Fedbank Financial Services Limited (FEDFINA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 9 Months FY '24 Conference Call of Fedbank Financial Services hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Mohata from Equirus Securities. Thank you, and over to you, Mr. Anuj.

Thank you, Zico. Good afternoon, everyone. I welcome you all to the earnings conference call of Fedbank Financial Services to discuss the Q3 9 months FY '24 performance of the company. We have the senior management team with us represented by Mr. Anil Kothuri, MD and CEO; Mr. C.V. Ganesh, CFO; Mr. Amit Singh, Head, Investor Relations. I would now like to hand over the call to Anil sir for his opening remarks, post which we can open the floor for question and answer. Over to you, sir.

Thank you, Anuj, and welcome to everyone on this call. We finished our Board meeting a couple of hours ago and have declared our Q3 results. This was a profit after tax of INR 654 million, INR 65.4 crores for the quarter. That's a 28% growth on a year-on-year basis. Our return on assets was 2.5%, and our return on equity was 14.3%. That was for the quarter gone by. Now this was on the back of an AUM growth of 34% year-on-year. Our AUM in the quarter was INR 107.1 billion. This AUM was because we had disbursals of INR 33 billion for the quarter, okay, which includes INR 11.2 billion for gold and the remainder, which is about almost INR 22 billion for non-gold. So our disbursements have grown 24% year-on-year and 21% quarter-on-quarter. So we've seen some disbursement growth in the quarter gone by. As far as asset quality is concerned, our actual -- our level of absolute GNPAs have actually declined by INR 8.18 crores, okay, and by 15 basis points quarter-on-quarter. So our GNPA or gross Stage 3 stands at 2.2%. The other important fact on asset quality is that we've taken up our LGDs on mortgage loans to 23% from the earlier 20%. So we've taken up our provision by about 3% on mortgage loans. So as a consequence of this, our overall PCR is now 24.5%, and our net Stage 3 is 1.7%. During the quarter, we commenced co-lending on gold loans and the co-lending AUM stands at INR 1.8 billion. Okay, we started this in December. And in 1 month, we've covered about INR 1.8 billion. We've also sold down our portfolios through direct assignment transactions. So INR 457 crores was the total quantum of portfolios sold, the investor share of the portfolios sold. The other positive development that has happened, albeit after December 31 was the fact that our credit rating has got upgraded. We are now rated AA+ stable by CARE Ratings. Now this is a 2-notch upgrade over the past 14 months. We used to be AA- till December '22. And in December '22, we got upgraded to AA and January '24, we got upgraded to AA+. CRISIL has also rated us, and we are rated AA positive. This happened in the first week of January. So the outlook for Q4 remains good and strong. Our disbursals have grown in Q3 and will continue to grow in Q4. And this is because we are now present in 17 states and union territories, 609 branches. We added 2 branches in the quarter gone by. So with that preamble, I'll open up for questions. And yes...

[Operator Instructions] The first question is from the line of Sameer Bhise from JM Financial.

Congrats on a good quarter. Anil, just wanted to understand how do you see the ROA flow-through for our co-lending model in gold? And also what are the current rates of direct assignment that you guys are getting? These are my 2 questions.

The ROAs on gold will obviously be very high, Sameer. The reason for that is that -- is twofold. The first is that our overall AUM goes up because we have access to a segment that we hitherto wouldn't cater to. Our yields on our gold loan book are about 17.5%, 17.75%, okay, we've stayed anchored to that yield. Because we do co-lending, we are able to access customers at lower price points. And let's say, we have somebody at 13.5%. So the difference between 13.5% and 9.5% is 4%. 80% of the loan goes to the partner's book, 20% stays on our book. So it is what, 4% into 5%, which is a 20% that you get on your own capital in terms of the spread alone, okay? So that's in comparison with the normal 10% or 9% spread that you get on a regular home loan. So obviously, it is ROA accretive, ROE accretive for the co-lending business. Now as far as our mortgage and unsecured mortgage DAs are concerned, the sell-down rate is approximately close to our cost of borrowing. So which is why we pursued the sell-down strategy, our -- because it also releases capital, which we can redeploy. For unsecured loans, there's obviously a premium of 100 basis points over our current borrowing rates.

Okay. And how much of co-lending do we intend to kind of scale this up to?

