The Federal Bank Limited

Ladies and gentlemen, good day and welcome to the Q1SY27 conference call hosted by Federal Bank. As a reminder, all 5-7 lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference call over to Mr. Souvik Roy, Head Investor Relations, the Federal Bank Limited. Thank you and over to you sir.

Thank you, Ikhra. Good evening everyone and thank you for joining us. Before we begin, a small note on scheduling. I am sure many of you remember the commitment we made some time ago that we would avoid holding earnings calls on Saturdays. We have stayed true to that commitment and we intend to continue doing so. Turning to the quarter, this has been by almost every measure we track one of the strongest starts to a financial year in the bank's recent history. More importantly, these results have been delivered on the strength of the whole franchise. I won't dwell on the headlines, we prefer to let the numbers speak for themselves. A brief note on our disclosures, our presentation and the press release has been filled and filed with the stock exchanges. Wherever we have presented sequential comparisons, they are on of business as usual basis excluding the one-off item recognized in the March quarter to ensure like-for-like comparison. Your and your comparisons of course remain unaffected. Joining me today are our Managing Director and CEO, Mr. Avis Mannion, our ED and members of our senior team. They will take us through the key highlights of the quarter after which we will be happy to take your questions. Given the number of participants on the call, we would request that everyone limit themselves to two questions initially. If you have any additional questions, please rejoin the queue. We will do the best to accommodate everyone. With that, let me hand the call to our MD.

Thank you, Shobit. Good evening, everyone, and thank you for joining us today. This has been one of the strongest first quarters in our recent past, and the quality of it matters as much as the outcome itself. There are no one-off gains supporting this performance in this quarter. Through a challenging period for Treasury, we have actually grown our profits, expanded margins, improved efficiency and taken our asset quality to its decadal best. We remain firmly on track against every element of the guidance we have given you earlier. If anything, on several of those metrics, we see a positive bias. Our focus on CASA mix remains unchanged. We continue to target improvement in our CASA ratio over the coming quarters of our stated roadmap. This quarter carries the seasonal movements you would expect in a June quarter, especially on the car front, but our average car and average car growth numbers remain encouraging and our conviction on the objective is undeniable. On the asset side, the portfolio mix is evolving as we said it would. Most of our chosen segments are performing well. There are one or two where execution can be sharper and we expect to address those over the coming quarters. Since we last spoke, there have been three key developments of significance. We have a new chairman, Mr. Elias George, who has succeeded Mr. Hota, and we look forward to his stewardship. Second, we are in the process of acquiring the Standard Chartered India credit card portfolio, and we remain confident of completing the integration before the end of this calendar year. Cards, and especially our organic, the non-co-branded cards, are a segment we have been building deliberately, and this accelerates that. Third, we have secured an investment-grade international credit rating from S&P, one of the only few handful of Indian private sector banks to hold one. Its significance lies in access rather than recognition. It opens global pools of capital to us at competitive rates across bonds, ECBs, IBU funding and other avenues. And it allows us to fund growth more efficiently while diversifying sources of funding. For a bank of our size, this is a door that was not previously opened. We have also entered the leverage-linked FKLR deposit stage. The infrastructure is in place, the product is launched, and we have early customer interest. I would add one point of context here. When a comparable window was available in 2013, we did not have a gift city IDU. We do now. and it is central to how we build the leverage this time. Some limits are tied up and more are in the pipeline. We are also in the process of arranging lines with offshore banks for leverage of our customers directly. We believe that we will be able to get our fair share of this flow. Over this quarter, we see this as a meaningful lever for the liability franchise. Taken together, this quarter reflects the evolving strength of the core franchise. We are executing with discipline across our priorities and we, meaning my team and I, remain confident of delivering on our medium-term objectives. I will now hand over to Venkat, who can take you through the numbers in more detail. Thank you.

