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Federal Bank Ltd
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Ladies and gentlemen, good day, and welcome to the Federal Bank Q4 FY '19 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Rajanarayanan, N, Head Investor Relations, Federal Bank. Thank you, and over to you, sir.
Thanks, Anudi. Good afternoon, and welcome to the Q4 earnings call of Federal Bank. With me are Shyam Srinivasan, MD and CEO; Ashutosh Khajuria, ED and CFO and other senior executives. Over to you, Shyam.
Thank you, everybody, and good afternoon, and welcome to the earnings call. I know it's Saturday afternoon, and we've pulled you out from wherever you are. Thank you for joining us on this call. We had just completed the Board earlier today, and the Board has approved the financial results for FY '19 and Q4. And we are pleased to report a good set of numbers, marked progress on many of the initiatives we had taken out. And it gives us good confidence and the assurance that our strategy of steady and diversified growth across segments is playing out quite well. And we believe that positions us for a strong FY '20 as well.I'm sure you've had the chance to look at our Investor deck, which we had put out a while ago, and which we have outlined as the key outs -- sort of financial successes -- financial highlights. But I'd like to reemphasize a few points, in particular, some of the material deliverables we had chosen to work on and which we had spoken on many occasions through these calls, and our personal interactions. What we were focused on, and how we were shaping up on those, and how we've exited. On many counts, we've seen good progress, and we believe that those are, a, sustainable and scalable. And if you look at areas of the most crucial, sort of, outcome variable of how we featured our -- performed on our return on assets, which has been an area that we were lagging in the last 2 years, we see progress, and we believe that, that should continue as we go into FY '20.Noteworthy in the financial results of, particularly Q4, was our credit cost improvement, which is quite substantial. And it was granular, and it was not on the back of any one-off gain or dispensation. It was structural and it reflects the many initiatives of the bank across the years, I would say, and those are bearing fruit.And so the outcome for FY '19 and, in particular, Q4 is in some sense gives us the confidence that what we've been working on, and what we're seeking to deliver as we go into FY '20 and beyond, sets the marker for us and how we should scale up and scale up responsibly.In terms of growth, you'll have noticed that both credit and deposit growth was quite robust, at 20% plus. The segments within Corporate credit, Retail credit, Wholesale, Commercial Banking, varied growth and some by choice, some the impact of the market. But wherever we sighted large opportunities, the growth has been quite spectacular. And if I take the Retail growth, it's over 33% and that's also on the back of many businesses. Traditionally, we were one business, which was largely home-loan LAP. Then we got into home loan plus LAP and a continuum of secure. And then we got into auto loans. As we got scale and scale on that, we got into personal loans, which is driven by our own portfolio, based on data mining. And then we sort of stripped -- stitched that into a digital-only origination, based on bureau records. So the continuum of credit growth on each of these products, we're seeing momentum. Likewise, in Corporate, we have had good progress over the last 3 years. We had a mirror or mimic tied into our Commercial banking, and I am pleased that the last 2 quarters, we saw meaningful progress on commercial banking. And we took -- at the beginning of financial year '19, we did a hard slice on the commercial banking portfolio. We took out about INR 800 crores of credit, and then we've come back with growth quite strongly, as we went in -- as we exited FY '19. That was in terms of the credit momentum.Traditionally, we've been quite strong with our liability franchise. I'm pleased that, that momentum continues. And I think what is more important, which I want to emphasize is, the franchise of Federal is working, as opposed to certain geographies of the bank being more dominant. And in fact, in some dominant geographies where we've had challenges because of natural disaster, the rest of the bank has shaped up quite well to support that.On fee income, I'm pleased to see good progress, and that's all very granular and structurally led improvements. In treasury, I've pointed out, we've created a very good sales capability. And that outcome we're seeing, whether it's FX or domestic products being sold to corporate customers, to mid-market customers, that momentum is catching on. Fee income on Retail, whether it's life, general insurance, mutual funds, third-party products is tracking quite well. So the expanse of efforts of the bank across the quarters are beginning to play through well. And we believe that these are both scalable and sustainable.On the Credit, in particular, in FY '19 and in even particular Q4, we saw, for the first time, I think, in 9 quarters, the slippages fell lower than the recovery and upgrade. And the recovery upgrade for the quarter was INR 323 crores, slippages are about INR 256 crores. And the recovery upgrade was quite granular, barring one transaction where we did a cash sale. And we exited an account, so we saw that give us a gain of about INR 50-odd crores. Outside of that, it's been regular, granular recovery efforts of the bank.So in the Slide #3, in our investor deck, on NIM fee income, cost to income, slippages, recovery upgrade, credit cost, ROA, we've put a trajectory and where we said, or we thought we'll exit the year, and how we feature, we believe that on most counts we have come at or around the numbers. And we believe that sets the platform or the marker for our FY '20 momentum. And that's what we will scale off from.With that introduction, like I said, or Raj said, the entire senior team is with me. We will be pleased to answer questions, clarify anything that any of you would like to talk about.So operator, you may open it up for Q&A.
[Operator Instructions] The first question is from the line of Darpin Shah from HDFC Securities.
Congratulations for the good set of numbers. My first question is, we have achieved 1% ROA for Q4 FY '19. So where do you see ROAs moving in the next 2, 3 years? And what will be the drivers for it?
