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

Ladies and gentlemen, good day, and welcome to the Q1 FY '25 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 of Investor Relations, Federal Bank Limited. Thank you, and over to you, sir.

Thank you so much. And ladies and gentlemen, thank you for joining us today. Apologies for the slight delay. We were facing some tech glitches. Pretty sure you have seen our deck. We have delivered quite well this quarter. It's been a quarter of several all-time highs, reflecting our strong operational excellence. We have achieved the highest ever in our quarterly net profit of INR 1,010 crores and the highest ever operating profit of INR 1,501 crores. Additionally, we have recorded our highest-ever NII and other income as well. This further underscores our financial strength as well as our strategic execution. Our Q1 performance sets a robust platform for the financial year ahead, as our MD had mentioned in his note released to the media. And despite the challenging environment, we have led the market in both credit as well as deposit growth. Our business strategy, focused on diversification across products and segments, continues to yield positive results with nearly all our businesses showing sequential growth of 4% to 5%. Noteworthy among our achievement this quarter is a significant recovery in deposit growth, driven by our recent expansions and product launches. And we have also successfully reversed the previous challenges in our growth as well. In summary, Q1 has been a quarter of exceptional operational performance, and we are confident that this momentum will sustain through the year. I have the entire senior team here with me to answer your queries. But before that, before I hand over the call to them, I would like to make a short comment. This success of our entire franchise is definitely a tribute to the exceptional leadership of our MD and CEO, Mr. Shyam Srinivasan, who for 56 quarters has guided our bank to unprecedented levels of success. His vision and direction has always been instrumental in navigating us through various market conditions and consistently achieving superior results. With this, I'll hand it over to you, sir, and thank you. Thank you again, sir.

Thanks. Thanks, everybody. Thanks for joining in. Thanks, Souvik. Yes, like Souvik pointed out, I think we had a good quarter. And I would like to believe, operationally, it's a very strong quarter, sets the tone for a strong FY '25. You all cover the market and you know it very well, it has been challenging, and it is likely to remain in this kind of environment. So through this, Federal Bank's capabilities are now getting well recognized, and both growth in credit and deposits have been strong, almost 5% sequentially, and that sets the tone for a strong financial year. Importantly, market share gains are visible. The one thing that I did want to call out, which Souvik referred to, is on the deposits side through what arguably is a challenging period for everybody. Not only did we grow higher than many, but I think the important driver for us is what we've been struggling with for almost 2-plus years is the nonresident domestic money, as in the money they put in India, not through FCNR or NRO, but the NRE-led deposit growth was kind of sort of tapering off, and we've seen good pickup on that count. And I think that augurs well, we've reversed the trend. Barring that, our expansion has helped us grow our deposits well. Credit quality, something that we take great pride in, has been stable for long periods of time, and I believe outlook remains quite robust. There are, at best, some glitches here and there, but nothing that, at this point in time, we are flagging as any kind of risk. So we are setting the stage for a good FY '25. We've opened well on many accounts, interest income being -- recording the highest. And importantly, interest income growth has matched credit growth. Often, the question is, is credit growing but not interest income? We believe that the structure and the business mix is influencing that outcome, and I suspect that momentum should continue. There are further opportunities of how we get some of our higher-margin businesses growing through periods that are both -- opportunity is high, but one has to keep a tight vigil on all the businesses that are relatively higher margin. We have never shied away from slowing down if we see any kind of environmental sort of stress building out. At this point in time, we are encouraged by all that we see. The team is quite excited about the opportunity ahead. I'm also happy that through this period, we have got our successor identified. So the transition should be relatively smooth. The team that helped me build the bank is intact, and they will work with a new leader to take it to another level. So let me just open for questions with the summary being, we've begun well this financial year. The underlying indicators, both on the credit and deposit side, look quite encouraging. Momentum is with us, and financial outcomes you've seen. So let me just pause here and ask the operator to open for questions. As always, the entire senior team is there to take questions and give responses on areas that may require attention. Thank you.

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

First of all, congratulations, Shyam, on a very successful journey and a very successful stint at Federal Bank. And thank you for the interactions and sharing your expertise with us. So thanks a lot, and we'll miss interacting with you.

Thanks, Mahrukh. Thank you so much. Thank you.

Yes. And congratulations on this quarter as well. I just had a few questions. Firstly, in terms of the other miscellaneous income, if you could quantify what the PSLC income was and what the revaluation on investment was? So if you could give a breakdown? Because it's much stronger even than last year, which was INR 1.6 billion. So a breakdown of your INR 2.2 billion, that is the first question, and then I have 2 others.

Between the investments, revaluation and PSL, the net benefit incremental to last year would have been about INR 75 crores to INR 80 crores. PSL last year was about INR 52 crores; this year, I think, is about INR 90 crores. And the investment revaluation net is about INR 45 crores to INR 50 crores.

Got it. Got it. Got it. And the other question is on slippage and credit costs, right? You've done very well. Your slippage and even your credit cost is contained within 30 basis points. Of course, you've guided to strong risk matrix. But even so, it's really much lower than normalized. So where do you think the normalized level settles at and when do you reach it?

