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Federal Bank Ltd
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Ladies and gentlemen, good day, and welcome to the Federal Bank Q1 FY '19 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Rajanarayanan N, Head of Investor Relations, Federal Bank. Thank you, and over to you, sir.
Thank you, Santhosh. Good evening, everybody, and welcome to the Q1 Earnings Call of Federal Bank. With me are Shyam Srinivasan, MD and CEO; Ashutosh Khajuria, ED and CFO; Ganesh Sankaran, Executive Director; Sumit Kakkar, Chief Credit Officer; and other executives. Over to Shyam.
Good afternoon, good evening, and thank you all for joining. And this call is post results declaration earlier today. Out of the key messages, like always, I'll share the key messages and of course, then we open for questions and clarifications. Our investor deck has been posted. Our details have been sent out, but let me just share some of the highlights.Our operating momentum that has been continuously improving was strengthened this quarter, visible across many parameters. Most importantly, operating profit for the first time crossed INR 600 crores and the credit growth that has seen meaningful growth for 9, 10 quarters, continued to be robust, and even more importantly, it was fairly widespread across both products and geographies. That momentum will continue seeing us gain share, and we are now well north of 1% -- or 1.07%. On deposits, particularly the granular nature of the deposit profile and the retail nature of the deposit profile was strengthened even further. 96% of our deposits is now retail, and in this quarter, after shedding a sizable part of our CD book, our deposit growth also matched credit growth. So on balance, the operating performance was strong and will continue to be along the same line.On the credit portfolio, we had said that the credit costs for FY '19 will be around 65 to 70 basis points and that momentum or that commitment still holds, and Q1 reflects the same number.In terms of the, sort of, franchise strengthening, the verticalization of the businesses, getting in more sharp focus and talent into the bank, that momentum continues. We've introduced some more senior people into the team to strengthen specific areas, which are prospective focused, be it retail and in particular retail unsecured, or areas of government business, fee income or some of the newer initiatives around vehicle financing.So the quarter is along the, sort of, direction that we chose to do. CASA continues to grow. We are 33.47% and the -- marginal uptick from the previous quarter.Some of the key events for the quarter. One, the Fedfina, our subsidiary, has got the strategic partner. We're waiting for the final clearance from the regulator, that should be coming in a few days. So Fedfina will step in as a strategic partner in our -- sorry, True North will step in as a strategic partner in Fedfina. Two, we had mentioned in the last call there is an active effort in one of our subsidiaries, a joint venture initiative for IDBI Federal. That I don't have much to share as an input because one of the key partner in this relationship has seen some change in their tax. So we will know more outcomes as the quarter and Q2 proceeds.So beyond that, the investments in Equirus is beginning to take shape. We are seeing some good traction on that front and a few other initiatives of the bank are beginning to sort of play out, and we are mindful that Q2 should continue this kind of momentum as we go -- as we sort of strengthen our operating performance.So without getting into too many numbers, I'm sure that will be the focus of the questions for most of you. I'm happy, between me and the senior team, to clarify and answer questions. So I'm not getting into any further detail. I could read out some of the script, but that's there for everybody to see.Operating profit of INR 603 crores, net profit of INR 262.71 crores. Overall business grew 19.5%. Net interest income grew 22.4%, matching credit growth. And deposits, I pointed out, grew 16% after shedding some bulk deposits.So overall, momentum is strong. Credit cost is on guidance.So I'm happy to take questions. Operator, you could open for questions. The entire senior team is here.
[Operator Instructions] The first question is from the line of Nagraj Chandrasekar from Laburnum Capital.
On slippages, given your guidance in the last con call on INR 1,100 crores to INR 1,200 crores on slippages for the year and the INR 460 crore amount we've seen this quarter, are you projecting a significant fall in slippages in the next 3 quarters to sort of meet this guidance?
Yes...
And secondly, how much more of the structured book do you expect to slip into NPS over and in what period would that happen?
