The Federal Bank Limited

Ladies and gentlemen, good day and welcome to the Q3 FY26 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. If you need assistance during the conference call, please signal an operator by pressing star and zero on your touchtone phone. I now hand the conference over to Mr. Solikar, Head Investor Relations, The Federal Bank Limited. Thank you and over to you, sir.

Thank you so much. Good evening, everyone, and a very happy new year to all of you. Thank you for joining us today for our Q3 earnings call. Before we begin, a quick housekeeping note. In the last interaction, we had mentioned that we would try and avoid scheduling earnings calls on Saturdays, and we are glad we could keep this promise this quarter. As always, the entire senior team is here on the call with us today. We'll begin with the opening remarks from our MD.

Then, Venkatesh sir, he would take you through the quarter, the main numbers actually.

And after which, we'll open the floor for further questions. And given the number of participants on the call and the time available, we request everyone to restrict themselves to one question so that we can accommodate as many participants as possible. So, with that, I'll hand it over to our MD. Manish sir, over to you.

Thanks, Abhishek. Before Venkat walks you through the numbers in detail, I would like to make a few introductory remarks about some of the important events during this quarter. First, this was one of the 12 strategic themes that we had listed in February last. As you are aware, we took on board Vidya Balan as brand ambassador and launched a media campaign, Savings Key Vidya. We took the next steps forward in this quarter. For decades, our customers discovered us by walking into the branch or by speaking to our people, by experiencing our values in person. Today, the first interaction often happens on a six-inch screen. The first judgment is formed not in our offices but in our pixels. We are evaluated not just on rates or products but on experience, simplicity and the quite confidence with which we project in those early moments. That was the rationale for our brand refresh exercise. This is not a rebranding. At its core, this refresh stands on three ideas. Pride in a 90-year legacy while actively shaping the next chapter. Retaining the colors of the brand is indicative of that. Openness to evolve how we work, communicate and collaborate while remaining anchored to what we stand for. Make the brand look familiar yet fresh. Retaining the connect with our existing customers. And ownership, this is not a management's brand or a marketing's brand. It is a bank's brand carried forward by every one of us every day. At the heart of this refresh, a new visual expression of who we are, the Fortuna Wave, is a new visual expression of what we are. It brings more fluidity and freedom of expression to attract newer audiences. The Fortuna Wave represents three things that define our relationship with all our stakeholders. Authenticity, prosperity and togetherness, what we call ACT. These are not aspirational words, they describe how we conduct ourselves with our customers, our investors and our employees every day. The intent behind this refresh is simple and deliberate to enhance recognition, to sharpen differentiation. Importantly, the refresh will go beyond digital identity. Also with this brand refresh, we have finalized our new brand design and aesthetics. We will gradually roll out that change as well. Confidence in our direction is also reflected in a significant development during the quarter. In Q3, we received board and shareholder approval through an AGM for the proposed strategic investment by Blackstone. The transaction has also received clearance from Competition Commission of India. This is a strong validation of our strategy, governance framework and execution capabilities. Beyond strengthening our capital base, it opens up avenues for unlocking business synergies and expanding access to global institutional expertise, reinforcing our long-term growth trajectory and deepen stakeholder confidence in our bank's future. Against this backdrop, our Q3 performance reflects a steady strengthening of underlying fundamentals, improvements in margins and ROA, reduction in funding costs to improve CASA mix, Growth traction on chosen asset segments and sustained stability in asset quality are actually outcomes of disciplined balance sheet management and consistent execution over multiple quarters. We are beginning to see the benefits of stronger liability franchise and a calibrated shift in our asset mix towards segments that offer superior risk-adjusted returns. Fast discipline and prudent risk management remain central to how we operate and will continue to operate. While competitive intensity remains elevated, our focus is denigrate, consistency over volatility, quality over headline growth. This positions the bank to deliver sustainable performance across cycles. With that, I will now hand over to Venkat to take you through the numbers of the quadrant. Thank you.

