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

The third message is that we enter FY '23 well provisioned on books that we feel any kind of stress. We have addressed it robustly and importantly, dealt with the -- having to take the sort of strain of having to provide for pension, we've provided that upfront. So we've up-fronted that as well. The fourth, I think what is going to distinguish quite materially in FY '23 amongst banks and particularly banks like us is people who have a liability franchise that can withstand and deliver at times like this. All of us know interest rates are going up. There's going to be a war for deposits. There is going to be to support the nascent credit pickup, you need a high-quality liability franchise, and I for long maintained that our liability franchise is amongst the most granular, most retail in the market. And I believe we think we have a good story going and this year will probably show the fact that our liability franchise will hold better than anybody -- many other banks and help us grow mid-teens in credit funded by our own non-bulk liability franchise. And the last, which supports the project point on deposits is the fact that we've invested very materially in fintechs. I would like to believe that we are the absolute go-to bank for the fintech partnerships, not just because it's glamorous, because we have a model that works for both us and the fintech partners. And I'm quite committed and believe that FY '23 will see that pan out in terms of both ability to grow and monetize these relationships. So as we enter FY '23 on the back of good credit quality, a team that is strong, an asset well provisioned and ability to grow liabilities and meaningful, thoughtful fintech engagements that we are preparing for, and we believe that it will start distinguishing our bank quite substantially. These are the sort of entry opening remarks I wanted to make. The numbers are there for you to see, and we'll be more than happy to answer questions, any clarifications that are required. We had said that we will be on a trajectory to delivering 1.2% to 1.25% ROA via the 2 financial years out, which means in FY '23, we are committed to being closer to 1.1% or thereabout slightly better. And at this point in time, our line of sight and our trajectory points to the fact that it is quite possible, and we are, barring any extraordinary external environment changes, we should be on cost to delivering that. It's also, I think, that in FY '22, our capital adequacy went up by about 100 basis points. We did have a new anchor investor who came in. And outside of that, our retained earnings and our overall performance helped us reset the credit book, helped us raise our capital adequacy to 15.77%, if I recall, right? Lastly, but not any less important, as we -- this is the second year on a run, we've been chosen as a Great Place To Work. And this is relevant for a bank like us, which is relatively an old world employer and [ don't ] have both talent and focus around these aspects. I do believe that we can proudly say that we're both a Great Place To Work and we attract good talent. So I'll just pause here and open it up for questions, and I'm sure between me, Ashutosh, Shalini, Harsh, Venkat, Ajith, Babu will be able to answer any questions that anybody may want to ask or clarify. Thank you very much.

[Operator Instructions] The first question is from the line of Gaurav Kochar from Mirae Asset.

First question is on the OpEx front. I mean, we took a onetime hit of around INR 145 crores, INR 150 crores in this quarter. If I remove that, I'm assuming that this has come in the employee expense line. So if I remove that from the employee expense, it shows that the run rate is closer to INR 480 crores, INR 490 crores. Is that the way to look at for the next year, the employee expense run rate of sub INR 500 crores?

Around INR 500 crores would be within the -- you should assume INR 500 crores, yes.

Okay. So around about 2,000 ballpark -- INR 100 crores here and there? Okay, okay. And I remember, I mean, earlier you alluded to in previous calls, that FY '23 onwards, some benefit of some of the employees retiring, older employees retiring, that benefit would come in the form of lower pension liability. And also, the yields are moving up. So is this INR 500 crores number net of all that?

Yes, yes.

Okay. Okay. Sure, sure. Got it. Also, another point on the balance sheet front. I mean if I look at the borrowings, they were up around INR 7,000 crores sequentially. I mean our LCR is probably best in class. We have a very high LCR. I'm assuming the SLR component is also about the regulatory limits. Then why exactly was there a need to borrow? Is it -- is this some sort of NHB borrowing or lower cost borrowing that we did in the quarter end?

Yes, there was an opportunity to borrow [indiscernible] money from NABARD and that's what we did, which in hindsight turns out to be a good choice in the context of the rising rate [indiscernible] so it's turned out well for us.

Yes, yes. Yes. And just that brings me to the question on growth. I mean to deploy that excess borrowing or excess liquidity, what kind of growth are you looking at for fiscal year '23 given that large banks are already growing 15% plus? Any sort of growth outlook that you'd like to talk about?

May I step in?

Go ahead, Ashutosh.

Basically, if you see our CD issuance, CDs, we allowed to mature and all. Number 1, it brought longevity as far as the resources are concerned. It is refinance and therefore, exemption is available, CRR/SLR exemption is available. In retrospect, when we see CRR has gone up by 50 basis points, it looks like that was a good call made in January 2022. So I think to answer your question, part of it was replacement of CDs. From a credit growth point of view, we believe this year, anything north of 15% is what we should be targeting. We are not -- internally, we have higher aspirations. But I think, yes, 15-plus is something we are pushing on. And we believe it's very possible. In the year went by, we were at about 10%. We did about close to 1.5% of securitization. So to that extent, we reduced our credit book by about -- by 1,500 crores. So we did grow close to 12% last financial year. We believe this year, it should be well north of 15%.

Okay. Okay. Sure. Any repo rate hike? And given that our size is also linked to repo rate. Will the SA rate go up or the spread will be adjusted accordingly?

Spreads will be adjusted, large part. We've already increased SA by 15 basis points against a 40% -- 40 basis point increase. And we are yet even after that, the lowest SA in the country and growing at 18%, 19%.

[Operator Instructions] The next question is from the line of [ Mahrukh Adajania ] from Edelweiss.

I have a couple of questions. Firstly, you talked about mid-teens credit growth. This time around, it was 10%. So what will be the confidence, would it be inflation or market share gains? Or how do we look about -- how do we look at it?