Thank you. The restructured standard book, as we speak, is about 5-5-5 -- INR 555 crores. One large account of INR 250-odd crores. The rest is a granular bunch of accounts. So we had guided for between INR 1,100 crore and INR 1,200 crores of slippages and 65 to 70 basis points of credit costs. Both of that looks quite possible. This quarter, of the INR 207 crores of the Corporate, INR 163 crores was the restructured standard. So the INR 451 crore has INR 207 crores on account of the Corporate slippage. The rest is about INR 250 crores, and therefore, we think in the quarters ahead, another INR 800 crores to INR 850 crores will be the slippages, which should be split in the same ratio as I mentioned, ex-Corporate. At Corporate, we don't see many significant slippages during the period. Air India is the only wild card, which I've been saying for many quarters. I think there is a solution that may come through.
And on provision coverage, this has dipped slightly relative to the last quarter. How really is this likely to evolve and over what period should you, sort of, get it to above 60%, if that is your, sort of, ballpark, long-term figure you want to be at?
We are sort of certainly keen to build back provisions, but I must be honest, it is not going to be in 1 or 2 quarters. We will -- we are and we're hopeful that there can be one-off gains, which can be the ballot we'll look for. But we will keep pushing this up because as the credit quality or the slippages keep trending down, the provision coverage will go up as we keep adding up some of the provisions and not entirely take it into P&L.
The next question is from the line of Kunal Shah from Edelweiss Securities.
Good set of numbers. The other thing was in terms of security receipts. so how has been the provisioning this quarter on SRs?
It was INR 180 crores as at the end of 31st March. Now, it is INR 183 crores provision [ this quarter. ]
So as of now, there is nothing which has been done during this quarter? And I think in terms of what we earlier guided that there could be INR 75 crores to INR 80 crores, will sort of get provided on SR over a period. So that stand still continues? Or we had seen the improvement over there?
See if you see the gross value from INR 725 crores, it has already come down to...
INR 480 crores.
I mean, 4 -- 9 plus 1 -- 6 -- 1 83 -- about INR 660 crores. So from INR 745 crores, it has already come -- INR 725 crores it has already come down to about INR 660 crores. And provision is INR 189 crores. Net of it is INR 479 crores.
Okay. No, so in terms of the further provisioning, how are we looking at it? So that would be...
For the further provisioning, as usual in every quarter, we take the [ NAV ] so accordingly if there is any revision in that, it would be taken care of, but we have been even getting some of the redemptions [ on and all ]. So in a one major account, we have got full redemption so it got security. It has got fully redeemed and all. So I think it's something, which is quite fluid and over the quarters, we will see how this outcome of the NCLT things and all shapes up. And if we get more payment, then I think there would be less provisioning requirement and there will be more of redemption.
I think that's why the overall guidance of 65 to 70 basis points on credit costs were small numbers.
Okay, and the other thing is in terms of the improvement in the slippage run rate for SME segment. So anything specific to read into it because the run rate is quite slow and looking at the way the overall slippage run rate is, how would be the growth prospects in the SME segment?
I already said that..
Sorry, I...
Run rate of slippage.
Yes, the question was how will be the growth or how will be the slippage in this?
No. So slippage, it's comforting, it's on a decline. So in terms of the growth outlook and the confidence in the SME segment for us.
I think we remain confident in SME segment. In certain geographies, consciously, we are deemphasizing. As you will see in our deck, in the -- Network-I, as we call it in Kerala, there are some challenges temporarily. So we are scaling back or cutting off some segments, which are riskier, but barring that, we remain optimistic and our growth is about 25%, 26%. That will continue.
Okay, and lastly, in terms of recoveries and upgrades, is there any chunkier account in this INR 246 crores?
We had one upgrade, one account of significant upgrade.
The next question is from the line of Renish Bhuva from ICICI Securities.
Sir, couple of questions. One on the margin side. So in midyear, you highlighted that our NIM should sustain around 3.2%. So what should drive this little expansion considering limited scope for the further expansion in CD ratio. At the same time, pressure on asset deal and there might be increase in costs of deposit also. So what should drive this little expansion now which should help us in sustaining the NIM at current level?
No, I think the midyear, where I said it's just not pricing power, it's a combination of things. As -- if they just trend down, you have reversal of interest income as a meaningful reduction. Then the better utilization of the assets and the asset mix yield, there are new areas of business that we are foraying into. So the expansion or a full year guidance of 3.2% realizes all of this.
Okay, sir. Sir secondly, on our Corporate rating profile, so for this quarter, we saw a sharp increase in our BBB-rated book to 16% from 9% in the previous quarter. So I'm sure we must not be lending to any risky corporate, but you know why this sudden increase in the...
