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Federal Bank Ltd
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Ladies and gentlemen, good day, and welcome to the Federal Bank Q3 FY '19 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Rajanarayanan, N, Head Investor Relations, Federal Bank. Thank you, and over to you, Mr. Rajanarayanan.
Thank you. Welcome to the Q3 investor call of Federal Bank. With me are Mr. Shyam Srinivasan, MD and CEO; Mr. Ashutosh Khajuria, ED and CFO; Mr. Ganesh Sankaran, Executive Director and other senior executives. Well, let's get onto the conversations. Over to you, Shyam.
Good afternoon, everybody. Firstly, happy New Year. First call of FY -- calendar '19. We've just declared our results for Q3. And in our belief, it's the best quarter ever on many lines as you may have seen it, but let me just reemphasize some of the key ones and keep it short. Operating momentum continues to be very strong. Our interest incomes are the highest ever as did operating profit, net profit and other income. So overall, net profit at INR 334 crores represents a 28% growth y-on-y and 26% sequential. We did not have any one-offs in this quarter as benefit. If anything, the pensioning cost took our operating cost up by almost INR 35 crores to INR 40 crores up. So overall, business momentum is strong, continues to be granular, both Retail and Corporate grew 31%. And in Retail, some businesses grew as high as 150%, PL and Auto grew 60%. Of course, these are on small basis, but I think directionally they are in the right trend, and we believe that momentum will continue. NIM expanded 3 basis points, sequentially every quarter from 3.11%, 3.14%, 3.17%, and that run rate should continue. Credit cost as on guidance, we said between 65 and 70. We will be at -- we were at 68 basis points this quarter. And ROA expansion that we had committed to, as momentum is tracking, 0.8% to 0.91%. And we believe this will take us to this number that we had sort of guided for, which is an exit rate of 1%. So broadly these are the highlights. I would rather take more questions because all the information that we wanted to share is between the press release, the television interviews and the investor deck. So like our usual practice, me, Ashutosh, Ganesh, Sumit, Harsh and other senior team members are here. Happy to take questions and clarify if there are any questions that you want to go. So operator, you may open it up for questions.
[Operator Instructions] We take the first question from the line of Dhaval Gada from DSP BlackRock Mutual Fund.
Sir, just a few questions. First, I wanted to understand on Slide 16, we've seen about 45% growth in fees. If you could break that down between Corporate and Retail, the INR 279 crore, and how does that compare with the INR 193 crore in 3Q '18 between Corporate and Retail. Just trying to understand what's driving -- which segments are driving growth?
So actually the mix -- the loan book mix is almost half-half in between wholesale and retail. So this fee also is almost half-half. The notable thing is the fee income on the ForEx part. So we have well oiled up, I mean, treasury sales team, which, in coordination with CIB relationship managers and commercial banking relationship managers, have got a lot of success during the quarter, rather in last 2 quarters. So it's gradually moving up. So presently, if you see I think -- and then there is a normal growth in CBG if you look at that. Third-party sale also had been very good, 37% higher. So all these things -- I mean, it's not one particular hit which is resulting in this type of 51% of growth in the other income. And of course, this other income doesn't include any recovery in write-off and all because it's excluding that.Yes, Dhaval?
Well, sir, we just lost the line for the current participant. We take the next question from the line of Nitin Aggarwal from Motilal Oswal Securities.
Sir, if you can give some color on the total restructuring that we have done in Kerala, and how much of the gross amount from which you would have done this carve-out? And what is the outlook on slippages going ahead?
On slippages, our guidance for the quarter ahead, of course, is influenced by the MSME opportunity. So it should halve from where it is or slightly better than that, and slightly above that. The MSME impact could be about INR 100-odd crores. So if there is no pension on the IL&FS or Air India, I say this because not of performance, of external factors, our slippages for the quarter -- let's say, immediately succeeding quarter, will be way better than where we are, given the MSME restructuring. On the Kerala floods, we have up-fronted the restructuring-related. As of Jan 31, it's -- sorry, December 31, there is no more restructuring. In terms of the numbers, some carved-out portions of Q2 was -- sorry, Q3 was about INR 100 crores.
All right. And sir, what was the gross amount from which this carve-out has been done?
About INR 500 crores.
So are we seeing any irregular signs of stress in this gross INR 500 crores?
We don't see any. And I have to say that in the period ahead, these may again get colored by the MSME dispensation.
Okay. And secondly, the digital share of our products has been increasing significantly in the Retail loans ,like, that number has increased to more than 54%. So what are the key products that we are ,like, sourcing through this channel? And what will be the implications on cost income that you see? Because so far, I think, the operating leverage has still not played out as it can possibly be.
Yes, I think the incremental scaling up, for example, in personal loans, the book has grown quite sharply. The book is now closer to INR 800-plus crores. All of it is literally click and take your money. So it's entirely digital. And likewise in other businesses, the origination is increasingly digital as it is for the savings account. Not only that, we are seeing a sharp increase in our mobile-based transactions on the phone. So it's now close to INR 3,000 crores per month. And I think 6 quarters back, it was about less than INR 500 crores. So we're seeing sharp progress. I'm hopeful that the translation into our cost income will play through in FY '19 -- FY '20. Even this quarter, you saw the nonpeople-related cost holding out quite well. And we believe that momentum will continue and improve. As you probably are aware, this quarter, as in Q3, we've established our full-fledged operation service company called FedServ, and it focuses on -- we have 2 centers, 1 in Cochin and 1 in Vizag. These are getting scaled up in the course of FY -- in the calendar '19. By second half of calendar '19, they will take on the entire work sort of distribution and operations and a few more approved activities. So it helps increase productivity and, therefore, get better value around our investments.