It is a combination, [ Mahrukh ]. There are all businesses that are positioned for growth. Last year, because we went slow on gold loan for the first 9 months. We didn't go slow, the market also slowed. We saw lower traction. It picked up quite meaningfully in Q4, and I see that continuing in FY '23. The previous year, we have grown 70%. So this year, it should be well north of 20%, 25%. Almost every business line has both potential opportunity and risk appetite to grow north of 15%. There are some very nascent businesses like credit cards and commercial vehicles. which may grow at an astronomical [indiscernible], maybe even hundreds of percent. But on balance, we believe that the INR 130,000-odd crores of credit book should grow north of 15% across the spectrum. There may be only one business where we may see lower than mid-teens, depending on the size and ticket and competition. We may choose to dial up, dial down on the corporate credit depending on the opportunities in the market. But otherwise, granular organic businesses all see huge potential to grow.

Sir, on other banks including PSCs are complaining about very aggressive competition in well-rated SMEs and of course well-rated corporates. Sir, what are your thoughts there. Do you think with such peaking competition, is it possible to grow in these segments? Are the aggressive guys are normal in the segments you operate in?

No, I think the good segments are always fully flooded with good players, right? It's never going to be vacant for somebody else to steal. But I think some -- the current distillate environment and particularly the rush to grow credit that a few banks were sort of gung ho about, we do see and I'm quite sure you will see that behavior will change in a year like this. And that's why I said very early in the call that deposit franchise banks will grow better. Those who can [indiscernible] low-quality granular deposits. We believe that we have that tool in our hands, and we've demonstrated that for many years, and I believe that will help us grow. And yes, despite everything, growing at 15-odd percent in this environment looks very possible. I do have to add to your point of a few banks [ commenting ] because of their sort of overall strength, it's indeed true. But do think sanity in pricing is coming now.

Okay. Sir, my last question, if you can give the breakdown of loans by [indiscernible] how much is MCLR, repo and then are other variables?

Very broadly, our repo book is about 45%. Venkat, am I right? .

Yes, Shyam, the external benchmark is 46%, the MCLR is 18% and fixed is 27%.

The next question is from the line of Nitin Aggarwal from Motilal Oswal Securities.

Congrats on a steady quarter. I have 2 questions. One is on margins. Like we have seen an 11 basis point decline this quarter. So any color on this? And how do you see this faring over FY '23?

Nitin, I request you to not look at a quarter, look at the longer period. 320 was the number we looked at, and we landed at 320. FY '23, we believe that should shoot up by at least another 7, 8 basis points. We think we'll -- blended FY '23 will be closer to 325 plus.

Okay. And secondly, now that we have already absorbed the family pension cost this quarter. So how do you see the cost-to-income ratio now?

We should normalize back to the early 50s. And as I've mentioned in earlier calls in prior periods, we are pushing very hard to get it to below sub 50, closer to 48, but I think we will need one extra financial year for that.

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

Congrats on a great set of numbers. Following just, might be repeating in nature, but on the margin front, despite our high lending books growing faster, let's say, gold loan or CV/CE of 40%, those -- I understand that this is very low. But incrementally, the growth in these segments are higher. Why should margin fall in Q4, I mean, sequentially? Is there anything which we are missing or any one-offs there?

Not missing anything, Renish, if you see us, [ the pages ] in Q4, it was a little exaggerated in the agri side. And that typically in an agri portfolio, you will see a bunching up of interest. And when there's a slippage, it tends to eat up a larger share of the revenue reversal. So to that extent, that would have taken away 4 or 5 basis points.

Got it. Got it. Okay. That's very helpful. And sir, just on your opening remarks, you have said that the fintech partnership side to some extent being matured now. And we'll see the P&L benefit to start flowing in from FY '23 onwards. So any ballpark numbers you have in buying, maybe it will flow through the other income or NII, I mean where it should reflect in P&L?

No, it will, see the liability growth and asset growth, both there is a dependency on this as a distribution, right? We've seen our [ FFI ], Jupiter and potentially a few more than our partners. They are largely a liability origination relationship. So we think about 25% of our incremental deposit growth will come from these partnerships, incrementally. Likewise, on the lending side, between 40% and 50% of the incremental lending in some products will come through these partnerships. We, therefore, will stack up for our growth in credit, growth in liabilities.

Got it. And sir, any cost benefit analysis we have done, let's say, what are incremental business either on the liability side or on the other side we get? Is -- we are getting at a higher than 50% cost-to-income or lower than 50% cost-to-income?

The revenue sharing and the cost model with the partners as I've mentioned in the previous call, now it's getting sharper, is a fair amount of it is variable. It's linked to the volume that is generated and it's not a fixed cost. In fact, most, 95% of relationship is variable. One or 2, there are some fixed elements. And importantly, for FY '23, for the incremental business, it will come at roughly at about 60% cost-to-income ratio trending towards 45% in the following financial year.

Okay. And [indiscernible]

Pardon me?

In FY [indiscernible] more than 60%, 65% costing [indiscernible]

FY '22?

Yes.

Roughly, you could say. But FY '22, the pickup on revenue was latter part of this year. So on the incremental, it was about 65%, but on a full year basis, we are closer to 70%.

The next question is from the line of Kaushik Poddar from KB Capital Markets.

Shyam, -- whatever HDFC and HDFC bank mergers being there, I mean, it's quite clear that banks need to get bigger to take care of the economy of scale. So is Federal Bank, that is its Board of Directors thinking in those terms?

