The Federal Bank Limited (FEDERALBNK.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '26 Earnings Conference Call of the Federal Bank Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Souvik Roy, Head, Investor Relations, the Federal Bank Limited. Thank you, and over to you, Mr. Roy.

Thank you so much, and good evening, everyone. Thank you for joining us, especially on a weekend. I've got quite a few messages over the past couple of days asking if Saturday is going to be the new normal for our earnings call. Well, I can assure you, it's still undecided, and we promise you this wasn't by design. As always, I'm joined by our full leadership team led by our MD and CEO, along with our Executive Directors and senior business heads. We'll start with some strategic updates from our MD, followed by the CFO walking you through the financials and business performance for the quarter. After that, we'll, of course, as always, open the floor for discussions and questions. With that, over to you, sir.

Thank you, Souvik. Good evening, everyone. Thank you for joining us this Saturday evening. Before we dive into the quarterly numbers, let me make some introductory remarks. While we will present to you a detailed review of our strategy implementation in January 2026, about a year after we first announced it, I thought a quick and a short interim update on the same may be useful. Earlier this February, when we introduced Federal 4.0, it was not just a catch phrase, but was a transformation blueprint to reshape the way we operate, compete and grow. We are focused on execution, as I hope you will realize as we move ahead in this update. If I had to oversimplify our strategy, and I mean oversimplify, it really comes down to getting 3 things right: improving our CASA, especially the current account piece to address our cost of funds, driving better yield on advances largely by reshaping the asset mix and increasing granularity and volume of our fee income. In the quarter gone by, there is clear evidence that our execution is in sync with all these 3 objectives. And we are making good progress on all 3 fronts in spite of systemic headwinds on a few aspects. There remains, of course, a lot more to do. Later on this call, Venkat will take you through these details when he discusses the quarterly results. Coming to the execution elements, we began by refocusing our energies on the most vital part of the bank, our branches, people and profitability model. The Free the Branch initiative is now fully underway. We have already created 70 regional business support centers, which are our BuB and Agri hubs, which are now fully functional, helping free up frontline teams from all activities other than relationship and sourcing aspects. The establishment of regional loan service centers, which will take care of the retail asset-related work at branches is progressing smoothly and should be fully in place in the second quarter. We continue to focus on what we call codes, C-O-D-E-S, centralize, outsource, digitize, eliminate, simplify. And several initiatives have already been put in place and more are in the pipeline to operationalize each of these. Our goal here is clear, remove friction from day-to-day work and allow branch teams to focus squarely on customer engagement and business development. This process will continue and gain even more momentum in the next 2, 3 quarters. We are in the final stages of finalization of standardized branch formats and manning models in them. For CASA account opening, turnaround times have been improved by realigning staffing models and improvement in processes. However, tasks across products is an important area of focus for the future quarters as well. We are investing in capability building across all levels. Sales management training is underway for identified managers in partnership with a globally renowned sales training firm. A lower cost sales force structure has already been deployed in select branches, and we will enhance the scope of this initiative as we get more comfortable with the outcomes. We have kicked off the process of identifying new branch locations based on data-backed inputs, and we have commissioned an external agency to help us assess our network scientifically. We have already begun a process of reviewing our branch locations and performance to evaluate shifting and upgrading branches to improve their catchment and visibility. We are also working with a partner for redesigning our physical branch formats. This may mean slightly lower number of branches this year, but with a better foundational work, we can be surer of the way forward and also gather speed later. We have overhauled our performance scorecards for branches as well as individual officers, RMs, et cetera, sharpening focus on CASA growth and profitability. A department level P&L framework going down to the branch level P&L has been rolled out and is now published frequently based on needs. Now the teams can see the actual financial impact of their actions. We have also made the branch manager role more aspirational with a higher incentive structure, performance-linked metrics and alignment to business priorities and freeing them from lot of routine. We want to ensure that the branch managers and our regional