Next question is from the line of Girish Raj from Quest Investment.
So despite churning off the book, you said that the yield has improved, but at the same time, cost has also improved. So our spread has declined by 5 bps to 3.46%, approximately. Does this have any implication on the NIM going forward? Your commentary and outlook on this.
NIM, like I mentioned, we've been growing within 3 and 5 basis points every quarter. I am still hopeful that end of the quarter 4, we will as be on guidance of 3.20%.
So why is this spread -- I'm sure if the spread decline continues, there will be implications on NIM also. What is putting pressure in -- despite improvement in the yields?
I think I've sort of often said, NIM is one. Certainly, spread is important, but it's also that the contra entries are in interest income, which is also a driver. As slippages improve, we will see that improving further. So the quality of the book is also a driver of NIM expansion.
Okay. You say other expenses have actually improved. But if you look at last quarter also, there was a INR 13 crore one-off, INR 8 crore waiver and INR 5 crore penalty. From that perspective, this has gone up. Any color as to why it has gone up?
I mean, we're running business, right. We don't expect us to be flat on cost. It's not possible.
No, it's not possible.
The -- we've also started incurring higher expenses on the CSR to ensure that we meet our 2%. For many years, we haven't met that. So we're working on that as well.
Yes, sir.
Yes, the 2% of your operating profit for the past 3 years number, we haven't met that for a few -- for a couple of years. So we're working on ensuring that we don't fall foul of that.
Okay. And the breakup of provision, INR 190 crore?
INR 175 crores is credit related. And standard assets is -- what's the standard assets?
INR 45 crores.
INR 45 crores and write-back on treasury of INR 35 crores.
We take the next question from the line of Renish Bhuva from ICICI Securities.
Sir, just a follow-up question on the expense side. So can you please share some more insight on this incremental CSR expense that might come to the P&L, I mean, any asset spend till date or you're still in process of assessing that impact on P&L?
No, it's not a material number because our CSR -- the 2% number will be about INR 26 crores to INR 30 crores. We've already incurred about INR 14 crores.
INR 26 crores to INR 30 crores per year or this is a combination...
For FY -- for calendar '19. For FY '19, sorry.
Okay. So still INR 13 crores has to go through P&L?
[indiscernible] I mean, it's not a must. Yes, but that's what it'll be.
Okay. And sir, secondly, on this operational subsidiary. So the every -- so all the CapEx has been capitalized in P&L? Or will go on and capitalize over calendar year '19?
There's no significant CapEx that is there. There's no significant CapEx, but it'll get amortized over the quarters.
Okay. So broadly, I mean, can you just share outlook on the -- of cost-income ratio going forward from the current level of 50%, I mean...
We had said that we will exit the year at 50% or slightly better. That will hold. And we're targeting at least 100, 150 basis points improvement in the following financial year. 100 basis point improvement in the following financial year.
So including this CSR and everything, right, sir?
Sure, all that. And when we say -- it's all blended number.
Okay. And sir, secondly, on these SME slippages, so despite the better-than-expected recovery on the SME side in Kerala. So slippages gone up to INR 190 crores, which is, I think, multi-quarter high. So what is happening there? I mean, is this still due to the Kerala flood? Or there is some other geographies started getting us fame?
No, I don't think there's any unique sector or geography or anything like that. Kerala, we've often -- like I said, the sum of Q4 number is also taken into this quarter. But it will not be widely off. And prospectively, certainly, the SME -- MSME number will be way lower because of the dispensation. And so it's difficult to point out with the subsequent quarter, it can be materially better.
We take the next question from the line of [ Madhusudhan ] from [ MC Research ].
My question is pertaining to IL&FS -- hello?
Yes, please go ahead.
Yes. My question is pertaining to IL&FS exposure. If you could quantify that exposure. And is it in the holdco? Or is it in the subsidiary? And what kind of treatment are you expecting? Are you -- is it likely to slip into NPL in the next quarter? If you could just throw some color on that same.
Like I pointed out in our last call, we have 3 accounts, 3 SPVs, all functioning, all operating projects. All cash flows are there. All moneys are coming into the escrow, and the banks are getting their dues. All the 3 accounts with us are standard, and we believe that it should continue unless there's some legal-related matter that will crop up. So while they're standard, we'll increase our standard asset provisions. We are holding this quarter 7.5% as the provision. And we've started building up, should there be anything.
Sir, if you could just quantify the total exposure.
INR 245 crores.
Okay. Just coming to the -- a related question. We have heard from some other banks that now there is a moratorium on interest payment even for the functioning subsidiaries. They have gotten NCLT order. So in light of this, how would you treat these assets?
Like I said, we just completed our audit and these are standard assets, and they have got the payments due. Should things change in Q4, we'll deal with it accordingly.
Otherwise, these are likely to slip into NPL. Is that a correct understanding because it's a technical matter?
Not an answer I can give till the 22nd January hearing of NCLT happens.
Okay, okay.
And which I hope happens on 22nd and doesn't get postponed.
Okay. Just in case if the hearing doesn't happen and the order is not favorable, there is a remote possibility of this technically slipping into the NPL. Is that a correct understanding?