Nothing at this point in time, neither do we have opportunity to buy nor has anybody approached us to be bought. So at this juncture, it's heavily organic with opportunities to look at integrating microfinance portfolios or any higher-margin portfolio store companies for which we are marching order to go and find. Unfortunately, we haven't found any of size or scale. Or if there are very good, then it's not an affordable price. But outside of that, I think, Kaushik, we don't have any, at this point in time, a dialogue with anybody one way or the other.

Okay. Okay. And basically, you're talking about purchase of financial asset, I mean, in the sense of some...

If sort of a well-run microfinance setup is available, we will be happy to consider a transaction. But I have to add quickly that nothing is in the cards.

Okay. Okay. And this cost, I just wanted to confirm. Cost-to-income ratio for this year, you are putting it at 50%?

In FY '23, yes, we are looking at 50%, 51%.

50%, 51%?

Yes.

The next question is from the line of Manish Dhariwal from Fiducia Capital.

Now, see, my whole question is just surrounding the question that's been asked about the growth. Like this particular quarter, our yields reduced and the cost increased. And in this quarter, the NIM was also quite at the lower end, so about just [ 3.16% ], and you see [ that the upper limit is 3.2% ]. So basically, you see the environment team is going to be remaining challenging. And now already the provision are down to INR 75 crores. So I don't know whether they can come in further now. So where is it that we want to get the PAT from?

I think I did mention a little while earlier, our NIM expansion to 3.25%, 3.27% is something that by the business mix change and the prevailing rate environment, looks very possible, and it will happen. The cost this quarter was a little exaggerated because of the one-off event. So we do believe that there will be positive jaws as in the revenue will outstrip the cost growth and credit quality will continue to hold as well as it does. So that's how we are expecting a 10 basis point improvement in our margin expansion -- ROE expansion.

Yes. So see, we had a very, very solid platform in terms of our asset book or with the quality of our asset book. And don't you think that we should be kind of using that to step up on our growth aspirations?

I did mention we will grow very handsomely but as a conventional...

15% is something that's quite [indiscernible]

No, I respect your observation. But there have been stories of people doing 30%, 40% growth and having -- then going to jail. We have no such aspirations. I'm also acutely aware there are some banks that are scared of HDFC growing at 20%. But we will be honest and real about where we can do business and how we should do business. So you will not hear Federal Bank trying to talk itself into a position which then looks ugly a few years later. Will we seek our 20%? Absolutely, yes, we will. We will. I mean, we are not any less ambitious about growth. But we have to be quite honest about the way we do business. If you heard us from partner attract us for as long as I've been, we've never made false commitments. We don't intend to also.

I mean that's a good sign. That's a good sign. That's a good sign. And also, see, we really kind of developing our fintech side of book. So far, the costs actually have gone up despite the fact that our branch expansion has not happened. We basically feel like a lot of our business is going to come from the fintech relationships. So I mean, so this FY '23, you think is going to be the year of inflection where the money is going to fall and the monetizing is going to happen?

Yes. I did mention just a few minutes ago that we will see meaningful part of our incremental growth coming through these partnerships, and it's trending towards the 60% cost-to-income and the following year towards the 45% cost-to-income or even better. . If we look at this the following way. For about 5 years plus, we've added 20 branches, but we have doubled the bank in almost every dimension. And we are now -- these branches, in fact, I'm very happy to report at this point in time, which is reported to our Board today, there are only 1 branch that is nonprofitable and that too only because it's less than 2.5 years old. So we have every branch in the bank at good efficiency and productive and going ahead. So we have told ourselves 2 things. One is, we will dial up our fintech partnerships, which is typically, if you open a branch to take about 18 months or so to breakeven. Our fintech partnerships will make breakeven faster. So when we grow 25% in incremental deposits, it's almost like carrying 300 branches at once. Second is, in addition, for distribution, our strategy was branch-like distribution heavy. We have flipped it around the light branch heavy distribution, which means we will start adding branches, maximum about 5% of our network will increase every year. And that, again, will start giving us distribution. So both counts, we are doing work this year and beyond.

The next question is from the line of Sagar Shah from Alphaline Wealth Advisors.

So actually, I just had one question actually. So basically, based on the past performance of your agri lending portfolio, your NPAs seem to be [ highest impact ] actually. And in spite of growth in this quarter, your agri portfolio has grown by 20%. So do you feel that going ahead, this portfolio would see some improved asset quality or we'll see the same growth rates going ahead also?

This, I agree, you must remind us and it has got gold on it. So when you see 20% growth, it includes agri gold loan also. And so -- and the point about agri portfolio facing higher losses is new to me, and maybe I'm not fully informed. I didn't realize it that way. In this quarter, there was a one-off transaction, one-off higher than normal. This quarter was INR 140-odd crores. Normally, it's never been that high. It includes agri. And in the past, it used to be agri and SME. So in a reporting sense, if you look back in time, it was agri and SME integrated. But now we've partitioned that. So if you look at it, I don't recall ever agri being a big problem, except for this quarter where we took a [indiscernible].

If I may add this because of -- I think basically, you have special dispensation for agri. You have 2 crops sort of permissibility wherein if in -- after 1 crop season, if it is not paid, the account is not classified NPA for another crop season also. I mean these are some peculiarities with agri loans. Therefore, there is an aftereffect of COVID, which got materialized here with delay. In other segments, it happened then and there.

So you expect this portfolio to do well in FY '23 also?

Yes, right in FY '23, we'll not have that legacy -- COVID legacy affecting the agri portfolio or so. So there is -- this is something, I mean, which is peculiar to agriculture. And therefore, even interest reversal because you are maintaining that account as standard for, say, 2 crop seasons. So the accumulated accrued interest also needs to be -- I mean, realized interest also needs to be reversed. And that has impacted the NII also. Somebody had asked this question about the NIM. So partly, this NIM contraction by 3, 4 basis points is an outcome of that agri slippages also. I hope that clarifies.