I don't want to reach a higher number, Mahrukh. Our business has been, I think, underlined by our conservatism, often for which I've been criticized, but I think it pays off when things are not looking good. We believe 30, 35 basis point credit cost is what we should operate at. And this quarter was at, if I remember right, 27 basis points. So we are in that ballpark, and credit quality should hold because we've been quite thoughtful about where we write the credit, how we write the credit. And we also upfronted our collection capability even more materially. So I think at this level, 27 being what it is, maybe 30-odd basis -- 30 basis points, plus/minus a few basis points, is what we will be full year FY '25.

Okay. And just last question on the new investment norm. So what has been the impact on net worth, of course, on revaluation, you explained, but on net worth and on investment yield? And is the improvement in investment yield, if any, because of this sustainable?

Venkat, do you want to take that, please?

Yes, let me answer that. On the results, it's about INR 339 crores net of tax. That's the impact which we have due to the new investment guidelines.

And in terms of investment yield?

We haven't quantified that. We are not disclosing that...

Because that seems to have gone up, right? The investment income is up quite sharply.

We can say approximately -- like we can say around 10 bps increase.

The next question is from the line of Rikin Shah from IIFL.

I had 2 questions. First one, Shyam sir, you had alluded to in your opening remarks that the interest income has kept pace with the loan growth in this quarter. However, if we look at the yield on advance disclosure, as per the PPT, it has gone down by 5 basis points sequentially. So if you could just explain what's happening there? That's number one. And number two, I just wanted to get an update on where are we in terms of the RBI embargo on the co-branded cards. And more importantly, once -- whenever that gets lifted, is there going to be any fundamental change or shift in the strategy of sourcing the cards and personal loans over the medium term?

On yields on advances and interest income, you will not see much variance. I mean, yield on advances is only one element of the interest income number, right? Interest income has a few other elements also playing around in it. So it's not that grossly variant.

Advance yield went down. So -- and the high-yielding portfolio has been growing, barring the slowdown in personal loan credit card. So just wondering, why is the yield on advances going down if the high-yielding portfolio is growing faster?

Yes, let me just comment here. See, Q4, usually the yield on advances is on the higher side, including higher recoveries. So it's not fair to compare Q4 to Q1. So to that extent, if you exclude some element of that, the 3.16 is where we have landed this quarter.

Okay.

On the co-branded card, and I think I did mention in an earlier engagement with the media, we are working with RBI. It's not a one pass -- one letter, one response. I think it's an active engagement with the regulator. We believe we are in sort of good discussions. Sometime between now and end of Q2 or early Q3, we should have some clearance. Does it change the way we do business? We just want to remind ourselves that co-branded credit cards with fintech partners was to increase reach and distribution. So as we get the approvals, again, we'll certainly work with them. In all instances, risk is ours, the underwriting criteria is ours. So that should not alter anything. We want reach and distribution, which we were getting through our partnerships, which is now going through whatever the regulatory changes, which has to be guided by co-branding guidelines, has to be by technology outsizing guidelines and IT -- financial outsourcing guidelines. So there are 3 guidelines that we will work through, which is what we are doing. So I think between Q2 and Q3, we should get, hopefully, a majority of the clearances and then we'll be back in business. Like Shalini explained in an earlier thing, we are actively pushing up organic, which is doing well, but hard to match up the gap that has come up, which we will work through in the quarters ahead. On PL, it has nothing to do with the outsourcing guidelines or co-brand. It's just we are being quite thoughtful about how much incremental risk we want to take in PL, given all that we see in the environment.

Noted, sir. Wishing you the best for future, sir.

Thank you.

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

Congrats on a good quarter. A few questions. Firstly, on the cost/income ratio, like while sequentially, of course, there is an improvement, but still we are fairly elevated at around 53%. So how do you see this over the medium term? And what will be the drivers of potential improvement in this metric?

No, we are targeting 50% over a longer period of time, we would have liked it earlier, but it will require us income momentum further gathering steam because some of the costs are good costs, and we don't want to cut down on that, technology, people and branch expansion costs. So the income flow-through on that may be a little lagged, but we have seen good pickup in deposits, as you saw observed in this quarter. That is a consequence of almost 210 branches we added in about 18-month period. So we are mindful of this balancing out that we need to do. So we see improvement of about 100 basis points every quarter -- every 1 or 2 quarters. So I think getting to 50% will take -- it's taking longer. We would have liked it to happen earlier. But in the context of having to invest behind these 3 areas, we can't believe that we can shave that cost off. So I think over the next, you could say, 4 quarters, 5 quarters, you will start seeing closer to 50%. Venkat, do you want to add?

Yes, Shyam. Just by way of another data point to add to what Shyam said, Nitin. The spends which the bank has incurred on 2 of the large elements, good costs, IT and distribution, Q1 over Q1 is almost a 75% increase in cost in just these 2 lines. It just goes to show that the focus we have on making sure that the spend is in the right area, and these are costs which are required to ensure that the ecosystem is in place to sustain the growth rates which we envisage.

