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Federal Bank Ltd
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Ladies and gentlemen, good day, and welcome to the Federal Bank Q4 FY '21 Investor Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Anand Chugh. Thank you, and over to you, sir.
Thank you so much. As I welcome all investors and analysts to the call, I hope and pray that all of you and your near and dear ones are safe in this challenging environment. It gives me a lot of pleasure that despite the challenging external environment, the bank has been able to report excellent performance on the financial and nonfinancial front.Let me begin by highlighting the initiative that the bank has undertaken towards vaccination, which is the biggest need of the hour. We, in association with Network18, launched India's biggest vaccination drive on World Health Day at Attari Border. The bank would adopt 5 districts, namely, Amritsar, Indore, Nashik, Guntur and Dakshin Kannada and run vaccination drives in these districts. As we care for the society at large, the bank has also rolled out various HR initiatives to ensure the health and mental peace of employees.Also, in the quarter gone by, various awards and accolades came our way. The bank was [ addressed ] as the best and fastest-growing bank in the midsized category by Business Today-KPMG. Shyam was [ addressed ] as Business Standard Banker of the Year by an eminent jury. Employees are the biggest strength of the bank. In the very first time when the bank decided to participate in the Great Place to Work survey, we were selected as one. Bank also won awards for digital initiatives, and it was a reflection of our mantra, digital at the fore, human at the core.On the financial front, you would have noticed that Q4 was one of the best in terms of performance. The bank recorded its highest ever quarterly net profit that stood at INR 478 crore and grew by 59% on a Y-o-Y basis. This was driven by NII that grew by 17% on a Y-o-Y basis despite 9% growth in advances and by strong performance on the core fee income, which came in at its highest ever level of INR 363 crore. NIM improved by 19 basis points to 3.23%. The strong operating performance helped the bank report ROA of 1.02% and ROE of 12.2%. The bank's Board also recommended dividends of 35%. That is INR 0.70 per equity share on face value of INR 2. The bank [ strengthened ] its provision coverage of 53.39% to 65.14%. Consequently, net NPA came down to 1.19%, which places us amongst the best in the industry. The bank also crossed milestone figure of 3 lakh crore in terms of total business.With a quick snapshot of our performance, I'd like to hand over the mic to Shyam for his opening comments. Many of the senior team members are also on the call and would answer any questions that you may have. Over to you, Shyam.
Thank you very much, Anand. And like Anand, I want to make sure and request everybody, I hope everybody is safe and dealing with the challenges in the best manner possible.At the bank, like any other good organization, we have done our very best to make sure that our employees are both safe and continue to work with reasonable comfort. We've had good success on that count. It's been a tough year, no less for anybody else. And we believe that in the context of that, our financial performance for FY '21 would rank as one of our stronger years. And that sort of gives us the confidence and inspiration to make sure that despite a raging pandemic, despite the current scenario, we believe FY '22 should also mimic or hopefully even better as things shape up better in the second half of this financial year.I'll just cast our mind back to February 2020, just before the breakout of this intense challenge we have all lived through, when we had our first sort of formal Analyst Day and we had shared some of our objectives, our road map and our aspiration going into '21, '22, '23. Unfortunately, some of them did get stymied or delayed. And I'm happy, despite the headwinds, we did end up FY '21 more or less along committed lines, and that was quite a prudent [ choice ] of products, wide use of conserving -- both conserving and using capital more sensibly and not rushing to raise money just because some of availability was there.I am quite proud that we probably rank as the only bank that increased our capital ratio without having to go to market, and we stood strong on our choice of not having to raise until we are absolutely required to. And I do think that the strategy has paid off. And with that confidence, today, the Board has also recommended the issuance of a dividend going into FY '21 as the results of FY '21.I'm not going into the numbers. I thought I'd just give you a headline of the choices we made in terms of capital conservation, in terms of business mix, in terms of being prudent in our credit portfolio. Our gross and net are clearly in the top league of banks, and I'm proud that our strategy over many years have been quite conservative and not doing some [ smash popping ], hitting one year and then doing a mess up next year. Has held out and I want to believe that strategy should survive and sustain the bank going into FY '22, which looks like an arduous year at least at the start.The view we have of Q1 and Q2, and I'll only speak of the immediate quarters because the long-term aspiration and desire of the bank remains intact. Near term, there will be challenges. It's quite uncertain what [ the state of ] Q1 will look like. But we are looking through or looking beyond just 1 or 2 quarters. Our momentum is strong. We have recast our senior roles and positions of seniors to make sure it's more sharper and very business focused, are client focused.So we've got 2 senior people looking at the business side of it. So just recruited Venkat who joined us as our CFO effective today. Venkat has a remarkable pedigree. He comes from great past experience as a financial controller. Ashutosh stepped down to do other activities in terms of running [ its portfolio on treasury credit ] and importantly, the ESG initiative of the bank. So between Ashutosh, Shalini, Venkat, Harsh, the senior combined, alongside our HR, compliance and other seniors, we have now got a formidable senior team looking out into FY '22 to honor the -- both the commitments we've made for ourselves and our statements that we've put out in terms of aspirations for the bank and the business as we go ahead and seeking to be the first choice bank.On no account we are behind on any of these commitments. The aspiration to build a granular, well-diversified portfolio is turning out quite well. You would have seen our CASA growth has been amongst top quartile growth. Our liability franchise is very granular at 90%. Our credit costs have been well contained. Our provisioning strategy, from being almost 46% at the beginning of calendar '20 is now at 65%. Every 100 basis point is about INR 40 crores. So we've added well north of INR 700 crores of extra provision in FY '22 -- FY '21 for the same level of slippages of the previous year. Much was made about the deteriorating portfolio and the environment. Not that we [ diluted ] that. We believe that our portfolio will withstand. And I'm happy, as we exit FY '21, our coverage has moved up to 65% and without any technical write-offs, with technical write-offs well into 78. And we remain well provisioned. Our capital adequacy is meaningful.And our strategy going into FY '22, like I said, is to granularize, focus heavily on digital. We've had good success on digital. Launched the new initiatives that we had held back in FY '21, namely, the credit card launch. Staff launch has gone well. Our digital -- completely [ 3-click ] digital offering. Our credit card, there's no hand touch. There's no paper. Absolutely no paper. There's no bank that can claim even close to that. And our client launch is about fortnight to 3 weeks away from now for existing customers. New to bank will be a little later.So we are positioned to enter FY '22 in arguably one of the toughest times with a reasonably good portfolio, well capitalized, with an armory of good products, a well commissioned senior team. And we think notwithstanding the immediate challenges of COVID and its associated issues, associated challenges, the bank should continue on the path of ROA expansion, which we've seen it cross 1% in Q4. And all going well, we should be able to keep that momentum into FY '22.So I will just [ pause here ] the opening remarks. As always, myself, the entire senior team is on the call. Those of you who've been following us, you know that there's a very wide range of seniors who chip in with their inputs. So I'll open it up for questions. Again, Ashutosh, Shalini, me, Harsh, Anand [indiscernible] the whole team will be happy to -- and Babu will be able to answer questions. So let me just turn it over to everybody for questions.