We had said on a -- and that's why in my deck also we have pointed out how the trajectory has moved. We have said 10 to 12 basis point improvement each passing year, how we were at 0.76%, 0.88%, 1.02%, and we believe a similar run rate over the next 2 financial years, taking us about closer to 1.25% by FY '21. And that's what we're working on. The drivers are many and some of them are visible right now. Certainly, the improvement in credit cost itself is a big driver. The operating leverage that we are getting is more visible. The fee income that we've seen traction is visible. So we believe the combination and the multiplier effect of all this at scale will start giving us this momentum. We are not factoring in or penciling in a material margin expansion because that may result in some kind of credit expansion of a different profile, which I'm less inclined to. So the blend of fee income, material improvement in credit costs, operating leverage and sensible credit growth is what we will position the bank for.
Just to take it forward, our cost-income ratio is still at 50% for the quarter. How do you see it improving?
I said operating leverage, it has come down 700 basis points in the last 3 financial years. And we believe that, that should continue as we go into FY '20 and '21. We believe another 250 basis point improvement, we visualize over the next 2 financial years.
Okay. Fair enough. And so the last thing, interest on others -- the interest income breakup has gone up from INR 47 crores to INR 70 crores, INR 72-odd crores. So does it include any one-off?
Interest refund on income tax -- interest income on income tax refund.
So how much would be that?
About INR 18 crores.
INR 18 crores. Okay. Sir, one last thing, sorry. Can you provide the breakup of closings?
I think it's in the deck. But can we come back? I'm sure others will have a similar question. Meanwhile we'll...Isn't that in the deck?
INR 137 crores of loan loss.
Loan loss, INR 137 crores. Standard asset -- Investment provisions of INR 24 crores. Standard asset provision, INR 16 crores. INR 137 crores, INR 24 crores and INR 16 crores.
We'll move on to the next question that is from the line of Jai Mundhra from B&K Securities.
Congratulations on a -- the trend of numbers. Sir, first on this clarification of ROA improvement of 10, 12 basis point every year. Is this exit quarter ROA improvement? Or you are saying for the full year?
Exit quarter. So on the...
I think you will see a similar improvement on the baseline.
Sure. And secondly, if -- the question on asset quality, sir. If you can, sort of, share your thought process on your exposure, if any, to some of the large owned average groups that we are hearing in the media, which is in media/entertainment segment. We, from NBFC, which have seen a recent rating downgrade. And third, the real estate portfolio, which is around 3% to 4% of the wholesale book.
Yes. Let me begin with the real estate portfolio. We've looked at our book. We believe at this juncture, it's in the right credit quality. So we are not particularly alarmed. And a large part of it, 90% of it is lease rental discounting. And the tenants are the kind of tenants, they are quite [ pleased with it ]. So on the overall book, we're not in any form, at this point, to worry. In specific to your question on the large exposure groups that are in the media and then in the conversation set of most financial institutions. We don't have any direct exposure on any of these NIMs. Be it SL, or RCom, or RInfra or Jet. That said, in the housing finance of that group, we have an exposure of 2 digit number, which at this juncture is doing okay. We will evaluate how things play out.
So that is the only exposure we have in the entire Fed group, right?
We have a structure in the RCAP foreign currency.
Sure, sir. And if possible, if you can share, I think double digit, three digit of basically...
It's a double-digit dollar.
Small double digit, small double digit.
Sure, sir. And now sir, if you can share that portfolio of double bill below, if you have any, kind of, such portfolio for your Corporate book, where if you were to put out a number or if you put out a more monitoring perspective, if you have any double bill below book ratio?
I will share as follows. If you recall last year, at the beginning of the year, when we spoke, we had set 65 to 70 basis points credit cost, and we came bang in with an exit rate of 50. Our guidance for this year is 55 to 60 basis points of credit cost. And we believe we are on trajectory for that.
55 to 60 basis points, right?
Yes.
That's great, sir. Sure. And just lastly, on this -- the note that we have given on the IL&FS side, we gather that large part of this is operating, and you have been receiving your dues. But -- if you can share some more color into it. If you see this falling -- if you see this from LGD perspective, this should be -- what kind of an LGD should it entail?
We have 3 assets in the name that you've mentioned, and all 3 are there. We have shared that in our disclosure. One of them, which is the larger one, is INR 210 crores. If -- even in the classification and amber and performance and in a good shape -- all the escrow is funded. And our -- the accounts that -- monies are coming to Federal Bank account. So there is no issue at all. And LGD is virtually nonexistent in that, it's almost a fully secured asset. In the other 2 smaller INR 30-odd crores, they are performing, the escrow is fully funded. The monies have not come into Federal Bank, for which between the 2, we've made a provision of INR 21 crores. At this juncture, our belief was, these 3 are performing, funds are coming into the account, they are vintage operating assets. Our confidence is that should not result in our problem, but we will see how things shape up.
We'll move onto the next question that is from the line of Gaurav Jani from Centrum Broking Limited.
Congratulations on a great set of numbers. Three quick questions from my end. Firstly, on the loan growth. So surely, I think there was a slight dip on the loan growth really driven by the corporate segment, which grew by about 23%. So I just want to understand that what are your thoughts on that? I mean we surely had seen some Kenya management person exiting from the Corporate segment. And what's your perspective on that? And how do you see it going forward? Because if you look at the major banks, I mean they would have a certain senior person looking at the entire wholesale space. So just wanted your thoughts on that and what sort of growth you expect in this segment going forward?
