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Federal Bank Ltd
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Good day, ladies and gentlemen, and a very warm welcome to the Federal Bank Q1 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anand Chugh, Head Investor Relations at Federal Bank. Thank you, and over to you, sir.
Thanks, Ali. Good afternoon, everyone. We have, from the management, Mr. Shyam Srinivasan, MD and CEO, and other senior executives of the bank. I hand it over to Shyam, without -- and he'll start with the opening remarks.
Thank you. Good afternoon, everybody. I do hope you've had a chance to go through our numbers and we can go into Q&A more but let me just spend a few minutes giving the headlines and some of the texture of how Q1 went. We believe Q1 was a strong quarter on operating performance as evidenced by the -- both the operating profit growth and also the net profit growth, both of which recorded an all-time high operating profit of INR 783 crores and net profit of INR 384 crores. Both are our all-time high. Underlying performance on both credit and liabilities quite strong, given the volatile environment that we are operating in. We have been wherever possible lend into segments that we're most happy to do so. And areas that we are little more concerned, we have pulled back. Our market share gains across both liabilities and assets is visible, keeping in with our twin objectives of both prominence and dominance in the geographies that we choose to do so. Interest income is beginning to match off credit growth as other income is growing at a much higher clip. The one development in Q1 was also the first time in 13 years, we did a Tier 2 bond issuance of about INR 300 crores. And we exit Q1 quite along the lines that we had visualized how it will shape up in what probably is one of the more stressful external environments. We have been more picky in certain geographies, as I've cautioned on a few calls in the past. We are being more watchful and certain geographies and certain clients profiles. Otherwise, the underlying momentum on retail, in particular, is very strong and in wholesale where we are willing and where we feel more comfortable with, growth has been -- continues to be good. The overall performance for Q1, both on assets and asset quality, deposits and in credit, is quite along the lines we visualize the year to be. If you may recall last year, when we ended and the sort of headline guidance we had given in terms of ROA and credit cost, we are tracking to that and believe that irrespective of the outcomes in the market, we should be able to meet or in part, exceed some of those objectives. So that's really the sort of entry point, key headline messages. These -- the deck is out there and me and the entire senior team are here, and we'll be happy to clarify or answer specific questions pertaining to any of the areas that may require clarification. So I'm not spending more time giving more nuances on this. We'll take it as the call progresses. So happy to open the call for questions.
[Operator Instructions] First question is from the line of Abhishek Mody from Asit C. Mehta.
So my first question is, on Slide #19 as for the loan break up, retail side is 47%, wholesale is 53%. So what does the bank see going through? Are they going to bring the retail side more than 50% or is this more likely to be the figure going forward for the next few quarters?
We've said, directionally, we want to be 50/50, retail/wholesale and that's how it's going. And you've seen our retail growth is -- the core retail is growing at 32%. And we believe that in 2 financial years, that number of 50/50, is where we'll get.
Okay. Sir, in terms of the IL&FS 2 accounts, would you be able to give us this figure which went into the NPAs?
INR 240 crores was the opening in those 3 accounts. INR 32 crores has slipped to NPA in Q1.
The next question is from the line of Darpin Shah of HDFC Securities.
Sir, one question has been partly answered in terms of IL&FS exposure out of INR 240 crores, only INR 32 crores has slipped. So what is the status of other -- the third SPV? How do we see it panning out over the next couple of quarters?
As of now, it's amber and it's standard. In the course of Q2, we will know the fate of it. As you know yesterday, the day before, 2 of the -- 3 of the amber accounts were upgraded to green. We believe that this account may face a similar outcome in the quarter 2 and we've increased our provision from INR 17-odd crores to INR 21 crores. So it's 10% provision that we hold as standard asset provision for this account.
Okay. And your exposures on the other stressed names which keep on coming up in the media, would you like to highlight some of them? I'll name it -- one of the housing finance companies or the stressed group or the media group?
Media groups, stressed group, we don't have any presence. Headlines, we don't have any presence. Housing finance, yes, we have. We have made some prudent -- it's a standard asset. So it's due as of 26th June. So they can't be standard, not even SMA. So we'll see how it goes. The market talk is not very favorable. So we've started building some provisions for that.
Can you quantify the provisions?
We have taken 15% provision, value of 15% provision for them.
The next question is from the line of Jehan Bhadha from Nirmal Bang Securities.
Sir, on the corporate loan growth front...
Jehan, you are not audible.
Yes. Sir, on the corporate loan growth note, growth has come down from -- they have been consistently clocking over 25% growth since many quarters. But now it has come down to 12%. So any kind of light that you can throw on this?
It's not 12%, it is 19% growth. I don't know where the 12% number came. But that said, it is lower then our past period, but it is also because in certain areas, which constituted corporate, where there were stresses, we have been either running down the portfolio or selling down the portfolio. To that extent, it is lower. But we're happy to be at the 18%, 20% at this juncture given what's happening in the market and not rush into growing. And to balance that out, we are doing a portfolio growth on retail at around 30-odd percent. So the blend is shifting towards the 50/50, which is our desired mix. Going back 4 years, 3.5 years back when we were running at 68% ratio, CD ratio, I wanted to build up the book. We've come to about 84%, 85% consistently for now 4, 5 quarters. And we would like to see the CD ratio there. So we don't wanted to do bulk business just for building up. We will do business that is both granular and structurally higher yield and yet keep the 50/50 mix.
Sir, next question on the CASA. It has come down quarter-on-quarter. So is there any pressure that we are facing?
Yes. I think savings, it's probably a market-related feature and which visible or not. Current account is going quite well at about 23%. Savings has come down to the early 10%, 12% -- it's kind of the early teens. It could be seasonal. It could be structural. We are watching out for it because it is -- while pan-India savings growth is happening at the higher cost savings, I'm -- we have not jumped into that and we are still doing at the traditional 3.5% rate. To that extent, we will try to offset whatever saving shortfall through growing current accounts. And as the NR volumes pickup typically happens in second half of financial year, it should correct back.
Okay. Sir, last question on the PCR. Are we happy with the current levels? Or we intend to increase it further and to what levels?
In the last 5 quarters, we have taken up PCR, with the technical write-off by 700 basis points. And we think by end of financial year '20, we will take it up another 250, 300 basis points.