[Operator Instructions] The first question is from the line of [ Alok Sanghvi from VT Capital ].
So I have 3 questions. My first question is on the provision front. Sir, just wanted to clarify, since we have used up all our COVID provisioning, there's no substantial [ stack ] of nonspecific provision left on the book, if I'm right?
Except for [ one of the restructured ] standard, we have about 10% provision for the restructured portfolio.
So sir, if I just look at the kind of asset numbers and the kind of environment we are going into, we have almost a 1.2% NPA. We have a 1% kind of restructuring on which you mentioned that we can expect 30%, 40% slippages going into next year. And obviously, there's some [ SMA book ] as well in this environment that we are going into, which are pretty challenging. So just wanted to understand the thought process around not making extra provision this quarter because this is unlike what we are seeing across the sector where people have chose to go into extra provision going into COVID, too? So that's my first question. My second question is if you could share the SMA number, SMA-0, 1, 2 number as of March end. And my third question is on the color, if you could give some color on the restructuring book.
Sure. I'll give you the philosophy of provisioning. I'm sure Anand will give you the numbers. So the approach has been we must remain well provisioned. And the theme I have been guiding all of last year, we would make sure that it's between 60% and 65% provision coverage. So our belief is that, that will continue. So -- and we have a sense of the book that we have are the largely secured book. We don't carry much of an unsecured portfolio. And like I mentioned, given the experience of LGD even through the current period, we believe at a 65% provision coverage, we will remain quite intact and safe. So on the margin, whenever we see slippages, we will be able to provide that 65%. And that whether it's sitting in the standard asset and shifting from that to the, call it, credit cost or we make provisions in the core, as we see everything shaping up, it is the same.So we decided we will make sure that our coverage ratio remains at 65% or better, and that's how we will continue to do. And the experience for that is from about 14, 15 months back when we were at 46%, the environment was different. We -- as we said, our loss given default at that time was about 38%. We always hold about 10% more than the LGD. And when we said the COVID-related impact can go to 50, we carried 60% provision. Now we are saying if that continues, maybe at 55, we will see [ an over ] 65% coverage ratio. That's how we are working on. And therefore, our belief is that as we go into FY '22, that will be the kind of momentum that we'll see. In terms of specific SMA and restructure, maybe Anand can give you more color.
On the SMA, as you would have noticed in the presentation, our collection efficiency is reported as 95%, which means that the SMA number is sub 5% and which is actually at 4.6-odd-percent. And on the restructuring, sorry, can you just repeat the question?
Sir, just wanted to get a sense of the color [indiscernible] where the majority of restructuring has come from?
[indiscernible] as we have discussed, almost [ 68 to 70 ] percentage of [indiscernible] securities and [ is not ] fully [indiscernible] mortgages. So we don't find any challenge on this one. And then secondly, on the unsecured portion, unsecured portion on the restructured book is [ hardly 6% ] of the total unsecured book. And that is [indiscernible] loss and [indiscernible] loss. So on the restructured book, we are -- given that we discussed [ it is more than 1% ], we are very strong on our [indiscernible] asset quality side, and we have [indiscernible].At one point, incidentally, I was just hearing maybe on that, [indiscernible] for the restructured may grow [ even ] higher. It is not a question. The demand from the restructured book [indiscernible] less than 15 percentage, and we have already come out with [ various strategic production program ] for that. And we started engaging with [ certain authorities ] on that [ by some degree ]. And we don't have any challenge on the collection front [ nor ] on the restructured book if the demand side is maybe less than 15 percentage.
Understood. Sir, just one clarification. So the SMA number of 4.6%, this was 2.5% last quarter, if I'm not wrong, for Q3 FY '21?
[indiscernible] collection efficiency was 95%. Sorry, Babu, sir, go ahead.
Yes. What Anand said number is correct. It was trending at 95 percentage even in the last quarter, and we consistently maintained that position even during this COVID period. December [ to ] March, and we are [ exiting now this quarter ] [indiscernible]. And as already mentioned, [indiscernible].
I may further add...
[indiscernible] Others who are not speaking, please mute yourself. Please mute yourself, whoever that is.
So what I was saying is that restructured book, which is about 1% of the total loan book, within that, a good chunk, as Babu has shared, is of secured asset, mostly mortgages and all, where traditionally, we have [ the least ] LGD, sometimes in a single digit. Even some quarters, when we run our model also, it's in single digits. So even if in the worst possible scenario of slippages and all in that, wherein the -- as per IRAC [ norms ], you are required to classify, that is what Shyam was referring to 30% or so and all that, we still would have the expected loss to be quite low. It could be in single digits. That's what is important to know is that the restructured book is not of unsecured loans.
The next question is from the line of Mona Khetan from Dolat Capital.
Yes. This is Mona Khetan. So my first question is on your NBFC and HFC exposure, which totals to about 13% of wholesale advances. Could you give some color, because it's been one of the key contributors of your corporate growth in the recent past, so in terms of the quality of book and share of accounts that are rated BB and below within this NBFC [ and HFC ]?
I don't think it's increased or lowered. It's been the same for as long as I can remember. We've been between 12% to 15% on NBFC/HFC. And I've always said, our NBFC/HFC is as good as you can get in the market. They are gold standard in terms of the [ big names ], but they are on the -- I don't think there will be anybody below AA. Anand or Harsh can input.
Yes. That's right, Shyam. Harsh here. The percentage of AA and below is the majority of the book. In fact, about 85% of the book, if I recall right. That's number one. Number two, most of the NBFC and HFC [ we have been having ], they have adequately capitalized themselves also and doing stress testing on the portfolio, and we see no signs of stress over there at all.
Sure. My next question was around one of these large [ intra ] accounts that [ hedged ] recently in the last quarter from a pro forma perspective, and you've highlighted that a resolution or repayment is expected soon. So is that factored in this quarter's movement of NPA?
Yes. That is INR 312 crore you see in the pro forma slippage that continues. That's why the number is -- that [ 1,665 ] includes that.
Okay. So [ of the ] upgrades and recoveries of 100-and-something, that includes the upgrade of this account as well?
This account is yet not resolved. It's still an NPA [ with 25% ] provision made.
Okay. Got it. And lastly, on collection efficiency, so you mentioned 95% number for March. How has that behaved in April and May? If you could share some insight.