Yes, absolutely. And my second last question was related to your business, banking and commercial banking portfolio. So basically, your commercial banking portfolio, at least you have been growing at almost 8% in the last 5 years, 8% [indiscernible]. So, as you said in your last comments, on an average, you will be growing around 15% on almost all the segments. So are you confident in spite of such heavy competition in the business banking and the commercial banking segments, actually throughout the banking systems, so are you still confident of delivering 15% growth in both the segments?

I think we're well positioned. In the Q4, these are 2 businesses that grew, I think, for the quarter 4% in the most intense competition period. We remain confident of that.

The next question is from the line of Krishnan ASV from HDFC Securities.

Yes. So just one very quick query around deposit side. This is more to do with the fact that you mentioned about the fact that branches, except for 1 have kind of broken even. I was looking at more the productivity of these branches. Have you seen a marked improvement in, say, the potential up in productivity of Federal Bank branches compared to peers? And what are you doing to build that potential?

I think, firstly, for quite a while now, and each passing year, it gets better. The sharp focus on products that we want our branches to be doing and branches -- how much of their time is spent on sales, service and operations. So we have carved that out quite nicely. The reward mechanism for branches are driven by what their job objectives are in terms of productivity. You may have noticed our fee income ex treasury has grown 25% Y-o-Y, 10% sequentially. Largely, the fee income on wealth management and life insurance are branch-led and has done a remarkable job. So productivity on business banking, gold, collections where they need to step in and fee income products in addition to CASA growth is their job. And on all counts, there's very meaningful progress. And each year, they have been triggered to perform even better. Their score cards are sharply focused on this.

Absolutely [indiscernible]

Listen guys, somebody needs to mute yourself. Go ahead, Krishnan, anything else?

Yes. The other bit was around just, I mean, the growth environment itself. Generally, we have remained fairly conservative even when other peers are able to sequentially grow faster. You have been very picky because you are quite selective. I just wanted to understand, do you see from, say, a pricing, in perspective, any competitive intensity easing in any of the key segments that you are definitely looking to grow in?

I don't see easing, but I think there is some sanity coming in, in this very aggressive pricing that was happening in Q3, Q4 of last financial year. Of course, April is usually a bad month to make any determination because there's a slowdown of varying nature. But given trends, conversations and the general interest rate environment, we believe that some pricing power will come back to lenders. And within the same risk appetite framework that we have, we believe our growth numbers that we spoke about, 15% plus, is very possible without busting our boundary conditions on lending.

Just one last query. I mean you've build a fairly granular book on the asset side of the balance sheet as well. It's very carefully crafted for the last few years. I just wanted to understand what kind of wallet share? I mean, your assessment of where you are on wallet share and where can Federal Bank potentially take this over the next maybe 2, 3 years?

Did you mean product per customer? Is that what your question is, Krishnan?

Not necessarily on just the individual side, but even on the commercial banking, business banking side, the SMEs that are typically where you can still exercise some element of, say, the pricing power?

See, as a thumb rule, I want to say that good customers in respect to which segment they believe, are able to command pricing, right? Then it comes to the relationship potential and our frontline guys' ability to work with them and get more business. As we get more RM and outward client focus, as we go to the client as opposed the client comes to us, we are seeing that capability drill deeper and get a larger share of the wallet. In small business, business banking and commercial banking, I think our share of business is increasing with every passing. I mean, Kapil, Shalini, Harsh are on the call, they may also add. But that's increasing. On the corporate, where it's only a big ticket lending, that's a fight. But even there, we've seen very sharp growth in fee income this year and driven by these initiatives. But I think there's work to do on that count.

Just to add, Harsh here. On the commercial banking, business banking side, we are typically, in most cases, sole bankers are dominant banker and other ancillary business follow suit. In the mid-corporate segment, the large corporate, obviously, we are gaining share. So just to give an indication, our trade volumes, our cash management volumes and the fee growth has been significantly higher than our asset growth, obviously indicating getting market share over there as well.

Is self-wallet share?

Yes.

The next question is from the line of Kashyap Javeri from Emkay Investment Managers.

Congratulations for a good set of numbers and [indiscernible]. Just 2 questions from my side. One, if I look at fees, there is this general commissions which have grown almost 50% Y-o-Y from about INR 45 crores to INR 70 crores. Last 4 quarters, the run rate has been about INR 45 crores. So what has driven that number and which seemingly is the primary driver on the credit cards of 25% growth in fees? And second question is on CASA. Now if I look at the last 3 quarters, the SA number is now pretty much at about INR 51,000 crores to about INR 54,000 crores. And CA number is also pretty much segmented at about INR 11,000 crores, INR 12,000 crores. So any color on the client acquisition on both the sides, both if you can offer? Because what I understand is that with the fintech partnership that's behind, the number of client acquisition has gone up substantially. But that's not pretty much probably reflecting in the overall float available. So these are the 2 questions.

Sure. On the SA, we can't expect the fintech to give us in the first period. In fact, at this point in time, by supplemental growth, fintech business origination and SA would be like less than 5%, which is why we said it will go up to 25% in FY '23 of the incremental balances that get built up. And because the profile of these customers come in and they are more transactional and they start building over a period of time, I don't believe that they will all be coming with large balances upfront, but the nature and profile of that business is very different, right? That will continue, but it's giving us access to a new generation of clients, which we would not have either to a bank, and therefore, they will need to cross-sell a bunch of products kicks in, and that's something that we have worked on. That's why I said 25% of our deposit growth incremental and around 50% of incremental credit growth of some products will come through this segment. Sorry, I missed the earlier part of the question, if you want to remind me?