Yes. We must point out, the -- these are operating projects which the cash flows are automatically escrowed. Toll collection.
Even today.
Even as we speak. So toll collection going into the escrow account, there is very little reason for the money not get to the banks, which have lent.
Right. This is a technical matter rather than...
Legal matter. So we are waiting for outcome. Let's see how it goes.
Next question is from the line of Anirvan Sarkar from Principal Asset Management.
Just one question on your restructured book. So I can see that there seems to have been one upgrade of an account because the NPA part has gone down, the standard part has gone up.
That is the Kerala flood impact.
Okay. So those -- that part has been upgraded in this quarter.
Upgraded means the new accounts which have been restructured have been handed to the earlier -- this entity. So whatever payment has come to that extent, it has gone down. And to the extent of, I mean, new restructured accounts, it has been added.
Okay, okay, okay. Sure. And just one more question. Sorry if I missed it. But have you mentioned if you have provided anything prudently towards that end of this quarter?
Yes.
Yes. 7.5% is standard asset provision.
A little higher than 7.5%.
Yes, above.
7.5% of the total INR 246 crore export-ready payment?
Yes.
Yes, yes.
We take the next question from the line of Mona Khetan from Reliance Securities.
On your subsidiary, Fedfina, just if you could throw some light on its performance over the last quarter or so?
Yes. Firstly, as you probably are aware, True North is a strategic investor. It's coming at 26%. And this quarter, they are -- there's a whole, sort of, investments have come in and the performance is...
In Q3.
In Q3 that is. And we have brought in a very senior team leader as the MD and they're building out a team. Underlying performance continues to be very strong. We think this year we'll see roughly 25%, 30% profit growth. And they're building up to scale up materially. So the real value of all the efforts will be seen in FY '20.
Okay. Any concerns on the developer book it has?
None.
None.
Next question is from the line of M.B. Mahesh from Kotak Securities.
Sir, just a couple of questions from my side. I don't know if this question was asked earlier. Now that Mr. Ganesh is stepping down from the ED position of Federal Bank, how are you kind of approaching this issue? Have you kind of broadly thought about this? If you could just kind of highlight on that, sir?
Yes, I had -- in the exchange announcement, we said our well-defined succession plan kicks in as it has already kicked in. Our senior leader takes over the corporate part. And he is eminently capable of building on the good work done by Ganesh. And yes, the bank is deep. That's deep. We have good skills to build on it. And certainly, if there are more skills, we'll bring that in. But at this point in time, to my mind, we will see no let-up or any lack of momentum on any account.
In a sense that -- is there -- it's going to be just an, kind of, internal movement that you're likely to make on this issue?
Yes, we've already made the movement.
Okay, okay. And the second question is, a simpler one. What is the average age of employees right now? And any -- why is the gold loan portfolio kind of being broadly flat or declining, even as we speak today?
Two different questions. One is average age is 36 right now. And total gold loan book is growing. We are growing the agri gold loan which is doing quite well.
[ Over 6,000 ] crores.
For the first time after many quarters, we've crossed our peak of INR 6,900 crores.
Onetime high.
Yes, the total gold loan book is now INR 6,900 crores. Retail gold loan is growing less, agri was growing substantially well. And we are making the agri gold loan work well from a profitability standpoint. We see our processing fees are now going up quite well. And that's outcome of some of these initiatives.
Your next question is from the line of Kaushik Poddar from KB Capital.
Yes, for quite some time, you have not been expanding your branches. And the way your credit growth is happening around 25%. So I guess deposit growth of around 20% is a sort of necessity. And since you're not growing your branches, is it possible that you continue milking your branches to grow 20% year-after-year, in deposits, I mean?
Yes, we have not added a branch for 4 years plus. And we have worked very hard to make sure, in particular, the non-Kerala branches are coming up on productivity. If you see our deposit growth is 23%, but we believe that run rate will continue. We still see a lot of scope. And the alternate opportunities to originate deposits are increasing, be it our field force, which is going out. So it's more the sales and distribution, which is why we said on one of our calls, we have branch-like distribution heavy. We've not chalked off distribution. We'll continue to. Having said that, '20, '21, '22, '22 -- '21, '22, we believe we will put in 40, 50 branches each year, but they will be more strategic and different in nature, not the same large brick-and-mortar structure, more a sales-oriented setup.
So that is you're talking of '21/'22, not even '20/'21?
Yes. I don't anticipate much expansion in physical sense in the immediate financial year.
Okay. So you're not seeing it as a constraint? I mean you can...
Not at all. Not at all. Not at this stage.
Next question is from the line of Nilanjan Karfa from Jefferies.
Sorry, I missed out your explanation on how the Kerala floods have been -- or the impact of Kerala floods have been impact -- accounted for in this quarter. Could you -- if you could explain? Because the last -- I think in the last quarter, we said we'd expect roughly about INR 150 crores in overall slippages, and I think we added about 300 -- sorry, INR 30 crore in restructuring.
Yes. There are 2 points of data I shared. One was that we've pretty much up-fronted the Kerala flood-related slippages into this quarter. And we don't anticipate too much to come into the subsequent quarters. The carved-out portion -- I think that was a question about that. It's about INR 100 crores this quarter pertaining to a balance of about INR 500 crores.
Right, right. So -- and you don't expect the balance INR 400 crores to be impacted at all? Or rather you expect the MSME dispensation to actually take care of that is...
Yes, there's not -- we are not anticipating any material deterioration on that.