No, I think it's because every year, in the beginning of the year, [ we rate lessen. ] This year, in wholesale assets, we have added commercial banking and corporate. So earlier, we were only reporting corporate.
Okay, okay. So this is because of some part of SME now is classified under Corporate, is it?
Yes, yes, yes.
Okay, okay...
I think, we have said that at the bottom. If you see, it includes all rated corporate and commercial banking assets.
Commercial banking is between [ 5 to 10 years ].
Okay, okay, I might have missed that note. Okay, sir. Sir, can I ask last question...
If others allow you.
Just a small question on the costing. So you know despite absorbing the full impact of the gratuity-related expense, your cost to income has actually declined by 100 basis points sequentially. So what -- I mean, it should trend downwards going forward considering there will be no one-off expense on the employee side going forward. So how do you see the cost income moving -- going ahead?
At the risk of sounding a little defensive. I've always maintained for many quarters, it's less a cost issue, it's more an income issue as income trajectory moves, one. Second, if the pensioning cost, which is unfortunately a variable that is not entirely in our hands, that's the only wild card. Otherwise, our costs, whether operating costs or employee costs, are pretty much in our grip.
The next question is from the line of Kaushik Poddar from KB Capital Markets.
As of 30th June, your total stress book ratio is at 2.01%. Where do you see it on 31st March 2019?
In a mix and that, the stressed assets on account of restructured standard is at INR 588 crores. And the SR book is at about INR 469 crores, unprovided for. So that's about INR 1,000-odd crores. We believe that should trend down to another INR 250 crore to INR 300 crore reduction on that. And the gross -- sorry, the net NPA is about INR 2,600 crores-- sorry, INR 1,620 crores. INR 1,620 crores should come down to another. So we see that trending down and roughly 1.7% to 1.75% at this juncture.
1.7% to 1.75%?
Yes.
The next question is from the line of [ Suresh Korada ], an individual investor.
Sir, this quarter, there was a virus scare in Kerala. Did it have any impact on the business? And secondly, the gold loan book has come down to a significant extent? What are the reasons? If you could explain, please.
Sure. Thankfully, no impact or effect on us on any virus scare, and we are constantly reinforcing our cybersecurity and our cyber alert capability. So I'm reasonably confident we are in decent shape. Do you mean cyber or you're talking of Nipah?
Nipah.
Okay, sorry. My apologies. My mind is tuned to discuss on business. Thankfully, on Nipah scare, the government did a remarkable job of intervening quickly. In fact, the Chief Minister was given some global award in the U.S. for early intervention. That's been nipped quite well and it's not spread. And it was a very localized in one geography, North Kerala. So we haven't seen any impact. Even worse, the last 2 days, the rains are the ones that is worrying us. But coming to your second part of your question on gold loan. Gold as a category, you may have all been tracking. Industry levels have started trending down. Our retail gold has come off, but our agri gold is going up nicely. So the gold loan book is actually growing, but retail gold is coming off. And that's just a client preference and a client behavior.
The next question is from the line of [ Shiv Subramanian ], an investor.
Actually, my question is regarding the gratuity amount of INR 54 crores, which was absorbed in this quarter. Whether it is fully absorbed? There won't be any further debits during the subsequent quarters, sir?
Yes, it's fully absorbed. So it's there in our annual report also, point #11, specifically talks about the impact of INR 54 crores for the full year. We took it in one quarter, and therefore, the impact for the residual period is not there. Of course, the government makes INR 20 lakhs to INR 25 lakhs. That can change, but that is unlikely.
Okay. And then this True North proceeds 26% when is it likely to come into books, sir?
No, they are not proceeds, sir. They are a strategic investor introducing capital into the company. It's not coming into the banks P&L. Having said that, we are awaiting RBI approval. That is going through its process. We are hoping that in the course of the quarter, that approval should be in hand.
And then the reduction of INR 43 crores in other income. Can you please elaborate on that, sir?
Last year, quarter 1, treasury had a remarkable gain because where the yields were. That, unfortunately, has got reversed and that's an industry-wide phenomenon.
The next question is from the line of [ Rahul Sharma ], an individual investor.
Sir, could you give me a break up of the provision, the INR 340 crore number? How much of it is under asset side, the NPAs?