and zonal heads of all businesses function like mini CEOs. That is the final goal. In some sense, we are refueling mid-air, reengineering the business while we are still delivering the business numbers that we have delivered. Fee income and pricing reforms have kicked off with several important changes. We have revised our fee and charges in line with competition, energized our product partners and improved our revenue structures. Some of the impact of that is already visible in our fee growth for the last quarter. We have also implemented a new loan pricing and delegation structure. Our RaRoC-based pricing models and transfer pricing models have been fully revamped, giving us sharper insight into segment level profitability, product level pricing decisions across the bank and customer level pricing and profitability decisions in the corporate businesses. With this methodology, a more holistic customer level approach to business with the right balance between wallet share and pricing and also the right mix between fund-based revenues and fee revenues is enabled. The wealth management and banca vertical is now well underway. With experienced hires onboarded, Head of Business, Head of Products and sales head are all in place. Technology enablement is underway. Our partnerships are being renegotiated or restructured to better align outcomes and ensure we build a scalable platform. We have also made strong progress in strengthening our trade and ForEx capabilities. We also now have a Head of Global Transaction Banking, who joined us last month. The central teams have been strengthened. A team of RMs across the branch network now called PRM business, Priority Relationship Managers business have been identified and trained to give a push to the retail trade and ForEx business as well as current account business. Our retail assets team has been restructured to have separate heads for unsecured and secured businesses. Both are now headed by new talent that we acquired last quarter. Also within the secured business, separate verticals have been created for LAP and home loan, auto as well as branch distribution of secured assets to bring sharper focus. A retail credit head would be soon joining our team under the Chief Credit Officer. In the Corporate Bank business, we have created a separate vertical focusing on BFIC segment, which will also help us enhance our focus on capital markets and correspondent banking. This allows the rest of the corporate bank to focus more sharply on growing the mid-market corporate segment. Foundational work has been already done for tractor finance, EMI-based business loans and Agri-based SME loans. These products will be rolled out in the coming quarters. Tech is, of course, the backbone of Federal 4.0. Our corporate and commercial credit underwriting automation has just gone live. On the customer side, FedOne, our unified interface for corporates has gone live with a new collection and payment solution, thereby completing the Phase 1 of rollout and will undergo monthly upgrades with few features -- future additions from here on. Online trade is our next big project within this unified interface. FedMobile app has seen over 15 new features rolled out this quarter. The Gen AI-powered chatbot as an internal copilot for our employees is in alpha testing. It's being trained on our internal knowledge base, and this is just the first step in embedding AI into both customer and employee journeys. At the infrastructure level, we are engaging a partner to undertake a full review of our IT architecture and create a road map for the future, ensuring our digital and technology backbone in -- is future-proof. We have strengthened the technology team with 3 key new hires just below the CTO level. We have placed customer experience at the center of all this transformation. Our CRM platform revamp has already delivered over 15 key enhancements. We have kicked off a deep dive study to improve adoption and usage of the platform, ensuring we are not just building tools, but driving value through better account management, lead management and organizing our cross-sell processes better. There is a lot more work to be done in this area to leverage the investment we have already made in this platform. This year, we have taken a bolder step in brand building. The Savings Ki Vidya campaign featuring Vidya Balan is now live. It is now just -- not just a celebrity endorsement, it's about repositioning the bank in the minds of retail savers. This is an integrated transformation with over 50 large and 100 small projects under execution designed to make Federal Bank faster, simpler, more profitable and more agile. Federal 4.0 is not just a plan anymore. We are transforming where it matters, and we remain focused on doing it at speed. But this is surely a multi-quarter journey. This journey will come with some air pockets at times, but we remain resolute in our execution. My team fully shares my excitement as we take this journey forward. Thank you for walking this journey with us. Now let me hand it over to Venkat for a more detailed walk-through of the quarter in particular that went by. Incidentally, he recently got elevated to the Board as Executive Director. Welcome, Venkat, and all yours. Thank you.