Nitin, as a boring old hat in the system, I want to comment this slightly fixation on lower cost/income is probably a thing that will change in the industry.

Okay, sir. And sir, like on Slide 15, wherein there are details about the high-margin business, so most of the high-margin segments are between now INR 3,000 crores to INR 4,000 crores. So what will be the cost/income ratio in these businesses, which all have broken even? How do you see the like breakeven points for them? So will this be like a material thing from this cost/income reduction perspective?

It should. But these things, by the nature of what it is, I've said in a few earlier engagements, they are still, size-wise, relatively small compared to our close to INR 220,000 crores, right? So for it to have a bearing on the overall dynamic will take a fair bit of doing, but that requires us to be a little more courageous on the level growth, which I think is not our DNA. We have to be a little more calibrated around it. So on by themselves, these are certainly way more income-generating, relatively lower costs as long as collections is well in control and we are putting in collection costs there. On the blended cost/income, will this have a material bearing in the nearest term? Like I said, that's the numbers I promised of 4 to 6 quarters coming close to 50 is a consequence of all this thing working through. By themselves, they are yet not of such size that they can swing it one way or the other.

Right. And the last question is on the rating distribution. As in like the BBB and below, this quarter has come down materially. So it's like a 4%, 5% drop sequentially. So what has really driven this?

Souvik, do you want to give...

Yes. Harsh here. Am I audible?

Yes, Harsh, go ahead.

Yes. So last time there was some issues with corporate required rating with the names captured. As a result of that, last quarter, we couldn't get the benefit of rating, which is what was pursued. This is what the steady state would be. Apart from that, we are very clear about in terms of the segment which we are pursuing, and above is the most preferred segment and BBB followed by that. So part was a correction of ratings which were not because there were new guidelines that required the specific name of the banks to be there. So that was the reason why it was a little lower in the last quarter.

The next question is from the line of Pratik Chheda from Guardian Capital Partners.

So I have a question on the gold loan yields. So if I look at the gold loan yields, it has been coming off for the past 6, 7 quarters on a consistent basis. And now it is sort of below 10%. So I just want to understand, what is the reason? Is it -- are you lending to higher ticket sizes in gold loans? Or is there any specific other reason? And I mean, I understand, obviously, NBFC is a way ahead in terms of yields. But even the -- even if you look at some other banks, midsize and larger banks, even they are slightly ahead in terms of gold loan yields. So what is the reason for such a decline in these numbers?

Yes. Harsh here. Three, four reasons. One is the ticket size, which we have as compared to that of an NBFC, almost threefold. And as a result of that, the cost to income is also different, so not technically comparable. They have a different cost structure, we have a different one. And now definitely our ticket sizes are definitely larger than them. The competition which we get is largely from the PSU bank. That was one. Second point, which I would like to add that if you recall, a year before, there was almost a price war where everybody was falling over each other, because of which significant price cuts have been given. This seems to be getting corrected. Another point, which is not covered over here is that the fee, the average fee-to-asset ratio in gold has been steadily rising, it's about 85, 86 basis points at this point in time. Apart from that, there are certain benefits in terms of capital requirements, in terms of PSL benefits and other -- and no loss ratios. So has the rates bottomed out? The answer is yes. And we, actually steadily, I think we're going to move up. What is not shown over here is the increase in the fee income, which is also contributing towards the overall yield on the portfolio.

Sure. So what I'm understanding is the direction, at least, this is bottomed out and the direction is on the upward side going forward.

Absolutely. Yes, it is. Absolutely.

Okay, great. So the second question, so you prescribed one of the reasons as for good show on deposit as branch addition. So just wanted to understand in the next, say, about 12 to 24 months, what is the branch addition plan?

We added, like I said, 140 in last financial year. We are targeting in that zone, 100 or plus depending on how our costs shape up. But we believe about 100 branches this FY. We will do about 40-odd in the first half and the balance in the second half. That's how the teams are preparing for, and I think that's what will happen. Shalini, would that be right?

Yes, Shyam. So around 40 by the end of September and then the balance somewhere between 60 to 65 in the second half of this financial year. So that's the plan. And in a slightly more longer term, people continue to look at this calibrated. I just want to add that distribution branches are very critical and form a very core component of our distribution strategy, but there are other components of distribution also which we refer to in our deck, whether it's in the form of relationship managers expansion, whether it's in the form of more effective utilization of our very, very good DC network that we have. So a combination of all that will ensure distribution is expanded. Branches per se, the numbers are as Shyam and I referred to.

The next question is from the line of Param Subramanian from Nomura.