Sure. Yes. I think -- let me just answer the second part of your question first. We do have senior people looking at the portfolio, and I'm very happy with the senior persons who are looking at it. So no issues at all. Second is that, growth is calibrated. Incremental origination was of net growth, which you'll see. As you may have observed, there are some parts of the sectors that we have -- traditionally, we had significant growth. We have slowed down or not renewing lines or requesting payback. And therefore, the blended numbers may be less than its past growth. So we are not concerned around that. In certain areas, like Greenfield projects, long tenure, power, telecom, we are staying away from. Now we've added some of the more recent stress sectors, so to say. So the increased net is -- net of some of the sales that we've done or rundowns that we have done. The growth momentum continues to be strong. But I would like to point out that our team is, as we pointed out, I think, 3, 4 quarters back, I want to get to a 50-50 wholesale Retail. We're at 53-47 wholesale Retail. We are working the bank and reach wholesale if you are at Corporate and commercial, and Retail is the other businesses. We are working the bank in such a sense both are growing and growing quite well. But the rate of growth on the Retail side will be higher: a, the opportunity is higher; b, my base is smaller; c, the opportunity to earn better income stream on banks is higher. So that's how we are blending the book.
Okay. Sure, sir. Sir, do we maintain our loan growth guidance? I mean would be helpful if you can give that for the next 2 years. Originally...
Yes. It's driven by appetite and market events. We think we can grow 20%, 22%, even higher. But we may be a little more watchful till the environment completely clears up, and we think we can do that as we get into Q3. But at this juncture, that's for something like 20% to 23% growth.
Sure. Got it. Sir, secondly from my end, on the IL&FS-side exposure, sir, going forward, we appreciate your clarity on the asset you have mentioned. But what sort of credit cost trajectory or how would you take provisioning going forward on this? I mean would it be more movement there? Will it be sort of lumpy in one quarter on the IL&FS exposure?
I think Gaurav, the IL&FS, at this juncture, like I pointed out a few minutes ago, LGD should be close to 0 on this. Because these are operating functional assets. Now there could be a timing for some reason. Somebody may say that cost should be made NPA and it can get recorded. Now unless the whole thing just swipe the money from operating assets to some central pool and make it a disaster, yes. We may be at the wrong end of that stick. Our belief is, these are ring-fenced SPVs, which have been set up for these assets. The operating toll collection is going into these assets. It will be almost legally wrong to do that. But that said, anything can happen in today. So at this juncture, we don't visualize any material lumpy provisioning to be done. We think if it becomes NPA, if at all, then another 7.5% will be done in record, in the course FY '20.
15%, we already have.
Correct, correct. Got it. Sir, lastly, some data-keeping questions. So we used to mention our agricultural portfolio on the Retail loan book. So can you quantify that now? And what is our current relationship manager stand?
Relationship manager across the businesses is now close to INR 500 crores. Within Corporate, treasury, commercial banking, agri, and priority banking, it's about INR 500 crores, minus/plus a few. As my guide tell me, sorry, INR 700 crores, my apologies. It's INR 700 crores. Sorry, your other part of the question was?
Sir, the Retail loan portfolio, we used to mention the gold loan portfolio. Sir, that's not given this quarter. If you could quantify that?
Gold loan is about INR 7,200 crores now.
So barring the other -- not the agri gold, I meant the Retail gold, that was about INR 1,631 crores last quarter.
We have merged it, but that book is around INR 1,700 crores now.
The next question is from the line of Girish Raj from Quest Investment.
The quarter-over-quarter decline in the spread, yields versus cost of deposit during FY '19, when do we expect this phenomena to reverse? And what exactly has happened during the year that it has declined quarter-over-quarter?
Are you talking about yield coming down?
Yield minus cost of deposit.
NIMs have gone from 3.11% to 3.14% to 3.17%.
Yes. So sir, that is driven by the spread. So what exactly has happened? And do we see this to reverse?
I said the NIM for FY '20 will be 3.20%. So that's adjusted into it.
It should further improve from 3.17% now.
3.17% to 3.20%, right. Okay. And any outlook on the other income? Because...
The run rate, which we saw in FY '20 -- FY '19, continually -- focus to continue in FY '20. These are not one-offs, these are organic structural. So we believe it's scalable.
The next question is from the line of Pavan Ahluwalia from Laburnum Capital.
Just another question on the yields. How should we look at the compositions of book changing over the next 1 or 2 years? And how will that be driving yield? Are we talking about a meaningful bump up in digital, personal or auto? Because some of the categories that you're growing in now are certainly higher yielding than the average yield on the book. But they're also riskier categories. And their category is where, frankly, the large experienced vendors in those categories nationwide are slowing down. How do you look at our potential to grow within them the impact on yields, and making sure that we are not juicing up yields by taking credit risk at the wrong time of the cycle?
Thanks. Yes. I did a question right at the top of the call, that it's somewhat response for credit, which is why we're not going for a, sort of, gangbusters growth on margin or yields. We believe, as we shift from purely some 53-47 to 50-50 over 2 financial years, the incremental growth rate personal loan, plus digital, plus some of the higher-yield products, which today are less than 3%, may become 5% of our book. So the rates of growth of that will be higher. But still in a larger denominator, it will still be 5%, 6% of the growth.
And are these on personal loans? Are we kind of mining our existing customers, on whom we have a lot of data, and who have not been targeted by the HDFCs, Bajaj Finances of the world? Or are we simply going in and saying, look, we can do the same underwriting that a Bajaj Finance or HDFC can do? And we can actually give them a slightly better rate. Because we don't need to make the same spread as those guys do because it could be ROE accretive to us whereas ROE dilutive for them. What's the strategy there?
The most important, and principally what we are working on, and we're pushing very hard, it's certainly to ensure that mining our entire database. I think last 3 calls we have said, we have a program called, BYOM, Be Your Own Master. It's focused digitally, originate credit from our existing customers. And over the last 2 years, we've had meaningful success in boarding a lot of salaried customers, and mining our existing database of customers is working quite well for us.