The next question is from the line of Dushyant Mishra from SageOne Investment Advisors.
My question is on your growth in the auto sector. Your auto grew by 61% and I was just wondering if this is a one-off thing? Or are we expecting more growth? And if you could give some idea on where this stems from?
It's not one-off. You may have seen for now, I think 6 quarters or more, both -- all our retail product volumes have been growing quite smartly. Auto and personal loans shows up more because they are very small basis. So when you grow 40%, 30%, 50%, 60%, I mean a particular volume it starts showing up as high percentage growth. In auto, we think we are gaining share quite considerably. In the -- I'd say 7 lakhs to 12 lakhs sales volumes, the ticket size businesses, our credit portfolio there is looking good and our share gain is impressive. We are much more entrenched because our relationship model is working well and that too in just 2 or 3 geographies.
Are you funding inventory for...
No. No.
You're not funding the inventory for dealers?
We're doing end-use financing.
End-use financing only?
Yes.
The next question is from the line of Girish Raj from Quest Investment.
Congratulations on good result. Just on the business banking, you alluded in your opening remarks. Which segment is exactly getting the pressure? And also these slippages have increased quarter-on-quarter basis. Can you shed -- show some color on this?
Sure. Business banking, again, in one of the geographies, particularly in the South, we are experiencing stress in the market and therefore, we are being a little more, sort of, hypervigilant on that to ensure that it doesn't become an issue. So we have reduced or increased the -- tightened the underwriting criteria so the [ y-axis in ] volumes are slightly lower. And in terms of slippages, for the same reason, again, in similar geographies, particularly pertaining to the post floods in Kerala, the moratorium offered, in those accounts, there is a debate whether the moratorium continues till December end or in the earlier quarters. The state government is pushing for a longer moratorium. The regulators are not very keen to expand on that. So that is forcing certain clients' behavior change and we're being watchful about it. In the bigger scheme of things, these won't matter, but yes, for that geography, it's very important and we've been a prominent player. We have been -- we are being, shall I say, tougher on that.
Okay. So in your view, it would take a couple of more quarters to bottom out or...
I think this is likely to present itself for the next 2 quarters till clarity emerges on the regulatory dispensations.
Okay. Second question is, this 15% provision on the housing is on both the housing finance exposure or just 1 bigger?
One, one.
One. And second, we haven't...
No.
But that is a performing?
Both are performing. I don't know which ones you're talking about, but all my -- what is not in the NPA list is a performing account. We don't have any masked accounts.
Okay. Okay. And another question is on relatively higher exposure -- operating expenses and tax expenses at the subsidiary level. Anything to do with FedServ or...
No. What is this? Sorry, you have to point so that -- I am not as good as you guys in knowing everything. But if you point to me, I'll explain.
If you subtract consol minus stand-alone, the operating expenses comes to around INR 27 crores, INR 28 crores. But the total income is only INR 23 crores, so anything related to FedServ?
Yes. I think you're talking of IDBI Federal because it declined.
No, no, no, IDBI Federal would not be there in the operating part at this point of...
I'll ask the guys to look at it and come back to you.
Okay. And last question is on the ForEx income. It has declined. Any development that is leading to this?
I think it is more to do with, I mean lesser booking of contracts and all because of the stability of rupee because normally, whenever there is more volatility, you simply see more of -- I mean a hedge being purchased and all. So I think it's just a phenomenon which happens when you have a fairly long spell of either this stability or rupee appreciating because when rupee appreciating, the remittance also gets impacted. So the earning on that also gets impacted.
Okay. So what are the scheme of things, the other -- core other income growth would broadly trend in FY '20. What is the expectation?
So Girish, if you see core fee income, we have been guiding earlier also that whatever would be the business growth, particularly, the credit growth, it should have at least 400 to 500 basis points higher as fee income. So our fee growth, excluding the tertiary gains, profit on sale of investments...
It's 25%.
It's 25%.
Correct. No, I see that, yes.
That will continue. That trend line will continue.
So it is broad-based. And it has all third-party products, it has the...
Processing fee.
Processing fee, everywhere, commissions, exchange.
The next question is from the line of Renish Bhuva from ICICI Securities.
Congratulations on great set of numbers. Sir my first question is on the deposit side. So sequentially, we actually saw the decline in deposit portfolio and since we are already at 85% kind of a CD ratio. So to fund the incremental growth, we have to have that much deposit growth in our book.
So the reduction in deposit growth is nonbearing. I mean if you see -- break the deposits into 2 retail deposits and wholesale deposits, the reduction is mainly because of running down of CDs that were issued in fourth quarter last financial year. So these CDs have run down in the first quarter to the extent of about INR 4,500 crores. So though there is a growth in the retail deposits sequentially but because of CDs coming down which form part of wholesale deposits, the total deposits are [ here. ]
Okay. But even if you factor that, since we are at CD of 85%, either we have to compensate that with the retail or if whether it's ongoing, we have to compensate that with the wholesale market?
That is on a particular date because the ratio throughout the quarter has been between 82% to 85%. But that's the end of the day position.
So broadly, the -- my question is, actually I wanted to get a sense on what is our thinking on the deposit rates?
We have been always 95% on net retail deposits and that will continue. And the mix within retail, CASA and term will vary. The CA is growing, like I pointed out, very handsomely. Term is price-elastic. CA is a challenge. We are working on through it, but at the growth of 19% credit, we grew deposits 19%.
So you don't see any risk on the deposit growth, right?
Not at all.
So I think both have grown but in fact, deposits have grown slightly higher than...
To a percentage higher than credit...
0.5% higher than credit. Both are rounded off to 19%...
18.8% and 19.6%
And sir, broadly what is our take on margins basically? I mean if we have to go with this CASA ratio, I think we'll assume that CASA ratio will sustain at this level.
Our yields have gone up, both because of the spread and the repricing we are doing and that has expanded, I think, 12 basis points. Cost of funds have gone up about 3 to 4 basis points this quarter. And we think the spread in -- the NIM expansion in the course of the year as pointed out in our year beginning update, we'll get to about 320.
