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.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on your touch phone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for the moment while the question queue assembles.

The first question comes from the line of Akshay Jain from Autonomous 34S.

I accept. Yes. Mr. Jain, please go ahead.

Mr. Jain, please unmute your line and go ahead with your question. Hello. Am I open now?

Yes, I am. Yeah. So, my first question is on margins. So, can you talk through the moving parts of the 12 basis points name improvement this quarter because There was an expectation that you know this quarter will again be slightly negative and from VQ onwards margins will start to improve. And secondly how should we look at margins going ahead? You mentioned that you know should we look at like you are already close to the 3.1ish levels which you reported back in 4 to 25. So like what should be a sustainable level of margins going ahead?

Hi.

Should I ask my second question?

Let me answer your question on margins. Let me answer your question on margins first. The movement from last quarter 2.94 to 3.06. You should also keep in mind that we are one of the few banks where we do fee-plus on re-pricing on the repoling book. So the last part of the bid on the to see if it didn't get in in last quarter. Having said that, the main reason for movement this quarter is our deposit cost was lowered by about 19 bits. In addition to that, our cost of borrowing was down by about 3 bits. So, together that's 22 bits on the privacy side. Our yield on advances dropped by 14 bits. And then we gained 1 bit in CRR and another 2 or 3 optimizations of other assets and liabilities. So, that's how the movement is from 2.94 to 3.06. Lastly, driven by lower deposit and borrowing cost because we also got our savings rate if you remember last quarter in June, mid-June.

Yeah.

And actually, going for, of course, our intention is to change our lean profile over a period of time by continuing to focus on what I call the mid-easing assets. So, we do expect a improvement in NIMS going forward as well after subject to further rate cuts and things like that. But, yes, our attempt will be to continuously look at improving the NIMS profile beyond what we started this exercise from.

Okay, sir. Got it.

Secondly, sir, on the growth, the growth has been like pretty low this time on around 1.5% QOQ which is like almost half the system. So, how should we see growth going ahead? Like, are we comfortable enough for it, you know, meet the 1.2x nominal GDP target which we had quoted for this year?

So, Akshay, you know, just some background to growth which is very important for us to understand. You know, when we started trying to restructure our asset side, 50% of our asset book was in low yielding segment, what we call the low yielding segment. That is, corporate and home loans constituted over 50% of our books. They still do very close to that. And that is one. Second, you also know that we had a 53%, one year back, we had 53% of our book in repo linked assets. So, there are, you know, what we are trying to do is a structural shift over a period of time. And these structural shifts need time and effort over a period of time to correct. You know, if 50% of your book is such that you do not want a double digit growth on them or you don't want aggressive growth on them, you need to do doubly more on the rest of the 50 to get a particular growth rate. So, please keep that in mind. And if you see, even there, there are segments where we do not want to press the accelerator yet. Like, for example, MSI or personal loans, areas which we did not want to press the accelerator. So wherever we have chosen, so the way to look at it is in our chosen areas of growth, we have been able to grow quite handsomely. If you look at our commercial bank, it is going at late 20s kind of growth rate. Our cards is growing. Our gold loan, as I mentioned, if you take away the DGP's business, that is the wholesale part of that gold business, which has to be run down because of the RBI new guidelines, If you take the retail gold, we are going at close to 7% QOQ on that. So, you know, the way we look at it is we need to grow, of course, we need to grow and we need to grow profitably in line with the structural objectives we have to build a sustainable, good quality franchise over a period of time. And therefore, we continue to remain bullish. I think there are areas like LAB and BUB which have just about reversed their negative trend over the last quarter positive territory this quarter but we do expect these to grow faster in the coming quarter and build momentum through that so we are quite clear that in our chosen areas of growth we will grow I hope that answers your question yes asset quality

last quarter was impacted by MFI and partly by business banking. So, this quarter, is it safe to assume that, you know, all things are back to normal?

So, MFI, of course, that continuing 50% provision that happens, you know, we provide over two quarters on the unsecured. So, that he says, of course, come this quarter, right? Last quarter, two pages due. hit this quarter and if you look at the slippages they have dropped but are they in comfortable zone I don't think so so MFI stress I think is still it is easing for sure and we have seen the peak already last quarter not this quarter and month on month we have seen easing of that but has it completely come to a territory where we are comfortable the answer is no but rest of our asset book actually has stood rock solid on the asset quality side. We have no reasons to you know be concerned about anything on the asset quality or any other business other than just the MFI main business. And the credit cost excluding MFI has also actually slightly declined. In fact, our credit cost excluding MFI has slightly declined if at all.

