The Federal Bank Limited

Ladies and gentlemen, good day and welcome to the Federal Bank Limited Q2 SI26 earnings conference call. 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 controls. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Shauvik Roy, Head, Investor Relations, the Federal Bank Limited. Thank you and over to you, Shauvik Roy.

Thank you so much and good afternoon everyone. Thank you so much for joining us on a Friday. We truly appreciate you taking the time. Today is Dhanteras and with Diwali just around the corner, we wish all of you and your family health, prosperity and a wonderful 50th season ahead. We remember the fact that today is a crowded results day for all of you. So we actually have to start a bit early and give you enough time for the other calls. Many of you had actually mentioned in the last call that weekend calls are tough. We do understand that, but unfortunately, given the results, calendar, this quarter, and the number of moving parts, we couldn't shift it around this time. We did, however, wanted to get all the fireworks out of the way before Diwali. So, hopefully, abseh kabhi aur, no more shani war. All our senior management members are on the call with me, including our MD, our EDs, and the business side, and they'll be happy to take your questions after the opening comments. With that, let me hand it over to our MD, Mr. K. Vaismani.

Over to you, sir. Thanks, Ravi. Good afternoon, everyone. Thank you for joining us for our future earnings call. I have now spent over a year in this role. I can say with conviction that I feel confident both about where the bank stands today and about our collective ability to steer it steadily towards the goals we have laid out. The results this quarter reflect the structural improvements we have been working hard to embed in our income and balance sheet profile. Let me take a few minutes to walk you through the four levers that continue to drive this structural change. The first lever strengthening limbs through CASA, especially current account. Our CASA growth this quarter has been very encouraging, both sequentially and year-on-year. Even more importantly, the average CASA balances have risen meaningfully, even more than what the EOPs reflect, showing that the growth is not just at the quarter end, but sustained. Within that, our current account growth has been strong. We have also gained share in our NRI franchise on the saving side, which remains one of our natural moats. Our remittance market share has climbed back from 8.5% to 21%, showing renewed momentum on that front. On the corporate car front, our cash management business is an area of progress. With the complete migration of customers to our new platform, FedOne, we are seeing higher engagement and improved transaction flows. To sum up this lever, our average CASA ratio has improved by over 120 basis points over the past year and over 100 basis points quarter over quarter. Overall deposit growth might look moderate because we have deliberately rationalized wholesale and financial sector deposits. That's a conscious choice to strengthen the quality and not just the quantity of deposits. The basket of CASA and retail term deposits continues to show a healthy growth trend of over 11% year on year. Coming to the second lever, improving NIM through asset mix. As you know, nearly half of our loan book used to be concentrated in low yield assets. It was corporate and home loans. Over the past few quarters, we have been consciously recalibrating this mix. In the higher yield segment, our card portfolio continues to grow strongly while we remain calibrated in the MSI and personal loan space, which we will consider scaling up once the external environment stabilizes. Our medium yield book has been a key focus area and its share continues to improve. Businesses like commercial banking and commercial vehicle finance are growing at healthy double digit rates and our lab business and BVB business units are regaining growth momentum. Here, we have also pilot launched our tractor business in the last quarter. On the retail side, gold loans are expanding at a smart pace of 7% quarter on quarter, excluding the DGB segment, which we are running down as per the new gold loan guidelines of Reserve Bank of India. We are gearing up for stronger growth in auto loans and LAS in the coming quarters, which will support our full year guidance. The combined impact of these actions, both on asset and liability side, has been tangible and our lean performance has exceeded our earlier guidance. The third lever was building diversified sustainable fee income. In a quarter where treasury income was muted due to market movements, our fee income still grew 13% QOQ, demonstrating the resilience of our core franchise. Our fee-to-average assets ratio crossed 1% for the first time, a milestone we have been targeting for some time. Initiatives in wealth management, trade and forest revenues are gaining momentum and we expect them to further strengthen the fee trajectory over the next few quarters. The final lever, of course, is maintaining strong asset quality and prudent provisioning. After a slightly elevated credit cost in Q1 due to MSI stress, we had earlier guided that our full year credit cost would remain around 55 bits. This quarter, the credit cost moderated to 50 bits and we remain confident in holding to our earlier guidance. We have also taken a management overlay of 46 crores approximately this quarter on some standard accounts even before reclassification where we have observed stress in connected exposures. This is a proactive precautionary measure. Slippages continue to be under control and the underlying tragic quality remains stable. In summary, we are executing exactly in line with our strategic priorities. The shifts we have made in liability mix, asset composition and fee diversification are visible in our numbers and in the growing consistency of our performance. Thank you for your attention. I will now open up the call for questions which my colleagues and I are happy to take.