Firstly, Shyam, congratulations on a fantastic innings at the bank and congratulations on a great quarter as well. So my first question is on the deposit growth again. Now I think -- so if we look at your deposit growth, you're tracking at 20%. Even quarter-on-quarter, it's very strong. The system is tracking at something like 11%. So you're growing at double that pace. So what are the -- what's driving this outperformance on deposit growth? I think in your initial commentary, you spoke about NR flows. The data you've given in the presentation, it's only showing 1% quarter-on-quarter on NR. If you could expand on that. And between that and the new branches contributing, what's driving this outperformance? Yes, that's my first question.

Thanks. Thanks, Param, for all the nice words. I'll give you one line and then Shalini, she explained it beautifully in the Board, so she'll give it to you. Firstly, on the NR, you mentioned 1%, but remember, we were degrowing for 2 quarters. So the comeback is quite strong. We've reversed the negative growth. So that is a positive. But Shalini will give you more texture around how scorecards have been altered, how products -- Shalini, maybe you can comment on that?

Yes. Thanks, Shyam. Thanks for the kind words on the deposit growth, something that we've been working on. As I said at the Board earlier internally as well as I tell my team very often, there is no one single silver bullet that works for deposits. And over the last probably 3 or 4 quarters, in particular, we've been very, very focused on making sure that the franchise as a whole kind of calibrate ourselves towards deposit growth. So in that direction, a few initiatives that have been taken -- that have taken place and we are bearing the good benefits of that. One, we are still -- the distribution is largely branch-led. In addition to the new branches that we spoke about, our existing branches are obviously a treasure trove for catchment area of banking. And therefore, we've done some calibration on their scorecard, which recognizes the role that they play on deposits and how we can make sure that we get more deposits through them. This is both new-to-bank customers, which has been specifically kind of highlighted in the scorecard, and deepening of existing relationships. We've done a range of changes that we needed to do from a process standpoint, in particular, non-resident was something of concern for us. So we streamlined a large part of the account opening process on the NR front, both for nonresident NRE accounts and NRO accounts, both are now very heavily digitally oriented, subject to large KYC requirements, has helped us from a process standpoint. Digital, a large part of our customer base is very dependent on using digital. In particular, our nonresident customers are heavily dependent on digital technology. We've calibrated and introduced a range of capabilities through WhatsApp, through FedMobile, et cetera, to cater to them. And the new products, we launched Stellar in -- which is a very unique savings bank product. We launched that in February of this year. We added -- for the current accounts, we added soundboxes as a capability. So many, many initiatives. But like I said, if you put it across product, process, digital scorecards, all of that coming together has truly helped us. We do believe that this trajectory will continue. The teams are well geared to do that. And it's also evident in the fact that we are gaining market share on deposits. So we'll continue that every quarter, you'll see some product innovation or the other as well as some process changes and some digital capabilities being launched.

That was really helpful. So it would be fair to say that this sort of 18% to 20% deposit growth is something that you think is sustainable, right?

Yes. That's what we're working towards. We're gaining market share. Literally every fortnight, we look at it like a very -- with a microscope as to where we've gained market share, but that's the expectation, yes.

Perfect, perfect. My second question is on asset quality to Shyam. Shyam, we've actually heard quite a few banks and even the NBFC's call out credit cost pressures in unsecured retail, in credit cards, in personal loans. So I know we have a small portfolio, but it's been growing very fast for us. So if you could shed some light on how the asset quality is showing up in our own portfolio. Yes, that's it for me.

No, I think overall, the mix of slippages in a quarter in retail, if you see for almost 6, 7 quarters, has been in the INR 210 crores to INR 240 kind of crores per quarter despite a good denominator growth. So it's only a sustained outcome. Now within that INR 240 crores, you could see some plus/minus, some home loan reduction, but increase in credit card slippages. But I don't see it going out of hand and turning the tide. So in the ballpark, in the vicinity of about INR 240 crores, which is roughly about 55% to 60% of our overall slippages. Our book slippage is about 0.8% this quarter. Normally, we are well below 1%. So I think in that 0.8-odd percent, we may see about 60% coming in from retail. Of that, the mix could be plus/minus depending on how our home loan, lab, credit cards, personal loan is. But at this juncture, it doesn't look anything substantial.

The next question is from the line of Jai Mundhra from ICICI Securities.

Congratulations, Shyam, for a very long and satisfying career. Thanks for all your wisdom and insights shared. I have a few questions, sir. First on -- I mean the previous participant also asked on the deposit growth, which also you have been industry-leading so far on both Y-o-Y and Q-o-Q basis on the deposit growth. At the same time, your cost of deposit has also seemed to have declined, right, Q-o-Q. Now in the previous quarter, SBI and maybe some other large private banks, they had raised their TD rates, minor upwards. With your expectations of continued healthy deposit growth, would you believe that your -- you need not tinker with your rate and your cost of deposit is broadly flattened at your end?