We'll wait and watch the next quarter, but our intent is to take it up to as much as is possible because it is hugely capital efficient for us. And we will just see how the subsequent quarter goes, and we will scale it up quite significantly, Sameer.

Our next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

Congratulations. My question is on the credit environment that you're seeing. Is it still robust, collection efficiency is holding up? And the provisions that you have made, you've nudged up the loss given default. So could you just explain the methodology around that? Those are my 2 questions.

Vivek, so the first question first, the overall credit environment, I think, continues to be benign in that our collections are on track, and we see our customers paying up. So I have no additional point to make other than the fact that it continues to be robust. Yes, the LGD, what happens is that we've had LGDs of about 19-ish percent thus far. So what we've done this quarter is to take up the LGD on mortgage loans from 19% to 23%, [ 20% to 23% ]. We used to have a management overlay of 1%. Now what we've done is to take the whole thing up to 23%. This is an annual refresh exercise that we do, and we've done that, and we've taken up to 23%, yes.

Our next question is from the line of Madhuchanda Dey from MC Pro.

I have a question on your interest margin. Like this quarter, we saw a tad drop in the interest margin. But as you mentioned that you have seen credit rating upgrades, which should have a positive impact on your borrowing cost. You are getting more aggressive through the co-lending in gold loan, which is also a high-yielding segment. Given all these pieces and given that you have raised a lot of capital also, what is your take on interest margin going forward, maybe in FY '25, if you could give us some color?

So there are 3 factors which will come into play in terms of our interest margins on the coming quarter or in the coming year. The first is the fact that our product mix will continually get enriched by higher-yield products, okay, whether it is small mortgages or gold loans. So that is point number one. Point number two is that we will continue to do co-lending. So therefore, there is a lower capital and there is no interest cost to be paid on that. So that is the second point. The third point is that we very recently got a rating upgrade. So it will hopefully have a positive impact on our cost of borrowing. That is number three. Against all of this, there is the fact that there has been an increase in risk weights over the past, what, month or so after the RBI circular, the effect of that is not yet played out. We also have money that we've raised in the IPO, okay, which we've seen the impact for only 1 month in the quarter gone by. So we'll see the entire full 3 months impact in the subsequent quarters. So that will also take up our margin. So these are the different factors at play because of which I expect that we will reasonably maintain the current margins, if not improve on them.

Okay. I mean, as you rightly mentioned, this will -- this increase in risk weight is going to increase your cost of bank borrowing, right? What kind of conversations are you having? What kind of increase in rates do you expect because of this?

So...

So can I come in here, Anil, sorry?

Yes, please go ahead, Ganesh.

Yes, Madhu. So we have had conversations with banks, and we have reason to believe that we will come out relatively with a lower increase in rates than we had originally guided. And we also believe that we will come out with a lower increase in rates than the peer group.

I mean why is that? Because of your credit rating?

Various factors, right? Please also note that currently, we are sitting -- as of 31st of December, we are sitting on cash and cash equivalents of about a little over INR 1,500 crores, okay? We have the IPO money, which has come in, plus we have our regular liquidity and investment. Now this amount would typically cover at least 5 to 6 months of disbursements in a normal year, right? So we are sufficiently carrying liquidity. And I think from a -- it positions us well to have these conversations with the bank. Also, the fact that our lending is non-consumer, it is to the MSMEs, that's also a strong point, which positions us well in these conversations. Yes, I'm sorry, I cannot give you more guidance than this, but all of this will play out in Q4, and you will -- I think when we come out with the full year results, you will get to see a little more data around this.

Okay. Just one question, which is a little general question. Some of the other gold loan financing companies that we speak to, they have been saying that because of the increase in risk weightage on unsecured consumer loans, that could actually motivate people to take gold loans in case if they have surplus gold in their household. Do you see this factor playing out at all? Is there any kind of credibility to this kind of argument?

Difficult to say, Madhuchanda. I'll tell you why, okay? One hand, the kind of person who borrows against gold is completely different from the unsecured customers, okay? So that is my intuitive understanding. The second thing is that once people begin to take on debt, okay, they will need to -- it becomes a lifestyle and they will need to substitute with other kinds of debt. That is also a feature of the lending industry. So there could be some migration of unsecured to gold. But really, the kind of people who borrow small ticket unsecured is different from the kind of people who take gold loans. The customer profile is different. So I think the impact may be there, but it will be muted. That's my take.