But why they're going to you and not the 50 other people who are trying to push digital personal loans online, et cetera? Is it just that those guys are not able to reach these people yet? Or are you offering a better rate? That's what I'm trying to get at. Today, any salaried person has been on digital with offers for personal loans, car loans, any kind of loan they want to take. So what I'm trying to get at is, what's your edge? Is it just, you bring the price down? Is it that you're getting to a customer these people can't touch for some reason? What's -- is there some color on that?
The answer may never be just one of this, it maybe all of the above, right. But I would point out, I think anybody who says they have secret sauce or a unique segment, they will be kidding themselves. We are reaching as aggressively as the best banks in the country. And many of them are existing customers, so there's certain degree of loyalty and relationship that is there. And therefore, we are able to reach out to these guys and offer. And our digital offerings, and if you go into digitally taking a loan, you would probably encounter Federal and 2 other good banks and that's all. We are certainly one of the top 3 in the digital lending space now. And I'm not saying it because I run the bank. You can check it for yourself.
The next question is from the line of Mona Khetan from Reliance Securities.
So my first question is on this Jan 1 MSME restructuring scheme. How much of our SME business restructured under this scheme, this quarter?
INR 7 crores or INR 8 crores was the total.
Okay. Got it. Okay. And on one data-driven question. On CASA, what would be the CA versus SA for you? I don't think the details are there in the presentation.
It's about 6.5%.
It has improved from 4.5% to 6.5% in last 3 years.
Our strongest growth has been in CA.
Okay. And that would be led by?
A bunch of things, if you've been tracking us. I've said on all calls, we have built a very good architecture for originating CA from a point of view of technologies, distribution and reaching out to existing customers and making them to bank with us as their priority bank. Traditionally we were only a lender. So we've done a lot of data mining with existing clients. Our cash management and, what we call Freddie is our transaction-lending capability. Now it's probably, at this juncture, the first bank to offer all of that entirely customer-originated. Sorry, from MSME restructuring it's INR 11.68 crores, not INR 7 crores, INR 8 crores.
Okay. And on your SME book, you have this business banking and commercial banking. What would be the ticket sizes between these, in the sense that what we'll be doing?
INR 5 crores and below is tagged as business banking. INR 5 crores to INR 25 crores, commercial banking.
The next question is from the line of Renish Bhuva from ICICI Securities.
Congratulations on this set of numbers. Sir, a couple of clarification. One on this IL&FS exposure. Sir, are we still booking interest income on the project, which is under Amber.
Interest income on the Amber project. How we're booking?
Because we got payment up to April -- up to April we have got the payments in the accounts, in our own accounts.
Okay. Because one of the analysts, he reported numbers couple of days back, that to reverse it saying regulators are not allowing...
I want to point out, you must be aware that the same asset in some case is secure, some case is unsecure. In our case, we believe it's fully secure. That's why we said the LGD should be minimized.
And we are getting the payments through the consortium leader. It's not that we, in isolation, are getting it. It's been distributed by the consortium leader.
Okay. Would you like to quantify that number, if possible?
Which number?
The interest income on IL&FS.
You can say roughly -- if the asset is INR 210 crores. You can then calculate, 20%-plus per annum will be the interest income. Right? This is interest income, not the -- minus interest cost.
Yes, yes, yes. Thanks for that clarification. Just secondly, on our risk-weighted assets, it actually declined in absolute terms on quarter-on-quarter basis. Is there any specific reason? Or it is just because we're possibly unwinding some of the risky assets or something like that?
No, no. It's a combination of things. Also, you saw the NBFC, RBI has given some changes to NBFC RWAs. So to that extent they also benefit.
Okay. Okay. And sir, lastly on the slippages and also retail slippages. In absolute terms, actually it's lowest in past many in quarters. And why it was somewhat agri, it is highest in past many quarters? So I mean, is it really difficult for us to draw a time line. If you can show some light about what is happening? And then what one should assume that a, kind of, a trend in Retail and agri slippages?
See, Renish, and this is something I've said in all of our calls, our numbers are never smooth. It is what it is. And in agri, in certain states and particular in Kerala, after the flood, there have been a lot of dispensations, lot of political interventions. So we have taken a larger hit this quarter. And that has been -- if you see the last 3 quarters, even the agri -- and it's all Network-I. Of our total INR 256 crores, 160 -- INR 91 crores is outside Kerala and INR 160 crores is Kerala, and driven largely by recent events. But we've upfronted it, and we've taken all the hit.
Okay. So in spite of [indiscernible] going forward, it should decline. We have taken our...
We would believe that this INR 256 crores, which is the blended between the 2 -- with the whole portfolio, it should be more like closer to INR 200 crores.
All right. And would you like to give a guidance on slippages for the full year within FY '20?
I think we've pointed out 56 -- 55, 60 basis point credit cost, which clearly -- it's very easy for you to compute. You know the run rate, you know the overall recovery trend line. So fairly indicates. I'm interested doing that because last year we told a number, and we were like off by INR 80 crores, and we were beaten up many times over it.
Sir, if I can ask last question. On the cost side, though, we are not been adding any branches or ATM so far from last 2, 2.5 years. But still our OpEx growth is running between -- anywhere between 16% to 20%. So I mean, are we adding more people? Or are we spending more on technology, or are we done with debt cycle. And going ahead, we should see the operating leverage? You have rightly mentioned in your opening remark also. So what is happening there? I mean, is there the incremental growth, are we sourcing from a third-party and that's why we have to pay more fees and everything to third-party? Or what is happening there, I mean?