I would request not to give too much weightage on April and May. I mean we have to be honest, right? It's not normal. Things are -- there is a lockdown, and therefore, it's unlikely to change dramatically. So real picture will emerge only in June quarter -- the month of June. And that's hoping that by May end, most of the lockdowns are unlocked and some kind of -- I won't say normal, at least some kind of limping back to order will appear. Signs are that it will. So June will be a [ frantic ] month, which will be more representative of how things will be. Q1 will have challenges, but that's what the opportunity to either restructure [ Babu's ] plans or working with customers [ as a result. That's ] something that we are hopeful of. But I would wait to make that comment on how it is. Certainly, April, May will be 88%, 89%, 90% kind of thing. Would that be right, Babu?
Right, sir. [ It could be 88% ], 89%, 90%. In April, it was 91%. And in May [indiscernible]. Additionally, I would add that I think the situation was worse last year April, May. In fact, there was more uncertainty. We didn't know -- I mean, the system did not at all [ you know ] what exactly is going to be the damage and all. And thankfully, as the situation got [ opened ] after 5 months, the recovery was very, very fast. And that's shown even in recovery and upgradation of the NPL accounts. So this year, people know more about this pandemic that they knew last year. So my point is, I mean, it has to be seen in that context. So yes, April and May have their challenges. April [ last week ], beginning of May, did see the challenge because of non-movement, lockdown and all. So even meeting the clients or even contacting them is a challenge.
Got it. That's very helpful. And lastly, on gold loans, so you've seen a very strong growth in this fiscal. How do you see that in the following year, especially given that LTVs from hereon have to come down? And also, where does the gold book lie? How much is the part of agri? If you could help us with that detail?
May I?
Yes, Ashutosh, please. Yes.
So gold loan, I think the total book is nearly INR 16,000 crore, which is roughly 11.85% of our total loan book. A good chunk of that -- it is quite [ equitably ] distributed. We have about 1/3 of -- more than 1/3 in retail gold loan, a good chunk in agri gold loan and the MSME gold loan [ and all ]. So this is how the breakup is. Yes, LTV, that [ special prescription ] of 90% is over on March 31. And therefore, there would be a stagnation for some time when the rollover and other things come. But as -- I mean, it would be a function of how the gold price in rupee terms moves. It would have its impact. Part -- and we had 17% Y-o-Y growth. Part of it certainly was contributed by the higher gold price per gram. So therefore, higher [ eligibility ].But in [ tonnage term ] also, we monitor our gold loan book [indiscernible] well. And in tonnage also, there's been upside of something like 30% plus or so. So I think tonnage is growing. Tonnage is continuing to grow even after March 31 or so. Value wise, of course, you will have some stagnation coming in. That would also be a function of how dollar-rupee behaves. So if rupee appreciates, then you'll have a lower rupee cost of gold and all. But if dollar-rupee goes up, it means rupee depreciates and all, then I think that in all likelihood, once again you'll have a higher per gram price.The global dollar price of gold is more or less -- I mean, after seeing the bottom of [ around ] $1,700 or so, has come back. It already crossed $1,800 per ounce. So next year, I think it will be a function of that. I'm sure we would [ register it ] as a good business to do. But probably a 70% type of growth on a very high base may not be possible to be repeated. So a 30%, 40% type of growth is something which we definitely would be targeting. I hope I have replied to all your queries.
The next question is from the line of Nitin Aggarwal from Motilal Oswal Securities.
A few questions. Firstly, was loan growth in the quarter a little back-ended as despite like adjusting for interest reversals, the NII looks slightly softer? So can we expect NII growth and margins to recover further during the coming quarters?
May I?
Ashutosh, please.
Yes. So I think over quarter 3, we are comparing NII [indiscernible]. I mean it's something we can't do anything about. But just for statistical calculation, the year which -- when we have February of 28 days, it has 2 days lesser than quarter 3. So quarter 3 has 92 days and quarter 4 this year had 90 days. [ Currently ], NII is roughly INR 16 crores. So when you compare with previous quarter, you will find [ rightly ] INR 30 crores, INR 32 crores is lost only on account of that. Even if you compare it with last year same quarter, last year was a leap year, so you had 29 days in February. So that also -- I mean, on [ base ] also you had something higher one as compared to this year. But that's one part. Apart from that, there had been interest on interest refund, which had to be given. So on the interest side, we had these 2 things which need to be seen when we compare NII.
That said, it is true that March saw the maximum growth.
Okay. Okay, sir. And secondly, like our cost of deposit is now 4.7. Now [ SAR ] rate is lower than what the other larger banks offer at [ 2.5 crores ], and the TD rates are also quite comparable. So is there -- like what is the cost of our CD that we have at the portfolio level and what sort of repricing we are looking at? Because our cost of deposits are still like [ 17-odd ] basis points higher despite these facts, like on the [ SAR ] and TD that I mentioned. So what sort of like decline are you looking at in our deposit cost? And what was our TD costs at the portfolio level?
TD cost is north of 5 40, if I'm not mistaken, because it's a term deposit, so some of these deposits are for 3 years original [ maturity ]. Of course, [ maturity ] of these are 1 plus 1 year and some special buckets, we [indiscernible] 390 days or something like that. You put it -- for ALM purposes, you have more than 1 year or so. So I think as the repricing happens on [ maturity ], you will see fall in TD rates if the same interest rate scenario continues. So that's on TD.We have about 2/3 of our total deposits in TD book. 1/3 only is in CASA form. And traditionally, our [ SAR ] has been not that strong as some of our peers who you are comparing with. Yes, saving has been our strength, and saving has been growing. But despite that, our CASA growth has been 26% this year and also has seen [ respectable growth ]. So -- but overall, [ base-wise ] also, [ CASA ] has been contributing a very lower 5% in total deposits [ existing ]. So that's [ pretty clear ]. But yes, going forward, assuming that cost of deposits will go down, it is quite reasonable. I think as and when the maturities happen, the new repricing, renewals and all would be happening at a lower rate.
Okay. So that seems like -- extend this further. So like with 5 40 sort of TD cost, portfolio deposit costs should be lower than what it is. Like is it that the non-retail deposits are relatively higher in costs?
No, not exactly because we -- number one, we have very little, I mean, wholesale deposits. CDs are there but are -- [ as on date ] when I'm speaking to you, my weighted average cost of CD is less than 3.50, less than 3.5. Of course, balance also is very low now, I mean, less than INR 2,000 crore or so. So wholesale deposits have not brought in that [ type of cost as well ]. But there are certainly some refinances [ at fixed ] rate and all taken some 3, 4 years -- 3 years back or so. [ We have ] remaining maturity of 2, 3 years are -- it was slightly higher cost, some even at 7% or so, but they are gradually being repaid and all. So that's it. I mean that's not much of a contributor to total cost of funds. So I think cost of funds should go down with repricing of TD rates.
Okay. And lastly, we have reported a 33 basis point decline in loan yields [ even as ] retail deposit as the gold loans [ are doing ] phenomenally well. So is it possible to like give some color on how the retail yields and wholesales yields have moved because 33 basis points sequentially is quite a sharp decline.