So second question was on fees. So the banking commission and exchanges, run rate was about INR 45 crores a quarter. And suddenly, this quarter, it's almost about INR 70 crores.

No, I think the growth on our fee income products like life insurance, mutual funds have all picked up, doing extremely well, and that's all branch-led. And I think when Krishnan asked, I didn't answer that in terms of these products are branch distribution led, which is doing very well. Penetration in the existing client base is increasing. Shalini, you want to comment on that and give your insights on that, Shalini?

Yes. Thanks, Shyam. So I think there are a couple of drivers for driving up the fee income, taking off from where Shyam left. One is on the card side, why credit cards is still a very small percentage of the portfolio. On debit cards, we've been kind of very good from a spend perspective. And we ranked amongst the private sector banks [indiscernible] in terms of monthly spend. That has its own benefit in terms of interchange fees. So that's one part of the fee income. The other part of the fee income that is growing at a very steady pace is the entire suite of products that we offer on the private banking, which is life insurance, nonlife insurance, health insurance, wealth management and products like depository demat, sovereign gold bond, et cetera. That's grown 10% Q-on-Q, 25% year-on-year. So a combination of these kind of factors along with normal debit -- the ATM fees that we get, et cetera, has helped us to grow our fee income, very much driven by customer behavior, very much driven by use of analytics to cross-sell products to the customer and very much driven by branch productivity.

Sure. And one last question. Would you be able to disclose monthly client acquisition on the liability front?

Between our organic plus the 2 partners, we are doing closer to 17,000 to 18,000 new customers.

The next question is from the line of Shalini Vasanta from DSP Mutual Fund.

This is Vivek Ramakrishnan. My question was on the deposit side. This year seems to be the year where there'll be a bit of a scramble for deposits. And since you are using fintech and everybody else is also going to be using similar fintech, what causes the stickiness in your deposit base? And how confident are you that you can grow it in the scramble for deposits? I'll also ask the second question so that I can do it sequentially. In terms of -- you have an NBFC that is doing a small finance business and it's doing quite well. So how important is Fedfina to your overall targets of ROE and growth aspirations?

Fedfina, every number of that other than the consolidated number is an independent entity. We have none of that including, except for some retail distribution they do for home loans. Other than that they are an entirely independent entity run by their board. The consolidated number is what you see in our numbers, but that's a very marginal number in the scheme of things for us as of now. They're doing well. I'm happy they're doing well, and they should do well. For the first part of your question. Stickiness, I think, for a long, long period, that has been the strength of our bank. I mean the remittance business that comes in, Middle East, Kerala; Middle East, non-Kerala; non-Kerala; non-Middle East, all of that are tracking well. Domestic franchise across the country. Our non-Kerala deposit growth is higher than our deposit growth in Kerala driven by, a, our lower base; b, our higher presence and productivity. Third, as we step up and see more fintech engagement and this client base starts maturing, we believe there will be an incremental opportunity. But that is to be yet proven and tested. Why would we grow? And why would customers stick with us? With some confidence, I can tell you, if you are a Federal Bank customer, [ you will really do well ]. Our NPS, and this is not by my measure, NPS scores as measured by Nielsen for the industry, we rank amongst the top 2, 3 NPS scores. For common understanding, net promoter score is the best measure of customer referencing us or promoting our case and sticking with us.

The next question is from the line of Mahesh Ambi from Kotak Securities.

Sir, a couple of questions. One is on this -- on Slide 23 on the retail book. Shyam, this growth that you saw in housing seems to be very, very weak, down on a Q-o-Q basis. Anything?

Mahesh, I think there is that we have got the numbers slightly wrong on that slide. We will update that slide and we'll probably update the presentation.

Okay. Okay. Perfect. On the second question, you had kind of indicated this breakup between MCLR repo. That number adds to 90, not 100. So you said 45% repo, 18% MCLR, 27% fixed?

The rest of them are like staff loans and FX and a few other small, small, 1%, 2%. So I gave you the bigger ones.

Okay. Perfect. Okay. Perfect. And one last question is that, on the pension-related cost, how much was it for the full year that you had provided?

INR 185 crores on the family pension.

So if I include the overall -- the entire provisions that you made?

It will be north of INR 350 crores, INR 400 crores.

Comparable number, this would be INR 500 crores last year. If you just kind of look at the annual report and kind of compare it with the numbers that you've given?

Let me not try to guess that. So, Venkat..

Around INR 440 crores to INR 450 crores, Mahesh.

That is last year or this year?

Last year.

And this year, the number is INR 350 crores?

No, this year, if you add the family pension, it will be higher.

Pension alone is INR 185 crores. I will have to look at it what is it currently, I haven't checked that.

The next question is from the line of [ Rushab Inderkar from Guardian Capital ].

I just had a couple of questions. First, could you take me through what's the reason for a decline in treasury profitability?

Harsh, you want to comment?

Yes. So I think basically, when interest rates start moving up, you do not have the opportunity to really make profits on bonds. Yes, through shorting some part of it has been compensated and through some ForEx volatility was there. But that training game cannot substitute the investment-related opportunities profit on sale of -- which is classified in the profit on sale of investments. So I think when you see yields going up, the risk is on the other side that you are required to provide for it rather than earning profits there. So we have been maintaining very low PVBP, very low modified duration in our HFT and AFS portfolio. As a result of that, the hit is minimal. But at the same thing, the opportunity to make profit reduces that much. But if you see for the year as a whole, first quarter has been very, very good. So when you compare year versus year, I think you would find this year to be quite okay. I mean the year that has one part that has been quite okay from that part. FY '23 may have challenge.