No. I think I mentioned in the last 3 years, we've seen 750 basis improvement in operating leverage -- cost income improvement. And that points to about 200 basis points improvement almost every year. We think that'll continue. Our cost increase is given as a -- it has a certain degree of pensioning that we have to do. And that is never a direct -- you don't see the direct benefit of that in the near term, in the cost/income ratio, it only inflates the cost. That's a given, I mean, that's -- in 2022, I have to carry that. But outside of that, our costs are fairly well managed. And in technology, we will continue to invest.
Okay. So this run rate, if [ I told them, it'll ] sustain, right? Whatever you are saying that this is big reason for decline in cost to income, that you're confident of achieving that?
No. I'm not saying the 250 basis points each year. But I'm saying...
No, no. Cumulatively for 2 years?
Yes, yes, yes.
The next question is from the line of Ankur Shah from Quasar Capital.
Sir, I just wanted to ask one question in relation to whole Retail portfolio. Because Retail -- all the banks are coming out and saying that we want to increase our Retail exposure and something in relation to that. The big corporate banks are even saying the same thing. Sir, has the risk reward in favor to grow this portfolio? Because it's becoming like a bandwagon sort of a thing that everyone is trying to ride the Retail portfolio. And eventually, there might be a case where that is too or isn't too favorable to prove operative.
Yes. I tend to agree with you, and you'd never have heard that from Federal. We've said we will be a balanced book. And for long I said, we're a 1/3, 1/3, 1/3 book within Corporate, SME and Retail. When we're running a low CD ratio, we stepped up on our Corporate, we saw good progress. As we came to in the mid-80s or early 80s of CD ratio, I said we will step up on our commercial banking. We've put a full architecture for that. As we are doing that, we said there's an opportunity to step up on Retail. So we will -- and if you go back to the earlier definition of Corporate, SME and Retail, directionally, we'd like to be a 1/3, 1/3, 1/3. We'd never want to be caught in a cycle. But we take within 3 and 5 years to pull out. So that's why we are not saying Retail wholesale will be 50-50, driven by these dynamics.
Okay. So the second question is on the CASA. Sir, I saw that year-on-year, at least the CASA ratio has come down to around 32%. Any specific reason, why we are not able to match the CASA growth with the loan growth or the deposit growth. And secondly, related to CASA, is there a chance that we are lagging somewhere in technology or the API integration offerings to the Corporate clients because of which we might lose CASA.
But our price improved. I think car issue is improved vis-a-vis our own past as well as the market. Car growth has been in excess of 25%, closer to 30%.
No. Let me explain that you. Our CASA for the full year grew 16%, our deposits grew 20%. And like Ashutosh pointed, car grew north of 25%. SA grew 15%. SA ex-Kerala grew higher. SA in Kerala, while remittances were remarkably strong, SA growth was muted because the second half was huge consumption events, people like to restore livelihood. To that extent, I'm not saying that's the only driver. We'll have to see how things play out. But we are actively managing our cost of funds as opposed to just running the CASA ratio because today, SA has been originated by some banks at 6% and 7%, which is like a term deposit rate.So we would like to look at CASA through a context of CA, which I'm happy to report has moved 4.5% to closer to 7%. And Corporate is doing a remarkable job because the capability is built on cash management and the focus that we've created there. And added to that would be the focus on the cost of deposits being managed.
Okay. And just the last question. On the RWA, sir, was it just because of the RBI change in NBFC? Or was it that the overall book quality also improved? Because...
Certainly, it's a good quality. But it was helped by almost 60 basis point because of the RWA's NBFC.
[Operator Instructions] The next question is from the line Srijan Sinha from Future Generali Life Insurance.
Congratulation on a very good set of numbers. Sir, just wanted to get a -- in terms of recoveries, recoveries and upgrades were very strong this quarter. So was it granular in nature or were there any large corporate accounts which were recovered or updated during the quarter? And what's the number that we should expect going forward?
I mentioned, maybe you came in late. INR 323 crores had 1 transaction where we had done a cash transaction, and that was about INR 50-odd crores. The balance is granular, regular recovery and upgrades.
The next question is from the line of Praful Kumar from Pinpoint Asset Management.
Shyam, congratulations to you and team for the good numbers. Just wanted to know are we looking at any key hire, Shyam, on the senior management any more role? Any new hire that you need to take it out away up 25 bps over next 2 years in terms of manpower?
We do have a lot of senior recruits, and they have some -- many have come in, a few more are in the pipeline for specific roles as business managers, credit heads, functional heads. My direct report team, we're not looking at any senior hires just now.
The next question is from the line of Krishnan ASV from SBICAP Securities.
Just 2 things as it relates to [indiscernible] Number one, can you...
Your voice is trailing off, Krishnan.
Krishnan, the voice is getting broken.
Is this better?
Yes. It's better now.
Okay. Great. Sorry. So I had 2 areas to comment. Number one, among the various businesses that Federal Bank has on its portfolio, generally, we foresee that Retail is firing below potential. I just wanted to understand across variable portfolio, which are the ones where you see certain elements of normalization happening in terms of ROEs? And where do you think you can fill it up far better?