At least you guys have not seen it so far?

Yes, we haven't seen anything so far.

Our next question is from the line of Nischint Chawathe from Kotak Institutional Equities.

Just a small question. How do you think about leverage, optimal leverage for the business? And what is the conversation with rating agencies on this?

Ganesh, do you want to? Go ahead.

So can I take this question? Yes. Thank you, Anil. Yes. So Nischint, we are all said and done the subsidiary of a bank, right? And that means that from a financial leverage, while it is a hypothetical construct for most NBFCs, for us, it is a demonstrable lever. And our banking covenants permit us to go up to 6.5 to 7x over equity, okay? So that's the extent to which we can currently lever based on our partnerships with lending institutions. However, I think in the course of the last few quarters, we have also embarked on a journey of, as we have put in our deck, delivery on strong margins, strong ROAs and strong ROE. So what the whole securitization and co-lending program is to help us allocate the equity we have to the higher-yielding loans and at the same time, collaborate with partners who have access to lower cost of funds than us to ensure that we do not vacate the other segments and are also making margins there without allocating equity. What that does is it permits us to travel far with a lesser amount of equity. So essentially, I think what we have demonstrated is with 2 things: one, with the fresh equity raise as well as this monetization program of loans, we have like a solar charged battery, we have a borrowing substitute in the form of these 2 instruments which should allow us to go much further with much lesser gearing than what we had originally estimated. And that is precisely why and one of the bigger reasons why all the rating agencies have taken a very positive or a upgraded view on us because they are -- they see us as being able to not only lower gearing over an extended period of time, but they also, at the same time, see us being able to generate stronger return metrics.

So I think net-net, what we are saying is that maybe this can theoretically go up to 6.5 to 7x on balance sheet, and you can probably have another 20%, 25% outside the balance sheet. Is that a fair reading?

That would be a fair statement. Whether we choose to go there or not would be a choice on us, right? But I think we would have our own criterion from time to time. But yes, some of these levers are available to us.

Sure. And the second question is on your coverage on Stage 2 and 3 loans. We're seeing a gradual inch up on a sequential basis. So is this sort of some revisit of estimated losses? Or is it to do with just the change in product mix?

Okay, yes.

So first, Stage 2 and Stage 3 have to do with product mix here, Nischint, okay? Because for each product, there is a certain model LGD that is required. So depending on the change in mix of -- by each stage, the ECL provision is an output variable.

And how many years of data have you considered for calculating LGDs? And then how frequently does this get revisited?

So we refresh our LGDs every year, okay? And we've been considering data since 2017. So how many years is that? That's about 6 years of data at this point in time.

Sure. So you'll consider data since 2017, and it's not like rolling 6 years, but you'll keep on sort of adding to the data and you'll probably revisit it like I mean, once a year is like typically fourth quarter, is it or like first quarter?

So that's right. So this time, we've done it at the end of the third quarter, okay? So 2017 to 2023 is 6-year data that we have. So on that basis, we have worked our LGDs that you see on Slide 37 of our investor deck.

Okay. So you have [ reined ] something between the second and the third quarter. That's what my question was.

That's right.

Okay, got that. All the best.

Yes, Nischint, I'll just add one point just to add a little more color to the optics around what you may see as the coverage on Stage 2 and Stage 3. Currently, 86% of our loan book is secured, right? And secured either by gold or property. And if you see the LTVs we have published, the LTVs on the property is in the range of 52% to 55% and on the gold loans is 70%. So when you look and form a view on the coverage, please also consider the security covers we run here.

Yes, of course, no doubt.

Our next question is from the line of Renish Bhuva from ICICI Securities.

Sir, just 2 questions from my side, one on the credit cost side. So if we look at the...

Sorry to interrupt, sir. May we request you to use your handset, please? You're not -- audio is not clear, sir.

Am I audible now?

Yes, sir. Please go ahead.

Okay. Yes, sir, just 2 questions from my side. So one on the credit cost side. So if you look at the sequential movement in the ECL provision, so the net increase is hardly INR 10 crores, INR 11 crores, but our P&L provision is close to INR 25-odd crores. So I'm assuming there will be some write-offs. So can you please throw some light on the write-off numbers, please?