Yeah. Thank you. Just last one clarification. So there is an exchange notification on capital release. So is it just an enabling resolution or is there something more to read into it?

Since he has given a notice for a board meeting on 24th, let's respect the board's authority to make decisions and then talk to you on that. So, we will just now leave it at that.

Is it an enabling or like it's not an enabling one? Let's wait for the 24th, please.

Okay, thank you. Thank you. Thank you. Next question comes from the line of Nehruk Adjania with Nuwama.

Please go ahead.

Yeah, hello. Hi, hi. Hi, hi. My first question is on margins. So, we've already done a good job on margins. They've come out better than expected or even better than guidance. How do you, do you expect them to improve further in the second half? And then, in terms of the CASA ratio, right, so once balance sheet growth picks up, You know, you've consolidated investments which were low yielding and grown in mid yield to high yield. But once overall balance sheet, once that consolidation through and I believe it should have been through last quarter. But once that is through and when overall balance sheet or loan growth picks up, how will CASA behave? I mean, just now the growth is also low. So, overall deposit growth is low. That is also helping the CASA ratio. So, that's my first question.

Right. So, on him, Maruk, of course, as you know, our deposits reprice over a 12 to 14 month period and we are six months into that. And therefore, there is, of course, deposit repricing that will continue to play through the next six months. And, of course, assuming our CASA trajectory continues, our desire will be to grow the margin from more than here, of course. And hopefully our execution keeps track, keeps in sync with our desire. So, that's about the name. And on your CASA, you are absolutely right. We are very much aware that as growth picks up, our CASA momentum has to be even better to maintain the ratio. We fully understand that and that we have to build in our execution strategy. to make sure that we deliver on that. Having said that, you know, these are also times when overall industry, CASA and deposit growth has been mixed. One is also hoping that tide will turn a bit on that and deposit growth will in general pick up. That will also give us some tailwind to do better. So, a mix of tailwind and better effort, there are many other initiatives we have in the pipeline to drive our CASA trajectory forward. I mean, there are a hundred more things to do and we will definitely keep that in mind while executing going forward. That is a good point you raise. Yes, we have to keep that momentum stronger.

Okay. But from 3.06 is the current NIM, what is the normalized level of NIM say over the next one to two years? I mean, would it be 3.3 types or, you know, what is the normalized level of... All I can say is it is upward.

All I can say, Maruk, is that it is definitely upward. Let's not... I don't want to limit myself with any number that I tell you. So, let's say it is upward and we will continue to... See, Maruk, the reason I am also hesitant to tell you are there are many moving parts in this game, right? One, Like I said, we are trying to restructure liabilities, we are trying to restructure assets. So, it's a mixture of things that is happening. Then there are external factors like rate cuts, further rate cuts that can happen. So, I think there are many moving parts. The way I look at it is we have to remain agile, keep executing and doing our best and let the outcomes play out. But clearly, we would like to see names higher than this, obviously.

Sure, and in terms of asset quality, you know, the MFI stress has peaked, but it's still there and hopefully in the second half or by fourth quarter, it will decline much more. So, in that context, at least for the next two to three quarters, can we see a sharp reduction in credit costs? I know you would guide it to 50 bits or 45 to 50 bits as the normalized range, but next half, will we see a substantial reduction? Has MFI recovered or it will be 50 only?

No, Marud, let me correct you first. We have never guided 45 or 50. Last call also we said our full year guidance is 55 bits. Last quarter was 65. This quarter is 50. For the two quarters put together, we are at 58. We will still maintain our full year guidance of 55 bits. Obviously, endeavor would be to try and come below that, but at this stage, I am not giving a guidance different from what we have stated earlier.

Okay, so even with the MSI recovery, it will be roundabout here only.

Let's see how it plays out.

See, like I told you, Maruk, that I am not yet in the comfortable zone on MSI. So, I do not know how that plays. So, let's, after we get a comfort on that side, we can consider on revising our guidance. But just now, I don't have that level of comfort on the MFI side to give you revised guidance.