Thank you, Manian, and good evening to all of you. Thank you for joining us to discuss our Q1 FY '26 financial results. I hope you have had a chance to go through our investor presentation and detailed disclosures. As always, we will use this forum to walk you through the key developments and then take questions. Let me begin by providing some macro context. The first quarter of the year is typically soft for the banking industry with seasonal factors, particularly around collections, disbursals, FX segments like MFI, Agri and BuB. This year was no different. And as you know, Reserve Bank of India cut the repo rate by a cumulative 100 basis points since February, including a 50 bps cut in June. This was done with the intent to spur growth and improve liquidity. Inflation is under control and rural consumption is showing signs of revival. Credit growth in Q1 was seasonally muted across the banking system. Corporate loan demand continues to remain selective with many large borrowers opting for bond market and other alternate source of funding. At the same time, unsecured retail portfolios, especially microfinance and cards remain under scrutiny and the industry has seen a calibrated pullback in new originations in certain subsegments. On the liability side, deposit repricing has commenced in a small way, and we'll see a lagged impact of the rate cut on deposits. From our perspective, we believe the medium-term environment remains conducive for banks with disciplined credit filters and a diversified lending engine. Now coming to the metrics of the bank's performance. We delivered a strong operational performance in Q1. And by the way, we are now the sixth largest private sector bank by total business. Gross advances grew by 9.15% year-on-year and 3% sequentially. On the back of our strategy to grow medium yield businesses, the growth was led by commercial banking, which grew by 5.5% Q-o-Q and 30.28% Y-o-Y. Credit cards, which grew 8% Q-o-Q, CV/CE, which grew 5% Q-o-Q. With the recent circular on gold, the gold loan business grew quite strongly in June, and we'll see the full impact of that playing through from this quarter onwards. As mentioned by Manian, the retail restructuring is almost complete, and this will lead in stronger retail growth in H2. Also with the festive season around the corner, we expect growth to gain further momentum. We are in line to grow at 1.2x nominal GDP. On the deposit side, growth was 8.03% Y-o-Y and 1.34% Q-o-Q, with retail TD seeing strong traction and steady CASA growth. In fact, our average CASA growth was 3% this quarter. Our CASA ratio stands at 30.35%, which is an improvement of 108 bps year-on-year and 12 bps quarter-on-quarter. And average deposit growth was 6% Q-o-Q. Our net interest income for the quarter stood at INR 2,337 crores, growing at 2%. NIM for the quarter -- now this 2% growth, you must note that Y-o-Y, last year, the rates were 100 bps higher, whereas we have got 100 bps rate cut impact in this Q1. The NIM for the quarter was 2.94%. As you are aware, we follow a T+1 repricing for the stock and a large part of the 100 bps rate cut is already reflected. We had some offsets, including lower savings rate, which full impact will be seen in Q2. We did quite well to manage the impact of the NIM drop and end at 2.94%. We expect NIMs to bottom out in Q2, subject to no further rate cuts and improve in H2 as cost of funds costs. Total noninterest income, which was mentioned earlier, was the highest ever for the bank at INR 1,113 crores. Core fee income grew by a healthy 20% year-on-year and other income by 22% year-on-year. Operating expenses were flat sequentially and our cost-to-income ratio is 54.89%. We will continue to focus on operating leverage, especially through digital origination and process optimization. On asset quality, gross slippages for the quarter stood at INR 658.19 crores with MFI Agri being a large part of it. Gross NPA was 1.91% and net NPA 0.48%, broadly stable. PCR stands at a healthy 74.41% and credit cost for the quarter was 65 bps. Excluding the MFI Agri impact, our credit costs are well in line with historical trend and in fact, flat as compared to the last few quarters, including last year's same period. Having seen the trend of the slippages in the month of May, June, July and the downward trajectory, we are confident that we'll maintain our full year credit cost guidance around 55 bps. It is important to reiterate that outside of MFI Agri and slight uptick in business banking slippages were either stable or improved. Our CET1 stands at 14.69% and overall capital adequacy is at 16.03%. ROA for the quarter was at 1% and ROE at 10.3%. Disbursement momentum should improve post monsoon, especially in retail and MSME. Combination of a better macro backdrop, declining cost of funds and recovery in unsecured lending should support margin and bottom line normalization. The external environment is improving, albeit there are some geopolitical and tariff-related uncertainties. Inflation is moderating and early signs of consumption revival are visible. However, competition remains intense, especially on pricing, and we will be guided by risk-adjusted profitability. We see strong opportunity in secured MSME business banking, gold-backed lending and the other medium yielding segments like LAP, CVC as highlighted by Manian on the progress made on the 12 themes. We continue to invest in distribution, digital and data to scale the franchise efficiently. Our focus will remain on sustainable growth, risk discipline and improving productivity across the board. Thank you, and I'll now open the floor for questions.