Thanks, Jai. Thanks for the nice words. See, I think it's really hard to say that it will be -- we can't tweak with rates because these are super dynamic. We have made a general criteria that we don't want to grow credit too far ahead of deposits. So fund before you lend is one. Two, we want to respect our LCR and CD ratio criteria. If that means we need to price some buckets more attractively to get deposits, we will. So what we are trying to stay away from going into large category bulk deposits or purchase deposits, but go after client deposits. Thankfully, in the quarter that went by and even the previous, we've been able to deliver on that. I think that capability will continue into Q2 and Q3. We are also actively retiring some of our high-cost borrowings and replacing with relatively attractive for the customer, but lower cost for us blended rate. So we are able to manage the cost of deposits, but yet keep the momentum going.

Right. And sir, if you can call out your LCR -- average LCR for the quarter? And in your view, what kind of changes could there be in LCR framework if RBI were to strengthen it, maybe in terms of one-off rates or it could be something else?

Yes. I'll give you the sort of basic logic on LCR, right? If we are getting good quality, attractive client, sticky money, it's a big plus. So we are going after that quite intensely. Second, as a consequence, if you have lesser short-term borrowings, it helps again. Third, if it's -- the borrowings is not from a financial services institution, it's even better. So there are many constituents of this LCR and our teams track it up to me. On a daily basis, we watch it and take very instant corrective actions should things start looking out of range. We are in -- we have a threshold in the bank in the 105 to 120 kind of band is where we want to be. We are right now operating in that band. And we have to keep sort of constantly calibrating, like I said in an earlier instance, LCR/CD ratio and the eagerness to grow credit too far ahead of deposits, we have to rein in. So broadly with this criteria and the LCR band between 105 and 120, we are operating.

Right. Okay. And sir, there was a question on nonstop OpEx. I think you mentioned sometimes, but I just want to check the growth has been like 30% Y-o-Y. Partly, we have been growing high-yielding, high-touch retail segments. So is this -- is there any one-off? Or how should one look at the nonstop OpEx growth for the next maybe 1 year, 2 year types?

Venkat, do you want to comment?

Yes, Shyam. Yes. I think there is no -- firstly, Jai, there is no one-off in the nonstop OpEx, which you see in this quarter. And to your question about how do we see this going forward, it would be in the similar lines and on the themes which we mentioned earlier in terms of investment in distribution, technology and control systems, whether it's audit systems or compliance systems, a combination of all this. And we do see the rest of the cost would all be directly variable to the business growth. So largely, if you see the cost pertaining to distribution and tech would be ahead of other spends in terms of percentage. But most of the other way, expense would be variable to business growth and in line with the current -- around the same levels of cost/income ratio.

Sure. And lastly, sir, what would be your total -- I think you used to give the total employee number. I think that is not given this quarter. What is the staff count? And if you were to bifurcate to IBA-linked and maybe CTC model, a broad number?

Total headcount is about -- somewhere in the vicinity of middle 15,000, 15,500 and change. We are largely IBA-linked, Jai. We don't have -- a maximum of about 1,500 people or 10% is not in the IBA.

Right. Okay. Sure, sir. And lastly, sir, if you could answer, I mean, this is a bit intriguing question that you have appointed your successor, a worthy successor, but he had resigned much earlier before taking this job and getting an RBI approval, final RBI approval. So if you would like to comment to the extent possible.

Two -- 3 things there. First, I did not appoint my successor; my Board and RBI did. And we certainly welcome and he is a high-quality professional, as you mentioned. And I think you're asking the question, he resigned there and he got the appointment later, it's probably the question. I don't even know if they're linked, Jai. I think he resigned, maybe he did not want to hold any job while he is in discussion with another opportunity. I can't quite comment. But other than that, I really have nothing to offer than say that I've known him for long and he's a high-quality professional, and I'm sure the bank will greatly benefit by his presence here.

The next question is from the line of Rakesh Kumar from B&K Securities.

So sir, firstly, like on the network side, so like if we exclude the profit for this quarter and the accretion that we have done, INR 339 crores, there is some more addition to results is there. So what is the reason behind that, sir? I couldn't get it completely. So I am deducting the profit and the INR 339 crores that we have accreted to the AFS reserve. So what is the residual number could be?

Venkat, money?

Well, it's only the INR 339 crores and profit, there's nothing else material which is coming.

Okay.

And share premium.

And share premium will be there. Yes, that's in the normal premium.

But share premium will anyway come into the total reserves -- anyway, okay, I will discuss it offline, sir, maybe. So this total miscellaneous income, sir, as you explained, we have PSLC gain. But this number is quite volatile, like the full year in FY '24, we had INR 635 crores. In this quarter, we have INR 227 crores. So how do we like see this number? And out of this INR 2,700 crores total written-off pool that we have as of March '24 approximately, what is the recovery number that is sitting in here, sir, from the written-off pool out of INR 227 crores?

That's about -- approximately INR 30 crores is from the written-off pool.

And INR 90 crores from the PSLC, sir?

Yes, INR 90 crores PSLC and approximately around INR 50 crores from the reval.

And the remaining, sir?

Last year also, we had -- there's a dividend from our AFLIC, which is our...

Life insurance partner.

Yes, insurance associate company.

Okay. So remaining dividends, sir, like excluding dividend, how do we see this number, sir? Like the PSLC gain and recovery on written-off pool for the remaining 3 quarters?