The important point is NII growth is 18% against business growth of 19%, which used to be about 13% a year back and averaged at fourth quarter, it was 16%. So while credit used to grow at 20%, NII used to grow at 13%, 14%, 16% also. This time, it does converge. The business growth is 19%, NII growth is 18%.
Actually, Shyam sir, just wanted to reconcile one thing. So basically, in this quarter, our yields has been actually improved by 12 basis point. But cost has not increased that much. Despite that, our margins actually declined by 2 basis points. So I'm just not able to...
Last quarter, 5 basis points was influenced by income tax refund, interest on income tax refund.
It keeps on coming periodically.
Q4, usually, we get income tax refund, interest on income tax.
Interest on income tax.
Got it, sir, got it. And sir lastly, on this employee cost, again you know this quarter, we were expecting some sort of moderation but that has not happened so...
Because the same thing was a benefit on the treasury side.
Treasury gave when you're -- because of yields falling there had been treasury gains. So similarly your pension requirements, it goes up, no?
Right, so I mean...
It's the real calculations.
Okay. So does that mean that on the bond rate movement at net-net, we will not benefit or how to look at this number basically?
See the ratio is 2:1. So the gain would be 2. Cost increase would be 1. So if you are getting INR 40 crores extra, you are a treasury gain on the rates portfolio, you have INR 20 crores additional employee cost. That is the ratio.
Right. But our treasury profit would be a function of how much we move right? We will not consider end-to-end, so...
That's right, that's right. But I'm just telling you the ratio. This is the ratio if you just mark-to-market and see both the positions. 4:2 -- I mean 2:1.
2:1. Okay. Okay.
All we need ultimately is more gainful are subject to you having surpluses there. You don't have surpluses, then there is no gain.
Yes, right. And sir, last question from my side, are we confident of -- for sustaining this 20% loan growth right, sir. After analyzing...
And it grows within 18% to 20%, full year, that's the run rate. And yes, whatever we said at beginning of the year commitments, we are confident of.
The next question is from the line of Nitin Aggarwal from Motilal Oswal.
Sir, a couple of questions. Firstly, any guidance on the full year slippages, so is the current run rate going to sustain or you can expect improvement there? And this quarter, the retail slippages has increased sharply, so any color behind the scene? Secondly, the exposure at [ state ] housing finance company, if you can quantify as to how much of this. I see in the presentation mentioning 97% is rated A and above. But like in the category below that, is it only one exposure that we have? And likewise, in the NBFC space, which again mentioned a similar number, so is there only one exposure which is rated lower than A? And the third question is on the treasury gains. So this quarter, we have recorded pretty healthy gains and ultimately, how are we placed on this front, from the AFS and duration point as the rate environment still remains benign?
You asked 3, I forget. What was the first question, sorry?
The first question is on the...
Retail slippage guidance.
Retail slippage guidance. I think we had said at the beginning of the year, I mean you should expect 55 to 60 basis points as credit cost. We believe that, that is very much what we are working to and our guidance remains consistent to that. Slippages could -- is this 400-odd going to be the standard? It could be materially different if none of the known bad in the market tend to be slippages. Like I said, we have started making provisions. So if it happens, then it can be a slightly higher or lower but if it doesn't happen, yes, this is the number that we are tracking, maybe even better. In particular, to the housing finance company, you say is that the only one we've got as a challenge. At this juncture, there are 2 housing finance companies totaling to INR 275 crores, which is what is tagged as potential challenges in the market of our portfolio. And that's reflecting both in the rating and in our view of how it is played out. I mean it started proactively providing, so as both are standard and are fully serviced loans. And it has not triggered any regulatory provisions.
Right. And over here like and to the conglomerate within the NBFC space, any exposure?
No, I said everything -- all put together to HFC business.
And besides HFC?
Nothing else.
Is there anything you want to...
Nothing else.
Okay. And on the retail side, sir. Retail slippages.
Oh, yes. Sorry. You pointed that, INR 140 crores was the retail slippage. INR 100 crores in Network-I and INR 40 crores, rest of India. And like I said at the beginning of the call, that is triggered by local events in the state, which may persist for 1 or 2 more quarters. That said, after slippages, 30% (sic) [ 20% ] has already been recovered in -- in the first 2 weeks of this quarter. We'll see how it plays out.
I think we have still maintained what we said in the...
The overall guidance is what we should look at. We are consistent with that.
We are saying credit cost would be 60 because recoveries would be higher to that extent.
Okay. And lastly on the treasury gain side, like how are we....
Treasury gains, I think that depends on how much further fall happens and all. We normally do not maintain high duration in the AFS. So as a matter of policy. But occasionally, depending upon, I mean where the, I mean yields go. Present level of yields, house view is that we should be negative on duration. So therefore, I think, not looking at buying aggressively at these levels.
The next question is from the line of Pranav Tendolkar from Rare Enterprises.
So you've spread and yield on advances has increased a lot and you alluded that it is the repricing that you are doing and also change of composition of book. Can you just highlight where you are repricing, in which part of the business? Is it SME? Is it retail? Or which part?
Across the spectrum. All our business leaders are looking at their portfolio. They carry target for revenue and on volume growth. And they are either repricing existing assets or the new bookings at a higher price.
Okay. Okay. Sir, second question is that are you mapping total retail products per customer that you own? So basically, cross-sell. Any major of cross-sell that you are measuring?
Yes. Yes, we do.
Can you highlight those?
I think it's coming up to more than 2 right now. We have an internal target to take it up to 3, 3.5. The entire personal loan book that you may have watched us grow in the last 4 quarters, today it's INR 923 crores, is entirely only data mines digitally originated to existing customers. We don't do new off the street, new to bank customers at all. So this is entirely digital, data mines serve the client, it clicks and takes the money.
That's on cross-sell.
Right, right, right. So the assumption that the credit cost -- future of credit cost in this retail growth will be lower is correct. Because you already know the customers for a long time.
Yes, which is our position as we commit to all our numbers.
The next question is from the line of M.B. Mahesh from Kotak Securities.
Just a couple of questions. One, on the rating of the book on the question that was asked earlier, how -- at what time do you actually -- how often do you, kind of, rate the book because there doesn't seem to be too much of a change between last quarter and this quarter?