Right. And therefore, I think in the last quarter, we said for the full year roughly about INR 1,450-odd crore would -- should have been -- should be the total slippages. Would that guidance, therefore, change for the final quarter?
I mean, I'm already at INR 1,330 crore or so. So to be honest and say that it will be at least INR 200 crores more from here. INR 200 crores, INR 250 crores. We are importantly saying that the guidance is, one, is on the total quantum of slippage because, in the course of the year, in 1 quarter, Patna highway slipped, and in another quarter, it came back. But it's there in the slippage number. If you back that out, we will meet our INR 1,450 crores. Patna or Srinagar.
And one of them was Srinagar.
No, it's Patna.
And Srinagar also.
No, no. Srinagar was...
Quarter 1 slipped, quarter 2 ...
Anyway, the summary is that the INR 1,450 crores is the -- if it is net, it will still be around the INR 1,450 crores. But the reported number, well, if you add the 4 quarters, we think we'll get close to INR 1,550 crores is what it will be like.
I think credit cost without changing the coverage ratio would be the real parameter to measure it because...
We've increased the coverage ratio this quarter by 200 basis point.
Coverage has increased by 200 basis point, and credit cost remains at 68 basis points, which is the plan that was guided 65 to 70.
Right, right. And could you elaborate how the NPLs behave between, let's say, the gold-linked agri versus nongold-linked agri because of the issues going around in that sector?
No, we believe golds are 0.
Gold link is practically nil. Gold-linked agriculture NPL...
Did you say other agri or other gold?
Other agri and gold-linked.
Other agri, other agri.
Sorry.
Gold-linked agri is practically...
No, no. Agri is moving up. You would have seen it has gone up to INR 70 crores this quarter. Yes, and that is something that we are as much a victim of various announcements made by various state governments. But given the scale of operations and the overall picture, materiality will be relatively lower.
And gold is practically nil. That's what I'm saying. And I think the portfolio is also 50-50 now, half-half.
Right. And final question, sorry. Would you be able to maintain this kind of fee momentum on a sequential basis or an annual basis? Which one is the more realistic picture out there?
Annual basis.
Annual basis.
Annual basis.
Next question is from the line of Saket Kapoor from Kapoor & Company.
Sir -- firstly, sir, in the -- for the treasury part, we find this quarter numbers to be at INR 168 crore. So could you elaborate, sir, what contributed -- what were the factors that contributed? And how -- what is your outlook going forward?
You're talking about the segment reporting profits?
Yes, I'm talking about the segment reporting profits.
Driven largely by the reversal in provisions.
So sir, how should investors look for this segment going forward? And what are the factors that will be, going forward, affect the numbers in the segment?
September-end quarter provision requirement -- provisioning requirement was high because the benchmark tenure itself was at 8.02%. December-end, it has come to 7.36%. So when the yields fall naturally whatever provision we had, it got reversed. So that is slightly showing the higher profit. And rest of it is business as usual, and that includes the ForEx fee income that has come. So in segmental result, if there is a growth which is more sustainable on the merchant ForEx side, then I think it's a big -- big part of it is sustainable and would be delivered quarter-after-quarter. As regards provisioning part, that would depend on the yield curve.
Sir, could you quantify the figure? Sir, out of INR 158 crores MTM contribution is how much, on account of the [ GFIB ]?
INR 55 crore is the reversal of the provision, which was there in September.
Okay. And remaining INR 135 crores will be actual earning?
Yes, it's net of expenses and all, boss.
Net of expenses and all...
This is the profit result: net of provisions, net of operating expenses, everything put together. Gross numbers are separately given, which are there in the -- which are part of the other income subclassification.
Right, sir. Sir...
On the …
[Foreign Language]
Go ahead. Please go ahead.
Yes, sir. Sir -- now, sir, a lot of noises are being heard about these NPAs in the Mudra Yojana. So sir, out of our books, sir, how -- what percentage is attributed toward the Mudra Yojana? And what is your take on how things are shaping up?
Our total Mudra Yojana book is INR 70 crores.
INR 70 crores only, sir. And how are the performance in there, sir, in terms of the NPA part?
At this juncture, no different from any other SME portfolio.
Didn't get you, sir. Hello?
At this juncture, no different from any other MSME portfolio.
That means, sir, what percentage is as current as NPL?
Between 3%, 3.5%.
3% to 3.5%. And sir, lastly, sir, if we take this provisioning part, sir, provisioning and the -- it will be net of, sir, of the write-backs and the slippages.
[ total percent ], yes.
Credit cost will always be on that first slippages [indiscernible].
No, the question is INR 195 crores number that is there?
Yes, I'm talking about the INR 190 crores. Is it net of, sir? That means the accounts you have...
Yes, yes, yes. Yes, net.
Yes.
Okay. Sir, can you give the breakup, sir? How much has been the -- how many accounts have turned standard and -- in that case? How was -- what have been the recovery for this quarter, sir, for the 9 months?
Recovery for this quarter is about 245 -- INR 240 crores, recovery and upgrade.
It's INR 245 crore. And for the 9 -- sorry, sir?
INR 240 crores.
For the 9 months, sir, how much it is?
Roughly should be closer to INR 670 crores, INR 680 crores.
Okay, sir. And sir, how many NCLT cases are pending out of the total NPA part in any -- which are the major ones that are pending for decision?
Nothing.
Nothing, right?
Yes.