Okay, Gaurav, and this last question, I know the board will decide and then you will communicate on the capital risk. But theoretically speaking, since you are consolidating on areas you don't want to grow, and even if growth picks up, it can be self-funded through internal accruals because your margins are improving. Why would you need capital at all? Are you seeking to expand in any capital-consuming business? Because most of the other lending businesses should be self-funded. So that was the broader question.

Maru, let me first correct you. that we don't want to grow is an incorrect statement. Like I told you, we have intention to grow in our chosen areas of assets, on the asset side, which are profitable to grow.

Not the low yield, not the low yield, yes.

Yes. But, Maru, mid-yielding segment also requires higher RWA. So, therefore, we will come back after the board meeting and talk about update on the capital part of it. So, let us leave that discussion out for today.

Got it. Got it. Okay. Thank you so much and all the best. Thanks a lot. Thank you.

Thank you. Thank you. Next question comes from the line of Sumit Kariwala with MST Coed.

Hi, am I right?

Hi, Sumit. Yes.

Hi. Congratulations on a great quarter. Thank you. Some if I can get some initial estimates on the impact on the new, from the new guidelines, ECL and the guidance that we are going to put out on operational and credit risk, revised standardized approach, some initial estimates cut that you might want to share.

Okay. On the ECL, of course, the draft guidelines is out now, which we are examining, but based on the Earlier submission, we have given an indication that it will not be a substantial impact to us. It will be, you know, low, less than 0.2% on the capital. This was the estimate as per the March performance submission. But we need to study in terms of what it will be.

But we don't expect any significant impact due to the initial transition.

And the benefit from operational risk compared to the start line? This standardized, basal tree revised standardized approach, what could be the ease and any sense on that?

We will have some benefit. It's too early for us to give out a number on that or an estimate to it. But we will have, obviously, there will be benefits coming out of that. I don't want to put a number at this stage.

Okay. And the overlay provisioning, that's with respect to which segments?

This is Acme retail segment.

Can you give us some color on MSI portfolio in terms of SMA or collection efficiency, how it has behaved in September versus June? First, you want to take that?

Yes. I submit first to that. So, as we have observed, the slippage is has been coming down after keeping in May, month on month from June, July over September, with each month being lower than the previous month. That's one part. Secondly, we have seen some reversals in terms of moving to lower buckets from the higher buckets. That's the second part. There has been a higher collection also in the lift area. So, these things do look positive at this point in time to me. And a total book, or I actually use VC-driven book, is less than 1.7% of a total book. And we have not seen great, almost slattish, the VC book at about 300, VD-driven book, that's there he knows. And there's a small portion which he knows, which we have not seen any major concerns over there. So this is broadly what it is. So he does these kinds of trending round work. But there's external stress because the number of borrowers, the person he borrows from and the quantity he can borrow has been capped. So there's an external pressure for him to repay. And as you know, the overall outstandingly MFI sector has come down significantly. So that has also come up from the system, which is causing a bit of stress. That's the reason why we are saying that you would like to be a little cautious in terms of pressing the button or commenting on the asset quality going forward.

But at this point of time, spending longer. Got it. Very helpful. Thanks, Ash. Thank you. Thank you. Thank you.

Thank you. Next question comes from the line of Rikin Shah with IIFL Capital.

Please go ahead. Good afternoon, team. Thanks for the... Good afternoon to you. Good afternoon. Sir, the first one is on margin. You know, sales like across the sector, the deposit repricing has been better than banks' own expectations. Even you had indicated potential single digit SIM contract should last quarter in this one. So what has changed in your own assessment? What has surprised positively on deposit repricing? That's number one. And I have a couple of other questions as well. I'll ask them after that.

Again, it is not only about pricing. Pricing is, of course, we were quite agile on pricing side. But it also, as I had mentioned in my listing, the CAFA ratio, 1% improvement in a quarter also makes a big difference, right, to the cost of funds. And therefore, it is a mix of volume and rate actions. and like I also mentioned that we cut our wholesale deposits and went more retail on the wholesale side whatever we did we did on shutdown so there are several rate actions we took which has basically dropped our cost of funds significantly Like I said, you know, while we gave a guidance last quarter, after the last quarter, through the quarter also we keep, we remain agile and do stuff which we look at as opportunities in the market. For example, if you look at the average CASA growth, it is 6% QOQ, which is much more than we would have estimated in the beginning of the quarter. So, and that makes a big difference to cost, right? So, therefore, there are mixed actions. And I would say partly good execution, partly market, partly secular trend.