So yes, we have done a INR 17 crores write-off in the quarter gone by, yes. Okay?

Okay.

Yes. So that includes mortgage loans, unsecured loans as well as gold loans. So that's the number that we've done.

In Q3, you have done INR 17 crore write-off?

Right.

And what's the write-off number in this quarter?

Q3. Q3 is the quarter gone by, yes.

Okay. Okay. Cool. And so going ahead, I mean, let's say, the annualized credit cost, which stood at 0.9% or let's say, 90 basis points in Q3, including these write-offs. So what should be the steady-state credit cost? I mean -- or if you can throw some light on the, let's say, write-off pool, which we might have as on Q3?

Our sense is that the standard credit cost should be about 80-ish basis points, yes. So that's what we will guide, okay? Q3 -- we take these write-offs on a chunky episodic kind of a basis. So we chose to do some of it in Q3, so which is why the number is INR 17 crores.

Got it. Got it. Got it. Okay. So should we assume this is a peak write-off at least for this year?

So can I come in here, Renish?

Yes, yes, please, sir.

Yes, yes. See, the fact that we have increased our PCR, right, on the mortgage book, which constitutes over 55% of our total book, means that we have done a PCR increase on the entire stock in Q3, right?

Right.

So it's like a onetime raising on the entire book, right? So that -- in that sense, it's like not a frequent exercise, right? So like, for example, the same PCR in Q4 would be only on the incremental loans.

Got it. Got it. Got it.

Net-net growth. Yes. So I think with that perspective, it should come back to a more normalized number towards the range which Anil indicated.

Got it. Got it, sir. And sir, my next question is on the, let's say, the AUM mix side. So clearly, when we look at PPT, incrementally, we are growing high lending book, which is your gold loan in the small ticket LAP, so what should be the idle mix, let's say, by '25 in terms of small ticket LAP plus gold loan put together? And if that has to play out over next 4 to 5 quarters, so where do you see the asset on yield settling and ultimately the NIMs? Because naturally, if you do -- if we continue to grow our high lending book, that will have a positive impact on NIM. So how do you see this NIM profile internally?

Let's talk about the product mix first and the NIM separately, okay?

Yes, yes.

Now we have 3 of our products, which yield 17% plus, okay, which is gold loans, small mortgage and unsecured loans. Now the proportion of medium ticket mortgage is lower, and it is going to keep coming down. Okay? Now overlay on this, the fact that we are going to do co-lending. So therefore, your yields will be a little higher because you recognize only the spread on the...

On the [indiscernible] book.

Yes.

Correct.

So therefore, there is an upward bias to the yields for these 2 factors, okay? So I'm happy and comfortable guiding that our NIMs will be definitely there at the current levels. And how much they will improve by, we will be able to cast once we do the annual operating plan for the next year.

Got it. Got it. But -- so directionally, I mean, considering the recent rating upgrade plus considering the business model wherein we don't have any sizable exposure to any unsecured PL wherein the risk weight will come into picture when it comes to borrowing cost. So directionally, NIM should improve, right? I mean, considering the AUM mix change towards 17% yield book plus the rating upgrade?

Yes. NIMs should definitely be at least at the current level, if not better, yes.

Our next question is from the line of Bhavik Dave from Nippon India Mutual Funds.

Sir, a few questions. One is just to harp a little bit on the NIM side...

Sorry, to interrupt, sir. May we request you to use your handset, sir. The audio is slightly muffled sir.

Is it better now?

Yes, sir. Please go ahead.

Yes. Okay. Sorry. So just a little -- just to dig a little deeper into the NIM argument. Just wanted to understand what's our incremental cost of borrowing after like suppose we've got a rating upgrade, the incremental cost of borrowing, has it come down meaningfully for us?

No, so the rating upgrade is only 10 days old, Bhavik, and we haven't done any borrowing since then. So there is no obviously impact as yet that is crystallized. But give it a little time, and I'm sure it will have the appropriate impact on our cost of borrowing.

Because when we look at the quarter-on-quarter cost of borrowing movement, it's like even if we've not borrowed quite a bit, the cost of funds increased from 8.5% to 8.7%. That's a 20 basis point up move considering we had like capital benefit this time around. Just trying to understand, are we like borrowing at a significantly higher cost today and that will come down post this upgrade? Like what was like maybe the incremental cost of borrowing before this upgrade, if like I ask the other way around?