Thank you, Manil, and good evening, everyone. Thank you for joining us today and I trust you have had a chance to review the investor presentation and disclosure. I will focus on the key financial and balance sheet developments for the first quarter. But before that, let me begin by providing a quick overview of the macro environment. The inflation trajectory during the quarter is broadly along the lines we flagged on our last call. Headline consumer price index moved up in each month of the quarter. 3.48 in April, 3.93 in May and 4.38 in June. Averaging approximately 3.93 for the quarter as a whole. But what is more important is the fact that the June print is the highest in the current series and sits above the RBI's 4% medium term target. Two drivers account for most of that moment. First is food. When we spoke last We noted that the food inflation has picked up towards March to 3.87% and that we would be watching it into this quarter. It has formed further 4.20 in April, 4.78 in May and 5.32 in June with vegetable prices being the principal contributor. Secondly, energy. Oil marketing companies raised retail fuel prices in May and transport inflation swung from broadly flat in April to 4.31% in June. This is the delayed pass-through from the West Asia conflict that we said would show up in Q1 rather than the March quarter and it has indeed started reflecting. The MPC held a repo rate at 5.25% in June and retained the neutral stance. Alongside that decision, RBI lowered its FY27 growth projection to 6.6% from 6.9% and raised the FY27 inflation projection to 5.1%. This is a meaningful revision and it is the frame for how the year ahead is likely to unfold. Against that, the growth base is found. Full year FY26 real GDP came in at 7.7% on provisional estimates. Revised up from 7.6 we cited last quarter. With March quarter at 7.8%. Liquidity conditions have remained supportive and system credits of tech have held up. So on that backdrop, I will talk about our performance in Q1. Tauvik has already called out the fact that our numbers will be compared on the underlying basis, excluding the one-off which we saw in last quarter. Net profit for the quarter was 1176.93 crores, up 36.57% YOY, and earnings per share stood at 19.15, up 36.06. This is a strong start to FY27, and this is despite the fact that treasury income has been muted in the last two quarters. Our net interest income was 2945.89 crore up 26.06% YOY and NIM was 3.33% up 13 basis points sequentially and 39 basis points YOY. POSCO funds declined 21 basis points to 5.25%. The last part of deposit repricing which we mentioned earlier has played out and there's some minor benefit remains which will play out in Q2. Our deposits and liabilities franchise highlights are the total deposits closed at 3,20,117.66 crore up 11.37%. Our CASA balances which had crossed 1 lakh crore last quarter is now at 1,3,163.15 crore up a strong 18.26% YOY, growing approximately 690 basis points, faster than the deposit book. And our TASA ratio has improved 188 BIS to 32.23%. NR Deposits, which is NRE and ONR Deposits together reach 1,05,123.41 crores, up 14.24%. Building on the milestone we crossed last quarter. Again, this also crossed 1.4 last quarter. FCNRB deposits grew 37.76% YOY. Savings balances grew a very healthy 19.3% YOY. On a YOY comparison, current accounts are up 18% and savings up 19.3%. Both engines are intact and we continue with the momentum. We expect the current account action to resume through the balance of the year as the seasonal effect in Q1 washes out and our transaction banking and channel business continue to scale. As Maniyan said, there is no change to our guidance on PASA. On advances, our gross advances closed at 2,81,000. 239.54 crore, up nearly 15%. Asset momentum has picked up and it is coming through in the areas we have prioritized. Our stated focus has been on higher yielding granular assets, which improve the risk and discount return profile of the book. And it's the same granularity which feeds into our core C-lines. The direction is now visible in the composition of growth. Commercial banking grew 22.96% YOY and it continues to remain one of the fastest growing segments in the book. Our CVC business also grew healthy at 21.07%. Corporate and institutional banking grew 16.12% YOY. Having exercised selectivity through the second half of last year, we have re-engaged where pricing and counterparty quality meets our threshold. CIB book also surpassed 1 lakh crore on a rough basis, marking a key milestone. Our granular retail portfolios maintain strong momentum with roll loans continuing at a very strong rate of growth at 33% YOY. Cards growing, this is again a chosen segment and Maniyan mentioned about our acquisition of the Stanshat portfolio, 36% YOY. and loan against property, which has been seeing very strong traction in the last two quarters, grew at 21%. Retail banking as a whole grew at 10.8% YOY and with the flip edges in the segment down 28%. Business banking grew 7%. This is the segment which we had indicated last quarter that we have prized as portfolio health and yield protection. over headline volume growth. Slippages in this book are down 36% YOY. And now with the portfolio in better shape, we expect to grow this book from here. On fee income and operating leverage, our fee income was 957.21 crore up 21.7% YOY. Our fee income is marginally down against the March quarter which you all know is the seasonal peak for processing and distribution fee income. The YOY comparison of 21.7% is ahead of our balance sheet growth. Fee growth remains well distributed across our businesses and continues to strengthen the quality of earnings. Our cost-income ratio improved to 52.5%, down 239 basis points YOY. On asset quality, which has been another highlight of our performance, Our GNPA improved to 1.52% down 39 basis points and NNPA at a record low of 0.18% down 30 basis points YOY. Our PCR excluding technical write-off strengthened to 87.37% and the credit cost was down 41 basis points down 24 basis points YOY. A leading indicator for this is slippage and as we had mentioned in the earlier quarters as well the trend in slippages continues to be downward and the fresh slippage was 409.48 crore down 37.8% YOY and sequentially down 13.6% and our slippage ratio is at 0.61% as against 1.11 last year same time. ROA because of all of these measures have improved to 1.22% up 22 basis point YOY and our return on equity improved to 12.02%. I also mentioned in the last quarter that we will give an update on the impact of ECL transition during the Q1 earnings call. The new framework is effective for April 27 and based on our estimates for rest of this year, we expect the one-time transition impact due to each year to be about 1.5 to 2% of our network. Secondly, on an ongoing basis, we do not expect any material impact to the P&L due to this change. In summary, this was a quarter in which Treasury contributed little. The C-line faced a seasonally high base and we observed our annual wage revision. Against that backdrop, our profit grew 36.57% with margin expanding 39 basis points, cost to income improving 239 basis points and credit cost declined 24 basis points. This result, as mentioned by Mania, is from pure operating performance from the core of the bank. The macro picture ahead carries more inflation than the one behind us and RBI's revised projections reflect that. Our priorities are unchanged. We'll work towards deepening the liability franchise, grow in our chosen segments at the right risk-adjusted return and hold the line on credit quality and cost. The granular and secured character of this balance sheet is what allows us to be consistent and consistency is what