Thank you, Mani and good evening everyone. Thank you for joining us to discuss our performance for the quarter. I trust you have had a chance to review our investor presentation and discussion. Let me begin with a quick view of the master environment for the quarter. Inflation remains well contained, with headline CPI moving up 1.33% in December, some 0.71% is downward, reflecting some bottoming out in food prices. and the print came in below market expectations. The key driver was a sharper than anticipated decline in the triple price. While core CPI edged up, this was largely driven by higher gold and silver prices. When we exclude these volatile components, underlying core inflation moderated to about 2.4%, indicating that broad-based pricing pressures remained subdued. On the policy side, liquidity conditions remain supportive following the rate cut in December, which helps anchor interest rate expectations. In summary, the macro environment during the quarter remained broadly constructive, notwithstanding the ongoing global geopolitical uncertainty. Inflation was low, underlying pressures were muted, and the operating environment remained relatively stable. This provided a supportive setting for us to focus on execution, balance sheet discipline, and student growth. Now coming to our performance for Q3. Q3 was a course of strengthening fundamentals and method progress. We delivered 1,041.21 net growth in net profit, retrospective 9% sequential growth, driven by sustained margin expansion, discipline, cost management, and continued improvement in asset quality. More importantly, these outcomes are the result of structural shifts in our balance sheet, not short-term actions. On the balance sheet momentum, after the quarter end, total business stood at 5,53,364.49 crores, growing at 3.71% QOQ and 11.4% YOY. Deposits closed the quarter at 2,97,795.82 crores, up 3.07% QOQ and 11.8% YOY. More importantly, CASA balances grew at 6.59% sequentially and 18.86% YOY. And the CASA ratio improved to 32.07% and increased to 106 basis points QOQ and 191 basis points YOY. This, we believe, is among one of the best in terms of CASA growth in the industry. This study retailization of our liabilities is materially improving the durability of our funding profile and it is now clearly reflected in our margin trajectory. Growth advances closed at 2,55,568.67% growth, up a very healthy 4.46% sequentially and 10.94% by over Again, importantly, the emphasis is growth continues to be led by the segments which we have consciously prioritized. Commercial banking grew by 5.35% QOQ and close to 26% YOY, reflecting sustained traction in the mid-market and medium-end lending. Business banking grew by 3.82% QOQ, which, as you know, Short signs of turning around last quarter but was muted at the beginning of the year. So this gives us the close to 4% growth in this quarter gives us belief that the momentum will continue in the next quarter and going forward. Retail banking grew by 2.84% QOQ and 14.76% YOY. Gold loan which is another one of our medium yielding portfolio grew 12% YOY and 9% COQ, despite a calibrated downsizing of a portion of the book in line with recent regulatory guidance. In addition to BUB, LAB is another portfolio which expanded quite strongly in Q3 at 4.47% COQ, with growth momentum expected to sustain and improve in the coming months. Corporate and institutional banking grew at 8.59% U of Q and 14.46% Y of Y. The mix of growth remains intentional. We are expanding in segments that deliver superior risk-adjusted returns while maintaining underwriting discipline. On margins and poor income, our NII for the quarter was at 2,652.734% growing 6.31% CO2 and 9.1% YOY. NIM expanded to 3.18%, up 12 basis points sequentially. This was supported by a reduction in our funding costs, cost of deposits, cost of funds and cost of borrowing, in addition to improvement in yield on investment and the CRR cut impact. The improvement in margins reflects the combined impact of liability mix optimization and asset base pricing. As stated earlier, this was a quarter in which we had highest ever NII, highest ever C-income and highest ever OP. Our C-income stood at 896.47 crore, growing at 0.23% of Q and close to 19% Y of I. See growth remains well distributed and continues to strengthen the quality of earnings. Our cost-to-income ratio improved to 53.92%, down 12 basis sequences. During the quarter, we also added six branches aligned with our calibrated approach to network expansion. On asset quality and risk, our GNPA declined to 1.72%, an improvement of 11 basis point QOQ, and NLCA increased to 0.42%, down 6 basis point QOQ, and at an all-time low. Our provision coverage ratio, excluding technically written off, increased to 75.14%, and we continue to maintain around the 75%.

Credit cost for the quarter, was at 0.47% improving 3 basis points UOQ.

These trends reflect both portfolio tightening and substantial focus on recovery and give us confidence in the resilience of our book. And our slippage ratio for the quarter was 0.7%. As a result of all the above improvements, our ROA increased to 1.15% up 6 basis points sequentially. And ROE increased 11.68% and expansion of 67 basis points to OQ. You will notice that despite the 125 BIP rate cut from last year December to this year December, we have our margins have expanded. Our ROE is also better than last year December level. EPS for a quarter was at 16.79 rupees up 8.89% sequentially. Also, during the quarter, we increased our stake in our associate company, AGS Federal Licensed Students, from 26 to 30% through the acquisition of 3.24 shares at rupees 30.45 per share. The transaction was completed November 25 after receiving all necessary approvals from RBI and IRDAI, and it strengthens our long-term strategic partnership in the Licensed Students. To conclude, Q3 reinforces the fact that we are building a more stable, margin-led, and buoyant franchise. Our priorities remain unchanged, strengthening the liability franchise, secondly, growing in chosen, higher-quality lending segments, and thirdly, maintaining control on costs and asset quality. While competition remains intense, our focus remains on respect with the profitability and consistency of outcomes rather than just pure headline growth. The balance sheet that we are building is more granular, more resilient, and better positioned across red sites. Thank you, and we now open it up for questions.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchtone 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 a moment while the question queue assembles.

Okay, the next slide. I already see a queue. Yes.

The first question is from the line of Mehduk Ajraniya from Nuwama. Please go ahead.

Hello, congratulations. My first question is on your outlook on margins, right? You've already expanded margins by 24 bits over the last two quarters. So where do we see margins from year on, given that the growth in mid and high segments is already very strong? So I guess it has stabilized from year on. So what is your outlook on margins for the next two to three quarters, assuming no further rate cuts? And even for the longer term, where do you see them stabilize? And my next question is in your fee income on the distribution income, if you could throw some light that wasn't very strong this quarter. So, those were my questions.