Retail yields have gone up certainly because of gold loan on one hand. On the other hand, corporate portfolio yields have come down because of the market situation. You have so much liquidity in the system and corporates getting CDs. I mean the ones which are banking with us, who we are holding in our book and all, are AAA, AA, all those -- including those NBFCs, HFCs which Shyam was referring to -- Shyam and Harsh were referring to. So [ naturally ], you have to remain in the market. You have to [ cut ] those rates [ and all ]. So that's there. Certainly, there is a fall in yield going by the market in the wholesale portfolio. Retail has been holding up, and a good contribution has come from gold [indiscernible]. So that's the breakup of yield on advances. Business banking also has done fairly well. There also, yields are richer. That's the [ main ] reason for NIM improving [ and overall that big ].
The next question is from the line of Renish Bhuva from ICICI Securities.
Congrats on a great set of numbers. So sir, first question, again, on the asset quality side. I mean, of course, we can't comment on the near-term outlook. But if I have to look at the whole year FY '22 and the way we have navigated FY '21 with a figure of NPA of [ 14.4 ] [indiscernible] around 1.2 So it is -- I mean, looking at the current customer behavior of for, let's say, for [ 45 days ] of the second [ wave ], is it fair to assume that the FY '22 will be better than FY '21 in terms of asset quality?
Renish, I think where we should look at this is 3 parts. One is our internal portfolio quality, second is our capability and the third is the environment. On one and two, we believe we have a good grip. The environment is certainly not in anybody's control. We have to make sure that we are able to surmount the environment. If things don't deteriorate dramatically from herein and the worst is where we are, I think it's safe to assume that our credit costs should be where it is or better. Now for any reason this gets prolonged and the consequences are dire, we may have to [ track the fourth ]. So that's why I'm giving a guidance that when required, we'll step up our coverage. We will not fall below 65% provision coverage. That should give us a sense of how the year shapes up. Every quarter, we'll be able to take assessment of that.
Got it. Got it. So -- okay. So maybe if things have to remain where it is and should not worsen from the current level and considering the PCR already at the desired level, so credit costs should be lower than FY '21 level, right, I mean, technically speaking?
Unless for any reason, it's used to increase our coverage.
Yes. Got it. Okay. And sir, secondly, on this digital strategy, okay, so now we are almost 50% plus [ partner ], so more than 80% of the transactions are on the customer onboarding, which is happening [ more ] digitally [indiscernible] acquisition will be significantly lower. So why do you see the cost-to-income ratio settling? I mean, of course, we've been highlighting that it should be around [ 60% ]. But now looking at the [indiscernible] development which we are seeing in FY '21, it looks like [ we are done ] with the investment. So what's your comment on that? I mean do you expect the [indiscernible] playing out from FY '22? Or do you still feel there is some pockets of opportunity to invest?
I think our cost-to-income, I've always said, somewhere in the late 40s, below 50. I think FY '21 full year was 49.6. We think that will improve by another 100 basis points in FY '22, 100, 150 basis points, and that's what we are working towards. Our approach for many years, not just 1 or 2, [indiscernible] branch like distribution heavy. And we set the digital journey 6 years back, and we are seeing rich dividends on it. But we must remind ourselves, there is an element of cost which, I always keep saying, it is unfortunately pension related, and that's [ bringing to ] taper off only the following financial year. But hopefully, with yields being where it is and doesn't see much volatility, hopefully, we are well provisioned.
Got it. And sir, just last question from my side on this data analytics and cross-sell. So in [ PPT ], we have said that we have almost [ 37 like ] merchants [ at Tier 1 merchant ] network, which is almost 20%, 21% of the [ PPT ] merchant network. So sir, what is the strategy to sort of use this merchant base? I mean what is the cross-sell or upsell strategy to leverage this huge customer base?
Yes. Shalini, do you want to jump in on that?
Sure. Thanks. So I think in terms of the BharatPay relationship, obviously, it's a relationship we've nurtured from -- it's about 8 months now and has grown to the size that you have seen over there. The opportunity that lies within this space is primarily around what can we do with alternate data scoring because traditional data scoring for credit purposes using bureaus, et cetera, do not work in this kind of an environment and in this kind of a population. So what we're working with BharatPay on is given this merchant, given the kind of throughputs we're seeing, given the size of the kind of transactions that they do, the volume of transactions they do, the kind of transactions they do, what are the alternate data scoring engines that we can develop based on which the lending platforms can open up.So the immediate opportunity would be an -- not immediate as in the next few months, but over the next year, we develop algorithms and scoring that can help us to lend to these merchants. The lending will be in a completely digital form because [ real ] cost has to be kept at a very, very low level and will be kind of quick [ tenure ] loans that can be turned around very quickly. So that's one of the key opportunities we see. The larger -- to the merchant categories that we have, have various categories in it, obviously. It's not one kind of platform -- [ common ] kind of characteristic of the merchant. There are certain [ top end of the ] merchants to whom we've started looking at cross-selling things like insurance, et cetera. So lending, insurance, all of these will get opened up, but we need to build [ a history of ] the transactions over the next couple of months and build these algorithms [indiscernible].
Okay. So basically, I mean, within 6 months, you believe that platform will be ready to start cross-selling maybe at a smaller base, but...
Yes, at a smaller base, we will take it. We will also look at how the environment is shaping up and then look at it. But yes, over the next 6 to 12 months, we will do that.
But just [ an example ], Renish, for much of what we do, the underlying guideline has to be we want to keep our credit cost and credit quality as good as the top 3, [ 4 ] players in the country, which we are. So I will reemphasize that anything we do will be within that framework because some of these digital lending looks attractive at a point in time and then turns to a problem. So we've been hyper watchful though we have the capability.
The next question is from the line of [indiscernible], individual investor.
Congratulations on the good set of numbers. I hope everything is okay at everyone's end. I have 3 questions, sir. Firstly, if you see the credit cost seems a little elevated -- given the current depressed interest rate environment, the credit cost seems a little elevated. Any thoughts [ around the same ]? And what is the guidance for the coming 2 quarters or so?
So are you saying that credit costs look elevated in the sense that I -- I mean...
In the particular quarter, yes. Yes. [ You said in your presentation ]...
But this quarter is bound to be, right, because for the last 3 quarters, there has been no credit costs. So everything is lumped into this quarter. The one thing [indiscernible] FY '21 financial is like it's all -- in, what, 3 months, we are [ passing in ] 12 months of slippages and everything. So to that extent, please look at it in a longer horizon. I think at 120 basis points, Federal Bank's credit cost is probably in the best legal banks in the country.
Okay. And going ahead, how do you...
I mentioned at the beginning of the call, right, hard to make a prediction, but we will ensure that our coverage ratio doesn't fall below 65.
Okay. Second question is on any capital raising plans going ahead in the next couple of quarters?
