend to address.

There is now a tendency that your yields are sometimes probably the lowest in the system. I'm not talking about the yields that you report, but I'm saying in general when you look at asset classes, we tend to find that federal bank is among the lowest priced banks, right?

So, you get, of course, the creamiest asset, but it comes at the cost of you probably underpricing yourself. Is there good risk you're leaving on the table sometimes? I mean, could you just throw some light around how you want to triangulate re-risking the portfolio versus not taking you know, unacceptability. Thanks, Krishnan. I think we've tried very hard to ensure that balance between risk and growth, and we want both, as in low risk and high growth. But it's always the tough act. In each business, we have very tight criteria for how much we want to take. But the idea of our growth, and I hope it's vindicated and validated across time, We want to be banker and not lender. So if I give a AAA or a AA or an A a very attractive credit pricing, then we ask for more business from that customer. As a consequence, if we see our corporate banking, commercial banking, other income is growing quite smartly. Our PSL, which was we were deficit two and a half, three years back is now a revenue generating opportunity is only because We have gotten those assets which are helping us, our BSL go up, and therefore we're able to sell and make. Harsh explained the gold loan philosophy of how price right on the interest rate, but 80 odd percent, 80, 85 crores is free income. So I think we are trying to keep that balance. So I want to believe that lagged credit costs on our book applied on our margin, we are not wildly off from better banks. You know the industry better. But somebody has a NIM of 375 and a credit cost of 75 on a sustained basis. In our case, 320 NIM and 30 basis point credit cost. We are not like wildly off. That we are not recognized is a quirk that I have never been able to explain, but I think the reckoning has come. We will get recognized and probably But we've held quite tight on that, and I think we shouldn't go away from that, is our belief, Christian. Understood. That's helpful. I mean, if I have room for one more question, maybe. You did mention something about NRE deposits in your opening remarks. I don't know if this was addressed subsequently. I might have lost it. I just wanted to understand, you know, what helped you claw back your way into the NRE deposits this quarter? Why do you believe that's sustainable now? Yeah, I think maybe Param from Nomura asked that question and Shalini explained, but I'll try to add some value. First is we didn't lose share of NRE as much as NRE deposits were coming down into India. It's not like we were gaining share, but the quantum was coming down. What has changed and improved in the quarter that went by and even in the first month of this quarter is encouraging is that to some extent money has started flowing in probably because one, our own tweaking of our scorecard of our people encouraging them to go much more into deposits than any other product. Second, these are all sort of are guessing but borne out by some data. The period that started post-COVID, right, towards the back end of 22, 21 and early 22, is when this two-year period of people, NRIs bringing in less money was visible. Or whatever was coming in, remittances were not coming into deposits because people were paying off loans, you know, setting up small businesses, doing whatever that money goes into for various other instruments. We are now thinking that era is over. Their loan payoff is typically two years into that. They've probably sorted that out. So money, the remittance is coming into deposits also. Remittances were not shying away. Remittance was not converting into deposits. I think that's the biggest change that has happened in the last 100 odd days. And that's largely the system tailwind rather than federal bank having had to do something, right? No, no, no. Federal Bank's strength has been great ownership and relationship and percentage of clients who bank with us. So, what Federal Bank is benefiting by, that is aiding the money client behavior shifting from only into paying off loans and spending into deposits and we are benefiting from that. Perfect. Very helpful. Thanks a lot. Sorry, suddenly I think

No, I think Shyam supplementary addressed it personally. So it's not just the kind of only the environment changing, but a lot of interventions from our side have also helped.

Okay, very helpful, Shalini and Shyam. Thanks a lot. Wish you all the very best, Shyam, personally, in your personal capacity and obviously to Pedal Bank as a franchise.

Thanks, guys. Thank you. Thank you. The next question is from the line of Prakhar Agarwal from Ilaria Capital. Please go ahead.

Yeah, hi, thanks for the opportunity. Just a couple of questions. I'm sorry if I'm being repeated. What would explain the cost of deposit decline on a sequential basis? We probably have around six basis points of reduction.

What would rather explain this? Venkat, do you want to go?

Yes, sorry, can you just repeat? I was just talking. I was saying there was a fixed basis points of decline in cost of deposit on a sequential basis. What would explain that?

There's one second there.

To a large extent, you know, in our case, the interest table is once a year in March, in Q4, which we saw in last quarter. So, if you exclude that, that's the reason why you see the difference in this quarter.

That's the main reason.

Okay. And in connection to that, the last time Sharmil mentioned that, margins probably for the full year, maybe two to three basis points higher than where we closed for FY24.

Do we maintain that stance or probably given what we have seen in Q1 and probably what is our stance on that?