Every quarter it is refreshed and if it is not changed, it has not changed.
Whenever renewal happens and all. Rating would be obviously at the time of renewal.
Rating is...
Even if a particular company has been, let's say, rated D, it has -- have seen a change of rating by the rating agencies. When would you kind of rate it in your books?
It would be figured out immediately.
External and internal ratings are mapped. So whenever there is a change in external ratings, so accordingly, there would be a...
And the -- this is a question -- just an additional question on this. Housing finance companies and NBFC were 6% and 7% last quarter. And this has inched up even more this quarter.
Yes, we have no negative bias against all of them. There are very good opportunities and very good names, and we have increased wherever possible to the best of B.
Perfect. Just 2 questions. One on the OpEx side. The retirement cost, how much can you quantify that amount for the quarter? Or what will be the additional amount. Just trying to understand, what is the underlying run rate going at if you exclude these one-offs?
INR 80 crores -- total is INR 80 crores. Additional is, I think, INR 20 crores, INR 25 crores -- INR 22 crores. I think some INR 20 crores, INR 22 crores is additional because of the change in yield. Total is INR 80 crores.
Okay. Perfect. And the recovery run rate that you had this quarter of INR 30 crores. Any broad color as to how you are seeing this number?
We think the recovery for the full year, we're targeting on the run rate, which you saw is INR 37 crores this term. We're still at about INR 120 crores.
Okay, that's a fair amount of visibility on that particular line amount -- line item.
At this point in time, yes.
The next question is from the line of [ Jatin Gill from Alpha Capital ].
Hello sir, thank you for taking my questions.
[ Jatin ], you're not audible, please.
Hello?
[ Jatin ], your voice is breaking.
Let him come back. Yes, go ahead.
Yes, go ahead.
By the time he comes back, we'll move to the next question from Sumeet Kariwala from Morgan Stanley.
I just wanted to get some idea on retail loan yields versus corporate loan yields. So overall it's 9.55%. Can you break that down for corporate and retail?
Retail is now closer to 10 point...
One second. Retail is tracking at 10%. Business banking and commercial banking closer to 11%.
And corporate?
Corporate is closer to 8.9%.
Okay, All right. So apparently, the improvement will also be driven by a mix. Maybe I've not looking at this...
Yes, you're right.
And how much would be the repricing this quarter? Would you have a rough idea because it's like around 18 basis points from our [ first, assuming ]…
Well then, point of the yield expansion in the quarter.
No. Actually, 18 basis points, you're right, 18 basis points, you're right, you're right. 18 basis points. 18 basis points, as cost of deposits has increased by 4 basis points. So 18 and 4.
Yes. And 18 basis points, how much would be because of repricing? Any rough-cut idea?
No. I wouldn't -- I mean at the top of my head, no. But it's a mix because the new origination and repricing, both have worked together in terms of -- given the incremental growth has a large share of retail growth in it.
The next question is from [ Jatin Gill ] from [ Alpha Capital. ]
My only -- one question that I have remaining is what is your guidance or target on ROA and ROE levels?
When we were at 0.76, I had said within 10- to 12-basis-point improvement each financial year. It became 0.88, and we're guiding for full year at 1 and 1.12. Last year, we exited at 1. This year, we'll exit at 1.12 or so and next year, 1.25.
Okay. And after that, as in -- maybe probably, 3, 4 years down the lane?
I will be very honest. I don't have that kind of statement capability, given all the things that are happening in the market. I am not as visionary as many others are.
The next question is from the line of Madhuchanda Dey from MC Research.
My question is again on the slippage guidance. You mentioned that you are confident of maintaining this run rate, provided that there is no additional hiccup on this, so far, troubled exposure. But does the increasingly weak economy worry you?
Weak economy impact will be felt more in the new origination of business. The portfolio we hold and the sensitizing, we have done that. We believe that our guidance should hold. If the economy continues to have challenges over the next 3, 4 quarters, the impact will be visible in the subsequent years.
But any particular concern on the retail book?
At this juncture, nothing that I am overly concerned as in we worry about many things, but nothing uniquely different.
And I really didn't quite get the reasons behind the slippage on the particular geographies. What's the reason for the accelerated slippages?
There is moratorium that was announced after the floods last year, and there is a demand for that moratorium to persist till December 31, 2019. But the regulators are not willing to give that dispensation. State government is pushing for a higher dispensation -- a longer dispensation.
The next question is from the line of Ankit Choudhary from B&K Securities.
The first question is with respect to these staff expenses. So last year, on these staff expenses, we had this gratuity liability, which has been made of around INR 52 crores. So removing that, Y-on-Y staff expenses comes at around 35%, 36%, sir. So what explains that? So was there any one-off during the quarter, also?
No, that's what Ashutosh was mentioning...
Last time, we have removed that INR 54 crores because that was a one-time INR 72 crores, which was to be amortized over 4 quarters, but we did it in the second quarter itself. INR 18 crores was taken in March and INR 54 crores was taken in June. So after you remove that, you're saying there is an increase of 35%. It's basically the yield that have moved. And as a result of that, the actuarial calculation for pension has gone up. So that is more than compensated in profit on sale of investments. So if you see profit on sale of investments, there you would find, vis-à-vis last year, we have much more profit booked, right?
So yes, so how much of the movement is staff expenses this quarter?
INR 20-odd crores is the impact on account of additional [ levers ] that we did.
INR 22 crores additional [indiscernible] is required.
Okay. INR 22 crores. But even if I remove that that also comes up around 29% growth, sir, Y-on-Y staff expense, removing that INR 52 crores.
Yes. We also factored for the wage increase in the review.
Okay. Sir, secondly, this question was already asked earlier but again on the news front, sir. Sir, even if I did this 5 basis point impact of last quarter then also did increase in the news but only 3 basis points vis-a-vis there was a high increase in the yield as well as the CD ratio. So does the increase in the borrowings also has to play some part over here?
So there are not much borrowing. We have very small borrowing book currently, some refinances and all but not much. Total borrowing put together would -- on average would be only INR 5,000 crores.
Because quarter-on-quarter there was substantial increase on that. So just wanted to know is the -- because quarter-on-quarter the news would have been much higher had the borrowings book not grown that much, around 28% quarter-on-quarter.