Right. Hi, Maru. So, just to talk about the NIM expansion, It's a journey. I don't think we are at the end of that journey. And as we keep changing the mix of our liability profile, as our CAFA percentage grows and our median yield assets continue to grow faster than the low yielding asset size, I think we hope to continue this journey for many more quarters to go. After there will be immediate quarter, you will see the impact of the last rate cut play out. So, we have to keep that in mind in the next quarter. Last part of the last rate cut will play out in the next quarter. After we have to try and mitigate that as we have tried in the last few quarters, we will attempt to do our best. So, but I don't think that journey is anywhere close to complete. peak of what we want to get.

Your second question was... You did... So, you usually have a T plus 1 repricing except for new loans, right? So, part of the repricing would have played out this quarter or no?

Yes. Yes, yes. For a month it would have played out. Played out. The rest of the two months it won't have played out. So, one third of that impact would have played out this quarter. Two thirds of that impact will play out in the next

Okay. Thank you.

Okay. On the distribution side, we do have a seasonality every year. Our insurance income is distribution income is usually better in the second quarter than in the third quarter usually. Having said that, there will also GST impact GST impact in the last quarter because the commissions were impacted by the change in GST structure. And last, also the product mix with the markets are buoyant. Customers tend to choose ULIP products and there the commission percentages are lower. So, it's partly reflective of that.

In terms of volume, our traction continues to remain low.

Okay.

Thank you so much. Thank you. Thank you.

Thank you. The next question is from the line of Akshay Jain from Autonomous.

Please go ahead. Hi, sir. This is Akshay. My question is on asset quality. So, how do you look at asset quality for MSI segment going ahead? So, if I reverse calculate your MSI credit costs, they come out to around 10-11%. So, how should we expect this number to move incrementally and on other segments they are performing very well at the credit course you have disclosed to be around 29 basis points. So, assuming you build you know moderation in MFI credit course, how should this blended credit course number move? So, should we expect you know it to be much lower than your 50 plus basis point guidance or are we expecting some deterioration in other segments? So, that is the first question. and secondly on the loan loan mix so while you continue to say that you know you will be focusing on the mid-year mid-year segments uh any quantitative number or you know how the mix should settle down maybe in three four five years uh how will how much will be on a high yielding book mid-year and low yielding book anything on that

Let me take the second one. I'll ask Venkat to answer the credit cost question but I'll take the second one. You know, the way I look at it is this is again a journey. It's too early to put a stable number to that. Our attempt is to keep working towards growing the mid-year book faster than the high-year book and remember one thing that we have still not changed the composition of of the high yield and very high yield portions because that is the microfinance. By cards, you can see good growth in cards. Other high yield segments, we have not pushed the accelerator on, whether it is personal loans or MFI because we have been waiting for pushing the accelerator on that to get more comfort on the potential credit cost of that. So, I think this journey is, we are too early in the journey to tell you how it will look three to five years later. I think the attempt is to keep working towards changing this mix favorably. How much it will reach, where it will reach, too early to say. But clearly our attempt is to improve yields on the asset side by changing this mix.

On the credit cost, at the beginning of the year, I mean Q1 also we said the full year guidance we get 55 to 60 bids. And right now for 9 months we are already at 55 bids. So we should end the year somewhere between 55 and 50. Say 52, 53 bids for the full year. For the quarter the credit score was 47 bids. Of course lower than last quarter. So we will continue to see the credit score getting better in Q4 as well.

My question is like one MFI book settles down.

Yeah.

Hello. Hello, am I audible? Yes. Yes, you are.

Yeah. On the MFI, like you said, yeah, if you have seen the trajectory of flip figures, it's coming down every quarter and the credit cross is also coming down. We are seeing it come down and we expect even Q4 to be lower than what we have seen in Q3. Okay. So, we should see the improvement being reflected in the MSI as well. Now, have we seen a full recovery in MSI? We do not think so. We are still cautious in terms of growing the MSI business and it is being grown effectively. So, we watch for one more quarter before we decide how much to press the pedal on MSI.

And just to add to that, in the medium term, we should also remember that as we build the medium yield assets, the credit costs on those will be higher than the low yield asset, right? For example, corporate credit costs are close to zero. Whereas, there will be different rates coming out of the... So, as of now, we are not yet giving significantly different guidance compared to our... where we are today. We will evaluate that guidance as we go forward.

Understood. So, and just one more question on how is your MSME as a quality progressing and any impact you are seeing from US tariffs or you are hearing anecdotally from the industry?

No, like Venkat mentioned earlier, if you see the what we call the beauty segment, the lower end of MSMEs, we have actually begun to grow that in this quarter with comfort on the credit side. Actually, our credit costs are well in control and the portfolio is absolutely, I mean, we haven't seen any deterioration at all. And in the commercial banking, which is the higher end of SME, again, our portfolio quality remains robust. We haven't seen any stress in that portfolio. Actually, both these segments

This quarter's costs are lower than, trade costs are lower than what they were last month. And this is it. Thank you.

Thanks, Dr. Thank you. The next question is from the line of Vikram Shah from IFL Capital. Please go ahead.