Like we said earlier, every year in Q1, you would see the PSLC account coming in, dividends coming in. So incremental, what you should see is around that INR 50-odd crores number on reval and INR 40 crores which we got from the additional PSLC. And as we grow, the PSLC income will also continue to grow. We'll be able to get more income from it. And recovery from written-off is, again, something -- these are all small accounts, and we continue to recover from it. There is no big chunky number in this quarter's recovery from written-off.

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

First and foremost, a hearty congrats to Shyam and the team you have built up over the last many years. The true test is how you leave the organization from the time how you found it. I think you are leaving it in much, much better shape. I think all credit to you as you don't get due credit, you don't even seek it, but I thought that was relevant. You will be missed. I just had one query. I mean in the last 3, 4 years and probably even earlier than that, you've been very particularly focused on making sure risk is the first thing that you tend to address. There is now a tendency that your yields are sometimes probably the lowest in the system. I'm not talking about the yields that you report, but I'm saying in general, when you look at asset classes, we tend to find that Federal Bank is among the lowest-priced banks, right? So you get, of course, the creamiest assets, but it comes at the cost of you probably underpricing yourself. Is there good risk you are leaving on the table sometimes? I mean could you just throw some light around how you want to triangulate, revisiting the portfolio versus not taking the unacceptable risk?

Thanks, Krishnan. I think we've tried very hard to ensure that balance between risk and growth, and we want both, as in low risk and high growth. But it's always a tough act. In each business, we have very tight criteria for how much you want to take. But the idea of our growth, and I hope it's vindicated and validated across time, we want to be a banker and not lender. So if I give a AAA or a AA or an A, a very attractive credit pricing, then we ask for more business from that customer. As a consequence, if we see our Corporate Banking, Commercial Banking, other income is growing quite smartly. Our PSL, which was we were deficit 2.5, 3 years back, is now a revenue-generating opportunity, is only because we have gotten those assets which are helping us -- our PSL grow up and, therefore, we're able to sell and make. Harsh explained the gold loan philosophy of how price right on the interest rate, but 80-odd -- INR 80 crores, INR 85 crores is fee income. So I think we are trying to keep that balance. So I want to believe that lagged credit costs on our book applied on our margin, we are not wildly off from better banks. You know the industry better, but somebody has a NIM of 3.75% and a credit cost of 75 on a sustained basis; in our case, 3.20% NIM and 30 basis point credit cost, we are not like wildly off. That we are not recognized for it is a quirk that I've never been able to explain, but I think the reckoning has come. We will get recognized and probably rewarded too. But we've held quite tight on that, and I think we shouldn't go away from that is our belief, Krishnan.

Understood. That's helpful. The -- I mean, if I have room for one more question, maybe. You did mention something about NRE deposits in your opening remarks. I don't know if this was addressed subsequently, I might have lost it. But just wanted to understand, what helped you claw back your way into the NRE deposits this quarter? Why is -- why do you believe that's sustainable now?

Yes. I think maybe Param from Nomura asked that question and Shalini explained, but I'll try to add some value. First is, we didn't lose share of NRE as much as NR deposits were coming down into India. It's not like we were gaining share, but the quantum was coming down. What has changed and improved quarter that went by and even in the first month of this quarter is encouraging is that, to some extent, money has started flowing in probably because, one, our own tweaking of our scorecard of our people encouraging them to go much more into deposits than any other product. Second, these are all sort of our guessing, but borne out by some data. The period that -- this started post-COVID, right, towards the back end of '22 -- '21 and early '22 is when this 2-year period of people, NRIs bringing in less money was visible or whatever was coming in remittances were not coming into deposits because people were paying off loans, setting up small businesses, doing whatever that money goes into for various other instruments. We are now thinking that era is over. Their loan payoff is typically 2 years into that, they've probably sorted that out. So money -- the remittance is coming into deposits also. Remittances were not shying away. Remittance was not converting into deposits. I think that's the biggest change that has happened in the last 100-odd days.

Sir, and that's largely the system tailwind rather than Federal Bank having had to do something, right?

No, no, no. Federal Bank's strength has been great ownership and relationship and percentage of clients who bank with us. So what Federal Bank is benefiting by that is aiding the money, client behavior shifting from only into paying off loans and spending into deposits, and we are benefiting from that.

Perfect. Very helpful. And yes, sorry, Shalini, I think...

No, I think Shyam supplemently address it, Krishnan. So it's not just kind of only the environment changing, but a lot of interventions from our side have also helped.

Okay, very helpful, Shalini. And Shyam, thanks a lot. Wish you all the very best, Shyam, personal -- in your personal capacity and obviously to Federal Bank as a franchise.

Thanks, guys. Thank you.

The next question is from the line of Prakhar Agarwal from Elara Capital.

Just a couple of questions, and sorry if I'm being repetitive. Why -- what would explain the cost of deposit decline on a sequential basis? So you probably have around 6 basis points of reduction. What would rather explain this?