Yes, NCLT cases, no big name with us.
No big name. And lastly, sir, what is our take on the dividend distribution policy, sir?
20% to 25%.
20% to 25%.
20% to 25%.
That is including of dividend tax, DVT?
Yes, yes.
Yes.
Yes, yes.
[Foreign Language]
Yes.
Payout ratio.
The payout ratio?
Yes.
Right. And sir, what is constituted under the other banking operations? Sir, we found the revenue of INR 60 crore and the segment of around INR 4.5 crore profit in it. What constitutes the other banking operation, sir?
[indiscernible].
[indiscernible], which is the fee income related for Retail and -- yes, card-related fee.
Whatever is not under treasury, Corporate and Retail, Wholesale and Retail, whatever remains comes under that.
The driver of that is our other income on third-party products is about INR 44 crores that is sitting there.
Right, sir. And sir, I'm -- correct me, sir. What you told us, our NIMs are going to get upgraded by 100 basis point going forward, that is from 3.2% to around 4.2%. That is what the guidance you are giving?
Please, when did I say that?
When was this guidance given?
Sir, that is what I heard wrongly. That is [indiscernible] to correct.
No, 3.20%. From 3.17% to 3.20% in fourth quarter.
3.17% to 3.20%.
Yes.
Please, can we move on to the next question?
Next question is from the line of Dhaval Gada from DSP Blackrock Mutual Fund.
Sorry. Line got disconnected. Just a couple of questions. Sorry, if they are repeated. But what is the portfolio buyout quantum that we've done during the quarter?
Retail book of INR 100-odd crores.
INR 300 crores.
INR 300 crores.
INR 300 crores.
INR 300 crores. Okay. And what is the incremental yield now in...
We have also down-sold...
INR 500 crores.
By INR 300 crores, right?
Yes, it is.
Pretty much sell -- buy and sell have squared off.
Okay. Down-sold INR 300 crores as well. Okay. Understood. And what is the -- sir, where are we on incremental yields in Corporate, Retail, agri and SME?
The numbers are reflected. You will see a marked progress on Corporate. In fact, yields in all businesses but Corporate saw the highest improvement in yields.
Could you quantify, sir?
Corporate has moved from incremental yield -- sorry, was the question around incremental yields?
Sir, you can give back book as well, the total average book. That's also fine.
Incremental yields, Corporate has moved closer to 8.8% -- 8.7%. That's about a 50 basis point improvement. And in all businesses between -- other businesses between 12 and 15 basis points.
And Corporate is 8.8% right now, incremental.
Yes. 8.7%. Blended.
8.7%, okay. Understood. And just -- yes, sure. And sir, just lastly, in terms of SME slippages. So if you look at our gross NPA position now in SME, it's about close to 7%. So I mean -- how -- I mean, what are we doing to sort of arrest the slippages in this business? And could you share some commentary around how do you intend to bring this down?
Well, I think the SME book for one is principally secured book and, therefore, to that extent, the recoverability is larger in that. And markets that we have seen more stress we've sort of materially lowered that. You see our growth in certain geographies, we've brought it to single digit while the blended growth is north of 15%, 16%, which means the other geographies are growing at 25%. So one is the segment -- sorry, the geographies where we are more comfortable with, we're scaling up. And typically, in these businesses, the LGD is usually lower.
Next question is from the line of Pranav Gupta from Aditya Birla Sun Life Insurance.
So most of my questions are answered. Just one question. I'm sorry if I'm repeating this, but what is the quantum of SME dispensation used?
None in Q3. Q4, we think it'll be about INR 100-odd crores.
And there is no pending dispensations from the previous quarter. Is that right?
It's over on 31st sunset. 31st December it was over. So whatever has been restructured, rest of it is all taken as a...
NPA?
NPA.
Next question is from the line of Jai Mundhra from B&K Securities.
Sir, you did mention about the succession planning post the exit of Mr. Ganesh Sankaran. Sir, could you also provide, let's say, the name of the gentleman who would be heading the respective verticals? So Mr. Ganesh was heading 3 verticals, if you can comment...
Harsh Dugar runs our Corporate and Institutional Bank. Shailendra has joined us as the Head of Commercial Bank. These are the 2 significant ones. The others ones that we were building up was commercial vehicle. It's run by a gentleman called [ Srinivasan ]. He also focused on recovery and government business. Government business is headed by a guy called [ Varadharajan ] and recovery is headed by a guy called [ Kishore Reddy ]. And sorry, one more. Agri and microfinance and rural is headed by a gentleman called [ Mohan ].
Sure, sir. And sir, just the 2 data-keeping question. Sir, if you have sort of provided the breakup of slippages, I mean, INR 435 crores slippages will be Kerala and non-Kerala, sir?
Mostly, Kerala will be INR 222 crores -- INR 220 crores, INR 225 crores.
Okay. So same as, let's say, last quarter, right?
Slightly higher.
Okay. And within Kerala, sir, how much was pertaining to floods?
We have certainly about INR 30-odd crores. So I think the flood related would be over INR 100 crores. Our normal nonflood situation between INR 120 crores to INR 150 crores, this brought us to INR 220 crores, INR 225 crores.
Sure, sir. And last question is, what is the employee headcount as of third quarter and, if possible, for previous quarter as well?
Sorry, I won't have it at the top of my head. But I'm sure...
12,000 and [indiscernible].