[Operator Instructions] The first question is from the line of Mahrukh Adajania from Nuvama.

So one question on MFI that quite a few lenders recognized MFI stress in third and fourth quarters. And of course, it continues to some extent even in the first quarter. So for us, it bunched up only in the first quarter, is it? And there would be accelerated or aging provisions on the slippages this quarter and the next few quarters as well, right? Because the write-offs are not materially different from fourth quarter overall in general. So that's my first question. And then in general, there appears to be stress in the very retail segments like unsecured business banking and of course, the MFI stress may peak in 1 or 2 quarters. But in CVs, in business banking, we hear a lot of lenders talking about new stress buildup. So how do you view the environment? And do you see credit costs remaining high in the second quarter and then moderating? Or how do we view it? So that's my first question. And then my next question is on margins. Of course, you have repriced faster. So that explains the margin decline, but you also got benefit on cost of funds. But how much do they fall in the second quarter before stabilizing? The quantum should be much lower? Or how do we view that?

So Mahrukh, multiple questions. So yes, it's correct that our MFI stress had begun to show up a little bit on the fourth quarter, but yes, significantly showed up in this quarter. And as I mentioned, May -- we saw the peak of our slippages in May. And in June and July, we have seen drop in slippages in MFI. And of course, you know that we now -- since last year, December quarter, we take an accelerated provision on our unsecured loans. So that policy continues. So therefore, this at best lingers for a quarter more -- this slippage effect lingers for a quarter more at best, not more than that because we take 100% provision by that time. So that is point number one. And second, I will ask Harsh to add something on the business part of that. The second question you asked was the NIM impact. Like you rightly pointed out, our -- because we reprice faster because of our T+1 policy, we have repriced faster. But interestingly, as you said, our cost of funds have also dropped significantly over this period of time, and we have been able to defend some of our NIM pressures. And since we have priced faster, we don't expect our further NIM pressure to be more than 5 to 10 basis point range in the next quarter. I hope that answers your question. And on MFI, Harsh wants to add some color.

Yes. On MFI, you're right. We did see a peak in May, as Manian mentioned, and we have seen June to be better than May and July to be better than June. So we do see slippages kind of coming off. Also, other indicators such as the SMA book and collection efficiency seems to be improving from what it was. So we do feel that we should see improvements going forward from here.

Mahrukh, I would add one more thing, just to clarify. But for the MFI Agri piece, our slippages have remained in the same range that they have been all through the last year. In fact, in some products, they are better or equal or very marginally higher. But nothing alarming, nothing out of the way, nothing significant -- no significant change in asset quality other than MFI Agri segment.

And business banking is also good?

Also, it is in the same range as it was in the first -- see, business banking, of course, had a very good quarter last Q4. But if we look at seasonality in that and Q1 of last year, it is ballpark in the same range, very marginal -- very, very marginal uptick, yes.

Next question is from the line of Rikin Shah from IIFL Capital Service.

Just 3 quick questions. The first one, we spoke briefly about business banking and MFI, but would you be able to supplement it with some more color and data? So specifically on business banking, I wanted to understand what proportion of the book is secured versus unsecured? How much of that is backed by any government guarantee schemes? And how the slippages have kind of moved Y-o-Y? 4Q, you did mention it was very strong. And even on MFI, if you could talk about -- a bit more about x bucket collection efficiency in April, May, June and how that has moved in July, that will help us to understand how the forward flows are and how much of improvement we can expect in second quarter? So that's my first question. Maybe I'll ask the other 2 questions after this.

So Rikin, on business banking, almost very large part of that book is secured book. It is not unsecured book. Almost entirely. Almost entirely, it is a secured book. And there is very little of CGTSME (sic) [ CGTMSE ] and those kind of products we have done. Largely, it is pure lending -- secured lending. That's the nature of that business. That I hope clarifies your doubt on that. On MFI, of course, we don't disclose the roll forward and those kind of like let me -- but let me clarify to you again that we saw the peak of this in May. And both in the month of June and in July, we have seen a secular fall in slippages even in our MFI book. And we are hoping that the trend is there to stay. And also our SMA book, which is a precursor to slippage is also lower than -- as we exit the quarter is lower than previous quarter. So I would say that clearly on this part, as things stand now, we think the worst is behind us. Of course, provisioning comes with a lag as -- with some lag, so it may moderate down, but with the lag of the quarter, but slippages have at least shown a trend downwards.

Got it. The second one was more like a clarificatory. The credit cost guidance has actually been up to 55 basis points, right? I think we used to earlier guide below 50 basis points. So is that a correct understanding?

Not really, Rikin. Last time, we guided 50 to 60 bps. So right now, the guidance is around the midway on that.

We used to guide that lower figure last year, Rikin. This year, we have in the -- last time itself, we had said 50 to 60 as a guidance.