INR 166 crores is credit, INR 3 crores is standard asset, INR 30 crores is treasury, INR 199 crores what is tax.
Rest is tax.
Got it. Sir also, what has led to the increase in the net NPA ratio marginally? Just trying to get some more granularity.
I think the recovery upgrade and technical write-off was INR 400 crores. Gross NPA slippage is INR 466 crores. So balance is INR 66 crores. That is provision, balance goes into net NPA.
Got it. So also going forward, now all the banks are saying that you want to do retail asset, you want to do retail assessment of the bank, et cetera. So do we see any NIM pressure going forward in the retail side? And secondly, do we see any stress on mortgages, which DCB has seen?
Two parts. One is we have, for long and hopefully, we'll continue to say, we want to be balanced across segments. We are not biased one or the other. If you noticed, our Corporate has been growing nicely and our business model is effective. So that's growing at 30%. So is our commercial banking catching up. The retail is growing nicely in pockets. Barring 1 or 2 geographies, we are not seeing any stress on the mortgage portfolio.
Got it. Sir, any pressure on the NIM because of the competitive intensity in the retail?
We are talking of NIMs for a full year roughly 3.2%. So it's an upgrade from where we are.
The next question is from the line of Vidhi Shah from Prabhudas Lilladher.
This is [ Shivshankar ] here. One quick question...
Excuse me, this is the operator. Sir, may we request you to use the handset, please. Your voice is not clear.
Yes. Is it better?
Yes.
I was just looking at the Corporate level. Where exactly in outside Kerala you are seeing the increase in the Corporate Advances? That's my first question. Second, coming to the retail growth, are we actually seeing on the retail side, ex-gold, not being able to grow when you compare to the fourth quarter?
I don't know. The first part of the question, Corporate is growing pan-India, and of course, by definition, Mumbai has been headquarters of all corporates or many corporates. Naturally, the western region will see the maximum growth. But ours is fairly balanced across the country, so we don't have any geographical bias. And so that's 30-odd percent, I would say, would be spread across the country and that is in the ratio, rate of growth across. The nominator has been different in each case. On the second part of your question is retail.
Question is on INR 3 crores.
Sorry, I didn't get the question.
Sequential growth in retail.
Sequential growth in retail was 3%...
Excluding gold.
Ex gold was 4%.
Ex gold -- if I look at -- compare it with the Q4 presentation...
[ Shivshankar ], typically, Q4 is a bulk quarter for anybody across products.
Yes, so that is...
Usually, Q1 has, for us, been traditionally sub-1%. We are quite pleased that it has been a very robust growth on retail this quarter because the distribution mechanism is very different and that's firing quite well.
Shall we take the next question?
Please go ahead.
The next question is from the line of Jai Mundhra from B&K Securities.
Sir, first, on the margin side, just for arithmetical purpose, I mean, arithmetically, our yields have declined by 2 basis points quarter-on-quarter and costs of deposits have actually decreased by around 20 basis points. Whereas the NIM is slightly, let's say, 1 basis point up. Is it something more than this? Or if you can just -- arithmetically, margins could have expended more.
But you're looking at it through the lens of yields only. You have to look at the slippages and the consequence of the reversal of...
[indiscernible]
You have the investments also interest comes from various segments. Interest on advances, interest on investments and other sources, like...
Sure...
So it's not straight-line listing that is, in interest -- the yield on advances, certainly, what you are saying is correct, exactly like that. Cost of deposits has come down, but you have the income on investments, interest on investments that also has flattened or little -- it has reduced because we have decided to reduce duration. So when you have lower duration, yield will be lower.
Sure. And sir, in terms of cost of deposits, this quarter, again, it has fallen off, and lately, we have seen there's some -- the cost of deposit has been rising. So what is your sense? When would it -- when we will start seeing the cost of deposit rising on a blended basis? Or we can still have 1 or 2 more quarters wherein cost of deposit could still fall?
We expect that in the current quarter, it would be either flat or would start reversing from here because the impact of -- it is only in term deposits. As regards, CASA is concerned, we continue to have savings bank rate of 3.5% and 4%. 3.5% for up to INR 50 lakhs and beyond that, we pay 4%. And current account would not have because these are basically the fixed rate deposits. When it comes to term deposit, term deposit certainly has -- the peak rate has gone up, but the impact of that would probably start coming in towards the end of quarter 2 or beginning of quarter 3.