Got it, sir. And, you know, that nicely rolls into my second question. You know, clearly the average CASA balances have picked up in the recent quarters. And, you know, you had laid out in your strategy a few quarters ago what you aspire to do in the medium term. And in your opening remarks, you did mention that NRI and remittance market share has improved. Any other levers beyond that that have started working in terms of government balances, et cetera, that has already started to yield results? If you could elaborate on that.

Yes, you know, government also is doing, government business is also doing better. In fact, some of the car uptick has been driven also by that. So, we have multiple initiatives like that, which are, some have started playing out, some are yet to play out. For example, FedOne is, we have launched essentially our payment sites, right? We have yet to launch our collection side products on the corporate side. I think as we do many of these initiatives, there are multiple initiatives in the pipeline. As we start building our rent proposition, which we are, we have not yet gone live with that. As we build our rent proposition, we will again share on that. So, there are many, there are other product variants we have launched, which we will focus on. So, therefore, there are many things in the pipeline and we, we, answering partly to the earlier Maruk's question as well, we have to keep executing to get Kasa trajectory going all the time and Kasa trajectory going all the time and we do have initiatives in the pipeline which will continue to drive this.

Got it. The second last question is on asset quality. You know, the agri-flippages have been high in the last couple of quarters. What explains that? And more specifically, write-offs are very high in this quarter driving your credit cost when the slippages have come up. So, which segments you have written off more aggressively in the quarter or has there been any change in the write-off policy?

So, two things written are what we show as agree MFI, that is the MFI piece I was talking about. The elevated slippages were only arising out of MFI as we said And as we said, that is easing. Has it eased enough? No. But is it easing and is it definitely a downward trend? Yes. So, that's what the asset quality is about.

And your point about there's been no change written on any write-off policy on the same. We have a policy in place. We are consistently following that.

And so, there is no extraordinary change, nothing extraordinary we have done to change the write-offs and things like that. So, you know, Rishit Aryan, you must remember that as the unsecured stress started flowing one year back, right? So, some of those write-offs are happening out of that portfolio and therefore, that is consistent with the other things we have been telling you. So, nothing unusual or extraordinary that is to be noted.

Noted, sir. And the last question is, you know, the capital raise, I am guessing you may choose to sort of answer that again, but is it fair to say that given your earlier articulation of building new line of businesses on wealth management side or investment management side, so the potential capital allocation is not only for the organic growth, but also feeding some businesses, just trying to understand what could be the potential capital allocation plans here.

So, Reekin, let me put it this way, let the board make a decision and after the decision, all these factors will be considered while making a decision and the rationale of that decision, I promise you that as soon as the board makes that decision, we will come in front of all of you and explain our rationale, whatever, whichever way we decide. on that so hang on for just have your Diwali come back and then we will see what to do about that sure sir happy Diwali to you and thank you thank you thank you next question comes from the line of Nitin Agarwal with Motilal Oswal Financial Services Limited please go ahead yeah hi sir and congrats on a very good hi Nitin hi Nitin thanks hi sir

Sir, I have a couple of questions. One is around the ECL impact again wherein you mentioned that the impact is going to be quite small now or manageable. So, do you think that this will come in the way of the targeted ROA improvement because we have laid out a target to be somewhere in the middle of top three and the next three in terms of ROA and our numbers that we looked at. So, will this covering up this commissioning gap, will this come in the way of us achieving that target over the next two years?

So, let me put it this way, Nitin. Of course, one-time impact, whatever happens, that Venkat did give some guidance on. But that, anyway, that is one-time. We do not expect, on a running basis, the ECL methodology to land up giving a significantly higher kind of credit cost. We do not expect our fundamental credit cost to change, right? Just because the methodology of accounting them changes, our fundamental credit cost should not change. So, but this is early stages. Like Venkat said, we are analyzing that. But in principle, if I were to respond without getting into the details and the mechanics of the numbers, methodology, new methodology should not typically result in a higher credit cost just because of some mathematics, right? Truly, we should lose more money for our credit cost to go up. Yeah, right. Yeah.