What is the 28%?
So our borrowing book that has grown by 28% quarter-on-quarter. So what I'm saying is had it -- the news been even higher than the 3 basis points right now, excluding the 5 basis points over the last quarter, this would have been even higher had the borrowings not grown that much. So this is a correct assessment.
I think no. We have to disaggregate your number. But I don't think it's consistent with what our picture is, but since you [indiscernible], I'll ask [indiscernible] to look at it.
The next question is from the line of [ Ashish Shah ] from Tata Capital.
So one small clarification on slippages. Sir, your run rate INR 400 crores of slippages, does it also include the onetime slippages if at all it happens of INR 200 crores [indiscernible] and INR 275-odd crores of HFCs. [indiscernible]
[ Ashish ], not to draw a straight line in -- by intraquarter, even in quarters, you will not get a very clear picture. The full year number, in particular, the upgrade recovery plus credit costs, [ we have now ] 60 basis points. That we are confident of. If in a quarter the moratorium gets delayed and if the account that we are talking of becomes -- into substandard, the number may be higher. But in subsequent quarter, it will be lower. So I would say don't draw a line on one quarter.
The next question is from the line of Mona Khetan from Reliance Securities.
On your lending and deposit rates, do you see these rates coming down from hereon given that liquidity, system liquidity has been in surplus and even by deposit rates have come down over the last few months.
Directionally, yes, but I don't see it happening in just 1 or 2 quarters. But I do see rates both on lending and in deposits trending down as the year progresses.
Sure. And 2 just data-keeping questions. If you could share your breakup of provisions for the quarter?
Sure. Just a minute. I mean you want the INR 170 crores -- no, what is the total number of...
INR 192 crores?
INR 192 crores, right? Yes, sure. INR 177 crores is credit and the balances is investment also. INR 15 crores is...
And lastly...
Sorry.
And what would be your gold loan portfolio like for this -- at the end of this quarter?
INR 7,300 crores
INR 7,300 crores.
The next question is from the line of Anirvan Sarkar from [ Motilal Oswal. ]
Sorry. INR 7,521 crores, gold loan.
Yes. Please, go ahead.
Yes. My questions have been answered, sir.
The next question is from Saket Kapoor from Kapoor & Company.
Just hold on. Hello?
Yes. Please go ahead.
Yes. Please go ahead.
Yes, yes. First, just up on the consol and the stand-alone part. If we take the treasury group minus the segment, we find that the consol, the treasury income segment revenue goes down, and so the profit. So how would you explain this, sir?
IDBI Federal paid a dividend of INR 20 crores and INR 23 crores. INR 20 crores, that is sitting in P&L for Q1. As a result, in the consol number, that will not show in the whole number.
That would net off [ over the year there? ]
Yes.
Sir, what kind of recoveries are we expecting, sir, going forward, sir? And for the year, you gave us the idea for the slippages, I think, so INR 400 crores per quarter? So...
Yes. I would still encourage not to look at the any one quarter and draw lines. Having said that, many quarters, our recovery upgrade has been around INR 250 crores. Sometimes even higher at INR 300 crores. Somewhere in that zone, minimally, what we would see.
INR 900 crores -- around INR 900 crores to INR 1,000 crores is something which we are expecting.
On the recovery front?
Yes.
Recovery and upgrade.
See, recovery is...
Recovery and upgrade, yes, yes.
Because that's the -- I mean you cannot because sometimes exactly difficult to be said by which it would be done because there are -- resolution may have -- I mean something has been agreed to but actually cash would flow to really see the recovery. Sometimes it crosses the quarter.
Right, sir. Sir, looking at -- sir, whatever data we are getting in the economy -- for the Indian economy, the datas are pointing towards the worsening of the state of economy for the country. So sir, how comfortable are banks today taking in -- realigning themselves even you are giving a 15% guidance for increase in the business, how are you realigning yourself, sir, with the datas that are coming up? Where is the disconnect, sir?
No. I think our commitment and the growth expectation is not driven by external factors, it's about our risk appetite. At a 1% share in the market, we believe that India is not frozen, it is just growing slower. So we have an opportunity to grow where we want to grow and either pick share or steal share. The combination of that is how we have grown for now 14 quarters.
Right, sir. So that sums up your reply to that?
Yes. Thank you.
And sir, one more point, sir, which is, sir, regarding this other banking operation, we are finding that there is a big gap between the March number -- March quarter and for the June. So how will you explain, sir? For the March, we report a revenue on INR 109 crores and then a profit of INR 53 crores. Wherein, for this quarter, it is INR 57 crores revenue and a INR 9 crores loss?
Which one? Which segment?
I'm talking about the other banking operation, sir. There is a loss of INR 9 crores on a revenue of INR 57 crores.
I think one part is, of course, interest on income tax refund. Are you referring to that?
In other banking, yes, it will be there.
Other banking...
Okay. Okay. Sir, how would you explain this loss, sir? And what should we project for the year then under this category? What goes into it, if you could give me some granular details, that will be suffice.
I would say -- may I request that don't read too much into the segment reporting. It will not give you full color and it will only confound the issues because the categorization seems to be not very consistent with what the P&L of the book shows. So you need to hold that off.
Okay, sir. Just last point. I'll come in the queue, sir. For -- as a bank, our operating profits are highest and so the base is now being up. Sir, on a base of now operating profit around INR 780 crores on a stand-alone levels, how confident are we, sir, that we can be able to show growth for -- going forward also? Or this is top most quarter that we can contemplate?
I can only say our endeavor is to continuously grow present deposits, keep our costs in shape and ensure that our growth is consistent with what we are committing to. So -- and the effort is, yes, I mean there will be an odd quarter. This is the quarter -- remember that we had a INR 20 crores dividend declaration by IDBI Federal, which gave us an income lift. So that in the subsequent quarters, that may not be there. This quarter, yields fell, so there was an income increase in treasury. The operating underlying performance of the bank is now running at a higher optimum run rate from previous and that's the model that we can work towards. So will INR 780 crores become INR 800 crores, become INR 850 crores? That's exactly what we are working for.