Got it. Got it. And sir, last question is for Manian, sir. Sir, historically, the one comforting factor for the bank has always been a very stellar and stable kind of outcomes on asset quality. For a much lower share of unsecured loans, we have started seeing stress. 3Q, we took accelerated provisions. Again, this quarter, this is happening. And margins given the starting point for Federal Bank itself was low and then you have the cyclical downturn. How do we really think about the ROAs, right? Because you had guided in the Analyst Day earlier that we aspire to improve our ROAs meaningfully. Is this now pushed back given how the macro environment is? Or would you want to kind of revisit your ROA growth trajectory or guidance? Those are all my questions.

So Rikin, if you see even this quarter performance and if you were to take the NI -- net interest on average assets and fee on average assets, our fee on average assets has also grown. In fact, if you technically look at it, we have been able to defend the ROA. But for the MFI provision that we have taken, we would have defended our ROA at the same level as last quarter, but for the MFI provision. So I remain optimistic. The structure change, as you can also see in our presentation of the mid-yielding assets is consistently happening, right? You have even this quarter seen improvement in mid-yielding asset proportion compared to last quarter. And Venkat mentioned that we are more optimistic about some of the products like gold, for example, the real change in regulation happened in June. So the growth you see in this quarter is effectively a month growth and which will give us more growth in the coming quarters. And retail assets, like Venkat mentioned, we have restructured the business. We are more hopeful that things are now in place to push for growth. So mid-yielding assets part of the strategy. So I continue to say that our ROA is defined by improvement in CASA, which you can see evidence of in the quarter 1 results; improvement in fees, which again, you can see the evidence in the first quarter results and change in mix on assets, which again, you can see the evidence of that in the results. So all those 3 that we guided improvement in ROA based on, all those 3 parameters are playing out clearly. Yes, the asset quality, like we again clarified, but for the MFI, the asset quality on rest of the book has remained absolutely at the same levels that it was till last year.

Next question is from the line of Piran Engineer from CLSA India.

Congrats on the quarter. Just a couple of questions. Firstly, on fee income. Now we've done a good job on fee income over the last 3, 4 quarters since you joined. Is this more a case of low-hanging fruit being plucked and now fees will grow in line with the balance sheet? Or can fees continue to sustainably grow for a long period faster than the balance sheet? And if so, then what are the drivers, of course?

So Piran, we would like to believe that, of course, this is there to stay and not just because we hope for it. I just mentioned that our wealth vertical is just about falling in place. We will have to grow our wealth business, which will add to fees. I also mentioned that we now have a team in place on the transaction banking side, and therefore, we are expecting our trade and ForEx fees to grow from here. We have -- our current bancassurance growth has been very good. Even in this quarter, if you see the para banking fees have grown very, very handsomely. So I think we are still scratching the surface. And our card business continues to grow, which will add to fees. So I think there are enough levers for us to sustain the fee growth at a good momentum much faster than the growth in balance sheet for some many more quarters to come, I'm hoping, yes.

Okay. Okay. Fair enough. Secondly, just on growth, 2 questions are both related to growth. One is, I think I heard us mentioned that growth will be 1.2x of nominal GDP. Did I hear that answer only for FY '26? Or this is -- because we used to usually grow at 18%, 20%, then we did this recalibration of...

Piran, we have been always saying 1.2x to 1.4x, 1.5x, but it depends on -- that also depends on the environment. If the environment is of a low growth environment, then the faster growth becomes tougher, and that's why we guide towards the lower end of that band. But...

This is only for FY '26, right, not...

That's a near term -- and...

See, 18%, 20%, you should know the context that that's an economy, let's say, growing at 7% and inflation was 7% and then you apply the 1.2x to 1.4x, you'll still get to this 18%, 20%. So it's a context to that growth, and that's why we stick to nominal GDP and a multiplier.

Understood. Understood. And also on growth in business banking, we've slowed down quite a bit. Is this more a pricing-related tweak that is just very competitive?

Yes. No, no. So Piran, what we are doing in business banking is, of course, we are -- there is -- generally, the environment is -- I mean, you have heard many calls where people are warning against SME credit. While I mentioned that our book is not seeing particularly higher stress than in the past, but it is important for us to be cautious. So we have made some internal rejigs on our credit buying decisions, and we have been slightly more cautious while growing that. While on the commercial bank side, we have continued to grow faster and because we have felt more confident of the market as well as our book on that. And it is the upper end of the SME. So we are pushing the upper end of SME growth faster than the lower end. But we have also created a new team there. There is a new leader there. There is a set of new RMs that we have created dedicated to that business. So some of that is playing out. But I'm sure that in quarters to come, we will pick up some growth in that segment as well.