Sure, sir. Sir, last quarter, we had mentioned there was INR 150 crores of SBR 5.25, all these things put together. If you had provided that number as of first quarter?
That INR 555 crores of standard restructure is included in it.
Yes, yes, so that included -- even for the last quarter, that included everything. But just if you have provided what is the -- this pool of SBR 5.25.
I don't have it offhand. Maybe you should check with Raj. I don't have it offhand, sorry.
Sure. And sir, I missed one part. If you -- pardon me, if you have explained already. Is the -- have you provided any more detail in the reduction or the recovery upgrades which has been coming? Is it more to do with...
INR 246 crores is recovery upgrade and slippage is INR 461 crores and technical write-off is...
INR 153 crores.
INR 153 crores.
Yes. So sir, this recovery upgrade, is it something from educational loan portfolio that has been recovered or is it...
It's very mixed. One large, but outside of that it's very granular.
The next question is from the line of [ Bhavik Dave ] from Reliance Mutual Fund.
Sir, just wanted to understand on your corporate book. Can you give me a bit of flavor of how your SMA-0 since the 12th February circular? How is the SMA-0 trending? And what are the kind of effects the consortium takes when an account gets a day overdue? How do you manage those accounts? And what is -- is that -- how is the quantum shaping up in the last 3, 4 months?
The SMA overall book is at all-time low. And while I'm not giving you specific on SMA-0 or SMA-1, our SMA book is at all-time low and it's been trending for many sequential quarters. We are not much into consortiums right now. So most of what is either bilateral lending or NIMs we are very comfortable with. Thankfully, have not gotten into the SMA category at all.
Whatever on stock we had is getting reflected through the standard restructure, which is fully diminishing. On the floor, we believe that the relevance of this is a little less to us the way we are pursuing our business now.
Okay.. And on the incremental lending trend also, we are doing more of nonconsortium lending, right?
For the last 2.5 years, I don't recall doing consortium...
We don't [ specifically ] for nonconsortium, every company has its own arrangement. Some prefer bilateral, some prefer multiple banking. There is opportunistic assets. We play along with what the client wants and move along.
The next question is from the line of Anand Laddha from HDFC Mutual Fund.
If you can give some color like what proportion of loan book are linked to 3-month, 6-month or 12-month MCLR?
MCLR lending of the bank is now...
80%.
80%?
Close to it.
Yes. 70% plus, 70% plus.
70% plus MCLR lending?
Yes, yes.
And 30% balance should be fixed rate or they are still linked to base rate?
It's mixed.
Even PLR is different.
Some small amount would be even PLR linked.
Okay. And sir, on the PLR [ rate ], what proportion will be linked to 1-year MCLR and what proportion could be to a shorter duration MCLR, like 3-month or 6-month?
I would say some of the new home loan originations come at a lower 3-month MCLR? And Corporate, depending on the client relationship, it would be. So I would say 20% of the new flow.
On the book side, sir? On the...
On the book side -- new flow. On the book side, would be about...
Less than 10%.
Less than 10%.
Less than 10% is limited to short-term incentive, like 3 months or 6 months.
Yes.
And of course that will be linked to 1-year MCLR?
Yes. It's only in 2 segments, housing and Corporate.
I'm sorry, I didn't get you, sir.
See, this is -- they are only in 2 segments of the loan book. One is under retail housing loan, and there is another one under CIB, corporate institutional banking for AAA corporates.
Which is linked to short-term MCLR?
That's right.
Okay. Sir, our exposure to HFCs and NBFC has been rising. So any thought on the same? And sir, is it all HFC and NBFC exposure are linked to 1-year MCLR?
Two parts. One is I don't know where you're seeing it's rising. It's been actually trending down. We -- all our NBFCs and HFCs are absolutely [ futures ]...
[ Futures fund ].
And therefore, we are not seeing any issues. Pricing depends by each client. It's not standard, I can't [ template it ].
And depends on the tenor for these kind of things.
Yes, it varies.
Okay. Sir, but even that large proportion of our bad book is linked to 1-year MCLR and the [indiscernible] in general, the term deposits are trending upward. Do you see margin pressure for us in coming quarters? Or how do you...