Absolutely, right, sir. Last point on the treasury point also sir. You were speaking that you find the yields hardening up going forward. That was the message, I think, so you gave in your introductory remarks. Sir, if you could extrapolate more on the same, what are the factors are...
I think I just want to clarify. I didn't say yields hardening. I said this is -- we -- our house view is that this is not the level at which we should accumulate or buy more bonds. So...
Sir, that translate into that only, sir, that the yields...
That means if you are not sure that how much risk/reward buy is, if it doesn't fall and you just get settled with too much of portfolio because I was asked the question to reiterate the policy, what type of duration you maintain in AFS, whether we maintain a low duration and particularly, at current yield levels and all, we would not like to buy duration further. So if it falls something, maybe -- I mean we have a portfolio, so that could further appreciate and all.
Okay, sir. But...
And if it hardens, then I think we are better placed by not increasing the duration.
But I would like to only understand, sir, what factors are letting you know that the risk/reward ratio is not in the favor to buy bonds today?
High -- oil price high, big -- adverse base effect for your food prices and all that because last year, you had the favorable base effect. This year, you have a base where there is no favorable base effect left. And as a result of that, there could be a -- even RBI is saying that there could be an upward movement of inflation and all, to some extent. Operator, are there more questions?
[Operator Instructions]
We have time for 4, 5 more questions. We have another meeting, so please.
The next question is from Deepak Shinde from SBICAP Securities.
Sir, my question is what was the original quantum of these -- the portfolio in moratorium due to the Kerala flood? And what is the incremental amount of portfolio expected to come out of moratorium over the next few quarters?
I think don't read moratorium, and therefore, I would say, it is a sentiment of what the state government is talking about that causes the problem. The moratorium book is not more than INR 250 crores or something which we restructured, in fact less. But the unfortunate part is, when there is a talk like that, then the customers start behaving differently. That said, I also said INR 21 crores or INR 22 crores of what's left has already come back in the first 2 weeks of this quarter. So we should not draw too many lines. I only gave that as a data point.
Okay. And sir, given the pressure on the savings deposit, do you see any merit in the possibility for repricing of our savings deposit above 3.5%?
No. We have, what we call, a bespoke savings account, where we have built about INR 750 crores, INR 800 crores of balances, which is a defensive product for customers who are placing more than 3 lakhs, negotiated rate, I think 6% or 6.5%, that is at a higher balance. We are not doing at an entire portfolio level. In some pockets of the market, we may consider lowering rates also.
The next question is from the line of Aditya Jain from Citigroup.
On the breakup of other income, there is a line on INR 40 crores from recovery and other, which you mentioned earlier. Is the INR 20 crores of dividend from IDBI is included within this?
Yes, sir. One second.
Where to begin, which line? The INR 20 crores...
INR 20 crores.
Yes. It will come under that. It will come in profit on sales of securities, no.
No, no.
Recovery from assets, no. Others -- other fee income.
Other fee income.
Other fee income.
Okay. So the recovery amount then is about INR 20 crores?
No. Recovery this quarter is INR 40 crores, no? Recovery from assets written-off and other receipts is INR 40 crores.
That is not the dividend income.
Sir, dividend income is...
Is an exchange, commission, brokerage, based on this, other fee income. The INR 169 crores will carry the dividend income.
Okay. Then on the restructured loans movement from INR 604 crores to INR 609 crores, (sic) [ INR 619 crores ], is it right to understand that this includes a decline of about INR 100 crores from Kerala and so there is increase in other restructured accounts of about INR 115 crores?
Sorry. Question, repeat. I was a little distracted. Can you repeat the question, please?
The movement in the restructured loans, which then comes then for to INR 619 crores, [ not a size ] movement. But if we try to understand that, sir, this would have included a decline of about INR 100 crores from Kerala, which is left, and so there is other restructured accounts, which would have been typically...
No, no, no. The INR 604 crores to INR 619 crores is driven by 1 account, which got restructured, which is about INR 15 crores.
Okay. So the loans which under moratorium in Kerala, would that...
That would have slipped and it would have been mass slippages, no? That's not in restructure.
No. Sir, in the earlier...
No, no, no. That's why I said please don't read the INR 100 crores as moratorium accounts that have slipped. That is not the case. I'm saying moratorium is just the situation in this case. The slippages, could be accounts that were in the moratorium, could be accounts that are outside of the moratorium also. Behavior has changed. Nothing to do with the moratorium. The INR 604 crores becoming INR 619 crores is one account, one SME account for INR 15 crores.Sorry. I think one question that somebody asked was around the -- where is the IDBI Federal dividend income sitting? It is sitting in the line...
INR 40 crores one.
For which -- in the INR 40 crores one, in the recovery from assets and other receipts.
The next question is from the line of Pranav Gupta from Aditya Birla Sun Life Insurance.
Hello?
Please go ahead.
Yes. Just 2 clarifications. Firstly, you said that you have a 15% cover on one of the HFC account. Is that, right?
Yes.
Yes.
And the second one is that you said that 30% of the Kerala slippages in retail have been recovered in the first 2 weeks?
INR 20 crores out of INR 100 crores, 20%.
Okay. And just one question, sir. As for branch -- branches have remained stagnant for about 7, 8 quarters now. Where are we in terms of productivity? And when do we see an expansion in the network moving forward?
We think second half, we will add about 40 branches. And -- 35 to 40 branches this financial year, and a similar number the following financial year. And productivity is going up quite materially. As you can see, volume growth on the same base of branches, and we've added a significant feet-on-street presence. We now have 800-plus RMs covering the ground. Therefore, volume growth is visible, particularly in geographies where our branch presence is less. Feet-on-street presence has increased significantly, thereby, retail, both credit and deposit growth is strong. If you see the slides that we have shown on growth in the network, you will see what I'm talking about in terms of rate of growth in -- particularly network growth.
Right, right. And just lastly, in case this moratorium decision drags, do we see this behavior in retail and -- especially in Kerala continuing for the next quarter?
I would sort of -- for everybody's consistent understanding, not over amplify the moratorium as the point. Our guidance on slippages, the mix may vary. In the retail, even if you take out all the noise, retail, agri, SME, business banking, have been around INR 200 crores to INR 250 crores. That may go up to INR 300 crores, and that will continue for the next 2 to 3 quarters and on a much higher denominator. Corporate, I can't predict right now. We have factored in 3, 4 accounts that may have issues through the financial year. And all that put together, how the guidance for credit cost have been given.