So can I come in here, Anil?

Yes. Yes, please. Yes.

So Bhavik, again, we cannot give out numbers, which are not already in the public domain. But I'll tell you the argument for NIM expansion, okay? Just before the equity raise, we were running at a leverage of 5.5%.

Correct.

September reported number was 5.45%. By November, it had crossed 5.5%, 5.55% level. As a result of the equity raise, the December mentioned gearing is 3.69%.

Sure.

Okay. That is a significant drop in gearing. From a NIM expansion, if you have more equity, that also results in an expansion of net interest income. So that's point number one, okay? Now on the borrowing side, the banks or our lending partners have always seen us as different from the peer group with the same rating. Isn't it? So the impact of this would be in 2 ways. One, a AA+ gives us access to maybe funds which earlier had a threshold, which would not permit them to invest in us. So it gives us access to deeper pools of liquidity than what we earlier had. And per se on the market borrowing side, it opens up pools which were not earlier available to us or may have been available at a higher cost, okay? Now when and how much this will play out is a little bit into the future. It will have to be seen. As you know, right now, RBI is tightening liquidity around bank lending to NBFCs. And in line with our earlier guidance, I think when the times are tough for NBFCs, bank-owned NBFCs like us, come out with a better advantage than some of the other peers. I think that's the limited point we are making. And that should also help both from an availability and the cost of funding. On a relative basis, we believe we will continue to enjoy those advantages, which will be further boosted by the upgrade.

Understood. And second, sir, again, a question regarding your incremental growth, right? Like when you see our disbursements this quarter, the growth is significantly coming from small ticket and medium ticket LAP, right? Just wanted to understand from you, one is, how is the yield or the competitive intensity in these segments because a lot of affordable housing companies are also getting a little competitive when it comes to LAP in the small and medium ticket. That's question number one. So yields on this product, how are they shaping up? Second is on the business loans, when I see your last 4, 5 quarters, the numbers that you have reported, the number is like hovering around this INR 330 crores, INR 340 crores to INR 350 crores, INR 360 crores range. Any thoughts on this? Why are we not like increasing intensity here? What's happening on this part of the loan book? That's question 2.

Sure. So look, competition always exists, okay? But it is quite low in the small mortgage segment, okay? That's because we are present in several states, 17 states, and there is nobody else who's present in so many states. There are regional players and there are players who go deeper into the market as opposed to wider like us. So therefore, there is less competition in the kind of ticket size that we cater to. The competition tends to be a little more concentrated in slightly smaller ticket sizes, INR 8 lakh, INR 7 lakh, that kind of stuff. Our average ticket size is INR 12 lakhs, INR 13 lakhs, okay? So it's a -- the second point is that it's a reasonably virgin market, and it's getting created as we speak. And my estimate is about 3% of the overall loan against property AUM is in this segment. And even this 3% has got created over the past maybe 4, 5 years. That's my assessment. So that's as far as competition is concerned. Now in terms of unsecured, we keep our originations calibrated to our risk appetite, okay? We want to keep less than 15% of our book as unsecured. The current number is 13% and directionally break this down, okay? And our strategy is to originate and sell the bulk of this down. You'll notice on one of our slides, Slide 25, that our percentage of book for unsecured has actually increased. It used to be 27%. Now -- it's now 32%. A year ago, it was 13%. So we have these relationships and these pipes in place now. So we will take up our unsecured originations to feed the appetite of our buyers in the future.

Understood. And sir, one more question is regarding the conversation around increasing our PCR or the ECLs on Stage 2 and Stage 3. When I see your business mix increase is broadly more towards the LAP, the small and medium ticket LAP over the last, whatever, 9 months. So in that context, what led to this increase? Because even after the increase, we are still a little lower than a lot of these affordable housing companies who do both housing and LAP in that INR 8 lakh to INR 10 lakh ticket size. Do think this 24%, 25-odd percent ECL we have on Stage 3 is good to go for now, and we won't require any further change in this? Is that the way to think about it?

So what we have is the LGD on the entire stock, and we do an annual refresh of the exercise -- of the entire stock. So the most recent refresh was done using data ended November 30, okay? On that basis, this is more than adequate, okay? Now obviously, we keep doing this every year, and the number will either go up or down depending on how the portfolio and our collections have performed and stuff, okay? So that's the point about this. We've guided that we'd like to keep taking this up, and we will keep taking the provisioning up with the passage of time.