I mean, it's roughly 12,000. But since we own 2 data points of 2 [indiscernible] success have got us. You have to get Rajanarayanan. Connect with him and he'll give it to you.
We take the next question from the line of Gaurav Jani from Centrum Broking.
Sir, you touched upon this point of the provisioning -- sorry, the pensioning impact. Sir, can you elaborate on that? And how do we see the employee expense going forward? And what are you doing in terms of hiring?
Provisioning on pension, unfortunately, is a wildcard. It will swing either way significantly. There's an impact. Barring that, recruitment at the senior level is very focused around the special skills that we want. That's in single or early double digits. In being more mass recruitment, roughly between retirement and if there are any resignations, roughly about 300 people retire -- resign in a year, 300, 320. That's just broadly the intake. We haven't added headcount materially other than focus areas like distribution, which is [ RM ] and collections and treasury sales. Others are more selected risk and credit are more targeted recruitment.
Sure. So where is coming from is -- and so the next quarter, do we see any other one-off pensioning impact going forward?
No.
It depends. Just in case, yields fall from December level then there would be this thing, but then it would be more than compensated from treasury profits, profit on sales of investments. So it's just a counterbalancing.
Okay, okay. Sure. And sir, also, lastly, if I can squeeze one more. How is our relationship-based strategy shaping up because our -- say, per branch in the non-Kerala portfolio is very, very low. So if you can just touch upon what are we doing out there?
You mean the savings accounts?
Yes, yes, yes.
Yes. I mean, I think, there was an earlier question in terms of productivity opportunities and now, we're seeing growth. Absolutely, yes. And we think with the various initiatives of the bank, both growing the salaried segments and focusing on distribution, going and getting these customers has increased. Savings growth ex Kerala is roughly 23%. And that's -- some opportunity remains. And then importantly, we are focusing on current account. You'd have seen a marked growth of 41% because savings any longer is not necessarily low cost, as many people might have come to understand. Banks going at 6.5% and 7% is no longer necessarily low cost.
Right. So in the 9-month period -- or if I can ask you, how many relationship managers did we add?
Across the bank, now we have closer to 500 different products. We opened the year at about 360, if I recall right.
Next question is from the line of [ Rohan Govindarajan ], individual investor.
Just a couple of quick questions. One is given the weak state of the economy in the Middle Eastern countries, are you seeing any pressure on the foreign remittances coming in? So that was my first question. And the second is given the credit squeeze that is there in the Corporate side generally and all the banks turning their focus to retail for growth, do you see opportunity to actually grow in the Corporate quite aggressively over the next couple of years? Specifically, are there any short-term opportunities in the NBFC or HFC space?
Thanks. Well, I think, the first question around growth opportunities. We've now, if you see, for 12-odd quarters, grown 25% plus or thereabouts on credit. And for the first few quarters, Corporate was the driver growing at about 37%, 38%. It's still growing at 30-odd%, but we are seeing massive pickup in our Retail, also growing at 31%. And within Retail, I pointed out there are segments that are growing even higher. So credit growth of 25% or whatever the number we're working with is fairly distributed across the segments. And when I say Corporate, I say all exposure greater than INR 25 crores -- sorry, INR 5 crores. And if you take exposures of about INR 25 crores, that has grown at about 31% this quarter and that will continue. So what was the first part of the question you asked?
So I was asking about, given the Middle Eastern market is quite weak. Are you seeing pressure on the foreign remittances given that you have a concentration in Kerala?
Yes. The good news, and I think I've said this in many calls, actually on Middle East, any uncertainty increases flows, and we've seen this for 20-plus years. And when there is volatility in the rupee and that also increases flows. Sequentially, this quarter grew 23% NR. And we haven't seen any stress on that count. But yes, like I always say, should the NR segment have stress, the more worrying thing is the credit aspect and not the deposit aspect, which is why we are cooling off some of the credits in certain geographies.
Okay. And one last question. Given the aftermath of the Kerala floods, are you seeing credit uptick in Kerala more than usual? Is that an opportunity?
Retail has grown very well for us. On MSME, we have been much more watchful. We haven't taken very aggressive stances on that. But Retail is doing very nicely.
Next question is from the line of Rakesh Kumar from Elara Capital.
Sir, just one question on this Corporate loan book. In the last 1 year, if we see the incremental credit growth from the Corporate segment is around 60%. So the contribution coming from Corporate credit in the last 1 year is around 57%, 58% of the total incremental credit what we have done in the last 1 year. So my question is that like what is the average yield on this book -- this non-Kerala Corporate book? And what is the average maturity? And in which geographies we have lent the Corporate loans?
Book is very widely dispersed across segment, across geography as it will continue. Mumbai has -- certainly, will now have a greater concentration because of the larger corporates being here. But the book distribution by ticket size is quite distributed across the country. Yields like I pointed out, incremental yields are clearly edging up this -- each quarter. We've moved up by 50 basis point, closer to 8.8%.
But sir, this 8.8% incremental yield on the segment, which is growing the fastest, would not that impact the margin going ahead because they're looking at the funding cost that we have and kind of the growth we are doing in the segment and the incremental yield. This suggest that margins would be under pressure actually growing there.
We're growing -- like I pointed, the first few quarters of -- sorry, the period when we stepped up credit growth, Corporate grew well, but we have now other vehicles that are also doing well. I said this quarter, Retail grew 31%. Corporate grew 31%. And that kind of split will continue. Retail, we see opportunities. MSME, there are opportunities but we are being a little more sort of watchful because there are some pockets of stress. And on margin. It's not just absolute margin. We look at risk adjust margin. And credit, if I'm growing good credit, AAA as you see, then the risk-adjust margins are holding very well on a coincident basis.