Can't quite say a couple of quarters. In FY '22, we see there is a potential to do one. Last year when everybody was talking about a clamor for capital, I steadfastly said we are well capitalized and we are growing by retained earnings. This year, we believe if you look at -- for every 4-year cycle, we look at capital raise. Last time we did in June '17. So we believe in somewhere in the calendar '21, there may be an opportunity, but we're not putting a date to it. We are going to the shareholder to renew the approval they have given last year. We would hope to get that approval to have -- be in position to raise money.
Okay. And sir, finally, last question on the CASA guidance. We've seen that banks are improving. So on the CASA front, any strategies going ahead or any guidance in terms of capturing the CASA share?
We have moved smartly. We are close to 34. We grow by not paying money but by doing service and quality. I believe that journey will continue. We'd like to take it to 35 and better but not by paying more, but by serving better.
The next question is from the line of Ajit Kumar from AMBIT Capital.
Sir, on some of the new initiatives that you had planned earlier, while you have given update on credit card, any update on CV business, as well how is it shaping up? What would be the size of CV portfolio now? And how do you plan to grow there? And next on the [ MFI ] side as well, are you still looking for growth in that particular segment?
You're right in pointing out we had made 4 observations as our sort of new opportunities. One was credit card, two was CV. One was, of course, strengthening of business banking and micro finance. CV, we have created a good team, I did mention almost on every call in the last 1 year. The book is about INR 1,000 crores, all organically grown by our team. We are being quite careful about trading into that segment, given all that's happening. So in the course of FY '21, we do have bigger ambitions. By FY '22, we have bigger ambitions, but I'm saying we will watch out for 1 or 2 quarters more before we step up the gas on that. One is demand. Second is we have to be not catch a falling knife. So we are quite watchful. Similarly, our micro finance aspiration continues. We are looking out. A few opportunities maybe in the market, but I would be cautious 'til at least one quarter of FY '22 goes by, and we understand the dynamics better. Every day, we hear and see different experiences. So we wouldn't make a transaction now. But we would be remain interested. But organically, slowly, we are -- our digital capabilities have fully matured now. So organically, we will step up in segments that we feel that have potential. Both these businesses, CV and micro finance are roughly about INR 1,000 crores, and INR 300 crores, the microfinance business and INR 1,000 crores is the CV business, we think has potential to grow in a nice manner over the next 2 to 3 years.
Okay. And sir, on breakup between retail and wholesale, you had earlier given guidance of 55-45 mix. I think we have already a lease there. So do you think share of retail should go up further from this level or, within retail, share of higher segments like credit card, CV/CE will go up, keeping the wholesale book share intact?
55-45 mix is something that we'll keep, not that we are sort of married to it, if it becomes 56-44, otherwise, we won't collapse. But within the 2 portfolios, the margin expansion is the objective. So Harsh is looking at his business model and looking at where there are opportunities in wholesale. So commercial banking gets to fill up, and we are seeing good traction. Likewise Shalini is looking at the retail franchise to see where there are opportunities. So things like credit card, personal loan, digital capabilities are some of those initiatives, and that's what we are working on.
Okay. And sir, in restructuring value in retail segment, you had highlighted in earlier call that [ NR ] contributes around 30%. How is that book holding up now?
Like Babu mentioned in the beginning, restructuring portfolio, as of now, is doing well. The demand for this year is only about 15%. That looks okay. Early to tell how they are performing. We will factor in a higher share because we have factored that somebody has restructured suggests that there's a demand for leasing up. So if the assumptions made in leasing up would be a more conducive operating environment, [ that would be challenged ]. You should see some stress. Hopefully, the stress is not significant that will create a problem. But yes, we have to be watchful.
Okay, okay. And sir, lastly, sir, could you just give out the numbers for disbursement done under [ GECL book ]?
Totally about -- grand total is close to INR 3,000 crores. Babu -- Anand, am I right? Anand? [ GECL ] book?
Yes. Yes, sir, around INR 3,000 crores.
Yes.
The next question is from the line of Kaushik Poddar from KB Capital.
This thing, the net interest income, I mean, so can we expect -- you have talked about INR 30 crores being the loss because of this 2 days being less and another INR 25 crores for that provision for...
Interest changes.
Yes. So if those seem to be there, I mean, so do we expect a substantial growth in the next quarter on the net interest income front -- from this quarter?
Yes. We are -- we have seen 17% Y-on-Y growth on a 9% credit growth. So that's suggestive of the shift in margin mix in the portfolio. We think that will continue. And so therefore, the interest income growth should mirror that, Kaushik.
We can take a ballpark figure of 17% to 20%?
Yes, 15 and above.
The next question is from the line of Vaibhav Badjatya from Athena Investment.
Just a correction, from HNI Investment. So we always see Federal Bank as a conservative bank, and history also proves that given our ability to manage NPAs. But on the contrary, when we see your aspiration on growing in microfinance book, on trying to do some acquisitions there, both of these things doesn't go together. So is it that our desire to grow ROE is forcing us to take some of the risk and move up on the risk curve. How do we -- how should we understand this aggression?
I don't know how you define aggression. Rahul Dravid [ hits 6s also ], right? He was the most balanced batsman. So you have to pick the shots you want to hit. So we believe the time when it comes -- that's why I said we are interested, right. I never said we are committed to the transaction. So when the time is right, we will take. In every segment, I believe -- you can't write-off a segment or anything. Every segment has opportunities, which are at the premium end. So we will pick that -- we may trade off volume for margin, which has been a choice. Even when we grew corporate, we traded off volume versus margin. Because I believe in risk-adjusted margins rather than just margin in itself. So we will grow [ MFI ]. I think it's an attractive business. Just the way we grew gold. We will pick [ MFI ]. We will bring it to INR 3,000 crores to INR 5,000 crores over a period of time. But [ we will ] not take indiscrete choices of making growth for the sake of growth. I think the underlying [ text ] we want to hope to live up to is we want to do things for the sake of growth. That's a philosophy which we have lived with for 10-plus years and hopefully forever.
The next question is from the line of Sanjay Kumar from [indiscernible].
My question is quite long-term and around ROE. So our share of corporate and housing loans have gone up from, say, 45% to 55%. And due to pricing pressure in these 2 products, it kind of impacted our [indiscernible] ROA. [ Plus ] our risk-weighted asset book is around 55%, 57% versus peers are around -- or even more than 60%. But even on a risk-adjusted basis, we are at 1% ROA. Peers are at 2x. Why matching it, this is because despite 10x, 12x leverage, we're still on the lower side of ROE. So first half of last week, we were at 14%, 15% ROE. So 2 parts to this. Are we making money on [ retaining ] our existing products? And will this change? And second is, will the high-yielding retail products move our ROA trajectory back towards [ 6% or 8% ].