Good evening, sir. Thanks for the opportunity. I have four quick questions. This is the first one, you know, on the growth.

I'm sorry to interrupt you, Mr. Shah. May we request you to please speak a bit louder?

Is this better?

Likely. Did we hear you correctly? You have four questions.

Yes, I had four questions basically. So the first one is on the growth. So on the growth, you know, you're clearly restructuring the mix towards mid-yielding segment which partly is reflecting in your margin performance as well. So when does this restructuring largely get done? You reach your target mix and we can expect the bank to grow in line or maybe faster than the system. So that's number one. Second, if I look at the reported margins, they are up 12 business points sequentially, but the lending spray ads are broadly flat. So, you know, if you could just provide some walkthrough of where this reported NIM improvement is coming from. Third is on CASA. So, you know, this is again second quarter of good CASA traction. Last quarter we saw SAR momentum was good. It sustained this time. And this quarter, even CAR has picked up. So, just wanted to check on CAR specifically. Any period and chunky balances that may get potentially reversed or, you know, this is a real organic improvement in CAR as well that we saw in the quarter. And fourth and the last one, just, you know, wanted to get a sense on when do we expect the first tranche of fund infusion from Blackstone coming in. Would it be in 4QF by 26 or maybe 1QF by 27? Thank you.

Yes. Thanks, Rikhin. Rikhin, this quarter our asset growth is 4.5%. So, close to 4.5% and I, so I don't know when you say that will it recover to Industry levels, I don't know which industry level you are talking about.

So, I would answer to that question.

I am assuming you are measuring momentum by the last quarter. Fair enough. So, you are saying that momentum should broadly sustain going ahead as well. I will qualify it partly. As you have seen, all our chosen segment, our run rates are quite good. And this quarter, of course, we got very good growth on corporate as well. So, maybe the 8% kind of quarterly growth on corporate may have sustained, but even if you drop that lower, our run rates will be fairly healthy, right. So, that is on the asset growth. On the NIM, I will ask Rekha to take it, but before that, on CASA, yes, sir.

Yeah.

Now, on CASA, first of all, there are no chunky stuff there. It is all reasonably granular. But I will just re-qualify it by saying that there are usually, of course, bump-ups that happen in the quarter and due to nature of the business. But we should, that is why we disclose our averages through the quarter. And if you see the average growth, growth in averages also are quite healthy. So, therefore, if you remain focused on the averages that we report, it will tell you that it is reasonably secular. As for growth, of course, there is no one silver bullet we have used. It is a factor of multiple things including better productivity from branches, newer products. It's a combination of various things and this journey of course continues. We can do more and we will continue to focus on that. On the Blackstone of course we are awaiting final regulatory approvals on that. So we are hoping that this quarter it will get in the last quarter it will get done. That's our expectation. We will keep you posted with actual development on that. NIM walkthrough, again NIM, my broad comment to you is NIM again is no one single silver bullet. It is a combination of multiple things that improve our NIM. We work on, granularly on multiple things to make sure our NIM improves. But I will ask Venkat to take the detail.

Yes, I think in terms of NIM, like Maniyan said, several factors, of course. On the downside, yield on advances has gone down by 9%. But on the upside, we have had Several factors. One is cost of deposits is lower. Cost of borrowings has gone down. CRR fact, to some extent, has come. Better yield on investments as compared to last quarter and our own average owned funds. A combination of these five, six factors helped us in terms of getting to 3.18.

So, several things and we have to continue to work on all of them. Got it. Perfect. Thank you, Mani and Venkat, sir. Thanks.

Thank you. The next question is from the line of Pidan and Jindal from CLSA. Please go ahead.

Hi, team. Congratulations on the quarter and thanks for keeping the promise of not keeping it on the weekend. Getting back on the NIM question, how much of your TD repricing is left?

As we had earlier indicated, from the cycle started, we think it is about 14 months on an average. 14 months it takes to fully reprice the term deposit and that means we have about 4 or 5 months to go. Two more quarters. One and a half more quarters, yeah.

Okay, okay, that answers my question. Secondly, just in this quarter also the yield decline of 10-12 bps QOQ, now 2-3 bps would have come because you have immediately passed on the repo rate cut. But what led to the other, you know, 8-9 bps of decline?

Total decline is only 8 bps, no? Or are there 9 bps? Yield on advance is...

Yeah, on main basis, it's only 9% drop in yield on advance.

Yeah, I mean, I'm going by your reported numbers, 886.874. Now, although that's ballpark 2-3 bits would be due to the repo rate cut.

But, you know, the incremental business also happens at lower rate, right? As the rate drop, incremental business For example, NCLA repricing would have happened on other assets, non-repo assets. New business would come at lower rates because markets do price in drop in rates. New corporate business would have come at lower rates. So, all that also happens, right? So, yes, the yields do go down overall. But after all, costs also go down. Okay.

So, then this NIM improvement risk quarter, going back to Rikin's question, is essentially balance sheet management. Where, you know, we must have reduced liquidity on the balance sheet, more loans on the balance sheet and that's why we see this 12th with benefit.