I think like what Shyam mentioned at the beginning, margin at this stage, we expect it to be around the same levels for the next couple of quarters. And then since the profit pricing is very dynamic, we will review it post that. So at this stage, we expect the margins to be around similar levels as we saw in Q1. Got it. And just one last data keeping question. There seems to be some reclassification in the gross advances across various markets on full pay. Could you explain what is the changes and what is the rationale on the thing?

So prior period number has also been restated to some extent.

I didn't get your question. Sorry.

Sorry, I didn't get your question.

So, when I look at your gross advances and the composition of that, there seems to be some reclassification in the prior period quarters as well. What explains that and which are the segments that have changed? So, across various segments we have changed. Let me check and come back to you separately on that. I don't have the numbers in front of me now. Sure, thank you. I don't recollect any major reason for the reclassification, but I'll check and come back. Sure, sure. That helps. Thank you so much.

That is it for my question.

Thank you. The next question is from the line of MB Mahesh from Kotak Securities. Please go ahead.

Hi, Shyam. Thanks a lot for what you have delivered at Federal. Love the interactions that we've had in the last 15 years.

A few very basic questions from my side. Just wanted to understand, what are the LCR that you've reported for the end of this quarter?

I don't know if you've reported a number, but I guided that it's in the 105 to 120 bracket, which is our guideline. If I recall right, it's about 111 or 112. Okay. Just checking on the balance sheet for the quarter, there has been improvement in the deposit book as well as the borrowing book, which was a bit more than what the balance sheet was showing. Just trying to understand what you've done here.

Because borrowing is up from 18,000 crores to about 22,000 crores, and the deposit book has also gone up. Any reason for the increase in borrowings from your end?

Lakshman, are you there?

Or Venkat? That's my guess, yeah.

We have had, yeah, so we've had some refinance happening.

Beyond that, our liability, some amount of our activity goes into the investment activities for the treasury book as well and some products around that.

So the refinance plus this, it would answer a part of what you're asking. Okay.

Sorry, the second question was a continuation of the previous one. I think what you've done is that you've declassified the AgriBook as well as the gold loan portfolio within retail and on the Agri side. But if you look at the gross NPL line, which is in slide 34, that NPL number continues to remain the same at 930. Whereas against that, if you look at the AgriBook, which is in slide 9, which is about 7,684 crores, the NPL ratios in the agribook looks to be fairly high.

Are we all looking at the right set of numbers here? Shauvik, you can reconcile that and share it with them.

Yeah, I'll do that. Mahesh, I'll share it with you. It's not really reclassified. What we have done is You have just taken out gold as a separate entity. I'll have a separate chat with you.

No, you have taken it out on one side, whereas on the other side, when you look at the gross NPL book line and the slippage line, we don't know whether the two talks to each other. That's the only thing. Understood, Mahesh.

Understood. There is a Russian behind that. I'll come back to you.

Okay, perfect. Last question, sir. Have you reached a point where you've started, you've had to invoke FLDGs on your, let's say, MFI partners or things on the ground continues to remain fairly okay? Just wanted to check.

As of now, everything looks okay, Mahesh. Okay, sir. Perfect. Thanks a lot for this. Thank you. You and Krishnan, I think, are the longest in this conversation brigade we have had for 15 years. Is it good or bad, sir? Time will tell. I think you and I have served in the same company. Krishnan has had four. Yeah. Vishal, cheers for that.

Thank you. The next question is from the line of Pranav Tendulkar from Rare Enterprises. Please go ahead.

Hi, Shyam. No questions this time. Just thanks a lot for being at it. And I can certainly say that in that mid-cap range of banks, our bank is one of the best in terms of technology and various tie-ups and various improvements that we have done over 10 years. So just a big thanks.

Thanks, Pranav. I know. One person would have been happy with us was the big boss of your organization. Yes, sir. Definitely. Thank you, sir.

Thank you. The next question is from the line of Anand Dama from MK Global. Please go ahead.

Hi, sir. Thank you for the opportunity and thanks for being here. So my question is basically, you know, you had such a long career in Cedric Bank. There were a lot of ups and downs that you have seen. Now that the new MDs have come, basically what will be the ask from the new MD? Any unfinished business that you believe should be taken up on a familiarity basis, particularly on asset side, liability side? People don't know anything basically to be done on technology front because I think there we have done a lot. Then the other part is also basically the co-lending arrangements. I think you certainly led this co-lending, co-sourcing kind of arrangements very well on the library and the access side. But somewhere it seems like, you know, RBI is not too happy with these kind of arrangements. And I think being it a co-sourcing business or a card, something or the other has cropped up. So maybe a better engagement with RBI.

to any any ask or basically you know that you wouldn't want that you take it up on time I don't know I think that's like a very difficult to answer because I think you know these are journeys right there's always something and something more to do I'm sure when Manian sets his comes in here he will find through his pair of eyes the many opportunities and things that can be dialed up but I think all I would say the core of the franchise is super intact and the team is like quite excited There will be lots of things, right? How do we expand margins? Which other new geographies we can scale up? But at least for 8-10 years, the board and we have been saying we want to be the most admired bank. And that is a hard journey. On every count, we want to be good. On governance, on credit quality, on employee engagement, on client service, NPS ratios. So I think it's going to be one sort of hopefully a good journey, but This is far from over. A lot can be done. A lot will be done. But margin expansion would be one big agenda item.