Venkat, do you want to go?

Yes, Shyam. Sorry, can you just repeat? I was just talking to...

Yes, I was saying there was a 6 basis points of decline in cost of deposits on a sequential basis. What would explain that?

Just one second. To a large extent, in our case, the interest payable is once a year in March, in Q4, which you saw in last quarter. So if you exclude that, that's the reason why you see the difference in this quarter. That's the main reason.

Okay. And in conjunction to that, the last time, Shalini mentioned that margin is probably for the full year, maybe 2 to 3 basis points higher than where we closed for FY '24. Do we maintain that stance? Or probably given what we have seen in Q1 and probably some -- what is our stance on that specifically?

Yes. I think like what Shyam mentioned at the beginning, margin, at this stage, we expect it to be around the same levels at least for the next couple of quarters. And then since the entire deposit pricing is very dynamic, we will review it post that. So at this stage, we expect the margins, NIMs to be around similar levels as we saw in Q1.

Got it. And just one last data-keeping question. There seems to be some reclassification in the gross advances across various buckets on wholesale. Could you explain what is the changes and what is the rationale around the same? So prior period number has also been restated to some extent.

I didn't get your question, sorry.

Sorry, I didn't get your question.

So when I look at your gross advances and the composition of that, there seems to be some reclassification in the prior period quarter as well. What explains that? And which are the segments that you've changed, so across various segments were changed?

Let me check and we'll come back to you separately on that. I don't have the numbers in front of me now. Yes?

Sure. I'll wait.

I don't recollect any major reason for the reclassification, but I'll check and come back.

Sure, sure. That helps. That is it from my side.

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

Shyam, thanks a lot for what you have delivered at Federal. Love the interactions that we've had in the last 15 years. A few very basic questions from my side. Just wanted to understand, what was the LCR that you've reported for the end of this quarter?

I don't know if we've reported a number, but I guided that it's in the 105% to 120% bracket, which is our guideline. If I recall right, it's about 111% or 112%.

Okay. Sir, just checking on this -- on the balance sheet for the quarter, there has been improvement in the deposit book as well as the borrowing book, which was a bit more than what was the need for the -- what the balance sheet was showing. Just trying to understand what you've done here. Because borrowings is up from INR 18,000 crores to about INR 22,000 crores and the deposit book has also gone up. Any reason for the increase in borrowings from your end?

Lakshmanan, are you there? Or Venkat...

We have had -- yes, so we've had a number of refinance happening. Beyond that, our liability, some amount of our activity goes into the investment activities for the treasury book as well and some products around that. So the refinance plus this, it would answer a part of what you're asking.

Okay. Sorry, the second question was to -- was a continuation of the previous one. I think what you've done is that you've reclassified the agri book as well as the gold loan portfolio within retail and on the agri side. But if you look at the gross NPA line, which is in Slide 34, that NPA number continues to remain the same at INR 930 crores. Whereas again that if you look at the agri book, which is in Slide 9, which is about INR 7,684 crores, the NPL ratios in the agri book looks to be fairly high. Are we all looking at the right set of numbers here?

Souvik, you can reconcile that and share it with them. Yes, we'll come back to that.

Sure, I'll do that. Mahesh, I'll share it with you. It's not really reclassified. What we have done is we have just taken out gold as a separate entity. I'll have a separate chat with you.

No, you've taken it out on one side, whereas on the other side, when you look at the gross NPL book line and the slippages line, we don't know whether the 2 talks to each other. That's the only thing.

Understood, Mahesh. Understood. There is a rationale behind that. I'll come back to you.

Okay. Perfect. And last question, sir. Have you reached a point where you've started -- you've had to invoke FLDGs on your, let's say, MFI partners or things on the ground continues to remain fairly okay? Just wanted to check on that one.

As of now, everything looks okay, Mahesh. You and Krishnan, I think, are the longest in this conversation brigade we have had for 15 years.

The next question is from the line of Pranav Tendolkar from Rare Enterprises.

Shyam, no questions this time. Just thanks a lot for being at it. And so I can certainly say that in that mid-cap range of banks, our bank is one of the best in terms of technology and various tie-ups and various improvements that we have done over 10 years. So just a thanks, big thanks.

Thanks, Pranav. I know one person would have been happy with us was a big boss of your organization.

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

Sir, thanks for you being there. Sir, my question is basically, you had such a long career in Federal Bank. There were a lot of ups and downs that you have seen. Now that the new MD will come, basically, what will be the ask from the new MD? Any unfinished business that you believe should be taken up on a finality basis, particularly on asset side, liability side? People don't know anything basically to be done on technology side because I think there, we have done a lot. Then the another part is also basically the co-lending arrangements. I think you certainly led this co-lending, co-sourcing kind of arrangements very well on the liability and the asset side, but somewhere it seems like RBI is not too happy with these kind of arrangements and I think being it gold loan sourcing business or on cards, something or the other has cropped up. So maybe a better engagement with RBI. So any ask or basically an unfinished business that you will want that new MD to take it up some time?