When you say balance sheet management, CASA improvement, CASA percentage improvement has an impact on loss of funds. Loss of deposits go down. Yeah. So, it is a mix of both. It's not all. Borrowing cost is not balance sheet management. Borrowing cost reduction is actual cost reduction. So, it's yeah, it's a mix. Like I said, this is not a one silver bullet which is solving it for us, right. We have to work on multiple parameters to improve name and we will continue to do that.

Understood. Okay. And just lastly, in terms of your mortgages and your auto loan book, Now, those have been fairly stable for the last 4-5 quarters now. So, just wanted to get a sense of when we were fast seeing, you know, these segments pick up.

Right now, on the home loan, particularly home loan, as you can see, we have stepped up the pace on our lab book. As you can see, the growth rate in the lab is reasonably healthy this quarter. On the home loan side, we are not finding the risk-rewards attractive just now. We feel that the pricing is below the optimal levels that we require and therefore, as you can see, we have not grown that aggressively. We, of course, continue to serve our existing customer needs, but we are not going out and acquiring aggressively at those kind of rates. These are, you know, long-term commitments. This is a very long-term product. And structurally, you can lock the balance sheet on poor rate economics for a long time. And therefore, we are cautious. When we get comfortable, I don't have an answer as to when we will change that one. We will continue to focus on areas where we think risk awards are good. Auto, hopefully we can, we are working towards, we have made some structural changes internally to make auto work. Auto, we hopefully get back sooner. On the home loan, I will wait and see how the situation evolves, the competitive intensity evolves and how the pricing in the market evolves to see whether we can press the accelerator on. But the way Brian I see is we have opportunity to grow the assets, other assets as you can see many of them are growing in their 20s and we will continue to focus on that to build the branch.

Got it. And just lastly, quickly branch openings have slowed down a lot this year.

Why is that? As you know earlier we have addressed this issue. We have been working on multiple things on the branch side like the free the branch initiative that we have been doing. So, we are kind of reimagining the branch operating model and we wanted to come on settling that before we push the accelerator on branch opening. We also wanted to, we were working on the branch, branch refresh, branch formats, reformatting our actual physical layouts of the branches, branding and We have also gone through evaluation of our branch net in terms of their efficiency of the network, whether we need to relocate some branches, whether we need to review some branch sizes. So, various things were in the pipeline. So, we wanted to get a better handle on all that before trying to push the accelerator on the network. branch numbers, you will see better branch fraction in the quarter 4 already.

Got it.

Okay.

Yeah, that's it from my end. Thank you and all the best. Thank you. Thank you.

Thank you. The next question is from the line of Abhishek N. from HSBC. Please go ahead.

Hi, good evening and congratulations for the quarter. so couple of questions can you can you get closer to the mic or is this better yeah okay thanks sorry for that so the first question is on OPEX I just wanted to check that you know now since you are anyway going to grow mid yielding etc which is more granular business what would be the run rate of OPEX would it grow at this 4-5% QOQ range and that means

annualized high teens maybe or does that taper off at some point of time yeah Abhishek hi this is Venkat on the cost as we have indicated earlier the cost income ratio which we have seen you know it's true with both you know management of cost and the income traction so this quarter is down because we have had strong income momentum but our guidance We have said that over the 2 to 3 year period, it will be range 1 in the 53 to 55 because we will be reinvesting the space in distribution, technology and all the other initiatives. So, at the same time, our endeavours to ensure that we try and get to a positive job so that the alignment of cost is in line with the income growth.

Sir, we had said earlier that this is a tightrope work we will do We will build income and we have always stated that so we do our guidance has been that don't build in benefits out of that we get that it's a bonus but we will we will remain very focused on making sure that we are efficient but just now we don't want you to our guidance is don't build efficiencies out of that in the short term we will see in the medium term.

Yeah exactly because if you are in a build out phase you will need to make those Yes.

Yes. Okay. The other one is on, you know, two or three segments of your loan mix.

One, I wanted to check gold loans. Are you seeing any kind of yield pressure or pressure to raise LTV, et cetera? And or is, you know, the market largely rational at this point of time as well? I'll ask you this. I'll ask you, no? The pressure on yield on gold loans in general would be there because of the falling interest rates around the PSU bank operating rate. But the gold loan book has grown substantially. We have actually maintained our yields on our gold loan book. The challenge on LTV has actually not happened because our LTV has actually come off. If you look at from last fall to this fall, the LTV has actually dropped. And this is not just for us. It's an industrialized phenomenon because of the increase in the gold loan prices. So we are not going to push growth. by targeting only LTV. So, this is where it is. So, at this point in time, I would say that the yields are being maintained and managed. I think the growth has been reasonably good for us and LTV pressures are not there at this point in time. In fact, the gold loan growth rate of 9% is in spite of what Venkat mentioned in his thing, running down of our wholesale lending kind of a book we had which is not allowed under the new regulations. If you go out for that, it's another 2 to 1.5% higher. It's actually, it's only 40% value-wise.

And if I look at the beginning of the financial, it's actually 22%. Okay.