We have guided for 3.2% after factoring all this in.
Perfect. And sir, is there any part of the loan book which is linked to an external benchmark?
There are parts.
So those parts will be what, sir? Below MCLR lending rate, sir?
Yes, of course, there are. They could be below MCLR.
All included -- we are talking of less than 10%.
These are all not significant for the bank.
Okay. So less than 10% of the loan book would be limited to external benchmark which has to do with MCLR?
Yes, or 3 months MCLR.
Okay. And sir, if you can give the breakup of the CASA, [ CA and SA ]?
Raj...
It's 5,000...
5% and 28.3%. 5% and 28...
28.5%.
28.5%.
Sir, if you can just put that in our presentation every time, about the breakup of the percentages and the breakup of the CASA, it will be helpful.
Yes. Sure, sure, sure. We will do that. Thanks. We'll do that.
See, total CASA is 33.47%, which is given in...
5% and 28.5%.
5% and 28.5% is the breakup.
I think, it's there in Slide 18. I think that is there on Slide 18.
The next question is from the line of Nilanjan Karfa from Jefferies.
Sir, on -- could you spell out the NRI current accounts, savings account and term deposit separately in absolute numbers, for this quarter and if you can -- if you have the number handy for..
Slide 18, Nilanjan, it's there. Do you require a split?
No, no.
It's there. It's there. NR savings, NR business, current account by the 2 networks, both absolute and percentage.
No, no. The NR business, if you can split between savings and current.
Oh, you want the NR breakup, is it?
Yes, I want only the NR specific, savings and current.
NR current is INR 200 crores.
NR current is INR 200 crores. So you could take the remaining as NR savings?
Yes.
I know...
It's savings and term deposits.
Savings and term.
Could we have the savings and...
NR savings is INR 12,000 crores -- INR 13,283 crores.
And what was it in the previous quarter, sequential quarter?
INR 12,000 crores -- previous sequential is INR 12,380 crores.
Okay, okay. And any updates on what's happening on the Middle East because of changes in policy? Have you seen any impact on the flows because of that?
Yes, the flows have increased.
See, we are maintaining all calls. The NR, in particular, Middle East, Kerala corridor, invariably benefits when there is either uncertainty or rupee is weaker, and we tapped a maximum part of that benefit. The expected behavior is different when there is instability in the Middle East. And consciously, we have been increasing the cut-off for being more watchful on that. New origination of credit on linked accounts that are linked to the nonresident borrower. So it has 2 different behaviors and one is a very magnificent growth in deposits...
More than 20%.
We see that continuing and it's there -- we've seen that across 26 years from the Gulf War. And credit book does have bearing every time there is any kind of inconvenience in the Middle East. And therefore, we are sort of shaping our book accordingly.
Right, right. The second question is on the Corporate business. Could you tell us when -- in the origination part, what part of it would be working capital versus long-term loan?
65% -- 60%, 65% would be working capital...
Largely.
Long term, now it's -- now we are not into long-term.
No, short term.
It's just largely, short-term account.
So then my credit and business then are fairly -- it's even higher than the number I told you.
And long term is mainly LRD.
Mainly LRD. Okay, okay, okay. So how much spread do you actually make? Because I'm just curious, while you have guided for a 3.2%, would that mean a bulk of it is actually coming -- or maybe now coming from the commercial banking side and the retail maybe?
Yes, a combination of the business mix. The growth phase in different businesses, lower slippages, better utilization, growth in the low-cost deposits.
Right, okay. And a final question. Are you still sticking to a 1% exit ROE?
Yes, we are.
The next question is from the line of Ojasvi Khicha from SBICAP Securities.
Yes...
Excuse me, this is the operator. Mr. Khicha, may we request you to use the handset, please. Your voice is not very audible.
Yes, am I audible now?
Yes, it is better.
Okay. So as you have, I mean, split our SME business, I mean, into 2 different segments. So I just wanted to understand, how should we look at the economics of commercial banking versus the economics in the CIB segment?
The commercial banking, if you drew a sort of hierarchy of margin opportunity, corporate, commercial banking, business banking, that's how it would play out. And consequently, the level of focus, intensity and approach varies in each of these businesses. One is very heavily RM-led. The other is an RM stroke branch-led and the third is largely branch-led. And therefore, the structure and the growth rates of these businesses are different -- tuned to those opportunities. Margins are -- I would say, 1% higher in each of those states, 9%, 10%, 11% kind of thing.