Got it. Okay. That was all that I had. Just one thing since Souvik mentioned it about the Saturday thing. I hope this is just a one-off. You'll get much more clients on the call when you do it on weekdays. And literally, every bank has started doing it on Saturday, which is just very surprising. And when it clashes -- imagine if you all clash with an ICICI or Kotak, people will obviously give more importance. I'm just being very honest here.

We will try and not follow the math, Piran. Let's see.

Yes, it's better on a week...

We have noted your feedback, we will...

Next question is from the line of Anand Dama from Emkay Global.

Congratulations for the strong operating performance. My question is on the stress again. Like you said that microfinance, we have seen a stress in this quarter. If you can quantify what the slippages in microfinance. And I believe our portfolio is liquid towards Kerala rather than Karnataka or state of Andhra wherever ordinance related impact. So what basically led to this kind of higher slippages in microfinance? That's my first question. Second is that CV/CE book, that also seems to be now seasoning out and so business banking. Can there be some surprises over there in terms of asset quality that you see going forward?

So Anand, right? Anand, on MFI, our portfolio is not Kerala. Our portfolio is actually across the country over multiple states, but 20-odd percent is in Karnataka. So that is where the big pain is coming. And our slippage numbers are there in our deck in MFI Agri, we call it Agri MFI. So it is there in the deck for you to get. On CV/CE and business banking, as I mentioned, yes, we have seen marginally higher stress than in the past. But I would say it is not yet something that is alarming. On the CV and CE, we are largely not on the very retail end of that business. We are in the medium to large-sized customers, strategic customers and retail premium customers, if you might want to call them. So we are not at the lowest end in the LCV and the lower end of the business. So while we have seen marginal deterioration, it is not yet alarming us. Of course, if the data tells us something else, we will change our mind. But right now, it does not give us any reason to change our mind on wanting to continue to grow the CV/CE. Business banking, I mentioned to you, again, very marginal change, broadly in line with what we have seen in Q1 of last year and Q1 of this year is similar. That, of course, in BB, we are more Kerala focused book. About 30% of the book is Kerala. But like I said, that is not showing any abnormal signs to us just now. Again, we have been cautious. We have not grown that book very fast, and we have taken some protective measures over the last 2, 3 quarters on that book. And we have done some tinkering with our underwriting as well there to make sure that we have -- because there are too many people calling out stress in that sector, and we don't want to wade into the storm. So we have been cautious, though our portfolio per se has not exhibited any alarming tendencies.

Do you plan to build some buffer on the provisions front because, I mean, you may never know the stress -- portfolio. Incrementally, obviously, you can...

Anand, it is a secured book. It is not an unsecured book. So we are not yet thinking in terms of that.

Secondly, cost implications of your transformation process, how that would look like in FY '26 in terms of overall OpEx? Because you talked about branch transformation, you talked about people changes that you're doing and stuff. So if you can just talk about that in terms of what kind of OpEx that we should build in for FY '26 and FY '27?

So Anand, we have always guided that don't assume any benefits out of cost to income, and they will remain in the same range that they have been. As you can see even this quarter, we -- while we have taken all those initiatives, we have created the 70 RBFCs. We are also trying to optimize. We have not -- the fact that we have created 70 retail business centers does not mean we have added people from outside. We have also optimized internally, transferred people from one role to other and created -- when I said we have created 70 business PRMs, it is not an addition to our manpower. It is more a realignment of our manpower. So we are trying to optimize whatever we can, and we are trying to get efficiencies that we can get. However, as per our past guidance, I continue to say that since we will be in the investment mode, and we will -- all these talent that we have added will, of course, add cost to us. And therefore, we have to continue to optimize this. So we don't want to guide for any benefits arising out of. So we will remain in the mid-50s range that we have always guided.

Next question is from the line of Madhuchanda Dey from moneycontrol.

I have a couple of questions. The first is you sounded quite confident on the MFI asset quality not deteriorating from here on. And you also said that there is a marginal downtick in NIM that is expected in Q2. So is it correct to assume that 1% is kind of the bottom of ROA for us?