Okay. And most of all, it would be price-driven, right? Not really tonnage-driven. Really? The growth?

The growth.

More tonnage.

Yeah. So, our tunnel has not gone up this quarter. Yeah.

So, somewhat, right, yeah. And on LTV, they are at 52, right? So, 54.

From the interview perspective, we are... Sure, sure.

Perfect. The personal known book, like MFIU indicated that you are still looking at, you know, the environment and where the credit cost will settle.

Is it the same in the personal loan book or are you seeing any kind of comfort there and you could start growing? I know you indicated that you are still watching, but what is that metric or indication that could make you start growing that book? No, so compared to MFI, we are more comfortable in the personal loan space. Yeah, and we are I would say we are in baby steps in terms of actually we did highest personal loan disbursement in the last 12 months in the last month actually in the month of December. So, we are trying to build that but slowly baby steps I would say yes but we have more comfort in that stage than the MSI stage just now.

But we are just now because

focus that product on our existing customers alone. We haven't gone out to acquire customers on that product. It is something that we are evaluating.

We will see the economics of that must justify. We are looking at the options there.

Sure.

And in terms of book growth, when does that start contributing? At least incrementally? The first one goes See, just now it is a small book, so even if it grows at a reasonable pace, I think it will take time for it to really make a dent on the overall scenario. It's a very small book as you can see this 3,000 or 3,600 crore book. So, let's start building it, then we will see the impact over a period of time.

Too early to start talking about the impact arising out of that. Got it.

Got it. Okay. Thank you.

Thank you.

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions to more participants, we request you to please limit your questions to one or two participants. If you have a follow-up question, you may rejoin the queue. The next question is from the line of Nitin Agarwal from Motilal Oswal. Please go ahead.

Hello. Yeah, hi. Thanks for the opportunity. And good evening, everyone. Hi.

Hi. So, sir, I have two questions. One is on the ease in the rating distribution of your corporate exposure. How are you looking at that? If you look at the slide 2021, and so the mix of A-rated corporate has gone down in this quarter by nearly 500 basis points. And so, I understand, like, of course, the bank is working on improving their yields, but how are you looking at this equation? Any desired number that you would like to reach? Any color around this?

He had very consciously said that he would not be focusing large part on the low-earning ones. And in his corporate banking, the people he made drive the maximum price expression from the bank. So, he had consciously let go of certain large assets

in the in terms of asset quality, I can assure you that we are not going down the risk spectrum to build the book. We will be more granular, we will be more bit corporate, we will be deeper geography, but not directing the trade standards.

It's just that we are not focusing so much on the triple A names because receipt quantity doesn't come from there, neither does the incoming from there. And the other thing is, are two things which I would like to further stress, how we standardize this thing.

we ensure that they are either very securely asset backed or there is proper cash flow trapping over there. Right.

And just like on this, see at the same time we have also reported a pretty strong growth sequentially. So while we have let go of this asset, but still we have reported a 6% growth. So does that mean that the growth otherwise was running in double digits in corporates this time? Nitin, you have to see it in the context of the last one year. We have also grown this book slow, right, over a period of time. So, the researching of this book had impacted the growth of this book for the last three, four quarters. Actually, they had not grown very fast. So, and we had started focusing on mid-corporates. But obviously, it takes time for mid-cooperates to build and I think now we are able to see the progression towards that. Yes, of course, but some opportunistically some effects have happened in corporate which has also, which were decent yield and therefore we have also done that. So, like I mentioned earlier, don't go by the 8% you see in this quarter and that as a steady state run rate of growth. for that segment of business. Right, sir. But, is like the unwinding more or less over? Or you expect more unwinding to happen? The unwinding is over. We have to now build. Okay. Okay, sure. It's over in the sense, see, like I said, all these are processes. Some long-term loans sitting there, you can't easily unwind. So, it's always a process. But, by and large, I would say, yes, it's over. Keep in mind it is also very short term in many cases and very opportunistic. So if you do see opportunity at any point of time, you will do that part. You will look at it from our balance sheet perspective, our ROC, our risk return, risk return point of view and reciprocity. So this is something we are doing as a conscious call. Okay, okay. And the other area that I wanted to check upon is the margins.

Like last two quarters, we have reported a 24 basis point odd min expansion. So, do you think that margin will be a bigger driver in ROA expansion as you alluded that it will like even going forward the margins will continue to expand.

So, will this turn out to be a bigger driver in our overall blocks and like on which the margin expansion or ROA expansion is going to be based? No, NIM is obviously one of the important driver for ROA expansion. There is no question about that. Having said that, yes, can keys also add to that? Of course, there are other things that will add on to that and margin also is both an asset-side game and a liability-side game. So, I would say all three, liability-side mix, asset-side mix and key improvement, all three need to drive our ROA trajectory.

Having said that, I just want to caution you that for the coming quarter Q4, our endeavour will be to maintain them around the current level. given the fact that we still have the impact of the last respite to be passed, the two months' impact. Yes. Right. Got it. Thank you. Thanks so much for all of my questions.

Thank you.