Sure. Secondly, like -- I mean, this RBI circular for, I mean, on the working capital needs, if you could just provide some qualitative commentary on that.
It's been effective. So what about our framework if you take...
Working capital demand also?
Working capital demand or WCDL?
So what's the question? Could you repeat, Khicha?
No, I mean, is this specific to, I mean, the working capital mix wherein the, I mean, higher loan component need to be provided. So do you see any impact?
Nothing that we are visualizing yet.
It will help us in our liquidity management because higher the WCDL component, the lesser would be the shop on the liquidity side. But certainly if you have more of cash credit, one day, entire amount would be deposited, the other day entire amount would be drawn. So that reduces volatility and liquidity management reduces -- for banks..
The next question is from the line of Rakesh Kumar from Elara Capital.
Sir, firstly, the one thing like CASA composition, like, over the last 1 year, it has not grown. So it has -- at the same level for the last 1 year. So that is the one question. Second question is that retail deposit and CASA, like, put together, like, in itself, a major component of our deposit. And the growth is around 15%, 16% year-on-year. But if we look at advances, growth number is much higher at around 24%. So how that is sustainable? And thirdly, like this quarter, there has been good cash management because we see that the cash balances having come down and then borrowings having come down. And that could have helped us in some way to manage or to improve margin maybe. So -- and how that sustainable is the margin number? These are the 3 questions I have.
So I think on the margin side, and I am already -- Shyam has already guided that we continue to say that for this full year, we will be -- we are guiding for 3.2%. So that part, I don't want to repeat it further. On the cash side, yes, special emphasis is being given on reducing the cash in hand and the optimum size of cash in ATMs as well. And we have new chests also, currency chests opened and 2 are in the...
Pipeline.
Pipeline, shortly to be inaugurated. So that way, I think it is helping us in our holding -- I mean, reducing the cash in hand held. Now coming to your other question of...
CASA.
CASA. Yes, I think we have that 5% thing as what's done, but if you see quarter-on-quarter, there has been a noticeable improvement. From 2011 to '15, consistently, bank had been gaining CASA around 1.5% to 2% every year. Yes, at 32%, 33%, [ it got segmented ]. But going forward, that's the project being run internally. So hopefully, you would see a quarter after quarter improvement in this particular...
Here also, I'll point out, the CASA is at 33.47%. Unfortunately, the CA which is 5.6%, 5.7% has dropped to 5%, 4.8%, SA has actually gone up from 27% to 28.5%. Like I mentioned in the last call, CA, we have started seeing traction, second half grew nicely. Q1 usually is slower. Even this -- thankfully, even this average CA has grown. So we believe that year-end, we should be closer to 34%, 34.5%.
And sir, one question, just I had on the gaps and the retail deposit CASA growth and the Advances growth?
That is very glitchy. We have to look at -- deposits always follow the credit growth. So if your credit growth is being funded, that still -- adequacy of deposit to be raised. So I'll just mention here that at the end of financial year '18, we were having INR 3,000 crores of CDs outstanding. So that was a wholesale type of resource raising. But we didn't need it. So by the end of June, we are left with only INR 75 crores, the rest we allowed it to run down, and we didn't reissue. That means, the growth in deposit presently is just adequate to fund the credit growth. In case, credit growth further goes up and all that, we have 96% of our liability being -- deposits being in retail. So at any point in time, we can resort to the -- I mean, market instruments, like CDs or other resources, including refinances available from various institutions, NABARD, EXIM, SIDBI, NHB and all that. So I think what I'm saying is, our CD ratios used to be 68%, now has moved to 84%. And we consider about 86%, 87% to be the optimum. And when it touches that, we definitely would be looking at more of resource raising.
Just one last question, if I could ask. Just rating profile of the wholesale asset seem to have deteriorated.
You maybe missed earlier question and also in the slide itself, we have put at the bottom, like, I think it includes commercial banking and Corporate.
The next question is from the line of [ Deepanjali Kedia ], an individual investor.
You mentioned in the call that there would be one large recovery in the education loan book...