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 their touch-tone 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 questions are answered. The first question is from the line of Maruk Adajania from Tara Capital. Please go ahead.

Congratulations. I had a couple of questions. Firstly, just in terms of your processing fees, they are down quite a bit sequentially. So if you could explain why. And then in terms of NIMS, are these NIMS sustainable going forward? Cost of funds would have bottomed by now. That's my question on NIMS. And if I could also squeeze in a third question on FCNR deposit, if you have any target in mind under the RBI scheme, if you have any target in mind, and also if I mean, what is the cost differential on a total cost basis that you would see through XCNR versus your own PD rates right now?

So, those were my questions.

So, Maru, on your first question, of course, it's not the You know, last quarter of last year and first quarter of this year are not comparable on proxying fee. As you know, the disbursement levels vary and therefore proxies vary. And this is quite normal in every year that our proxy in the first quarter will be lower than the fourth quarter. So it's quite very normal for that to happen. That was your first question. On second hymn, The name is the result of both the liability side actions and the asset side actions that we have taken over a period of time. So obviously we believe that our KASAR trajectory is result of a thought out action plan and therefore should remain there and we should continue our momentum like Venkat mentioned. and on the asset side the mix change is also is a continuous process and of course there is more lever to there is more potential to change the mix going forward and we are continuously working towards that and as we have noticed our chosen segments are growing at quite a healthy pace and this will lead to natural realignment in the mix as we go forward and would add to the yield and So, I would like to believe that it is sustainable and we will build further from here. And on the SCNR, we don't have a target in mind. All I can say at this current point in time is that we will get our fair share of that business. We do have, this time unlike the 2013 round, we do have the ability to offer leverage to our customers as well from our IDU, which we were not able to do in 2013. and therefore a combination of that and the fact that we also we have a good franchise existing franchise in this segment we hope to get a our fair share of that flow. Ok, thank you and anything on the cost effectiveness of STNR like Let it play out Maruk and then next time we will discuss whether it was cost effective or not. Let it play out and

Okay, thanks a lot. Thank you.

Okay, thank you.

Thank you. Next question is from the line of Akshay Jain from Autonomous. Please go ahead.

Thank you, sir. Thank you for the opportunity and congratulations on this type of numbers. So, I would like to take the margin question a bit more deeper. 22-odd basis points of sequential decline in cost of deposits this quarter. So, you know what is driving this sharp decline in just one quarter, right? You know change is happening, CASA is improving, but how do you explain this 22 basis points of improvements and how could we expect you know cost of deposits to move in the same period. So, that is the first question. Second question is on again CASA improvement. your CASA on an average basis have grown like almost 20-24% on a year on your basis. So what is driving this trend? Are these set of customers your existing loan customers who are now picking CASA with federal and they are shifting their CASA from your bank or these are new set of customers for federal bank. So basically trying to understand what is the hook for them to move to, for example, you know, because you don't even offer higher interest rates compared to other mid-sized banks. And another thing is that, you know, is the tax rate driven by, you know, either retail or corporate or commercial banks.

So, it goes on and on. Okay. Okay. First of deposit tax rate, you were comparing last quarter to this quarter and you said 22 bits. In fact, the last quarter, the impact of the cash certificate, which happens at the end of the year, to exclude that, the reduction in cost of deposits is about 11 bids. Now, that is the primary contributor. In addition to that, we had the interest on IT refund, which we got. That's about 2 bids. And the yield of advances was dropped by 3 bids. So, net-net, we moved from 320 to 330. That's a broad walk on the trend.