Okay. So any guidance on what sort of profitability we are looking at in treasury business next year?

So on the ForEx side, there would be a normal growth of 15%, 20%. But on the investment side and all, there are some opportunities, but that would depend on what call we take depending upon the then prevailing scenarios and all, investments in some of those strategic investments and all. So that's something which we would decide in the fourth quarter. Overall, I think the profit on sale of investment has not been as such budgeted at the same level that -- which it was -- the actuals have come for FY '22. But that will be compensated through the core growth of -- core fee income growth, which has trended very well in third and fourth quarters of the previous year, FY '22. So in FY '23, we can take it forward to compensate and that's going to be more sub-staged.

Got it. Okay. And the second one being, do we have a breakup of the fixed rate -- in terms of loan book, do we have a breakup of fixed rate and floating rate loans?

That what's had given. Venkat, you can repeat that. I think it's -- fixed rate is 27%.

Yes, 27%. 18% is MCLR. And external benchmark is 46%, 47%.

Yes. Rest is advances against specified securities, NFCs, shares, your bank's own deposits and all that.

Foreign currency also, Ashutosh.

What?

foreign currency also, loans.

Foreign currency, base rates, there are a few small, small, 1%, 1.5% like that, yes.

Got it. Got it. And earlier during the call, it was mentioned that from FY '23, we would start monetizing the fintech relationships. Do we have a -- I mean what is the model that we are using for monetizing these?

Well, I think when I said monetizing, it means that the investments may start fetching revenues. And I said this year, the -- broadly, the cost-to-income should be closer to 60%. For every rupee we spend, we expect at least INR 0.60 of revenues or more is what we're pushing for.

[Operator Instructions]

My apologies, for every INR 1 we spend, we earn more, not INR 0.60, we earn more than that, INR 1.5 over -- INR 1.5, sorry, apologies. Yes, go ahead, please.

The next question is from the line of Franklin M. from Equentis Wealth Advisory.

So just on the deposit trajectory last 2, 3 quarters, we have seen a slowing trajectory in the overall deposits. And we are likely to grow our advances by 15% plus in the next year, which means that our deposit base also needs to start picking up. So one is like what is the reason why the trajectory has slowed? And what -- how is this trajectory is likely to pick up?

So I think this question has come earlier, I think part of the deposits is your certificate of deposits and all those. So we have reduced our so-called bulk and wholesale segment. In fact, part of this has been substituted by the refinances from the refinancing institutions like NABARD and all. But that doesn't come under deposit, that comes under borrowing, though it is longer term, I mean, very competitively priced and all that. So the thing is, I think, you may see a reduction in total deposits or rather slower growth in total deposits. But if you remove this conscious substitution and all, the deposit growth is matching the advances growth -- loans growth. Retail deposit growth is in double digit.

Okay. And on the NIM trajectory, you said that around 3.25% is where you are looking to maintain the NIM for next year. But is there scope for further improvement, like the year after that? Or is this 3.25% likely to be more of a sustainable number?

No, I think -- I mean the effort of the bank and the mix of the business changes and in a rising rate environment, certainly to go higher than the 3.25%, closer to 3.30% or beyond. But I think these are best delivered and then spoken on the next milestone.

The next question is from the line of Gaurav Jani from Prabhudas Liladher.

Firstly, a question to Shyam sir. Sir, so on the CASA ratio, we're at about close to 47%. In the coming year, we are nearing at around higher interest rate environments. Generally for us and for the system, I mean, how do the customers behave? Could we retain these customers? Or should we logically see a reduction in the CASA ratios?

No. We are looking at -- see, even CASA, we have to look at 2 things when you look at a ratio more than numerator and the denominator. What we are aspiring and working on is to get the CASA growing at the north of 18% growth rate. And term is a function of both pricing and demand that we want. So CASA ratio can swing. But preferably, we want to push it by another 100 basis points. In the last 2 financial years, we moved up 313 basis points in CASA. We believe that we should get it closer to 39. But we are working on that over a period of time, it will happen. But more than the ratio, please focus on the net blended cost of funds and CASA growing. Having said that, the ratio will improve because that's also a focused area of the bank. Our CASA [indiscernible] money is now in the top quartile, 4.3% or whatever that is.

The second question is to Shalini ma'am. On the credit cards front, so wanted your views on the new credit card guidelines and considering we had tie-ups with fintechs for core lending cards. So how will that sort of shape up in terms of growth?

I think 2 parts to it. One, in so far as our organic credit cards portfolio is concerned, which is our own portfolio, which is growing at a good rate. From the direction, there are a range of items which RBI has introduced in the new direction, primarily driven by the need for transforming from a customer standpoint, making it easier for customers, making it more convenient for customers. Examples being you need to change our billing cycle, you need to -- if it's not been activated within 30 days, it needs an OTP to do it, et cetera, et cetera. So what about maybe about 10 or so items, which are timely operationally required to be delivered on, none of which we find challenging from a delivery perspective, yes, it will potentially increase a little bit of the cost of the processing, but in the overall interest of customer stickiness and the growing balances and getting the credit card as a structured instrument, I think that's a good balance to strike. So that was the organic one. And so far as the co-branded one is concerned, we have a partnership with FPL and that's a partnership that has been live for about 8 or 9 months now. From our standpoint, FPL currently plays a role of both as promoting and acquiring cards for us as a brand partner for us, as a co-brand partner. But the entity also play the role as an outside TSP or technology service provider. Under that role, FPL ensures an end-to-end customer experience, [ by forth ] kind of customer experience. The market direction has made certain areas a little more explicit in terms of what can be done last time, et cetera, with the co-brand side of it as well as the TSP side of it. We don't believe any of them are showstoppers of any kind. But we do believe that we will be able to deliver on those with our partners. So we're quite -- as we stand right now with a couple of months more or less for the implementation date, we're quite confident that the trajectory will continue. So both ends, we've had a fairly detailed look at it and we do believe that it is in the general health of the industry, I think both -- the measures are good and we can deliver on that.