[Operator Instructions] Next question is from the line of Amit Rane from Quantum Securities.
My question is regarding onetime restructuring that is allowed for MSME. So how much is the amount of MSME exposure that is below INR 25 crore for us?
It's applicable for first January.
No, no, no. He wants to know the outstanding of the bank, that is below INR 25 crores.
Before INR 20,000 crores.
Both MSME and...
[indiscernible] SME.
And I think INR 20,000 crores.
11 and 19.
And of this, how much will be eligible, sir?
See, if you strictly go by the eligibility or the whole book?
The whole book.
Yes, whole book.
Whole book.
And little bit to be restructured anyway.
Yes, yes, whole book.
We think this quarter, roughly INR 100 crores, INR 125 crore, we'll see the benefit of the restructuring.
See, there has been -- our experience in Kerala floods had been that not all who are eligible come for restructuring. Some people are so sensitive about their credit history and they have the affordability and all that, they do not come for any restructuring despite being eligible for that.
And another thing in this, they have to have GST registration also.
Yes, GST registered and below INR 25 crores from all and that's put together.
So that amount is INR 20,000 crore.
The universe of a credit exposure of Federal Bank in sector below INR 25 crores, is INR 20,000 crores.
Okay, okay. And sir, once account is restructured under this, can we lend to the same account as per the rules?
I think it's the bank's decision. There is no limitation.
Okay. And sir, incrementally, we have to provide something for these loans, like?
5%. As against [ 0.4% ] is 5%.
5%, okay, okay.
Next question is from the line of Darpin Shah from HDFC.
Sir, if you can just share the SME [ 2 ] number for a bank and how it's trending for last couple of quarters?
I think, it's about 1%. One second, I'll just tell you, roughly 1%.
1%.
Yes.
And how it has been trending?
Around the same, 1%.
Around the same, 1%. Okay. Great. And just one last thing, a data-keeping question. If you can share the absolute number for SA.
Absolute number for SA.
INR 36,000 crores, INR 37,000 crores.
INR 36,000 crores.
INR 36,000 crores.
INR 34,500 crores.
INR 34,500 crores, yes. INR 34,500 crores, yes.
Next question is from the line of Mr. [ Suresh ], individual investor.
Sir, after the IL&FS incident, how have you seen the real estate sector doing? Do you find any distress in general?
From our portfolio, as you know, we don't have any direct exposure to real estate in any material way. So we look at proxies or surrogates, they're looking okay. Our LRD book is doing well. We don't see any unique different issues either on home loan or in LRD.
Next question is from the line of Pritesh Bumb from Prabhudas Lilladher.
You just said your savings is about INR 34,500 crores.
Yes.
But when I see the distribution slide, Kerala and non-Kerala slides does not match. So just wanted to check. There's a gap of INR 1,000 crores in the CASA when -- if I add both the geographies.
He says if we add these geographies the number...
No, no, no. That does not include the [Technical Difficulty].
Sorry, sir, I couldn't hear you properly.
Any balance in the OD/CC accounts, I’m not sure.
Credit -- cash credit accounts. Credit balance and cash credit accounts.
Okay, okay. Fair enough. And sir, second, we've seen that slippages in Retail being at that INR 100 crores, INR 120 crores, but we've not seen material recoveries as well when will have expected that these are all secured and will have seen some gross NPA improvements in that as a ratio. Any comments on that, sir?
So I think our recovery, I said, is INR 250 crores. So that includes a lot of Retail recovery.
So when I see the gross NPA ratio is about stable at 2.1 to 2.2?
Yes, gross is only a function of slippage, right. I mean, net is the one which will reflect the postrecovery. I don't [indiscernible].
Recovery is not lifted off from your gross NPA ratio.
Exactly. Gross NPA. Incremental slippages is what we are reflecting. Incremental slippages.
Okay. So what we are seeing is the recovery also same pace as the slippages?
Yes. In a secured product, the recovery takes between 6 and 9 months.
If it's home loans. If it's [ lab ], the entire process takes within 6 and 9 months on an average. And I think it's much higher also.
Okay. And last question is, I think, Rakesh asked the question on Corporate loan. So when I see the Corporate loan breakup you give 34% from strong HFC, NBFC and banks. So how do we -- going ahead, how do we see this book performing? Because again, NBFCs have some...
We have reviewed our NBFC exposures quietly. And like I said in the last call, all of them are the right credit. Wherever, we were not comfortable this quarter, and net has come down by INR 500 crores.
Next question is from the line of Nilesh Parikh from Goldman Sachs.
Sir, 2 questions. One, our Tier 1 is now hovering around 12.4%. And I think is somewhere similar to where we've raised money, I think, 2 years back. So fair to assume that we maybe in for a capital raising in the next couple of quarters?
No. I see...
It doesn't include the...
It doesn't include the retained profits of this year. We think at the end of the financial year, it'll go to something like 13.5% to 13%, a little over 13.5%. And our trigger point is closer to 12%. So we may not be in the capital raise for some time. And all of that is Tier 1. So there are a lot of Tier 2 pace available.
Okay. Fair enough, sir. And sir, the second question pertaining to -- maybe you would have answered this earlier. But on the fee income, sir, we've seen an impressive pickup. So any specific segments that you would want to highlight and the sustainability of the same, any further triggers that could lead to a further improvement in the fee income traction?