I think in some part, I answered that in the earlier question, but I'll just repeat myself. [ Our ] journey, if some of you have followed us, when it was 0.76% ROA, we said over a 5-year period will be 0.76, 0.88, 1, 1.12, 1.25. We are bang in the middle of that at the pandemic period, at about 1% ROA. And that's been steady, granular, structured, no one-off [indiscernible] growth are doing stuff which we can't live up to. With that, our model, we will hit -- we don't mimic to be the next big bank, which will logically change the needle. Ours is a structured, steady progress, but hopefully sustainable. So I don't know if I'm answering your questions, but yes, we must be leaving some money behind, but I hope that's what we are learning every year to do better.
May I add on this ROA thing?
Yes, yes.
So when we look at ROA, I think we should look at the off-balance sheet items which do not appear in the denominator. When you calculate ROA, you take assets which are there on the balance sheet, not off the balance sheet. Now there are banks which have reasonably good liquidity. There are banks which run their CV ratios closer to, say, 85%, 90% and some even more than 100% or so. So for them, I think it's all the more necessary to look at the opportunities which are non-fund based. I mean to say, letters of credit, bank guarantees and all that. These are also working capital financing instruments but they don't come on the balance sheet. However, the income [ end ] on that, commission on LC BG goes to the numerator when you calculate ROA. So I think it's better to compare I mean ROA numbers also with this in mind as to how much of the credit exposures are off the balance sheet. We have a very small, negligible amount of about 12% of our total credit exposure in the form of non-fund base. I understand few banks have more than 100%. So that also is the model. When you have liquidity, you have granular sort of deposit base and all, you look at providing fund-based facilities rather than non-funds based. I hope I have tried to answer this, but I'm not saying we have the richest ROA and all that. This is just for sake of comparison. And you said 2x, some banks having 2x [indiscernible]. And that also depends at times what type of unsecured portfolio you're running and what type of products you are doing. Yes, some banks have a very large unsecured portfolio. Seasoned, very well-managed. So no questions on that, and that provides the kicker. So that could be -- that is one of the reasons why we are also I mean looking credit card type of products and all gradually.
The next question is on the line of from Pranav Tendolkar from Rare Enterprises.
Congratulations for a very [ strong ] numbers and [ participation ]. Sir, I just have one question about employee expenses. Now that we have stabilized that INR 525 crores, INR 55 crores onetime gratuity [indiscernible] INR 30 crores, and same also last quarter. So if we just adjust that, then this number could be around INR 480 crores, INR 490 crores next quarter. And then we have [indiscernible] Y-o-Y, we can get us salary expense or total growth in [ projections ] which is less than or equal to this year in FY '22, is that calculation right? So this year, we have around INR 2,033 crores of employee expenses. And next year, it could be around the same or below because there are many pension and [indiscernible] this year. So am I right in projecting this?
Subject to yields, Pranav, you're right.
So if yields don't go down, then we will have equal or less [indiscernible].
Yes, in that one, yes, you're right.
Right. And the last question from my side is, sir, credit card. And in phasing in operational or any other bottleneck in launching credit card [indiscernible] commercial level?
No, we are phasing it out. I don't want to be courageous and do 1 lakh cards in open to new-to-market without seasoning. Just like we've done our personal loans, we have built about INR 2,000 crores digitally done. Even through the pandemic, even through the current environment, the least restructuring, least credit cost is in our personal loan book, which is counterintuitive because of the quality of the book we have. And I would like to build our personal credit card look like that.
Okay. So also you had auctioned key categories [indiscernible] debit card business in last -- there, I think, I think -- so is there any category of cards that was something traditional also? So there was [ Celesta ], there was [ Imperia ] and there was [ Crown ].
Yes, 3 brands, 3 variants in the card. Launch will be for 3 different segments. [ Signet, Imperia and Celesta ], 3 different categories of customers who are being targeted. Once we are out in the public with the cards, right now, it's about 10,000 employees have signed up, about 2 weeks of usage is going on. By early June, we will do it for existing customers. We identified a large base of existing customers who we can cross-sell to. So when we come out in that Q1, we'll give you the first update.
The next question is from the line of Jai Mundhra from B&K Securities.
[indiscernible] But in terms of, sir, your 5 crores, 6 crores -- I mean funds for digital personal loans. Now we have been growing in a calibrated manner. But this probably could be a reasonable kicker to the ROA because as someone had said that we have a decent amount of prime home loan and maybe prime corporate. So over 2, 3-years view, I mean, what could be the, let's say, loan book share of personal loans? And if you were to give and comment on the credit card also. That is the question number one.
Yes. We think our unsecured retail, which today is only INR 2,000 crores on the INR 130,000 crores on an increased credit book can go over a 2-year period to close to about INR 7,500 crores to INR 8,000 crores.
INR 7,500 crores and INR 8,000 crores, right?
INR 7,500 crores over the next 2 to 2.5 financial years. Yes. I am being calibrated because we don't know how this year is going to shape up. So we'll have to be a little watchful.
So now coming to the credit card, this business, if I understand it right, right, it would require a heavy upfront investment. And maybe for the next 2 years [indiscernible] terms until and unless we can continue critical mass, probably it would be -- it would not even break even. So when you say cost-to-income would continue to decline, you have, of course, factored that thing. Is that the understanding, right? Because -- or do you think that this can break even even much earlier? Hello?
Yes, Mr. Mundhra, you may go ahead.
I'll take the question. Sorry. I think -- I don't know if Shyam has got dropped off, Anand?
What is the question, Mr. Mundhra, can you repeat?
Sir, Ashutosh, the question was while we wait for Shyam to come back, the question was credit card requires a significant investment. And therefore, has that also been factored in while looking at the forward-looking view on the cost-to-income ratio? Has that been factored in, if I were to summarize the question.
Yes, from finance side, I'd say, I would say, confirmed, yes, it has been factored. And rest of it, Shalini, you can take over.
Yes, I think to corroborate what Ashutosh was saying, yes, we have definitely factored that in. We also -- we've gone into the model, which is a hosted model with Fiserv, one of the most prominent entities in the credit card space, both hosted model for both the technology and the operational side of things. So in that sense, it's a much, much more -- it's lighter from an investment perspective, it is more variable in nature, scale up as we scale up. So that's the -- the relationship with Fiserv and the model we've adopted, along with the fact that we've taken other costs into account, factored that in as Ashutosh said. So both these put together, I think, we can give you that comfort here.
[indiscernible] want to know, are you looking at a slow and calibrated pace in credit card as well? Or you can reach in the 2, 3 years, you can -- you can try to scale up rapidly there.
I'll pick that up. For the year 1, between, say -- we are now in June '21, for the next 12 months, a greater part of next 12 months is existing customers cross-sell. We have a large base of existing customers identified, who qualify for preapproved programs. So principal focus will be that. And while the numbers will be meaningful, it's not going to change the dynamic of the market. But it will be a meaningful increase with the confidence we get after that. And hopefully, the world is a better place to live in, in 12 months from now with more salaried jobs and everything in place, we will go to new-to-market. So it's not a bad product with the overnight changes texture of our P&L, but it was something that keep adding up to everything we do.