And coming to your question on whether there is further scope for deposit cost reduction, there is a little left I would say in one more quarter. Having said that, I think the NIM is a combination of not only the cost but also of the mix and the from CASA, average CASA mix that you are seeing the change, that is of course driving part of the cost reduction. cost of funds reduction. Coming to your CASA improvement trajectory, as we have seen, it is not a particular quarter that we have got CASA improvement. It has been consistently, we have been growing our CA and CA both at a good pace. This is very, I mean I can't give you a one line answer on what is the reason and how. because it is a combination of multiple things that we do. It is also about more customers. We are opening more current accounts today. We are opening double the current accounts that we were opening a year back. We are opening more savings accounts. Higher variant accounts that we are opening are higher. So, better quality accounts we are opening. I can't give you one answer, one reason. But it is a combination of things. For example, our branches, KPIs, the way we measure them and evaluate them has significantly changed in favor of liability side than on the asset side. So, therefore, it's a combination of multiple things and we believe that these are medium term measures and yes, our products are competitive in the market. Having said that, it is also about good execution, good focus and in fact give good deployment of resources, branches in the right location. I can go on and on. So there are multiple things that are driving the CASA trajectory.

Just two follow-ups. One, I do not understand the 11 basis points comment on the cost of deposits done. And number two on the CASA, if you can provide a Any indicative mix of ETH and KASA coming from retail, commercial, corporate?

On the deposit level with KASA, I will take it with you separately and explain to you and give you the box.

Okay. Yeah. Thank you. Again, the current account is a reasonable mix of all three. All of them have almost grown... roughly the same pace retail, commercial and corporate. All three classes have grown I mean have grown in equal measure actually.

Okay. Thank you. Thank you for the answer.

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

Yeah, thanks for taking the question and congratulations for good set of numbers. So the first question is on the low yielding proportion. No doubt we have been indicating that focus is clearly on the chosen segment and yield delivers are still to play out with the change in the mix. But when we look at it this time, the proportion sequentially has been... slightly up. So, is it more to do with the opportunistic lending which would have been done over there and it would go straight over the period and that is the reason we are confident that still the proportion like last time when you look at it the low yielding was 49.8 which is like 50.1. So, that is still growing here.

Right. No. So, you are right. So, this is because if you look at our corporate growth rate this quarter has been 6%. So, corporate has grown very strongly. This is not our normal trajectory as you know. Even if you see the YOY number there it is closer to 16. So, we do expect because we did get good opportunities in the market at that short term product that we get that we do in the corporate side and we of course use that opportunity. But fundamentally if you look at our mid-yielding segment which is commercial at 24%, gold at 30 plus percent, cards at again very strong rates and cards, CVC at 24% kind of numbers. So, all the chosen segments we continue to grow very fast and we do not expect corporate to grow at 24% in the future and therefore the real mix change, the asset mix change will I think we will stay the course on that. Just a clarification on that. Interestingly, our low yield business which has corporate and home loan primarily. Also, I must tell you that even in the corporate, we have been within corporate shifting our mix towards mid market rather than the upper market and we have seen name upgrades or yield upgrades coming even in our corporate book. through the year and that is again something that we have we disclosed this last time as well almost 75 to 80 percent of our new customer acquisition is now in the mid market segment and as the mix there changes to even the low yield book will start giving us better yields than it used to give in the past and on the home loan again we are quite clear that we want to serve our existing customers so we serve our existing customers at a competitive rate where we are sure that the customer has bought multiple products from us and when it comes to new customers we are sure that we are happy to do at competitive rate if they are shifting their relationships with at least three products to us and that remains our focus and we think that is a reasonably attractive way of doing that business So, our fundamental strategies on around asset mix and doing it in a particular way that is attractive continues to remain and we are fairly confident that our strategy is safe.

Sure. And the second question is on asset quality. So, Slippity is, they have behaved quite well. Even in the seasonally week quarter, we have seen improvement both on the corporate and the retails. and credit cost settling at 47% equally confident on the ECL transitioning. So, would we be rising the guidance on the credit cost? We have been indicating 50-60% but it appears like performing quite strong today. So, any worries out there or should we be sustaining at the first quarter level?

Yeah, Kunal, it is not 47, it is 41 in the first quarter. Yes, our guidance was 50-60% Yes, so let me say that just now you treat it at the lower end of the guidance just now. We are not yet formally wanting to revise because we want to watch. You know this war and this monsoon, there are still headwinds out there. So we don't want to hurry up and issue a new guidance. Right now, let's say that we are likely to be at the lower end of the guidance.

Perfect, yes. Thanks and all the best.

Thank you.

Thank you. Next question is from the line of Nitin Agarwal from Motilal Oswald Financial Services Limited. Please go ahead.

Hi, thanks for the opportunity and congrats on good numbers. So sir, my question is overall we have started the year on a strong note.

so how should we look at growth now trajectory for coming years like last year we were much more controlled in terms of our growth delivery how much should we benchmark the numbers now you think we had earlier again I would say the same thing that I said to the to the last question that our guidances remain where they were maybe as I said in the opening remarks also bias is towards positive so I have a positive bias to that. I would leave it at that at the current point in time. We have said mid to mid-teens plus. So, I would say mid-teens plus. That is a positive bias.

Okay, okay. And so, second thing related is like the yield on advances. This quarter has a slight dip partially because of the corporate growth also which you alluded to. So, when do you think this mixed change benefit will start reflecting in the lending links?