No, I didn't say education loan, I didn't say education loan. I said one large recovery.
Sorry. Is the state government scheme still on?
They have a scheme, but unfortunately, they keep extending the days.
Sources [indiscernible]. Scheme is there, but its sources are not...
Yes, but we should not deliberate too much on that because we have sort of neutralized assets to that scheme.
We've adequately provided for it.
Sure, sure, sure. Secondly, can you share how much True North will be investing in Fedfina for the 26% stake?
When the regulatory approval comes, we will declare the amount because we are waiting for that. It's only sensitivity of regulations.
The next question is from the line of Anirvan Sarkar from Motilal Oswal.
Operator, we can move on because we are running to another meeting. So if you can take another 2, 3 questions then we can close.
Okay. Sure, sir. The next question is from the line of M.B. Mahesh from Kotak Securities.
Two easy questions from my end.
I have never known you to ask easy questions.
Sir, on the savings interest part, since you have a distribution, which is available from 3.5% to 6.5%, are you -- where do you see the bulk of your savings book as we speak today? And how much of traction that you're seeing at this 6.5% level, first. Second, you indicated that 1% ROE exit for 4Q. Can you just give us some direction as to how do you see it reaching there, given that the upsides on margin looks limited, how much will have to come from the cost side? And the third question is, there has been speculation on Federal Bank looking at micro-finance business. Just trying to broadly understand how are you approaching some of the nonbanking pieces that you are now trying to build within the bank? And is it required in the first place?
Yes, I think 3 fairly detailed questions. The third one, on micro finance, I think in November last year, we mentioned we are exploring. We are in July, we are still exploring. We don't -- we have not zeroed in on any names. We are in dialogue. For 3 things that we're looking for. One, users increased distribution. It gives us an opportunity towards relatively higher margin business provided it's well run and we trust the franchise. And priority sector lending opportunities, and they can turn out to be a BC. We haven't crystallized any final decision with anybody. So I would not venture to give any more detail on that. As we finalize that, if and when, we will certainly clarify. At this juncture, I don't have anything more to offer other than whatever media reports are speculated, one. Two, on the weighted average costs of my savings is still 3.5%. The 6.5% is for INR 50 crores and above. And I think we have 2 accounts. And -- so if there are more INR 50 crore and above, we'll be very happy to do that, but that's very, very limited and that's very -- sort of I would say, almost bespoke. And the third question was confidence on the...
ROE expansion.
ROE expansion. We had said -- unfortunately, it got delayed by a year. We said in the FY '18 exit, it would be that number and it's a function of the various elements that we have put in place all working together. Our -- and very crudely, if the exit book is about INR 145,000 crores to INR 150,000 crores, for the quarter, the profit number should be that. And we have elements of various things we are doing to get to that number, be it expansion in margin, be it expansion on NII, fee income, provisioning. And the credit cost guidance of 65 to 70 basis points, factors those in.
Sure. The only reason I'm asking is that if assuming that margins doesn't happen, then the entire piece falls on the OpEx line because credit costs is already at about 70 basis points. Just trying to understand, is there a very strong lever apart from NIMs? Because that's an external variable that we are factoring here.
We don't have anything that is a secret weapon, Mahesh. It's just efficiency and performance and the confidence that we have in what we have put together.
And would you give also a guidance for next year as we move along during the next few quarters.
The credibility of our guidance will be after we deliver on what we have said...
In FY '19.
Because we have been seriously punished on occasions for commitments made. So I'd rather -- we -- performance and the conversation will take off from there.
[Operator Instructions] The question is from the line of Dhaval Gada from Sundaram Mutual Fund.
Just quickly 2 things. What is the blended yield on the Corporate book currently? And what is the incremental yield? And similarly for the SME book, if you could provide.
Normally 9%, 10%, 11% is what I have said.
This would be blended?
Yes. 9%, 10%, 11%.
And incremental Corporate yields would be?
8.5%.
9%.
8.5% to 9%. There are a few -- see, remember Corporate is all not INR 500 crores. We call anything more than INR 25 crores as Corporate.
Wholesale it is.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Rajanarayanan for closing comments.
Thank you, everybody, for patiently staying on the call. Thanks a lot. Good evening.
Thank you very much, sir. Ladies and gentlemen, on behalf of the Federal Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.