Thank you. The next question is from the line of Kunal Rao from City Group. Please go ahead.

Yeah, hi. Thanks for taking the question. So, on free income side, maybe at the discussion earlier, you alluded to the overall distribution income. But if we look at it, maybe the overall free income growth or free income to upset, where do we expect it to settle over next 12 to 18 odd months once all the factors play out? Because it still seems to be settling closer to one odd percent even in this quarter and it's been largely flat.

Yeah. So, Kunal, I don't think we are, I will say that again, like in some other cases, I don't think we are looking at settling wherever we are is not the place we are settling at. Clearly, there are levers that we have. We will, this quarter, we will launch our wealth proposition in the market and that's a business that we will grow over the next few quarters and years. Our trade and forex has upside possible which I don't think we have yet got the trajectory that we want to. So, there is potential to grow that. Our car business continues to grow well. That's that to see income going forward. So, these are things that are still to play out. So, I think we are far from saying that we are settled at a 1% level. We want to see upside on that and we will drive up trajectory, upward trajectory.

Okay. And this would be visible over like maybe 4 to 6 odd quarters. So, maybe this wealth management and card business and all that should be driven over a period.

Yes. As you can see, even in the last two quarters, we have seen some trajectory, right? It has moved up to 1% from 1990 to 1992 that it used to be. So, again extraction. So, you see, I mean, See, you will keep it on a continuous basis. You will not necessarily have to wait for four to six quarters.

Sure. Got it. Okay. Yeah. Thanks. Thank you.

Thank you. The next question is from the line of Paramsa Brahmanian from Investec. Please go ahead.

Hi, good evening team. Congrats on the quarter. Few questions.

Firstly, on LCR, what is the LCR as of this quarter and what is the impact for us from the RBI change in regulations from April, positive, negative?

So, our quarter end LCR was about 114%. And the average was about 127%. 123, yes, 123, average was 123. We expect about 5 to 6 percent impact out of the new regulations from RBI, approximately. This is a negative impact?

Yes.

Okay, okay, okay. And so, then what does that mean for your growth? So, broadly we talk about 1.2 to 1.5x nominal GDP growth, right? So,

Is there any change to that after, you know, you know, taking into account all these things?

You know, you have capital next year. There is a diagram of this LCR knowledge as well. So, how to think about the growth trajectory?

Param is also a function of opportunity and the external environment. Having said that, we will continue to remain focused on medium yielding segment growth and as you saw last quarter, 4.5% in advances So, assuming all things equal, we will try and be around the same level and yeah. So, high teens is what we are working towards.

High teens, low growth. Okay, okay. So, that one is 16.

That one is 16, yeah. 16 for next year is what we are talking about. Okay, okay.

And, okay, so that part is clear.

And on this corporate loan growth rate, so I think you mentioned, so there is, I mean, there is a growth frequently. So, what is, I mean, and we can see it in the ABI data as well.

Is this just substitution of bond market primarily or is there some cap-experimented lending here? Could you give some color on this corporate lending?

In the midst of it, basically a part has also come from the fact that the broad markets had priced at highest and the bank lending had come out in line. So, that was one part of it.

So, that's what you're saying is right. There's also been an increase in requirement of both working capital by the, if you look at the data also, the paid updates from the corporate sector is also infinite. So, that has also led to it. A little bit of capital I won't say substantial, but a little bit has come from the investment.

So, all the things have actually contributed. Thank you, Raj. Yeah.

Okay. Okay. Yeah. Thank you. Just one last question. Again, this has been asked before, but if you could just explain the margin walk, right? So, I mean, in that slide 9, the top left, you know, chart that you are showing, it's showing yield on loans and cost of funds are down broadly the same.

Yeah.

I mean, there is a CRR positive we can see, 4-5 basis points, which we are aware, but I mean, there is a 12 basis point improvement, right?

So,

how exactly do we I'll take the top line Patum I'll take the top line after the call okay okay okay okay fair enough yeah thank you all congrats on the quarter again thank you thank you the next question is from the line of Jaya Madras from ICICI securities please go ahead yeah hi sir congratulations on the quarter sir you spelled out on names and loan growth trajectory If you can share your aspirational ROA over the next two years, sir, that would be much helpful. Sir, Jay, you know, in our February document, we have shown some, we have given you a guidance on how to look at our ROA over the next two, three years, right? I don't think that changes. I think we are just now in the execution mode on the same strategic plan And that continues to be your guidance on what we think are ROEs. Sure, sir. Sure. And lastly, sir, if you have the quantifiable number from RBI trade relief measure, right, so RBI had given this window of dispensation for exporters. If they want, they can take moratorium. Do you have any quantum of such request? Very, very negligible. Insignificant. Negligible, negligible. Yeah. Okay, sure.

And sir, if you can quantify the labor, new labor code impact, have you done any higher provision on gratuity, etc.?

We have stated in the results, right? We have found results, point number 8 captures the quantum J and this was part of the distortion.

Okay, sure.