So, that is a math, right, Nitin? The percentage, as the percentage builds up, it is a pure math in terms of what it results into. So, yeah, so the reason you are seeing you must also see it one way that finally it is not only about yield like it is about NIM so if we have to grow business we may drop rates as long as we drop rates lower than our deposit rates we are still fine right so looking at yields in a standalone basis may or may not be the right way of looking at it yes of course we always keep trying to improve yields but remember one more thing that if you look at our numbers the very high yield segment which is MFI, we have still held steady. We have not grown that business significantly over the year. And that is another opportunity if things look better, could drive a slight improvement in passive trade yields.

Right sir. And sir, the other question I have is on the gold loan segment. It may be true for the industry also but the tonnage is declining across many enders and for us also it's like a YY 10-11% decline in the gold loan tonnage and LTV because of the gold price has also gone up. So in context like this, in wake of these parameters, how are you looking at the gold loan growth over the year? How are you managing risk given the volatility that is seen in the gold loan prices recently? and some color around there also. So, how do you see the growth?

Nitin, our LTVs continue to remain around 60% and therefore, we see a fairly comfortable with our current levels of LTV and the risk in the portfolio and we do not expect, you know, gold prices to correct that sharply at least in the coming year.

Thus, we keep revising our per gram pool use. Yes. which is calibrated according to market price and the meter average last 30 days and we also build in buffers when we see volatility in that.

So, right now we are comfortable and we think the gold on growth trajectory can be sustained.

Okay sir, sure. Thank you.

Thank you. Next question is from the line of Piran Engineer from CLSA. Please go ahead.

Yeah, hi team. Congrats on the quarter and thanks for taking my questions. Firstly, just a couple of questions on your opening comments. Sir, when you mentioned one or two segments are there where execution could be tougher, which ones were you referring to?

I was referring to auto and business loans, small business loans.

Okay, and why do you say that? Like in what aspect do you mean? In the sense, in...

In business loans, as Venkat mentioned in his commentary, we were still trying to get our overall risk metrics and portfolio clean up, all of that well. We wanted to get the base right. yeah so therefore that was one segment where we think our execution we can you know get it sharper and build growth there by and large that falls in our middle bucket it falls there and therefore we want to build growth there second on auto industry has grown and we have not grown as fast and of course that was because we had our internal organization changes that we had made in terms of structure of how we were doing that business and that is settling down and we are hoping that as that settles down we can improve our quality of outcomes there.

Understood. But just on business loan Venkat sir also mentioned that now growth will pick up going forward.

Yes. Yes, that's right.

And that's because deals got asset quality comfort or because deals are now a bit better in the market?

No, yields are whatever market yields will keep going up and down but yeah, asset quality, stability and our process, credit process and underwriting process and all that we have done some work around that and therefore we want to get, I think we have got more comfortable now to start trying to push for workers. got involved and also just to remember just to remember this was also a segment we had consciously kind of when the all that war and I mean this is the more the small part of the business is the more vulnerable segment and it is more vulnerable to the impact of war price of energy monsoon all of that so we had to be more careful so we had But we think we have built the necessary guardrails to try and push for. And we are also getting branches to focus more on this business, the small lending business.

Got it. Was our average SAR cost, SAR deposit cost? Average? SAR, savings deposit cost.

It used to be 2.6, 2.3. I'm sorry? Approximately 2.6. Yeah, 2.6.

Got it. And just lastly, Venkat Sarjan, for the benefit of everyone on the call, can you just explain that 11 BIP cost of deposit declined that the other participant also asked? Because this is a key, crucial driver of, you know, your MIM beat this quarter. So it will be helpful for everyone to know.

See, there is a thing called as reinvestment deposit which we have and the interest on that which you see at the end of this financial year is Q4. So, you have to exclude that impact. It's a one-quarter impact. So, that level bid, if you adjust from that 22 bids, you will get another level bid which is what is the real drop in improving NIM. That is what is helping the NIM expansion of level bids.

understood understood okay yeah that's it from my end thanks and wish you all the best thank you thank you next question is from the line of Param Subramanian from InvestTech please go ahead yeah thanks for the opportunity and congrats on the quarter First question is on LCR. What is the LCR for this quarter? Because I see the, you know, the balance sheet has not grown as much as the loan book. So, and the reason I ask this is I think this appears, this is a lever we have used on name, right? So, yeah.

So, our average LCR for the quarter is 117. We have, we have, I think in the earlier calls we have said that we want to operate around 115 to 120 LCR. range and this falls fairly in that range. 117 is something that we are comfortable operating at and yes, you know, excessive LCR does have an impact on NIM and you carry negative yields on, negative carry on H2LA rate. So, yes, it is an efficiency that we have brought in over a period of time and we are comfortable staying in the 115-120.