Good, sir. And the last thing, sir, on my side, if you can comment on the [indiscernible] potential value unlocking or value monetization on that front?
The company is doing extremely well. You may have seen it in our consolidated financials, the numbers are there. They're doing well. And we believe that there is good potential. But timing for such initiatives will depend on many things. First, we are not -- there is no road map on when. But the course of the next 2 years, there's a good chance. The company is doing very well. The quality of team, quality of performance is exceptional.
The next question is from the line of Anand Bhavnani from [indiscernible] Capital.
Sir, with regard to [ cost of fund ] business, since the [indiscernible], is it fair to say that the loan is there to help us accelerate the launching of our own [indiscernible]. If you can give us some sense of what percentage of our existing clients which you said you've identified to be eligible, what's the approximate percentage? And in what time period do you anticipate to [indiscernible].
The client base is 1 crore, at least 10% are eligible. How many take up depends on -- from the marketing retail. So over a period of time, we will keep working on that. That's the answer.
Sure. And sir, in micro finance, you mentioned that the [indiscernible] plan is to turn off in the book of around INR [ 1,000 ] crores, have you turned off, identified any specific geographies which you will consolidate or you are going to avoid any kind of business?
We believe in the initial phase we would like a south base, Tamil Nadu, Karnataka, Kerala, South, principally South and West.
Sure. So sir, with regards to cross sell from -- on existing bank customers, in terms of life insurance, how many of our potential bank customers is eligible for life insurance? How many we are supporting [indiscernible] the non-life insurance policies is a [indiscernible] on track.
[indiscernible] improving nicely. Last year, [indiscernible] Federal almost 40% plus entirely driven by our performance because the other partner was not there. [indiscernible] said it was doing well, driven by our performance. And that momentum will continue. What percentage [indiscernible]? Not sure. [indiscernible] it is growing and growing quite well.
Sure. But the way these are maybe 10% of our 1 crore customers are potentially eligible, maybe in life insurance, it will be 50%, 60% of our 1 crore customers.
I think in life insurance, we also look at it as a percentage of the CASA -- savings balance. So we [indiscernible] much of the savings balance percentage keeps growing. And that's something, one of our KPIs for our retail team which they are working on.
The next question is from the line of [ Dhaval Vora ] from [ BSE ] Mutual Fund.
So a couple of questions. First is on the credit card. I just want to understand in last, let's say, 3 to 5 years, how many cards we would have sourced for SBI card? So just trying to get the sort of potential from the network right now. And the second question was, could you provide the yields for the corporate book, retail book and the SME and agri book, that would be very useful.
The card to SBI is nothing to write home about, [ Dhaval ]. That's why we decided that, that model is suboptimal, which is why we decided we would do our own. We had certain assumptions in doing the SBI cards, one. Personally, I am a big user of it. I find it good, but somehow penetration has been low. So now we are looking at our own proposition. So it's sub 1 lakh. So really not much meaning, really close than that. On the yields, Anand, maybe you can talk about it.
Yes. For the quarter, the yields were 9% on retail, 9% plus. On agri, it was closer to 10%. On business banking, it was [ close to ] 10%. PV was closer to 9%. And on CIB was lower than 7%.
Yes. [indiscernible]
Yes. And just a follow-up on the cards. So basically, I mean, would you have some analysis on the existing 1 crore customer base, how many people have credit card? Any sort of data mining that we've done to assess the opportunity?
Yes. Like I mentioned, the pre-approval base is about 10% plus based on very stringent criteria initially, and that's the [ area which ] we'll go after.
The next question is from the line of Pritesh Bumb from Prabhudas Lilladher.
Just one question. I wanted to know how much is a book on EBLR and MCLR?
Sorry, how much is the book on...
EBLR, external benchmark lending ratio and MCLR.
Anand?
Nearly 1/3, 1/3 each.
1/3 of the overall book.
Yes.
And in EBLR, would that also...
Anand can provide. I'm just giving you an estimate.
Yes. External benchmark is around 32%, which is very close to what Mr. Khajuria mentioned as 1/3.
And similar is MCLR as well, right?
MCLR is slightly short of that.
MCLR less than 30, 28%.
INR 36,000 crores or something MCLR.
60% would be external benchmark and MCLR.
Okay. And if I can also ask, what will be the fixed rate book in our overall book?
That would be also closer to 32% [indiscernible].
And one thing more. I was saying this [indiscernible] decreasing and others, so there is a substantial fall in the others. Really it's a very small book, of course. But it's moved in 2 quarters down. So anything there, we could see a 1% type of a slippage from that side?
The internal [indiscernible] rating it's fallen to about 72%, probably in the segment in the corporate rating.
Nothing in particular in that. So I think it is also maybe a smaller portion is coming out of it. So maybe 1 or 2 percentage points can move easily here and there.
Okay. We have to keep in mind, we're running -- 5:45. So we should try and bring it to a close of 2 questions, 2 key questions.
Sure, sir. The next question is from the line of [ Ashish Kumar ] from [ Infinity Ultimatum ].
Congrats for a [ good set ] of numbers. Shyam, just to understand, we had -- earlier, we had a glide path on the path on the ROA, which we have suspended because of COVID. Would it be fair to say that, that glide path would come back again now that's had a large portion of the COVID ratio.
I don't want to say yes, but I'm only putting a rider saying, let's see how the current situation sort of shapes out. But yes, that's the journey we are pushing on.
Can we budget in -- can we maintain a 1.1% to 1.15% ROA as exit run rate for this year?
Allow us till quarter 1 and to get a better gauge on this situation. But yes, that's what we are pushing out. That's our internal pressure. We will see how things go. I mean, we are hopeful that this current situation passes quite soon.
If we are out of COVID, I think the major concern out of COVID, say, by first half of the year and all, then probably what you are saying is quite likely. Exit, you said not?
Exit, yes.
Quite lightly. I mean that is subject to, of course, a big rider is how COVID -- external conditions, particularly on this side, pandemic side, shape up.
And in terms of leverage, we'll be calling a 12x to 13x leverage. So we can assume that again. So we would be hitting a 14%, 15% ROE in that case, on new capital.
The next question is from the line of Satish Kapur from [indiscernible] company.
Congratulations on a very good set -- [indiscernible] set of numbers. Sir, if we take the segment results and see the comparative numbers versus March. I think it is very early, but then also, sir, how is this segment is going to shape up going forward in the coming year? Because I think so the schedule has contributed a lot to the bottom line. So how is the book positioned? And what should we be pursuing in, in terms of the segment reporting going forward, sir?
Ashutosh, do you want a go?