No. I think in all our businesses, as you would have observed as you watch it very closely, it's not an either/or. We are scaling up on each of the verticals, whether it's commercial banking, whether it's Corporate or the newly initiated commercial vehicle opportunity. In Retail, there are various granular pieces. Business banking is a big opportunity. Maybe I should just for clarity explain the architecture. While you put it out much more clearly, we have 5 distinct verticals: Corporate, Commercial, Business Banking, Retail and then Agri. Agri is micro finance. And each of them are headed by a Business Head, and they have P&L outcomes and responsibilities. Some parts, they have their own distribution, otherwise, they leverage the bank's distribution. And each of them are headed by people who have relevant experience in that and are going out and building a P&L to make sure that it's profitable and is ROA accretive. So the business architecture is quite well laid out and it's getting reasonably enshrined in what we do. And therefore, they are pursuing value creation within each of them. In that context, we believe businesses like business banking has a remarkably large opportunity for us to pursue. I would say commercial banking, I would say personal loans, I would say fee generation capability on credit cards because we haven't done that at scale. We've just tested it out and beginning to work. We're doing now close to 10,000 car a month versus 10,000 cars a full year. So we're looking at scaling that up, which is [ such as ], in our current model, it's a fee income model, we're not looking at revenue through unsecured revolving credit, but we're looking at a fee income model. So at all these things, we think there is dialing up capability. So I would say for the next 2 years, there would be no one stepchild and one poster child, we would like to do all of them at scale.
Great. That's helpful. The other question I had is around just the previous barriers. I mean these recoveries that you have been sharing were fairly strong, except for the INR 50-odd crores that was the last [indiscernible]. I just wanted to understand what initiatives have you taken just to make sure that this pace or this run rate actually sustains that lets us build it out in terms of whether that is a new normal than it's today?
Yes. I think if you see our fourth quarter or actually go back, the run rate is within 200 to 250. Now certainly, a, last quarter is always much more, maybe a 10%, 15% bump up is always there, but the run rate rhythm is built for that. Now the denominator had already started coming down. The denominator of written off tool is already down. And wherever there's bilateral client of the bank, the opportunity is much higher. The consortium-lead did kick it account, then we are only waiting for a Kingfisher or a [indiscernible] to pay. So we have carved out the portfolio where it is unique Federal relationships, where we are an asset, where we can go and do a onetime settlement where we can use an aggressive activity to collect. And what is at an activity level and a concession level then you have to work with other partners to work on. So it's kind of a mixed strategy.
So as the gross entry also reduces in absolute terms, which it has in this quarter, I think there would be so much little anomaly tools -- recovery tools. So both on the written-off assets as well as the gross NPA, the total itself has fallen drastically.
That said, last year was INR 800 crores, this year is INR 963 crores, back out the INR 58 crores, it was INR 912 crores. We see a similar progress in FY '20.
The next question is from the line of Seshadri Sen from Alchemy Capital.
Just following up on the previous questioner's line. The recovery on written-off assets was INR 49 crores in the fourth quarter. What did we exactly in this year -- in this bucket, the written-off assets, what is the size of the pool? How much do you hope to be able to harvest over what time frame? If you give some color because that's a fairly lumpy item in the fourth quarter P&L.
Segmentally it is not full, it is about INR 1,500 crores. So that's the universe we are pursuing.
And what do you recognize is harvest, the total of this?
See, the age less than 3 years and age later than 3 year, behavior is different. Because if it is greater than 3 years, there's a litigation, then a concession and a whole bunch of stuff. The more recent write-offs about INR 1,500 crores and there were INR 500 crores. That's the more directly-addressable pool. Typically in a year you can expect about 25% on that.
Additionally, in this INR 323 crores of recovery and upgradation, this recovery from written-off is not included, that is over and above that. That is separate.
That's right. That's the INR 49 crores I was referring to. This is -- this particular amount is INR 44 crores, in fact, and that is against INR 101 crores last year with lower vis-a-vis last year's listing.
Exactly. I think on even quarterly on a year-over-year basis, it's down. It's INR 54 crores to INR 49 crores. It's in Slide 22.
So Mr. Sen what happens is, if you have one account -- one Corporate account settled in a particular quarter, that certainly changes the amount in trend line. We are in OpEx some amount coming last year. So suddenly the amount had gone up and all.
Yes, I appreciate. This is a line which can be very volatile on a quarterly basis. But I just wanted to get from a 2-year perspective, we know, Shyam was mentioning INR 500 crores, some of this will be harvested overall 2-year perspective with a lot of quarterly volatility, if I read you right?
Absolutely.
The second question is on capital and net worth. So there was -- the increases in the net worth is more than your quarterly profits. Just if you could explain that.
So that is partly because of the prescription from Reserve Bank of India. Wherein earlier, they were playing for all NBFC's, you have to have a weighted as a 100% percentage as quitted assets. Now they have extended it to equivalent of non-NBFC quarter exposures, like if you have AAA, then it's only 20%, if it's AA, 30%, if it's A, 50%, if it's BBB, then 100%. So that particular formula, in that AAA NBFC certainly would consume lesser capital, instead of 100% maybe consume 20%.
Yes. I understand that. That's the RWA movement. But if Tier 1 capital has moved from INR 11,800 crores to INR 12,500 INR -- 12,700 crores, have you issued some Tier 1 bonds? Or...
No, no, no. No bonds. No debt instrument in our balance sheet, which is a capital-contributing instrument. Neither in Tier 1, nor in Tier 2. No in T1, no Tier 2 bonds. ESOP exercise and all, some would have got added because of that.
Okay. ESOP would explain that, yes. We -- broader question is on, what do you see in T1? And for 2-year, 3-year timeframe, what are the absolute flows that you're looking at? Are you thinking of capital issuance in the next 12 to 24 months?
So as the numbers suggest, we would not need to raise capital in next 2 year -- the current financial year and the next financial year, at least up to 18 months. But then there is a slight [indiscernible] probably, I mean if the markets are favorable and suddenly our growth also picks up, environment picks up and all that. And you can never predict how much do we -- it would not be correct on my part to say that you're saying strict no to raising capital in next 2 years. It doesn't seem like that in current financial year we would need it.