And I would think seeking greater market recognition also will be another one for him. Thank you very much.

The next question is from the line of Saket Kapoor. Please go ahead.

Yeah. Namaskar, Sam sir, and thank you for this opportunity. Sir, as the end of the first quarter, so what should be our NI growth trajectory for the current year and what should be the number for slippage and recovery as a percentage of book or an absolute number if you could give us some understanding?

Sir, I think the answer to that is, you know, we are guiding for overall credit costs to be around 30, 35 basis points, right? So everything is subsumed in that. Interest income, I also said, will match credit growth. So those are the two metrics we're working on. And as a result of it, the momentum on profitability and ROA should keep flowing through.

In terms of exit for the year, what should be the numbers that we should keep in mind in terms of NII and ROA?

ROA, we've been saying we are at about 1.27. We believe we'll get to around 130, 135. And that automatically means improvement in the run rate on interest income also.

Right, sir. Sir, on the employee cost, I think, so Q4, we had higher provisioning. of the early prior period also. So this number of seven, the current quarter number of employee cost of 738 is the one which we should analyze.

Venkat, would that be right? Yeah, that's correct. Just a minor, you know, non-IDEA staff, if there are any changes that would come in, but largely, yes, that would be the staff cost.

Okay. And in terms of the repricing of deposit, you did alluded to the fact of 20% deposit growth that we are working with. So in terms of the repricing of the deposit, what percentage of the total deposit are been repriced to and what are going to come for repricing for the current year in percentage terms or in absolute numbers?

Okay. I think that will come in our annual report very soon. You'll just see that by vintage, the book maturity. In the next week, you'll see. Next two weeks, you'll see that in our reporting. Okay.

And lastly, sir, question to you, Shyam sir, with closing remarks. We know you being a banker for an elongated period and what should we take into account going ahead because as an as an illustrative career, people will always be pursuing their ambition. So there are regulatory norms and things which do not allow you to be, I think so, a part of this organization going ahead. Please correct me in my words and if the choice of words are wrong. So going ahead, can we look at Mr. Shyam as a banker with another institution giving his valuable insight and guiding another set of institutions to another milestone going ahead, or are you on the verge of hanging your boots once 22nd September comes in?

Certainly, calendar 24, I have no other than working in Federal Bank and signing off. In 25, we'll figure out, but I'll continue, hopefully, with the regulator's permitting to be associated with the bank in some fashion or the other. Otherwise, I don't have any executive role responsibility aspirations.

With other institutions also, sir? You are not aspiring to lead any other institution?

This is my biggest baby in life. So, this is my job with my bank.

Right. So, all the best to you, sir, and best wishes from investing community shareholders at large. And the last point on the other income, if you could give the, we have provided the granular details. So on a consistent basis, what should this number can be? Because we have highlighted this to be the highest other income number, wherein I think so the major component has been the reversal in recovery from return of asset at the highest at 227 crore. So, on the other parameters like loan processing, card, para-banking, and other ones, what should be this number that should be consistent going ahead, depending upon the nature of the... We are working to take it to 1% of our assets.

Currently, it's 0.8, 0.9. We're working to take it closer to 1% of our assets.

All right. Thank you once again, sir, and all the best.

Thank you so much.

If there are no other questions, we can bring this.

Sure, sir. We'll probably wrap it up.

Just before we close, can I just take a couple of minutes?

Please, sir.

Thank you. Shyam, on behalf of everyone in the bank and the investing community, I take this opportunity to thank you from the bottom of our hearts for the transformational journey which you have led this bank to from 2010 till now. Though we have this call to the investing analyst community on a quarterly basis, it's only fair when we step back and look at what the bank was in 2010 and where we are today. It wouldn't have been possible without your leadership. So a big thanks from all of us, and we wish you all the very best in your future endeavors. Thank you. Thanks, Venkat. You're very kind. But to our entire friends in the investor community, I've said this and now I can say it with even greater courage and conviction. Don't look further. This is the best bank you'll ever see. And I genuinely mean it. Every time I've said, you see what you see is the truth in this bank. And I'm sure you will all accept the fact that at least if nothing else, our balance is paying off quite well. So thank you very much. And for those of you who've been with us throughout, thank you so much. Thank you. Thank you all. Bye. Thank you so much. Thank you, sir.

Thank you. Thank you, Shyam. Thank you, everybody else. Bye.

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