Perfect. Thank you so much, Manmohan sir. Secondly, a question on this NRE deposit. Is there any chance that the FCNR offering has an impact on the NRE franchise in the sense that the same customer said because the FCNR is a far more attractive way that there is some porting of deposits. This is something I wanted to understand.

Not really. Okay. We haven't seen that kind of a correlation or negative correlation between the two. I don't think that. On the ground, I don't think that happened. Okay, okay.

Very clear. And sir, question on the corporate loans, I think you pointed out at this time it was opportunistic. But now that we are seeing these, you know, funding cost declines and, you know, the environment improving, is that something that can pick up and support loan growth going ahead?

So, Param, as we have always said, agility is important in these and it's important to remain agile to the market situation. and we have no dogmatic views about whether we should not access wholesale deposit market or wholesale short term assets, deploy money there. If we see opportunity at reasonable spread, we will do it. But we remain focused on the fact that we must earn good risk adjusted returns to do that. And if we do get that, we will use that opportunity. Okay.

One last question.

In any of the low-yielding products, are you beginning to see any, say, competitive pressures even, say, which we have, you know, segments which we have consciously decided not to grow?

Yeah, if you heard my last answer to another question, in corporates, as we move to, move our focus to mid-corporates and rather than at the top end of the corporates, We are clearly seeing yield upticks happening there. So there is, even in the low yield side, it is not that we are just saying that sit tight on the low yield side and don't do anything. We are making a lot of efforts to make sure that they give us better yields. And the mid-market shift is one step on the corporate side. But even on the home loan side, we are quite clear that existing customers, customers who buy multiple products from us, we try and leverage our relationship and we have kind of kept the book where it is right. We have not grown it sharply but we have kind of kept it where it is trying to do our best on the east.

Perfect sir. Thank you so much and congrats on yet another strong quarter. Thank you sir. Thank you.

Thank you. Thank you for the opportunity. So the question is on the CECV book.

We are going it at 20 plus percentage and I want to understand considering the war situation and the increase in the diesel prices, do we see any stress in this part of the book? Are we seeing any early indicators also? And secondly, the growth which is given by, it would be largely because of the CV. Any part of the construction equipment also we are seeing growth. These are my two questions.

Thank you. So, Agus, as of now we are not seeing any significant, any meaningful stress in that segment. Just to clarify, we continue to operate in the slightly higher segment. We are not in very retail segment of CV yet. We operate in the medium size seat operators and that kind of 5 truck, 10 truck operators and that kind of a segment. We are not in, largely we are not in the single truck operator segment and STUs and that segment and all of that. So, we have not yet seen a significant or any meaningful stress there yet. But we are watchful. What you are saying is correct. This can have you know viability impact on operators and we are conscious of that. We are watching the situation carefully.

And secondly on the construction equipment part, are we seeing growth in that segment as well? The growth there as well and the country as well also, they are focusing more on that as well. Oh, understand. Thank you. Thank you.

Thank you. Next question is from the line of MD Mahesh from Kotik Securities. Please go ahead.

Good evening sir. Three questions. One is, if you were to raise a dollar borrowing today versus raising extreme high deposits under the current window, does it make a difference on the cost of funds that you are borrowing today?

So, Mahesh, this is a moving, there are several moving parts in this. One is, of course, the base rate, which, of course, if too many people go to the market at the same time, the rate can harden and things like that. Second is of course the dollar rupee swap rate and that fluctuates and we also see depending on the success of the FDNR flows, there could be impact on the dollar rupee swap rate and therefore we have to watch that carefully and third is of course the rupee rate, what happens to rupee rate because even they could change given that there will be significant liquidity into the banking system coming through these windows that RBI has opened even the liquidity in the system can change and rupee rates can change. So I would say there are too many moving parts. We have to look at the price at the time we price the deal and see whether it is worth doing it or not. There are times when it looks just about okay. There are times when it looks better but we have to see the timing will be very important.

Perfect. No, that's fine. Okay, I'm just asking because in terms of your share share, what is the decision of your share share?

So, okay, let me put it this way. Our usual share in FCNR deposits normally is of the order of 2.5%.

Okay.

Okay, Manish, on CGT, NETL, SLR, ETL, GS, you are kind of giving loans under these fees?

What is your question? CGT, ETL, GS, what is your question? Are you giving loans under these fees? Yes, yes, yes, yes, we are. Selectively, but we are giving, yes.

Okay, a person who is taking a loan under ECMJ, is this a person who will see this as a person who you think is stressed or you think that the common... So, let me say one thing very clearly that if you think fundamentally the company is bad credit and we don't see it as a short term problem in the account.

we would not do that here. So therefore, we do not make a credit compromise just because it is guaranteed by the government of India. So if we see the customer in a temporary cash crunch or where we think his viability is not impacted but he has a short-term issue to tide over, that is when we do these loans. and of course if he is good of course there is no question but just to tell you these are the way I look at it is even good customers take this because these are well priced loans right because of the guarantee they are better priced than otherwise you would have lent to that customer so there are customers who are good customers who come to borrow this even if they are not in stress Okay.