Understood. And sir, last question is on your operating expenses. And like when I see your other operating expenses ex of employees, that remained flat quarter-on-quarter, and we've seen like a healthy disbursement growth this quarter. Just wanted to understand what's playing out here? And what -- is this 56% cost to income that we've achieved, which is a big deal in terms of the quarter-on-quarter decline. Do you think that this is sustainable? Anything on the other operating expenses that we've been able to deliver this quarter? How are you thinking about it? Like is 56% cost-to-income a reasonable number to work with? Or you think that maybe this was a one-off and it will like go back to that 58%, 60-odd percent level that we were at?

So I'll tell you the different moving parts here, okay? So last quarter, we had the IPO money for, what, 20 days, 25 days or something, okay? This quarter, we will have the IPO money for the entire quarter. So obviously, the income will go up to that extent, okay? So that is one moving part. The second thing is that normally your costs get reset in the first quarter of the year and the impact of that increase happens in the first and second quarters, okay? That is now behind us, so Q4 in -- for everybody tends to be an extension of Q3 in terms of how the costs play out and stuff, okay? For these reasons, I believe that we are -- the gains that we made will probably consolidate on those in the subsequent quarters.

Sorry, I'll just add one point to what Anil said. That is that, see we normally front-end the branch expansion. So this year, in the first half of the year, we added 34 branches to our small ticket LAP and affordable home loan network. So in the last 3 years, you would have seen that we have grown from about 59 branches to about 172 at current count. That's a significant increase in firepower for this high-yielding product. Now there is a product, now obviously, there are new hires who have come in. We have done some reengineering of the construct in terms of the credit and underwriting teams and so on. Now this engine will slowly start firing with higher productivity, right? And so that also will translate to an improvement in OpEx. See, I think last time -- the last quarter when we guided, I think what we took pains to say is that we don't see this as a sprint, right? We see it as a marathon. We will not compromise on the build expense. We are in it for the long haul, right? We have to go far, and we will build it surely but slowly. But very clearly, I think there is a commitment out there in terms of bringing down the cost to income in a gradual way. There are also economies of scale playing in, right? All of this will help us in the journey to optimizing OpEx to AUM and OpEx to AUM and consequently, expansion of ROE.

Sure, sure. But from a 1-year or a 2-year perspective, this 5.5% that we've achieved this quarter, you think this will like eventually trend down maybe in FY '25, '26, it will maybe improve by 10, 20 basis points every year. Is that like a fair assumption?

See, we don't want to put numbers out there. All we are guiding is gradual improvement in margin.

[Operator Instructions] Our next question is from the line of Shubhranshu Mishra from PhillipCapital.

Three or four questions. The first one is given the fact that we are focusing more on mortgages and we also have a substantial part of the gold loans. This 23% LGD is largely coming out of the mortgages because the LGDs for gold loan would be lower? That's the first question. Second is the...

Sorry, to interrupt, sir, may we request you to use your handset, sir. Your audio is not clear, sir.

Okay, one sec. Hello, is this clear?

Yes, sir. Please go ahead.

Right. So the first question is around the LGD, if we can spell out the LGD for each product because I think the 19% to 23% increase of the LGD, my suspicion is that it's probably mostly because of mortgages. Gold loans won't have such high LGDs. So if we can spell out the LGDs also because we are taking 6 years of data for the LGD. So when we roll it over the next few years, the COVID impact would also come off. So should we see LGDs coming off in the next couple of years, and we should see improvement in ECL coverage going forward? And the third would be around OpEx. What sort of employee addition and branch addition are we going to look at in FY '25? We have had a sharp increase in the last 3, 4 years. And if we can speak on the risk management in the unsecured as well as small ticket LAP.