Just one question on the credit card growth bit. So considering you're looking at, again, a rising interest rate environment, should we sort of assume that you have to sort of slow down on growth or how should we look at that? Obviously, you're on a low base, but I mean...

We have a low base -- a favorable low base and also penetration in the country of, it's still very, very small, right? So I personally don't think we will see any material slowdown in the curve growth because the penetration is so low in the industry as a whole. And for us the base is anyway so small that we have an opportunity to grow. What could potentially get impacted is within that, we obviously look at revolvers as well as -- revolvers on the outstanding as well as those using balance, transferring the balance to an EMI. That may see a little bit of a reduction. But honestly, in the -- for us, at least the portfolio [indiscernible] growth.

I'll just add what Shalini said, Gaurav. In the only product which is reasonably rate agnostic is credit cards. So rising rate doesn't necessarily -- because they're already at [ 24, 25, 25 ] if the revolver guy is already paying that rate.

Just final one, if I can squeeze in. One is what percentage of our liabilities would sort of mature within 1 year and the update on the Fedfina listing?

Fedfina listing, I have nothing to add than what I had said, SEBI is yet to come up with the approval. And then post that, the company has [indiscernible] to list. So there's no time line date for it. On liability, what was the question, the profile that is maturing?

Yes. What proportion of the liabilities would mature say by FY '23, within a year from now?

That's in the fixed deposit portfolio, right? I should -- Harsh or Venkat, anything that you want -- you can share on the top of your head?

Sorry, what was the query?

Yes, from an [indiscernible] standpoint, what proportion of the liabilities would mature within 1 year?

So I think on the term deposit side, nearly 60% to 65% of term deposits have the original maturity of 1 year. Yes, so nearly 2/3. Nearly 2/3 of the term deposits have the original maturity of 1 year. So remaining maturity could be a few days to 12 months.

The next question is from the line of Anand Dama from Emkay Global. .

Sir, the housing book and the PL book both have declined on a quarter-on-quarter basis. Is there any reclassification which has happened?

As I mentioned there's an error in reporting there, sorry, that needs to be corrected. .

Yes. But on the personal loan side, I think there last quarter also, we had said that basically...

Personal loans has declined. Rate of growth has slowed down because we did not grow that business aggressively in FY '22 for the 4% of credit quality and comfort that we get. We see that happening going into FY '23.

Well, Shyam, basically, when we look at other banks, be it HDFC, ICICI and all, they are all growing into the personal segment, which they believe is largely mainly focused on the captive customers. So what really makes us so concerned about that book?

Anand, I think the question on why they are growing or why we are not growing, we can only answer why we are not -- why we did not push that hard for the very reason that we tightened our criteria for existing customers. We do only preapproved [ originally originated ] personal loans, which is growing at about INR 100 crores a month pre-COVID. During COVID, we tightened the criteria quite materially. So the book started running down. The backfilling of the book is now running at about INR 60 crores a month. As we go into -- we are now getting more comfortable with the environment. So we're unleashing some of the parameters back. So growth will come back.

Okay. And so when we said that we are looking to grow at somewhere about 15% or so. I mean, even at the top end, about 20-odd percent, so how will the retail look like and how will basically corporate [indiscernible]?

Businesses like credit card, personal loans will grow. I mean credit cards will grow well above 100% or even more because the base is small. Personal loan, which is close to about INR 2,000 crore book, will grow at about 18% to 20% this year.

Okay. And how about mortgages because that book also, in fact, if you look at the other bank, they have been growing at a much faster pace.

Just saw the previous question. Roughly 40% of the liabilities mature in next 1 year. Just wanted to make that [indiscernible].

Sir, I have the question on mortgages front. So why are the sort of...

That 40% is natural, Venkat, because you remove nearly 40% of CASA, the remaining one, if you take 60% of that, I mean, almost 2/3 of remaining 60% comes to 40%. So that's the same, number remains the same.

Shyam, the question was on mortgages. So what kind of growth rate are we looking at in that segment?

This year grew close to 14%. We think that will grow back to the -- previous year grew 18%. We think that will happen.

And on the corporate front?

Corporate business, I mentioned a while ago. We grew this year more at the back end. We started growing. We believe this coming financial year, we should grow well into the early teens. But I would be cautious about the opportunity in terms of pricing. So we will pick that. We'll be picking into the last year we sanctioned but does not disburse INR 3,000 crores of corporate credit. If we had disbursed it, we would have had another 3% growth, but we chose not to. Harsh, am I right? Harsh?

That's right, you are right, Shyam. We had done that. And apart from that, we had done some sell-down of assets, which is another 2.5% of the corporate portfolio.

Okay. Which means that the portfolio mix is going to shift more towards retail and I think SME? In that case, we should see a margin uptick?

Yes. We said 55, 45, retail, wholesale. Within retail, we will have a higher mix of retail -- higher-margin businesses. Likewise, in wholesale, the commercial banking will pick up. We also said the portfolio NIM will move up to 3.25% or so. So I must add that 10 basis points from 359 basis point increase on a whole portfolio of INR 130,000 crores, there's a lot of heavy lifting to do.

The next question is from the line of Darpin Shah from Haitong Securities.

All my questions have been answered.

I think operator, we should bring this to a close if there are no other major questions.

We have few participants in the queue, sir. If you allow me, I can promote them.

Sure. Please go ahead. Maybe we can pause here, whatever is in the queue, we can close up.