The next question is from the line of Roshan Chutkey from ICICI Prudential Asset Management.
First of all, I want your comments on the BuB slippages, which have been relatively high. How do you read the environment? Secondly, want to understand this other income split. On Slide #20 and 21, there's a bit of a discrepancy between the fee income segments. Recoveries in assets here is shown as INR 31 crores. On other slide, it's INR 40 crores, and exchange commission brokerage fee is shown as INR 169 crores with asset to INR 177-or-so crores when I do the addition on the left slide. Can you please reconcile the two? Yes, that's about it.
First question, Roshan, was what?
Was on the BuB slippages, sir. Any comments on the...
How come it has shot up?
It's about INR 99 crores, shot up reasonably.
Correct. I won't read too much into it because there have been quarters where it was INR 94 crores, INR 107 crores, and Q4, traditionally, tends to be lower. That hasn't dramatically altered.
Q4 is always the better quarter.
You will see this Q4, a repeat or even better.
Sure. But are you seeing any stress building up because of the slowdown -- general slowdown in the economy? Any qualitative comments here?
I also mentioned -- if I didn't mention, it's in the slide. Our stressed asset book is at all-time low. And SMA-2 is also at all-time low. So I would think it's not showing up in any material manner. But these things tend to have a nasty way of popping up every 2 quarters, so we'll keep a watch. I, again, reiterate our overall guidance is factoring all these things.
Okay. And the other question, sir?
You wanted...
What's the reconciliation of other income?
What exactly is the question was? Where is the...
In Slides 20 and 21, right, if I look at cards -- okay, Slide #21, right, now cards plus third-party distribution plus banking commission and exchanges, plus general service charges, which is what I presume should add up to this INR 169 crores in the other slide is adding up to something like INR 177 crores. And recoveries in assets written-off and others receipt, in Slide # 21 it's shown as...
The recovery from assets written-off and other receipt includes the -- other receipts includes the dividend from subsidiary company.
Right. It is INR 20 crores, right?
You have INR 6 crores, plus INR 8 crores, plus INR 5 crores, plus INR 21 crores. That makes it INR 40 crores. INR 6 crores is recovery on written-off accounts, INR 5 crores is other receipts and INR 21 crores is dividend, major items. All other are smaller ones. So they all -- that's why it's clubbed together major items are. Out of INR 40 crores, INR 21 crores is dividend, INR 6 crores is recovery on written-off accounts.
Okay. On the next slide, it's showing as INR 31 crores?
Where?
In the following subsequent slide, some may be...
That INR 9 crores of miscellaneous income has not been added.
Maybe need some categorization or whatever.
Yes, yes.
The next question is from the line of Gaurav Jani from Centrum Broking.
Congrats, sir, for the numbers, good numbers. Just a small question for CIB and NIM, so moving forward, as we move to sort of a higher -- or a tilt towards your higher yielding segments and a lower rate...[Audio Gap]
Gaurav, I'm sorry to interrupt. Your voice is breaking. If you are on speaker, you need to turn that off.
We'll go to some -- next question and contact Gaurav.
The next question is from the line of Anand Dama from Emkay Global.
Sir, last quarter, we had talked about gold loan growth to some extent picking up about 16-odd percent Y-o-Y. Any numbers on that front this quarter? Any trend that we can talk about?
Yes. We saw yet another strong quarter. Sequentially, 4% growth.
Sequentially. So what would be the outstanding retail gold loan book as of now?
Retail plus agri, total gold loan book is INR 7,300 crores and -- INR 7,500 crores.
Okay. And sir, any trends on the NRI deposit flow that we are seeing at this point of time? And can you talk about that?
Remittances are not as robust as it was the same time left year. Our share of remittance business has gone up. Our NRI deposit grew 14%. We see remittance -- because the Eid came earlier this year and that typically, there is a mismatch between the normal flow and what we saw this year. So we have to see how this thing shapes up. For us, diversification, we've moved into markets in Africa also now. We also looking at Australia, Africa and Canada as new opportunity. We have people on ground covering these geographies now. But we love to see how things shape up. Typically, the next big bump up will come during Onam, which is in September.
Sure. And sir, any color on the CV book that you are actually building for past 2, 3 quarters as such? So how much will that be now?
The book has crossed about INR 150 crores right now. The team is getting built out. I think we have the South team in place. The West team is coming by end of August because we have recruited from competition maybe 3 months to serve their dues and come. So the real growth will come in H2, which I'm happy with because we also want to see how the market shapes up.
Sure. And sir, any clarification that we have got on your term extension beyond September 2019?
You have to dial up RBI and find out. My Board has sent the approval to RBI.
Oh, sure. Great, sir. That's it.
Next question is from the line of Gaurav Jani from Centrum Broking.
Hello, sir. Am I audible now?
Yes. Very much.
Yes, yes. Sir, congrats on a good set of numbers. Just comment to the NIM. Now we will see probably a shift in mix also possibly towards the high-yielding segments, but also the rate trajectory seems to be declining on a macro perspective. Now where I'm coming from is, sir, then, how do we see our yields panning out, one factor being positive, and the other being negative?
I think we should look at the blended outcome of the book of our overall reversal and slippages, regularity of growth and our cost of funds. All 4 play a part in our NIM expansion. We've factored all that, and we look at 3.2% as an exit rate on NIMs.
Sure, sir. That would mean for FY '20?
Yes.
Okay. Sir, what would be our absolute CAR balance for the quarter end? If I may have this because we only have given the...
INR 6,800 crores, right? CAR is INR 6,800 crores, if I remember rightly. INR 6,800 crores. INR 6,900 crores?
Sir, there seems to be a sharp drop in the CAR. It's on a Q-o-Q basis. So what would explain that?
Very easy. CAR tends to be still volatile. CAR tends to be back-ended. Average CAR is we measure for our internal and that has grown quite well.
Got it, sir. Sir, any sort of CASA target that we have for FY '21?
Yes. We are still looking at 33%-plus. It's an arduous task, but yes, we're working towards that.