Right, sir. Sir, the other, on the Yes Bank stake sale, if you can, like, help us know, like, how much is the gain and how is it affected that in P&L or balance sheet, how is that accounting done?

Just to tell you, Yes Bank was taken into our AFS in the balance sheet when the revised accounting norms were announced. And that has gone direct, that is what they call the designated equity. And it went into the reserve, the profit on sale of that. Actually, in the year, it was negative. As of March, it was restated at a particular price. And there was a small loss, it went directly into the reserve.

Reserve directly, okay. Yes, sir. And so the last question is on the credit card wherein we have made a very strong progress. It is also helping us improve the fee intensity. But if you can talk about where we are in the profitability journey in this segment and how is the forcing mix now between internal and external customers?

Yeah, I will ask Vedant to address that. Yeah, so strategically we are moving into acquisition by our own team. So our organic card number is growing. And at the same time, we have what we call tightening or revised our policies on the to the print tech, the cars that we were sourcing. So, these two steps on one side, the organic sourcing is helping us to get better customers and most of them, the bulk of and almost 90% of the customers are our existing customers. So, from that point of view, it improves the stickiness of the customers with the back. So, all in all, and we will focus on how do we grow our organic card acquisition as a business going forward.

Right. And in terms of product profitability, where are we on the ROI journey?

So, Nitin, the way we look at it is there are two parts to this, organic and inorganic. Our organic strategy is to, of course, is all upside or all downside in the beginning hours, right? So, all acquisition cost goes into us. As long as we keep our acquisition internal, we can control that. But all the upside is us. When we work with FinTech partners, we share some upside, right? So, it is a mixed strategy we follow. A mix between the organic and FinTech will give us a balanced strategy of building ROA. So, I would say we are not yet in big profit zone. We are in the My winning, my loss, my profit kind of zone just now. I think scale is important to be profit in this business. But I think these are early days from ROA perspective. And moreover, we have recently embarked on this growing of our organic card. So, as the card age grows up, our spend will go up and as the spend will go up, eventually it will translate to the profitability.

But early days are important.

Yeah.

Sure, sure. Thank you so much.

Thank you.

Thank you. Next question comes from the line of Kunal Shah with Citigroup. Please go ahead. Hi, thanks for taking the questions.

Firstly, given that maybe going slow on the low yielding asset is weighing somewhere on the overall loan growth, if you can just highlight in terms of the proportion up to which we expect the overall low yielding advances to come down. from the current levels of more than 50 odd percent say over the medium term and maybe and how long could it wait on the overall loan growth compared to our guidance of 1.2, 1.3x VGDP multiplier maybe average which we are indicating.

Well, let me play the contrarian on that with you. Why do you call low yield assets growth weighing down. I think it weighs up on the profitability front. So, in any case, so I think like I said, I think it's a balance we have to, we need to grow the balance sheet But we have to grow profitability. Our intention is to change the structure of our earnings. And that's the goal. And You know, corporate, for example, if the corporate credit goes, comes back, nothing stops us and if our liability profile continues to improve, there is nothing that stops us from pressing the accelerator on the corporate side, right? So, I think this is a question of the cycle. In a cycle where corporate credit cycle is not very favorable and you try to grow, it can only come at extremely low yields and ROE destructive manner. Yeah, and we don't want to play the price game, right? And by the way, if you go back to our history, there have been times when we have grown our assets at 20% and still our ROAs are not grown. So, if you trace back our own history, that has been the case. Yeah. So, I think finally we have to do things in a logical growth-oriented manner. Even in corporate, we are saying with corporate we want to grow. It is harder work than doing a large 2000 crore transaction with a large corporate. You have to do 10 corporates at 200 crores. But that is the way to go. And that is the way we will go. Go. And therefore, and I just want to clarify that it is not that we are against growth, right? I told you that in chosen segment we want to grow and those are aggressive growth numbers. Those are not small. If you look at credit card, it is in 30s. If you look at the commercial bank, it is in late 20s. Gold is, as I told you, 7% QOQ if I take the degree aside. It is not an issue about growth. having a mindset to grow. We want to grow and we will press the accelerator where we see the opportunity to grow profitably.

Got it. Perfect.