No, I think the many granular lines of effort are coming through, whether it's processing fees, treasury related, third-party product. And we're seeing that traction continue. I think, there was an earlier question, will this be like a annualized -- do you see a similar run rate? Our view is yes.Annualized for a full year basis.
And in your assessment to -- this percentage of assets, average assets. So what is the additional [ trickle ] which can come in over the next couple of years?
You mean ROA?
Yes.
Yes. I think, the expansion in margin, the improvement in cost income and our credit cost guidance of improving credit cost all will play through.
Fees, sir. Anything on fees, which can...
Yes, the current momentum on fees is an additional feature. Yes.
Next question is from the line of Anusha Raheja from LKP Securities.
Sir, one thing on how do you looking at credit cost going in next fiscal, FY '20, one, because we'll be looking at Kerala floods and everyone knows, which were there in Corporate slippages will not be there. So -- and how are you looking at this number? And more specifically, how do we see trajectory with respect to SMEs, SME, Retail, agri and Corporate slippages? Because in SME, Retail and agri, Q-on-Q, there has been -- for last couple of quarters, there has been increasing trend. So how do we see going forward the trend moving?
Yes, guidance for FY '20, allow me the luxury of coming back to you with our Q4 results. But it should be an improvement because the trend lines are very encouraging. And in terms of the slippage for SME and Retail is a little impacted because of the recent floods related in Kerala. We think that will get normalized as we go into '20.
Next question is from the line of Ankur Shah from Quasar Capital.
Sir, just a question on CASA strategy. So actually, like you mentioned, we have been seeing a lot of aggression from a lot of banks to offer a higher CASA. And maybe their intention is not just the cost of funds but to cross-sell other products like credit cards, insurance and all of that. So sir, how are you looking at the CASA Bank, CASA strategy? Because there have been some big banks who are suffering on this.
Yes, our CASA, as you know, thankfully, I'll refer to the size at the 3.5% rate. Only recently, we have launched a bespoke account, and the book is very small as of now. And between CA and SA, salary accounts is the driver of SA and we're working very hard at that. That's growing 20%, 23%. We've put in a very aggressive CA plan, and it's linked to the segments of businesses that we are operating, whether it's Corporate or Commercial or SME. And we're seeing good pickup. We've put in a line of offerings so that the RM is able to go out and get the flows of that customer. And further, we have a full architecture that is going after CA as part of the -- one of their deliverables as they'll get into a lending relationships. So between CASA, a separate plan for CA and a separate plan for SA.
So sir, like, don't you have a particular view of losing market share over there because certain section of the banks -- banking sector is getting really aggressive over there?
We are also very aggressive in that space. I mentioned, we have as a defensive strategy, a bespoke account. But the amount is about INR 3 lakhs. We're very competitive. We [indiscernible] report it.
Okay, okay. And just a small question on Fedfina. Is Fedfina allowed to sell all the products, like, apart from Federal Bank products or is it just the Federal products?
Fedfina is only a distributor of our auto loan and home loans. They originate and underwrite on their balance sheet gold loans, construction, finance, lab and any other structured products.
Okay. So only 2 portfolios they are distributors. Otherwise they themselves take the underwriting.
Yes. They do about INR 100 crores of originations for us of home loans a month.
Okay. Sir, and just a last question. Sir, do you see -- like, it's a very generic question, but still, do you see any opportunity to improve your market share in certain sections where there has been some NBFC issue?
I mean, absolutely, yes. And we are -- we moved some 75 basis points, 112 basis points of market share. And this momentum, even if we grow at 25%, 26%, the best growth in the country at 13% to 14%. We are gaining share.
Well, due to time constrain, we will take the last 2 questions. We take the next question from the line of Deepak Shinde from SBICAP Securities.
This is [ Krishnan ]. Just wanted to check on the fee income engine and just the revival that we have seen across fee income. How much of this is return of pricing power that you have been able to exercise versus something that can sustain much longer? And what efforts have gone into actually sustaining this?
We think in each of these verticals of fee income origination, you should take the retail part of the bank, one is the loan processing related. As the volume of loan goes up, that's picking up materially. Then if you take the para banking or the third-party products, that has picked up substantially. So between these 2 things, there is a good traction. And these are scalable. Likewise on the FX side, we've brought in a very senior leader with a good team. So that is, again, progressing. And that one is contingent on our stock and Corporate relationship. So on all these 3 verticals, there's been a marked and meaningful progress, all of which is scalable.
Next question is from the line of Mangesh Kulkarni from Almondz Global Securities.
Sir, earlier in the day, you -- in the media interaction, you have mentioned about some inorganic growth opportunities you are looking at. So in NBFC sector and all these things. So can you throw some light whether it will be in the Fedfina or in the bank itself and what will be the approximate size we are looking in all these things?
Okay, I -- just to remind you, in the media, there was a question, are you looking at? I said we are exploring at all points in time. Nothing or none of them are in any stage of maturity for me to share anything. But we are talking to a few micro finance opportunities which makes sense.
Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Rajanarayanan for his closing comments. Over to you, sir.
Thank you all for patiently listening to our call. Thank you, and good evening.
Thank you very much. Ladies and gentlemen, on behalf of the Federal Bank Limited, we conclude today's conference. Thank you all for joining us. You may disconnect your lines now.