The next question is from the line of Jai Mundhra from B&K Securities.

On your exit ROA, sir, adjusting for this family pension, we would have done 1.24%, 1.25%, which was we had said earlier. If you can refresh this exit guidance on an exit basis or maybe a full year basis for the next 1, 2 years?

We have said 1.25% 2 financial years out, and we are still holding to that. We think FY '23 will be close at 1.1% to 1.12%, 1.13%.

Sorry. So the full year basis, right?

Exit ROA. The full year will be about 1.07%, 1.08%, 5 basis points more from exit rate just now.

Sure. And sir, within which credit cost, if I see for this year, what you've reported is 45 basis points. Do you -- I mean, do you see any more scope to lower it or this should be [indiscernible]?

This will be reasonably optimum at this point in time, 45 or so. Yes, I don't see -- we are working to an improvement on that. But let me be honest, we will pad up a little in case things work in favor of us.

Right. And the last quick question, sir, on restructuring. So how much of the -- I mean, the performance looks decent. And I think you have also mentioned 95% collections. But just wanted to check, are the entire book out of moratorium? And maybe how many customers are paying in full, et cetera, if you can share some of the details?

Our Head of Collection has done a PhD in it. So, Babu, if you are there, you can just quickly give a 1-minute to this.

Yes. [indiscernible] primarily to say, quality book [indiscernible] asset book. Likewise [indiscernible] has also come down. 40% of the book is already there, came in the demand book in March, and there we are doing well. So looking forward, also we are confident that we'll be able to close somewhere on those lines only. In terms of [indiscernible] number of customers, I still don't have that number with me, but 40% of the NPL book has come in the demand book in March and there we have done well with the support of the quality of our book as well as collection efficiency.

So sorry, actually, I could not hear much. But did you say that 40% of the book has started billing, right?

There was moratorium. So once that moratorium is over.

You're right. You're right. 40% has started billing. That's what is the demand book, yes.

40% of the book has demand in it, and there, it has performed quite well.

Right, right. And the same thing, sir, for ECLGS, if you can share what is outstanding? And how are you seeing trends there?

There, the ECLGS business also doing well for us other than that of the last quarter. We see the ECLGS book right now, it is already [indiscernible] slippage rate is far below than the average slippage rate of the bank. Then quarter-by-quarter, it is doing well.

Right. So what is the amount, sir, INR 3,000 crores or something else?

INR 4,300 crores.

4-3, right? INR 4,300 crores?

Yes, yes.

So that is actually, if I look at my numbers, it looks like it has increased from last quarter. Is that right?

Yes. Yes, it a little more disbursements are also there from [ the ECLGS], maybe an extended regulatory direction was there, so something more of a disburse. Including that, it is [ INR 4,500 crores ].

The next question is from the line of Dhaval Gala from Aditya Birla Sun Life.

I think you've already answered partly on net interest margin. Just wanted to understand a bit of an outlook on your net interest margins for, say, next 12 months and medium term?

No. I think you heard right. We are talking of going up from where we are for Q4 on an average basis, 3.25% FY '22, by moving by 5 to 7 basis points in FY '23 on an average basis.

Okay. And just you mentioned about that F '23, we could see monetization from a lot of your fintech partnerships. If you could elaborate when and what should we look at, what line item would we see...?

No, I think it's not a line item. If the incremental cost-to-income on this portfolio, we are talking -- looking at for every INR 1 spend, which should earn INR 1.5.

We're looking at higher, but that's the minimum what we will push for.

[indiscernible] or it would be part of both margins as well as fees.

We're building deposits that will come into the income -- interest income portfolio. And on the credit card, it's been largely fee income. Actually, to be frank, fee income and interest income.

The next question is from the line of Prashant Kumar from Sunidhi Securities.

Just one quick on one data point. On asset quality side, -- on back-calculation, the addition for FY '22 is roughly around INR 1,840 crores and a reduction is on my calculation INR 2,346 crores and write-off is around INR 800 crores. Actually, I need breakup of upgrade and recovery if it will handle.

It's same the deck itself says. All our numbers are there in the deck. By quarter, you will find it.

Yes, yes, yes, sir. Just upgrade and recovery bifurcation if I can go to.

You mean the split up between upgrade and recovery?

Yes. .

Would you have it...

Yes. [indiscernible] sale of [indiscernible]

No, no, no, he is talking about full year. Full year number is he's talking about.

Yes. I'm telling about the -- yes, the full year, let me check that and I'll get back.

Babu, you can put that as a number in the deck, so that everybody will have access to it. You can put it in the deck in slide form and update it.

Sir, apparently I do have the total numbers, [ INR 1,258 crores ] is upgrade and recovery. And then, maybe, ARC total full year, it is [ INR 275 crores ]. And [ INR 800 crores ] [indiscernible].

Sorry again, please repeat.

[ INR 1252 crores and INR 1257 crores ] is the recovery and upgradation, full. That is more than that of the last financial year or maybe for recent years [indiscernible].

Babu, they are asking about the breakup of recovery and upgrade. How much is cash recovery and how much is upgrade?

[ INR 666 crores ]is the recovery, [ INR 591 crores ] is the upgradation.

Yes, now the number is -- breakup is given, [ INR 666 crores and INR 591 crores ].

Yes.

I think operator, we should bring it to a close, please.

Sure. I now hand the conference over to Mr. Anand Chugh for closing comments. Over to you, sir.

Yes. Thank you so much, everyone, for being on the call and participating quite actively. We will connect possibly probably next quarter. Thank you so much.

Thanks, everyone.

Thank you. Ladies and gentlemen, on behalf of The Federal Bank Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.

Thank you. .