And a final query on your home loan business. That's obviously a fairy large part of your Retail housing loan business a large part your Retail. How do you see the operating environment there? On the one hand, we know a lot of HFCs are now stopped lending. So that obviously works to your advantage, especially given the quality of your liabilities. But on the other hand, the demand environment isn't probably that great. There's a lot of risk for builders who may not be able to complete projects. So how are you approaching that in terms of future growth? And if you can give some color on average ticket sizes, what percentage is affordable, et cetera?
Sure. Average ticket size in metro, particularly in Mumbai is closer to INR 80 lakhs. Rest of India is about INR 40 lakh to INR 50 lakh. And we see gold -- sorry, home loan growth sustaining this momentum. We are -- our distribution is quite strong. The relationships we have built in different developers is not quite strong. So we're becoming one of the principal mortgage lenders in most of these big projects now. So if you take Mumbai as a sort of a benchmark, I'm assuming the market is about INR 7,000 crores, INR 8,000 crores a month. We're doing INR 400 crores or so. So we are doing meaningful participation now and we think that will continue.
We'll move on to the next question that is from the line of Dhaval Gada from DSP Mutual Funds.
Congrats on the set of numbers. Just 3 questions. First, data-keeping question. On the INR 50 crores sale that we did, is it largely from the SME and PA book?
No. It was Corporate road Asset.
Okay. The second question was on SA growth. So it was 12%, if I back calculate based on the CA number that you've given. Is that correct? And I missed the comment around what drive -- drove this numbers materially lower than what the trajectory was in the past quarters?
I think SA Kerala was closer to 12%, all-in non-Kerala was closer to 16%. Kerala was slightly lower because while remittances are strong, the trend for sort of restoring livelihood was higher. And therefore, it has closed down in second half.
Okay. And lastly on the pricing environment. I mean how do you see loan yields moving into FY '20? And could you give some color on where are we on incremental yields and averages for Corporate book SMEs to retail book?
Our overall book management, I told you, is driving closer to 50-50 Retail wholesale. And within Retail there is a bunch of products from purely 100% home loan secured to unsecured. But that's a spectrum. I also said that the personal loans those relatively unsecured products will at best be about 5% of the total book. So the yield expansions look we're talking about 320. A product-wise yields, I mean it's not at the top of my head, but you can sort of easily figure it out.
So just -- sorry, just to follow-up. So I remember a few quarters back, this numbers were about 10% in Retail, 9% in Corporate and 11%...
Inching up, inching up, that's why where are able to keep our NIMs consistently at least where we are without while cost of deposits at the market level has gone up.
Our cost has also gone up, cost of deposit.
We will take the next question from Abhishek Murarka from India Infoline Ltd.
So I have a couple of questions. One is, at what point of time, and what are the metrics that you -- that will trigger branch additions from the current position? So how will you decide on when you need to start adding branches? And the second is out of your incremental, let's say, savings account and retail term deposit accounts that you've done in FY '19, let's say. How much of it was from the digital channels and how much of it was from your -- sourced through your branch network?
Okay. We -- let me -- I'll draw your attention to a slide in which we didn't say -- I just [indiscernible] found that line but I thought we believe in it, Slide #25, where we said prominence to dominance and presence to prominence. I think that because in Kerala, we were prominent, but we are now seriously dominant. And in Kerala, we were present, but not prominent. And we believe we are scaling up on both of that count, and I'm seeing that happen. And we certainly will fight it hard to make that prominence to dominance at Kerala too over the next 2 years. That said, your question on where we are seeing the growth in terms of the savings account and in the linked questions. All -- sorry, I'll come to the branch expansion in a moment. All our accounts largely in the liability side are now digitally originated. So whether it's through a branch or to be selfie or whichever, is all digitally originated. But the branches per se, we think ex-Kerala, we will look at about 40, 50 branches per year for the next 2 years. But that is not something that we will do in a conventional model, we are visiting a few, sort of size of branch, skills required in the branch. How much is self-service? How much is automation? How much is the conventional tellering? So a bunch of stuff that's going on. But it's not a number one priority for Q1 and Q2. We are putting some things in place, but that's not limiting our near-term growth. I genuinely believe as we've demonstrated over the last 4 years, we haven't added a branch in 4.5 years. Our growth has not been constrained. And today the distribution of the bank is quite significant. And we believe that reach out, salaried accounts, bringing more digital is giving us reach. We will certainly invest into the network, but very selectively in few geographies and differentiated model. Over the next 2 years, we will probably put 80 to 100 branches in certain geographies outside of Kerala.
Okay. So just sort of to follow up on both these one by one. In terms of your SA and RTE commentary that you gave. Is it fair to say that, let's say, in FY '19, whatever increase happened in, let's say, number of customers, almost 80% to 90% of that would have been digitally sourced. And is it entirely digitally sourced or is it like adjusted digital, where a person walks into your branch and your branch guys actually helps him fill in a form digitally?
It's originated digitally -- to our digital it will be 10% in customer himself unsupported. But the digital origination using tap banking or straight through when he comes into the branch and the account opening happens on the system instantly. That's the thing. So it's 90%, 9-0 assisted, 10% in favor of purely digital.
And despite that kind of links, given that assisted digital is also sourcing mechanism where the person has to reach the branch, do you still think that you don't need to add more than 50 -- 40, 50 branches outside of Kerala in a given, let's say, per year for the next 2 years?
Yes. That's our view right now. Yes.