Last question, can you give us an exact margin guidance for FY27 based on what you are seeing here?

Mahesh, if you recall our guidance that we said that margin net interest margin expect improvement for next 3-4 quarters that is 5-6 basis points per quarter, right? And we have said it may not be linear, you will see some some quarters better, some worse, but on an average, this is what we will achieve. We are sticking to that trend.

Okay, perfect.

Thank you. Thank you.

Thank you. Next question is from the line of Bunty Kavla from ASK. Please go ahead.

Thank you, sir. Thank you for giving me the opportunity. Just one question.

One question. Sir, are we seeing any ground level stress on MSME book with respect to this fuel price hike or red face?

Anything you can share on the ground level, sir?

You know, Venkat in his remark also mentioned that we have seen a decline in footages in our small business. So, we are not yet seeing any impact on this in our business. Thank you and best of luck.

Thank you.

Thank you. Next question is from the line of Ankit Bihani from Nomura. Please go ahead.

Yeah, yeah. Thank you for the opportunity and congrats on a solid quarter. I'll just hop upon the net interest margins once again. So if I heard it clear, you had highlighted that cost of funds had a benefit of around 11 bits, which was kind of seasonal or one-off. So if that wasn't there, would we have seen the extent of margin improvement that we have seen currently?

Sir, we are not saying it is seasonal or one-off. It is a reinvestment deposit, Ankit. And interest is screwed quarterly but paid at the end of the year. So the denominator effect is what is playing out in this quarter. So if you exclude that, our margins have improved by 11 bits on account of cost of deposit. There are a few other factors and offsetting is the increased dropping yield on assets. Net-net 320 has moved to 333. The last part is due to the cost of deposit not related to that genomic effect.

So, when you see 320 to 333 that has no effect of all that cash deposits nothing. 13 bits actually the and every quarter Ankit if you see every year first quarter you see this every first quarter this cost of funds it is more optic cost of funds difference but NIM the NIM you see does not change because of all this ok ok and my second question is on if I look at the if I look at the deposit accretion visa fee or advances or investment book accretion so that

so it is almost 2.5 times that we have grown our advances and investments compared to our deposit so now going ahead given that now that our NCR also stands at 170 odd percent how important is the deposit growth to pick up from here on for us to you know continue to maintain the loan growth momentum so Ankit

Of course, deposit growth has to meet the funding requirements of the bank. But please do also remember two things. We have actually over the last one year drawn down on our wholesale deposits. In the sense, the wholesale deposits as a percentage of our deposits is significantly down. We have had a negative growth in that. So, we are focused on growing retail which has grown at 16% overall on a Y2Y, YOY basis. There are two things. One, going forward, FCNR is a window that has opened up which will help us grow deposits. Second, if that is going to happen, we expect rates to ease in the system and actually wholesale deposits may be worth going back. We also can access borrowing ECB, OFCB window that has opened to fund growth and therefore I think there are enough revenues for us to and we have not used refinance aggressively in the last year. we can also go to refinance windows like the SIDBI and NABARAT and all of those windows. I think there are enough opportunities for us to fund growth.

Okay. Yes. Thank you. That's very clear.

Thank you. Next question is from the line of Abhishek Murarga from HSBC. Please go ahead.

Hi, congratulations for the quarter and thanks for taking my question. Thank you. So, the first question sort of goes back to NIM and your guidance was, you know, broadly 5-6 BIP kind of trajectory, improvement trajectory every quarter. Considering you have seen almost, you know, 13 BIPs or 10,000 BIPs QoQ, does this mean that most of the improvement that we should have expected this year is already reflecting in your current NIM and incrementally there is not much by way of improvement that we should expect for the rest of the year. That's my first question.

Abhijit, that is a match 5-6 into 4 is not certain.

Yeah, so basically what to do is hardly 10-15 days depending on how things move. I mean, is that a fair way to think about it?

We have given you a guidance. Let us stick with that.

We will see how that plays. Okay, sure. And in the FCNR context, you know, you just spoke about how it will improve liquidity and also bring down wholesale rates. But do you also expect it to bring down rates on the asset side, especially, you know, wholesale lending and housing, etc.? And if so, then how does that play out into spreads, loan spreads?

Yeah, so, possible. What you are saying is quite possible. Okay. like I always say that we have to remain alert to the market and act as per the market let's see I mean yeah both of us are guessing what it will be but all I can say is we will make sure that we do it we do business accurately sure sure and based on the ROA if we were to tie this to ROA trajectory now last year you had almost like last four quarters

you had about a 20 days improvement. What are the dealers you see now? Let's say between now and end of this year. Do you expect how much you know of what order of magnitude should we expect you know an improvement in ROA and yeah where does that come from?