Sure. So on the rating mix, the BB and below portfolio is about -- sorry, the less than BB portfolio is about 17%. So what sort of a comfort do we have in that book? I mean any color of that -- how is the BB rated? I mean what would be the realized then? What sort of...
Then I will go back, and the only statement I will make is, our credit cost factors all these things.
Okay. Sir, last, if I may squeeze in. The other housing finance company you mentioned, there's been no provision done on that, right? I mean one, we have 16% There is 0 on the other, right?
Yes. We've made excess provisions in Q1 not specific to the NIM, but yes, we've made an excess provision of INR 30 crores. In my profit, I have taken INR 30 crores into provision.
Next question is from the line of Jai Mundhra of B&K Securities.
Thanks for the improved disclosure on the fee income. Most of the questions have already been answered. So just one question. One, if you can provide some sense on the real estate business, which is somewhere around 3.6% in terms of either it is -- I mean is there some exposure to Mumbai-based corporate or how is this exposure in general?
General, retail, home loans and last, we don't have developer or a big ticket exposure to any names that you may consider, we don't have. Our total development exposure is less than INR 100 crores.
Sure. And second, sir, I mean you just clarified, but just to get things in perspective. That wholesale below BBB book is somewhere around INR 10,000 crores, right? Because that is 16% of your wholesale exposure, which is INR 60,000-odd crores. So this is INR 10,000 crores, which is below BBB rated, and you are saying all this is included in your estimate of 60 basis point credit cost. Is that...
Yes. Yes, you're right. Okay. I think operator, we should bring this to a close. We've short past 50 minutes.
Sure, sir. So...
Is there pending queue? If there is a pending queue...
Sir, we can take 1 last question.
Please do, please do.
So we'll take last question from the line of Kaushik Poddar from KB Capital Markets.[
There's a difference of INR 9 crores between the consolidated net profit and stand-alone net profit. What explains the difference?
The INR 20 crores dividend income declared by IDBI Federal, that has come into our profits. And therefore, their number has come down by that amount.[
Okay. Okay. And how has been the performance on the insurance, your -- subsidiary?
The subsidiary is doing very well, so as we've done for them. And because we are doing well for them, their numbers are looking good. For the first time in 10 years, our performance outstripped that of IDBI, but that's not saying much because they have their own set of challenges. But our engagement with IDBI Federal has increased quite materially and it is visible in our other income, as you would see. They're doing well as an entity. We are in the market looking to find a replacement partner, given that IDBI has to get out of business.[
And when do you see that happening?
They're in the process. JPMorgan is running the process. We expect some clarity in the next say, 90, 100 days.
I'll -- I now hand the conference over to Mr. Anand Chugh for closing comments.
How many are there in the queue, operator?
Sir, actually, we still have 4 participants.
Okay. So quickly, if you can ask them one question each at least we can...
Sure. [Operator Instructions] We'll take the next question from Pavan Ahluwalia from Laburnum Capital.
Yes. I just had a question on loan growth. So if you look at it, obviously, year-on-year, it's kind of roughly in line with the numbers you're talking about, but the Q-o-Q growth has come off quite a bit. Are you projecting a significant acceleration in the run rate in the second half of the year? And if so what segments are you expecting this to happen in?
Well, traditionally, Q1 tends to be very slow, and we usually see 2% to 3% growth in the Q1. This year, we saw 2%. And typically, the momentum picks up as the year goes. We usually see 2%, 4%, 6%, 6% or 2%, 4%, 5%, 7%, that's the kind of rate of growth we would see. I think that will pick up as we go into second half. But again, I will caution, I will not grow just to meet the end number. We want to be extremely focused on the quality of the book. And retail has had good momentum. That will continue. Corporate, we are doing more picking where we want to. So that pickup depends on the opportunities. We'll see how it goes. But if it means we have to starve for a short while, we will do that also.
And the next question is from the line of Kranthi Bathini from WealthMills Securities.
Sir, most of my questions are answered. But you mentioned that you are going to open 40 branches in the coming days. I would like to know whether these 40 branches will be in the same geography or do you want to venture into new geography because whenever Federal Bank comes, it always comes in the news as it is centered from Kerala or South-focused branch?
Our branch presence outside Kerala is 655 branches, spread across the 5 bigger geographies. And we are looking at branch expansion in these geographies. If you take 40, I would say about 10 would be in Tamil Nadu, around 10 will be in the West and the remaining will be across the spectrum of [ South India. ]
The next question is from the line of Ankur Shah from Quasar Capital.
Sir, just a question on the repricing of loans. Sir, considering liquidity easing and RBI trying to work on the transmission of rates and also given that we are not doing so well as an industry in CASA, sir, how do you see the spreads going forward? Like let's say, if I fast track it for 6 to 12 months, do you see the spreads coming down or coming under pressure?
We believe that the current spreads we should be able to maintain and if possible, improve, by a -- not just repricing, by a mix change.
Okay. Okay. And sir, just one very important question. Sir, any news on MDR? RBI is considering MDR waive off. Any news on that?
No, nothing. Absolutely, no news.
No news.
No views?
No views and no news. We are not a big acquirer. So in that way -- merchant acquirer. So it's not going to impact us that much.
The last question is from the line of Seshadri Sen from Alchemy Capital.
Most of my questions have been answered. Just the last one on ROE and cost income. You have been sort of guiding for an improvement in -- I mean I understand this quarter, there were some issues with the pensions. But is that still on trajectory, especially with you're adding branches towards the end of the year?
Seshadri, I think pension or not, we have honored all our commitments and it's not -- so yes, to that extent, branch expansion also is factored in. It's in our year-end guidance of getting close to 49% or little less than 49% cost income. We have guided as you would remember, 200 basis points across 2 financial years.
Yes. Just sequentially, there was a little bit of flatness, so you know if there is time...
49.83%, 60 basis points. It has improved.
Q-o-Q. Sequentially, it has improved.
Year also improved materially, but sequentially it is...
And the pension anyway is getting offset by your treasury income, so...
Yes. That's what I said. Yes. That's what I said, sir.Okay? Okay, thanks, everybody. Thank you very much for joining us.
Ladies and gentlemen, on behalf of Federal Bank, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.