It's a very small amount. It's not material amount, but it is, it's true. They are provided for. And this is done for now, right? I mean, you need not do for the, I mean, there is one time when it is done also, right? There is no recurring impact. This is the direct impact relating to our employees. Now, people we work with, they may have an impact on, in the sense that Our contractors and suppliers and partners, they will have this impact and that can have a knock-on impact on us over a period of time, but those are not quantifiable. Sure, sure.

Thank you very much. Thank you very much.

Thank you. The next question is from the line of Gaurav Jani from Prabodha's Ladder. Please go ahead.

Thank you, sir, and congrats on a good quarter. Just touching upon the margins again, it seems to me that largely the improvement is from balance sheet management. We have reduced the proportion of liabilities overall. LDRs have gone up, borrowings have come down. I think that's the main contributor apart from the CRR cut. Now, my question is, sir, how sustainable is this? CFO, sir, did mention about, you know, margin probably being steady in the next quarter. How would we achieve that? I mean, surely from the loan mix? Because there will surely be, you know, normalization in terms of liability growth, right, in the next quarter.

So, yeah, that's my first question.

Yeah, I mean I thought he already answered that, that he continues to work on the liability mix, asset mix, all of that and therefore, all that will be limited and that is our effort. But yes, the repo rate cut will play out fully in the next quarter. There will be a negative impact of that.

We will have to look at how we can mitigate that.

Secondly, sir, on the TD rate cuts, the first tranche of reparate cuts that happened was followed by system-wide TD rate cuts.

So, what is your sense on further TD rate cuts? Is that possible?

Yes and no. So, there are, in fact, after the last rate cuts, the drops in rate of course savings rate did not drop at all term deposit rates very moderate cuts have happened not as much as the repo rate cut but lower cuts have happened but not fully reflective of the repo rate cut yes but increasingly as you know the market after the last rate rate cut actually the bond markets have hardened rates have hardened so the opportunity to cut rates goes lower close the last rate cut. And that's true for the entire sector.

And also, as I said earlier, we also want to focus on growth and keep the momentum on growth going. And to achieve that, we have to ensure that the deposit growth keeps this. It may not be wise to cut the rate cut this way.

Wonderful. Thanks. Just if I may please, one more.

Sir, you know, on the provision side, right, we have been buffering up on the standardized provision. So, it will help if you could just run us through as to, you know, what are you thinking or, you know, how are you planning in terms of EPS? We have been showing up standardized provisions. So does it mean that you know we would continue to see credit costs of about 50 basis points moving towards the ECM or then because or you know better improvement in the quality we will see credit costs coming off.

Credit costs like we said earlier guidance will be around the 55-60 bits. We are still waiting for the final guidelines from RK. Based on the drafts we have worked out the impact. We'll have to see how that plays out and there are certain conditions which the industry has had. If that comes through, the impact will be quite minimal and for which we have in the past indicated what the response will be.

But as of today, we are in line with ECL or we are a bit short? Little bit short. Understood. Perfect. Thanks a lot. When you say short, you mean from credit cost perspective?

That's right. That's right. So, you know, fundamentally... 65-60, it will cover... Fundamentally, we don't think ECL changes the credit cost dramatically. Over a period of time, it should align with credit cost. We cannot have an accounting mechanism which does not reflect the actual credit cost, right? So, we don't believe that ECL mechanism is... There may be a one-time impact of the...

But even for that transition period which RBI is giving they said they will do it over a few years so you won't see any material bump up on this.

On this issue. That's it for mine. Thank you so much.

Thank you. Ladies and gentlemen this will be a last question for today which is from the line of Sergey Shalev from Renaissance Investment Managers. Please go ahead.

Yeah. Hi. Good evening. Congrats on a good set of numbers.

start on the pre-income front so we have gradually increased to 1% but how much further improvement do we foresee over the next couple of years like just a small change will be needed I don't I don't have a specific guidance on that I mean but having said that our effort I just mentioned that there are levels that we have not yet used rails, cards rail and forex all of that has to still play out We are trying to get those things done. So, upward trajectory we would hope to get.

How much time will it take? Okay, that's it.

And sir, on the unsecured portion of the book, has most of the stress gone out and how do we see the growth on that front? Are we going to push growth and unsecured?

That's it. On the, you know, we have already been pushing growth on the organic card side. Organic cards, our own cards, we are already growing it reasonably fast. In the last few quarters, we have seen our book grow reasonably fast on that. On the FinTech partnership card, we are still cautious on that. We are not growing that fast enough. PL, I would say we are making basic steps as I mentioned earlier. On microfinance, we are still cautious.

So, that's the current figure.

So, we will be happy with that. You said earlier the high team growth of around 16% in the next year.

That's the overall growth. That's the overall. Okay. Great. Thank you so much. Thank you.

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Sawit Roy for closing comments.

So, thanks for today and thank you everybody for your time and for the time we connect and if you need further clarifications, you can reach out to us.

Happy to connect after the call. Thank you so much and have a great weekend. Thank you. Thank you. Thank you so much.

Thank you. Ladies and gentlemen, on behalf of Federal Bank, that concludes this conference. Thank you for joining us on E-mail Disconnected.