And, secondly, on free income side, so, the rent price has been quite strong. We are already seeing it upwards of 100%. So, I think a lot many levers getting in if we look at Forex that's contributing distribution has gone up quite significantly on a quarter on quarter as well as year on year. So, where do we see and how quickly can we see the overall C2 assets ramping up maybe you have indicated in terms of the a medium-term guidance which you have, okay, across the board. But is it coming too quickly when the expectations, the initiatives have already started to yield and we might reach there sooner and that could be the support to the ROE?

Absolutely. I mean, that is our intention. You know, I have always, even two, three quarters back, we talked about this, saying that trade and forex, trade and forex, wealth, and cars being key drivers of this, apart from, of course, growth in many other areas that we have seen, areas where it has continued to grow. And I think the runway is still completely open on wealth. For example, while in para-banking, in insurance distribution, we have already started showing traction. I think the core wealth business is yet to go live technically. So, therefore, there is runway ahead. On forest, while we have seen progress, we have seen progress on the public side. We have not yet seen progress on the retail side. On trade, we still have a runway to grow that going forward. So, I think there are enough levers yet to pull for us to improve this trajectory and we will continue to do that.

Sure, got it.

And last time, you had indicated a host of initiatives which we have taken structurally. Any new initiatives maybe after being there, maybe any incremental initiatives which maybe you think that maybe you have thought about it over last two months and which is getting implemented now?

Kunal, we already told you that we have 50 odd projects large projects which we are running as what we call the project breakthrough. Yes, of course, maybe after the December quarter we will come with. I had given a kind of a small update in early stage update in the last quarter. But we will come back to you with the December results and we give you a more comprehensive update. There are initiatives always in the pipeline and of course we have to keep doing what we have to do but we will come back with a full update. There are many initiatives that are of course in the pipeline.

Got it. Okay. Yes. Thanks and all the rest. Yes.

Thank you. Next question comes from the line of M.D. Mahesh with Kota Securities. Please go ahead. Hi. Two questions. Sir, you or Venkat, one of the two on the questions on margins again.

When you look at the yield on advances decline of about roughly about 20 and cost of deposits on 20, how do you explain margin expansion?

Venkat, what you are looking from that, don't derail the number from that. You will have to look at it from a NIM perspective. From an end perspective, the deposit and borrowing cost, clearly we have a 22 bits saved there. Whereas the yield on advances is dropped from the 14 bits. So you take a clear 6 bits out there. Take it. And in addition to that, there is the 1 bit from CRR, which I told earlier. And we also did, you know, we continue to do optimization of balance sheet in terms of other assets and other liabilities. We have got about couple of bids from that. That is an ongoing exercise. We will see how, you know, there are still some more assets which we feel we can get returns from or dispose and all that. So, that is work in progress. But that's how we... And just to clarify... Sorry?

And just to clarify, there is no one-off in the... No, no, no.

Absolutely no one-off.

Second question, sir. we miss the direction of margins this quarter. So, just trying to clarify here, is everything ready to remain as what it is today in terms of interest rates?

Does margin go up or go down or it remains flat next quarter or in the next two quarters? How does it move from here on?

Mahesh, it does go up, obviously, for the simple reason that let me always tell you that our deposits reprise over 20 to 14 months. Deposit side, the term deposit side reprise over 20 to 14 months. So, we are in the middle of that cycle. So, there is Going to be repricing of our deposits for another two quarters if not slightly more than that. Correct. So, that benefit will come. That benefit will flow. Of course, asset pricing will.

I just was asking, no rate cut?

Yeah, rate cut is a separate, after you clarify, you are asking me a question, all remains there. Yeah. I mean, one last clarification.

Ilya, might you think that the bank requires additional capital to do the current level of business or do you have a capital adequacy intuition mind that suggests that this is on the lower side?

Again, I will leave the question at that, answer at that, saying that let 24th board meeting happen. Let us make that decision. There are the board will meet and discuss all issues. Whatever is the outcome, let's then come back and explain to you the update, rationale, all of that we will talk about. Perfect, sir.

Give us those few days to come back to you on that. Yeah, happy to work with you. Thank you.

Thank you. Next question comes from the line of Phil and Engineer with CLFA. Please go ahead.

Hi team, congrats on the quarter and happy Diwali. Just on the standard asset provision once again the management overlay thing, what exactly was that and on what portfolio size did we take that 48 crores?

It's a 46 crore the management overlay it's a proactive decision which we have taken on standard assets which have not been reclassified where we are seeing some stress on connected accounts. So, as a proactive measure, we have taken the 46 crore management overlay. Okay. And lastly, in retail, yeah.