And your SA growth in that context, even if it is 14%, 15%, 16% in this quarter, it is slowing down in the last 3, 4 quarters and it's becoming more difficult to get SA. So you still think that's adequate, given your overall 20% growth trajectory?
We are talking about CASA, which is I think a better metric for cost of funds. And our strategy on CA is robust and we believe, in FY '19, we may be top 3 banks in CA growth in percentage and in some sense even absolute.
Okay. So whatever slowdown in terms of SA, you'll make up through CA?
Any other unanswered, our teams will come back, if there any queries, clarifications. So if there are any non-number, non-data point question, I'd like to take that.
We'll take the next question from the line of the Gaurav Kochar from AMBIT Capital.
Below [indiscernible] book is it around 15% of the profit growth. And you've given another slide, where you have mentioned that the NBFCs and the HFCs are mostly A or better rated. So may I know which sectors are in the 16% category?
Gaurav, I think this is data point, I may not have instant answer. I request -- Raj is here? No. His question is that 15% was a simple B, what would it be if it's not NBFC HFC? There would be bunch of stuff. It won't be just one sector or something. And commercial banking is also included.
Okay. Commercial banking is also included. And lastly, on the auto loan, how much of it is CV and how much is non-CV?
Yes. This is not CV.
Auto loans?
Yes. This is not CV at all.
Okay. Not CV at all.
CV book is just under INR 100 crores now.
CV would in business banking or commercial banking.
CV will come under business banking, commercial banking?
So these are purely car loans and 2-wheeler?
Yes, yes.
No, not even 2-wheelers.
Personal cars. Car loans. Retail loans. Individuals.
So retail -- the car loans saw a 62% growth despite a slowdown in the number of cars which were sold. How are we tracking here, I mean 62% growth.
No, I think car growth is a very small, relatively small base. And we think -- and bulk of this is in Kerala and Tamil Nadu, where a, our distribution is strong and we've activated it. So we have -- we now are a for INR 5 lakh and above car segment can Network-I, we may be the first to go bank. And probably Kerala is the largest four-wheeler sales market in the country. Luxury car sales.Operator, are there other questions?
Sir, we we'll take the last question that is from the line of Saurabh Dhole from Trivantage Capital.
Just one main question, which was from Slide #15, where on the bottom right there is a chart, which talks about mainly exponential growths in the digital users. So I just wanted to know what did we do in this quarter so differently which is driving this growth.
What did we do differently this quarter?
Yes. On slide #15.
No. I think it's a build up. I mean frankly it's not anything uniquely different, it's a buildup. And we ran a lot of internal contests to make sure that digital and it's one of the employee targets to ensure digital growth. Typically quarter 4 ends up being the most active quarter, and we saw that pickup, that will be the new base. So from that new basic, again, people will be targeted to growth.
So this was -- this is cumulative?
Yes.
Okay. Okay. And just one more, if I can. On your [indiscernible], you already mentioned that you plan to have around 40, 50 additional branches outside Kerala, which is I think for the next 1 year, right?
Yes. Well, I -- yes, that's directional. We may not put 40, we may put 30 and we'll put 60 the next year, but directionally another 80-odd branches over the next 2 years.
But if we talk a bit about a more longer time horizon, you think the time is right to maybe change the profile of the bank and have a much stronger presence outside Kerala? Or much less dependent?
I mean that is been the journey of the bank now for the last 3 to 5 years is what has playing through.
No in terms of branch...
No. That's what I'm saying. Our physical presence, I think is, and that's our judgment, is not so much the limitation. It's our niche which is the issue, which you already focused on. If physical presence is important, we are looking at various banking outlets and more nice search kind of activities, which can give us the physical presence to give the sort of prominence. So we are not looking at physically putting in hundreds of branches. And our strategy is borne out by that effort, and I think we can sustain that. But we don't want to be blind to anything, we'll certainly consider if there's a need. This whole space is emerging almost consistently. And while we are doing this, our subsidiary is, particularly Fedfina is doing a great expansion plans. So we might do some piggybacking on that and develop some PC outlet strategyOperator, if there are none, I'd like to say a 2, 3 points and close out.
Thank you. Sir, you may please go ahead with your closing remarks.
Thank you. As there's one crucial and important input in terms of the overall Federal Bank franchise in addition to what we believe was a robust quarter and positions us for FY '20. We are quite pleased that Flexi is now turning out quite strongly, the whole team has been after the arrival of True North as a partner. Very strong senior management team with good focus has come into place. IDBI Federal, which is another JV partner of us. We've had good progress, you may have seen the numbers, and we think that's scalable too. The declared made in dividend this year, and it will get cleared in the AGM next month. The FedServ, which is our 100%-off subsidiary, it's now coming up to steam. We believe in the course of FY '20, that will scale up nicely. And our investment in the Equirus is turning out to be very productive, not only just from an investment banking side, but also for our Wealth Management capabilities. And I think we'll have more concrete outcomes to show in the course of FY '20. I thought I'll summarize with that input. For another input for those of us who work closely with us and track us closely, you've been used to that, Narayan has the Investor and Marketing Relations Head. He is moving to another larger assignment, he's going around the Bangalore zone. So Anand Chugh is coming in as the Investor and Marketing Relations Head, so he'll be the new point of contact. And I'm sure they will reach out very soon. Raj will...
Thank you all for the support that you're extending to me. And the camaraderie I have enjoyed with at least some of you has been exhilarating. Thank you, and have a wonderful evening.
Thank you. Ladies and gentlemen, on behalf of Federal Bank Limited, that concludes today's conference. Thank you for joining us, and you may now disconnect your lines. Thank you.