Anand, I think that's like a very difficult to answer because I think these are journeys, right? There's always something and something more to do. I'm sure when Manian sets his -- comes in here, he will find through his pair of eyes many opportunities and things that can be dialed up. But I think I would say the core of the franchise is super intact and the team is like quite excited. There will be lots of things, right? How do we expand margins? Which are the new geographies we can scale up? But at least for 8, 10 years, the Board and we have been saying we want to be the most admired bank, and that is a hard journey. On every count, we want to be good, on governance, on credit quality, on employee engagement and client service, NPS ratios. So I think it's going to be one sort of, hopefully, a good journey, but this is far from over. A lot can be done, a lot will be done. But margin expansion would be one big agenda item. And I would think seeking greater market recognition also will be another one for him.

The next question is from the line of Saket Kapoor.

Sir, as the end of the first quarter, so what should be our NII growth trajectory for the current year? And what should be the number for slippage and recovery as a percentage of book or an absolute number, if you could give us some understanding?

Sir, I think the answer to that is we are guiding for overall credit cost to be around 30, 35 basis points, right? So everything is subsumed in that. Interest income, I also said, will match credit growth. So those are the 2 metrics we are working on. And as a result of it, the momentum on profitability and ROA should keep flowing through.

In terms of exit for the year, what should be the numbers that we should keep in mind in terms of NII and ROA?

So ROA, we've been saying we are at about 1.27%. We believe we'll get to around 1.30%, 1.35%. And that automatically means improvement in the run rate on interest income also.

Right, sir. Sir, on the employee cost, I think so Q4, we had a higher provisioning of the early prior period also. So this number of 7 -- the current quarter number of employee cost of INR 738 crores is the one which we should analyze?

Venkat, would that be right?

Yes, that's correct. Just some minor non-IBA stuff, is there any changes that would come in. But largely, yes, that would be the staff cost.

Okay. And in terms of the repricing of deposits, you did alluded to the fact of 20% deposit growth that we are working with. So in terms of the repricing of the deposits, what percentage of the total deposit are being repriced to and what are going to come for repricing for the current year in percentage terms or in absolute numbers?

I think that will come in our annual report very soon. You'll just see them by vintage, the book maturity. In the next week, you will see -- next 2 weeks, you'll see that in our reporting.

Okay. And lastly, a question to you, Shyam sir, with the closing remarks. We know you being a banker for an elongated period, and what should we take into account going ahead? Because as an illustrative career, people will always be pursuing their ambition. So there are regulatory norms and things which do not allow you to be, I think so, a part of this organization going ahead. Please correct me in my words and if the choice of words are wrong. So going ahead, can we look at Mr. Shyam as a banker with another institution giving his valuable insight and guiding another set of institution to another milestone going ahead? Or are you on the verge of hanging your boots once 22nd September comes in?

I said that in calendar '24, I have no other than working in Federal Bank and signing off. In '25, we'll figure out, but I'll continue hopefully with the regulators permitting to be associated with the bank in some fashion or the other. Otherwise, I don't have any executive role responsibility aspirations.

With other institutions also, sir? You are not aspiring to lead any other institution?

This is my biggest baby in life. So this is my job, this is my bank.

Right. So all the best to you, sir, and best wishes from investing community, shareholders at large. And the last point on the other income, if you could give the -- we have provided the granular details. So on a consistent basis, what should this number can be? Because we have highlighted this to be the highest other income number wherein, I think, so the major component has been the reversal in recovery from written-off asset at the highest at INR 227 crores. So on the other parameters like loan processing, card, para-banking and other ones, what should be this number that should be consistent going ahead, depending upon the nature of the scene?

We are working to taking it to 1% of our assets. Currently, it's 0.8%, 0.9%. We're working to take it to closer to 1% of assets. Souvik, if there are no other questions, we can bring this...

Sure, sir. We'll probably wrap it up.

Souvik, just before we close, can I just take a couple of minutes?

Please, sir. Please.

Thank you. Shyam, on behalf of everyone in the bank and the investing community, I take this opportunity to thank you from the bottom of our hearts for the transformational journey, which you have led this bank to from 2010 till now. Though we have these calls to the investing, analyst community on a quarterly basis, it's only fair when we step back and look at what the bank was in 2010 and where we are today. It wouldn't have been possible without your leadership. So a big thanks from all of us, and we wish you all the very best in your future endeavors. Thank you.

Thanks, Venkat. You're very kind. But to our entire friends in the investor community, I've said this, and now I can say it with even greater courage and conviction, don't look further. This is the best bank you'll ever see, and I genuinely mean it. Every time I've said you see what you see is the truth in this bank. And I'm sure you will all accept the fact that at least if nothing else, our balance is playing out quite well. So thank you very much. And for those of you who have been with us throughout, thank you so much. Thank you.

Thank you all. Bye.

Thanks, everybody.

Thank you so much.

Thank you, sir.

Thank you. Thank you, Shyam. Thank you, everybody else. Bye.

On behalf of Federal Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.