So, it's like the same borrower has another loan which is, say, stage 2. That's what you mean by stress.

Same borrower is very clear. Same borrower will be cast apart.

Connected borrower. Connected borrower. What do you mean by connected?

Well,

We will take you to offline and there are... Yeah, we will take you to offline. Okay, okay, fair enough, fair enough.

I am just secondly getting back to the slim thing because... The promoter and the company of the promoter, private limited company of the promoter are connected. Just as an example. Okay, okay. So, just as an example. There are scenarios there that they don't want to take you through the whole thing on a call like this.

No, no, fair enough. Now I get it. So one is corporate and one is the person. That is one of the scenarios. Got it, got it. And also just on this NIM thing, is there some benefit in terms of day count accounting that has accrued this quarter? Usually in certain quarters there is a rate and in some quarters there is a benefit. Just want to make sure this is an absolutely clean number.

This quarter is nothing.

No, no. BAO in normal course. BAO in normal course. Okay, perfect. That was good. Thank you so much for this. Thank you. Can we take one more?

One more question and probably we can wrap it up.

Alright, thank you. So the last question comes from the line of Param Subramanian with Inveset. Please go ahead.

Hi, thanks for taking my question. Couple of data keeping questions first.

What is your NCR for this quarter? And what is your C21 including profit? 129.

129. 1 minute. 129. 129.

129. Okay.

And what is the C21 including profit as of this quarter? C21. Did we get that? Did we? Ah, it is 15.71. Yeah, and it's not given on annual basis, but yeah. 15.71 includes C81, right?

Yeah, that includes C81. So, that's clear. So, 15.71 is clear includes C81. With no profit.

Without profit. The profit we do only at the end of the year. Now that we do only in Q4, we don't do that calculation through the year.

At this stage, we haven't done that. That's the profit.

Okay, fair enough.

Okay, and lastly again this question has been asked in various calls but I will just you know again but how to think about the bank more from a medium term perspective in the sense that see we are still in the midst of a waste cutting cycle fully appreciate that you know you are solving for top line growth and ROA delivery clearly but since we are possibly still you know looking at further waste cuts ahead at what point do you start thinking that you know, balance sheet optimization as a lever is largely done and we will start looking at growth as a driver of profitability going ahead.

If you could give some sense on that, that, you know, I know this has been asked but how we are thinking that at what point we are comfortable with mix and we want to start growing because clearly as has been asked in a few questions, you are also looking at, you know, October 24th possibly raising capital.

Param, all I will tell you is that growth in profits And growth in assets needs the right balance, right? One without the other either is not possible or does not make sense. So, we remain very careful about how to balance these two. We understand that there are times when we have to drive profitability through asset growth and there are times when we have to correct the profitability not necessarily through asset growth. So, we will, all I can tell you is our strategy is not a thing that we will, you know, just hold tight whatever the situation of the market. We will remain agile. We will remain thinking about what is the right strategy to do in what environment and we will act according to that. And I do not want to pre-decide what we will do when. We will watch. We will react to the situation.

We will adapt and react to the situation. Actually, Munir, I fully appreciate that.

It's just that your leverage is coming down. So, it has an early impact for you. So, you know, that is why, you know, there are complaints of policies. You know, that you are considering as well, right? Yeah, yeah. Of course, all parts of the equation we will take into account. We need to take into account all parts of the equation. We understand that. But like I said, we will do what we think is sustainable and right thing to do for

medium, long-term benefit of the bank and the shareholders of the bank. We remain very conscious of that. Thank you so much. Thanks, Anil. Congratulations on the quarter and happy Diwali to the whole team. Thank you. Same to you.

Thank you. Thank you. And with that, we'll probably close the call. Thanks, everyone, for joining us on a dhanterous afternoon. 350 plus participants today explains a lot. Thanks a bit. And before we close, one quick thing. Do look at the slide number five in our presentation. It captures in a quick snapshot what we are truly focused on right now, which is execution. As always, if there's anything that's left out, you're always a call away. We can discuss offline as well. Thank you again for your time and have a great session ahead. Happy Diwali.

Happy Diwali to everyone.

Happy Diwali. Happy Diwali.

Thank you. Thank you for joining us. Thank you.