Thanks very much. I'll take your questions one after the other. The first half, you had a question on increase in branches. So this year, what we've done is to take up our small mortgage branches, where we're focused on taking up the AUM in the existing gold loan branches. So that's why our small mortgage branches have increased from 130 to 180 approximately. So about 50-ish branches we've opened this year. Now every year, when we make the annual operating plan, we firm up the expansion, whether it's for gold or mortgage, and that process is underway. So specifically, where we will add branches in the coming year, I will be able to talk about in the subsequent call. So at this point in time, we are rationing out branches across these businesses, and we will firm that up by the end of the month, okay? The second thing is for gold, the LGD is 0.75%, okay? So that is what the model says. And obviously, there is nearly no loss to be had on the gold NPAs. That is transient that gets created at 90 DPD and gets extinguished by 150 DPD. So we carry about 60 days of NPA on gold. Now in future, what will happen to the LGDs? Well, it obviously depends on the collections performance in the current year, okay? And really how -- what the translation of one bucket to the next is and how much we are able to collect and arrest and most importantly, how much we are able to crystallize in terms of loss at the time of enforcement of collateral. But it's reasonably fair to say that there is a certain industry standard for mortgages, and we are kind of there. Now how much we will seek to provide against that is a matter of choice. The industry is at about 25-ish percent, and we are at about 23%. So there's not too much of a gap. Finally, in terms of risk management, I'll just encapsulate this in a nutshell. We choose our markets with some care and caution. We make use of data from the bureau as well as intelligence from the market and open up branches. We seek to operate our branches with people who have relevant experience in the same geography so that nuances of either property or business in a specific location are understood and individual learning translates into organization learning. We have a standard personal discussion template, okay, based on which there is -- there are decisions made. Essentially, what we do is to try and ascertain the individual's income for mortgage loans as accurately as we can. We seek to triangulate it using various data points, which is to say that if he has a certain surplus every month, we try and see what he's done with that surplus the past year or a year after and use that to validate our assessment. We have a salesperson, a credit person and a collections person in each branch so that we are able to optimize our performance on all 3 vectors. As far as unsecured lending is concerned, we lend only to customers who have declared income on their documents, okay? Typically, these customers have P&L, balance sheet, tax returns, audited financials. And about 30% of our customers are objective rejects and the remainder are subjective rejects, and that's the way this works. So some data regarding the quality of the book is provided on Slide 34 with regard to the kind of score banks of customers that we lend to, yes? So this is a bird's eye view of our risk management, yes.

If you could just tell one question that;s answered, what's the LGD product-wise?

Product-wise LGD, mortgage is 23%, gold is 0.75% and unsecured, we write off at 90 DPD, yes.

[Operator Instructions] We have a question from the line of Sagar Doshi from Investment.

Yes. So basically, just wanted to know like we are on a small base as of now. And looking at the leverage that we can pull off, what is the growth rate that could be expected, let's say, a year or for the 2-year period from now on?

So you look at our past, we had INR 1,000 crores of retail AUM in FY '28. And as of right now, we are at just shy of INR 11,000 crores, okay? The opportunity is vast. We have all the resources, branches, employees as well as capital and the ability to raise debt. So from here on, I'm happy guiding a compounded growth rate of 25%, and we will try and top that.

Okay. And any other new products that we may go in apart from what we are doing?

No. For the foreseeable future, we will optimize our performance in the products that we offer right now, and we will refine our current operating model for superior results, yes. Okay?

[Operator Instructions] Our next question is from the line of Shubhranshu Mishra from PhillipCapital.

Which part of the book are we going to do the co-lending in? And second question is, how do we differentiate our gold loan portfolio from our parent's gold loan portfolio?

Currently, we have co-lending arrangements for gold loans, okay? And that has got tested through the month of December, and we're going to scale that up in the coming quarter, okay? As far as our parent Federal Bank is concerned, they lend to a different segment of customers. Their average ticket size is between 3 and 4x our average ticket size and their average yields on the portfolio are also significantly lower than ours. Look at the previous quarter's investor deck, you'll see that their yields are, I think, about 10.15 or so percent, okay? Our yields on the gold loan portfolio are upwards of 17.5%. So we cater to a completely different customer base in different geographies. So it's different, yes.

Ladies and gentlemen, that was the last question of our question-and-answer session. As there are no further questions, I would like to hand the conference over to Mr. Anuj Mohata for closing comments.

Yes, thank you, Zico. Once again, thank you all for participating in the call, and we would like to thank the management of Fedbank Financial Services for giving us the opportunity to host this call. Thank you, everybody, and have a good evening.

Thanks, guys. Have a good result season.

Yes, thank you, again.

Thank you. On behalf of Equirus Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.