So, mean improvement of course yield ROA increment as well and of course we are expecting fee also to grow we have been growing fee quite in a robust way so growth in fees and growth in name both should yield us better ROAs going forward but would it be like similar sort of magnitude of improvement or it will be much slower

No, no, of course, it can't be equal.

It will be lower.

They gave a guidance last time as well on the ROA that it will be around 3.4 per quarter.

Again, on an average basis, non-linear, not necessarily linear.

Sure, sure. So, we are holding on to that. Yes, yes. Okay, okay. Got it, got it. Thank you so much. Thank you. Thank you.

Next question is from the line of Pankaj Malarka from Renaissance Investment Managers. Please go ahead.

Yeah, hi. Manian and team, congrats on a fantastic execution. Manian, I have two questions. One, meaning, obviously, just to set the context, obviously, now the federal bank that we are seeing is very different than traditionally what we have seen over the last 10-15 years. and it seems like now all that work you've done is showing results over the last few quarters and probably in a more amplified manner in this quarter. So my two questions is one, do you think now the management team in terms of across business verticals and across business units and everything is firmly in place or you think you still have gaps to fill on the team side is one. And second is, you know, now when I look at the bank and your strategy, there is significant leverage across, you know, both balance, in the balance sheet across loans and deposits on the liability side to drive growth and profitability within loan book. Obviously, apart from aggregate growth, obviously, there is you know levers across mix and the pivots you are trying to make changing the mix of the loan book and so on and lot of these more remunerative or lucrative you know categories are very small and we have a significant headroom there and apart from driving cars operational efficiencies and all of that my understanding is that you will drive or use each of these levers in the context of the environment A so what is the kind of growth context you want to set for investors to look through from a slightly more medium term perspective let's say over the next 3 years, 5 years that one should expect because I am presuming each quarter you will end up pulling different levers because there is so much that I can see across yeah so management team

by and large the team is in place but I would say at the margin we are looking at a few higher end specialists some specialist areas like tech and things like that but I think that's a continuous work in progress but by and large I think we have the team to run the execution reasonably well. Small changes here and there we will make but nothing very dramatic. That is one. And second, on the these three to five years, of course, three to five years, if you ask me, we have generally given a guidance that we should pencil in mid-teens kind of growth. and I said rightly earlier in this call that maybe you can have a positive bias to that and that's what I can see now so let's say just now that is the outlook if the economy looks better and we see stronger credit growth of course we will participate in that as we go forward so you know It's not a clear runway, right, Pankaj? We know there are headwinds. There are certain headwinds. And therefore, I don't want to make an absolutely confident forecast saying that I can go at 18% for next 3-5 years. I don't know. All I would say is we will remain alert to the environment and flex our strategy to suit the environment.

Yes, what I'm saying is, you know, I understand that loan groups can be moderated within a band in the context of environment but my question is more on operating profits you know because we have so many of these levers not only on the asset side in terms of growth but you know the mix in the loan book and then on the liability side as well with CASA and other things so how should we think as shareholders in terms of growth let's say in operating profits because even if you grow mid-teens or high-teens, obviously the operating profit growth will be much higher.

And given our... Pankaj, we have given reasonable amount of guidance around NIM growth and ROA growth. That should give you a reasonable idea of what is likely to happen. And I am telling you the growth number for the balance sheet as well. So, it should give you a reasonable idea of that.

Sure, sure. Thank you.

Thank you. Next question. Yes, sir. The next question is from the line of Chantan. Please go ahead.

Hi, thank you for asking, letting me ask a follow-up question. Just on the FCNR, your headline rate is 6.25%. But when you offer leverage on the product, does that reduce your all-in cost for you? And if you can give the idea of like a quantum of all-in cost on that leverage product for you. Thank you.

No, so when we offer leverage, of course, we make some spread on the leverage. So, I don't look at it as a reduction in cost of the deposit because the leverage on the other side also expands my asset side. So, I need to produce an ROA on that as well, right. So, yes, but it does produce some return for us on the asset side. If we look at it independent of deposit cost.

So, but it would be fair to say that if the headline is 6.25 on the premium allowance, the leverage product actually it is lower for you by some amount of basis points.

I don't know how you look at the map. My asset side also expands, right? Equal to the leverage. Okay. So, I need to produce a NIM and ROA on that asset side growth in the balance sheet, right?

Okay, got it. Okay. Okay.

Thank you.

Thank you. Operator, any more questions? Should we close the point?

That is the last question for today sir.

Thank you. Thank you so much everyone for joining us on this call. We really appreciate your time. Thank you.

Thank you. Thank you.

Thank you. On behalf of Federal Bank that concludes this conference, thank you all for joining us today and you may now disconnect your lines.