Yes. I think we are close to the bottom of the ROA side. Like I mentioned to you, had it not been for the extra MFI provision that we took this quarter, we would have defended our ROA at 1.24% itself almost. So...

Assuming no...

So of course, who knows -- we are assuming no rate cuts happen from here. Yes, we would say NIM, 5 to 10 basis points downside possible. But hopefully, we will defend that through fees and other means and our ROAs will sustain from here and upwards, yes.

Yes. My second question was on the asset quality. You sounded quite confident on broad array of asset classes. So is there any pocket of worry incrementally from here on?

So Madhu, as we mentioned, if we go back to the data and strip it off the MFI situation, our MFI Agri, if I take that out -- that segment out and look at the rest of the book, we have currently no reason to assume that there is any stress building up in our book. Our current SMA position even as of July, not only June, but July as well, is not indicative of any stress that is building up in our book as of now. So is there a marginal deterioration in BuB, CV/CE? Yes, there is. But like I said, there is a marginal deterioration, but that -- it's not yet, I would say, alarming or anything like that to us. Unless this data changes, yes, we remain confident of our asset quality.

And a last small question. Is it -- will it be possible to quantify what percentage of our loan book or borrowers have exposure to the U.S. market?

That's a tough one. Difficult to say that. Madhu, I know where you are getting there. But the way I look at the tariff situation is, first, it may not be the last word yet, yes. There will be more developments on this. I'm sure government will get into some negotiation, do something to defend the situation. So we may not have yet have the last word on it. But once it is there, then I would say this is some monitorable for us but difficult to say what the impact of this will be, difficult to say. Frankly, we have never looked at our portfolio from this lens and analyzed it in that manner.

Next question is from the line of Kunal Shah from Citigroup.

So firstly, if you can highlight in terms of -- have you aligned the KRAs of the employees? You indicated that now you are freeing the capacity at the branch and focusing on more business development, customer engagement, be it para banking plus CASA. So how have the KRAs of the employees changed? And eventually, in terms of the priorities, fair to assume that maybe CA and fee income are the initial priorities? And would we be picking KRAs 6 months, 12 months down the line because now maybe you are well aware of the -- how it's working and what are the low-hanging fruits?

Yes, Kunal, all branch scorecards have been changed. All employees and sales profiles have a scorecard, which reflect our bank's priority, and that has been rolled out across the bank for all profiles. So that has been implemented and is in place and scorecards -- scores are declared every month for every profile. So that's all in place. Yes, CA and fee, but asset mix, too. I mean, if you look at Kunal, our data that we have shown you, asset mix is showing steadily improvement towards the medium yield. Even in this quarter, we have made a 50, 60 basis points improvement in the mid-yield. And as I told you, the retail products as we get traction, gold as we get traction, will all add to this bucket. And therefore, all 3, as I said, oversimplified strategy of CASA, getting CA right, getting fee right and getting asset mix right. All 3 are absolutely built into the scorecards of people and the way we are evaluating them. It is very much.

Okay. Okay. Got it. So the weightages would have gone up for the 3 in particular?

Yes, absolutely. Branches, for example, the CASA weightage for branches has gone up dramatically more than it used to be.

If you can quantify?

Let me put it this way. More than half the weightage is for liability products.

Great. Okay. Okay. And earlier, it would have been more tilted towards assets.

Well, that's in the past Kunal. But now it's more than 50. Let's stick to that.

Yes. Okay. Got it. Got it. And 2 more questions. Firstly, fair to say the increase in Agri is purely on MFI or MFI is there in retail as well in the slippages?

No, no, no. There is no MFI anywhere other than what we classify as Agri MFI.

So then what is leading to the increase in the retail slippages when we look at it, maybe there also, it's gone up a bit in the first quarter. Is it more of seasonality or maybe some...

Yes. It is more seasonality, Kunal, even if you compare it with last year, we have seen the trend. In the first quarter, it is generally slightly higher. But in fact, we are already seeing July itself SMA is lower. July itself, the slippages are lower. So it is more -- I won't say there is a trend of any big deterioration there yet.

Okay. Got it. And lastly, on EBLR. So EBLR is now coming off, you indicated in terms of how you are transitioning maybe from floating to fixed rate in a few of the portfolios. Are we largely done or still there is a scope to get the EBLR further down from here on?

Yes, yes, there is scope to get it further down. As you would have noticed, we were 51-odd percent -- close to 52% sometime...

Yes, down to 48%...