I think treasury, if you see over last 10 years, there would be a consistency. It's not too much skewed in a particular year. Barring last year, last quarter, when we had some investment -- onetime investment-related profit of about INR 180-odd crores or so. Other than that, I think it has been more like every year-wise, if you see, it's more or less of course, rising, but that is pro rata to the total profit of the bank and all. So treasury's contribution is more or less in same proportion, and it's retaining that. In case the yield suddenly go up and all, then probably there would be a challenge to this particular thing. But then this is the reason why we are looking at will be the other core opportunities, including the third-party sale and all those things, which are coming up quite fast and quite well. So that is the tune I think, and the thing I mean segmental reporting, we have the retail, wholesale and treasury. So I think retail is -- would gradually expected to come and take that load from treasury over a period of time. If I have understood your question correctly, that answer is what you wanted.
Yes, sir, I was just looking out how the segment reporting is going to shape up the [indiscernible]. The base for treasury has moved up substantially from March '20 to '21 from INR 384 crore reporting to INR 722 crore. So on a higher base, and depending that is remaining and the inflation was taking -- but picking up also. So how is this going -- this segment going to [indiscernible]. That was my first question.
To answer that is the yield suddenly go up and all probably the repeat of that would not be possible. But then that would then be looked at from other components. And this is where the growth in gold loan, growth in business banking, growth in certain other retail segments is being focused at and is being pushed. I understand what you are coming from. Yes. I mean, this year had been less conducive as far as the softness in the yields is concerned because of the ample liquidity in the system and all. So yes, but if you see over a 10-year period, you will not find too much of -- I mean, gap in treasury growth rate, more or less steady.
Sir, if we look from the investor point of view, the [ minority ] shareholders, we find now our bank trading at one-time book. So at these valuations, also sir what will be -- what are the factors that would contribute to value creation for investors going forward? What are the steps that have been taken and the results we are going to expect going forward? What is in the angle for your minority shareholders?
So I would say [indiscernible] from responding, we'll ask you about it.
I was going to say the same thing. We can only perform. We cannot influence the share price. We are arguably one of the finest performing institutions, much as many may disagree or some may disagree. We have not [indiscernible] from performing, and we'll continue to do. Portfolio quality is robust, deposit franchise is rich and the credibility of management is impeccable. And I don't think you can ask for better governance. So if these are the four drivers of a good franchise, we score well on that. So we will -- I don't think it will be very far before we catch up.
Right. And on the tenure side any update, sir?
This is an overnight job. This is an overnight by the shareholders, right? If they decide overnight it's a switch.
Shyam, you didn't hear the second question. It's about your tenure.
Sorry, I didn't hear. What is it?
It's about the update a bit on your tenure, sir, when are we going to [indiscernible].
I wish I had an answer. The application is with RBI. The Board is might -- in regular talks with RBI. But the term ends on September 22. I'm sure we would hear, but the bank has a plan A, plan B well in place.
Okay, sir. And last point was about this line item, [ 1Q ], where in we find that the interest on balances with Reserve Bank and other interbank has gone down on a quarter-on-quarter basis, whereas for the year, it has tripled from [ INR 140 crores to INR 368 crores ]. So how should we be pursuing it going forward? Shall I repeat, sir? Hello?
Yes, please repeat.
Sir, I was talking about Item [ 1Q ], wherein the interest on bank, the Reserve Bank and other interbank funds, the trigger has gone down quarter-on-quarter, from INR 113 crores to INR 66 crores. And whereas for the year as a whole, it has gone up from INR 140 to INR 368. So just wanted to understand the factors that contributed to this dilution in the numbers. And going forward, what should we look at -- what factors would improve this number?
Yes. We have nothing more much significant. This is just money market operations. If the bank is running a very high liquidity, it would be lender in the market, would be lending in interbank market or so. And therefore, could earn interest on that. Then bank turns or decides to have lesser liquidity available with it by deploying it elsewhere, then it becomes borrower. So when it becomes an interbank market like issuance of all those things are part of that. Basically, this is a money market operation because on the Reserve Bank of India, we don't get anything. These are CRR funds, CRR funds, the RBI doesn't pay any interest for last so many years. Earlier, they used to pay above 3% minimum. But now they don't pay anything. So that problem may [ reiterate ] that interest on [ RBI ]. The RBI has got balances with RBI balances with other banks. And that's the one which appears there. So that is it. So if there's a money market operation, please -- I mean, it's nothing to do with it, that depends on which side of the liquidity you are, what is the choice made and all. After deploying the same liquidity to AAA, corporate by investing in CPs or provide -- I mean, subscribing to NCDs or providing them loans at a very competitive rate, that's your choice, or you have the treasury funds available with treasury, which are deployed on a sometimes daily basis, then sometimes on a very short-term basis. I hope I've answered you.
Right. And last point was on the dividend part, sir, I may just conclude. I think the [indiscernible] has come up with this idea about dividend distribution policy. So does the bank also falls under the purview of the same? And what are the factors that made the bank result in a decision of 35%. And what is dividend distribution policy for us?
Shyam, would you like to respond? Or should I?
Go ahead, go ahead. Please go ahead. I will add to it.
So basically, our bank has a consistent track record of dividend payments, barring last year, which was barred by the regulator. So we have been consistently paying dividend. If I recollect, even in -- no year after 2000 -- at least I recollect after 2000, there has not been a single year when bank has not paid dividend. So that's one part of this track record, barring last year. The second is, of course, looking at your capital adequacy, what type of capital adequacy do you have? Plus, our regulator is quite conservative that way. They already -- last year, they did not allow anybody to pay. This year they said, if you come under that category because of the metric, if you look at the RBI circular, how much in NPLs you have -- what is your CRAR and what is your track record of profits and all based on that, you fall under different categories, 40% payout, 35% payout and so on and so forth. We consistently have been falling under that category, 35%. And this year, 50% of that can be paid because 50% is the cap maximum. So that comes out to something like 17.5% payout ratio. What our Board has recommended to shareholders is half of that. So basically, we are paying half of what we are eligible to pay as maximum. Half has been done by the regulator. And another nearly another half has been done by us to retail some profits -- a little higher level of profit. And the same thing do not disappoint the vast majority of retail shareholders and all. So this is a sort of balance which Board has considered and accordingly, [indiscernible] is recommending this dividend, 35%, [ INR 0.70 ] per share. Shyam, you would like to add anything to it?
I agree with you. I think the essence is balance between preserving capital and giving returns to shareholders, particularly those have been long-term shareholders. I think we should bring this to a close, Anand.
Sure, sir. I would like to hand the conference over to Mr. Anand Chugh for closing comments. Over to you all.
Thank you so much. I think it's been a pretty long call that we have had. Thanks for being patiently with us. Have a great day ahead and the rest of the year as well. Thank you.
Thank you and stay safe everyone. Thank you very much.
Thank you, everybody. Stay safe. Bye-bye for now.
Thank you.
Thank you. On behalf of Federal Bank, this concludes this conference. Thank you all for joining. You may now disconnect your lines.