The Federal Bank Limited
Q2 FY’27 Earnings Conference Call
October 16, 2026
MANAGEMENT: MR. KVS MANIAN – MD & CEO
MR. HARSH DUGAR – EXECUTIVE DIRECTOR
MR. VENKATRAMAN VENKATESWARAN –
EXECUTIVE DIRECTOR
MR. VIRAT DIWANJI – EXECUTIVE DIRECTOR
MR. MANIKANDAN M – VP & CFO
MR. SOUVIK ROY – HEAD, INVESTOR RELATIONS
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Federal Bank Limited
October 16, 2026
Moderator:
Ladies and gentlemen, good day, and welcome to the Q2 FY’27 conference call hosted by
Federal Bank. As a reminder, all participant lines will be in the listen-only mode, and there will
be an opportunity for you to ask questions after the presentation concludes. Should you need
assistance during the conference call, please signal an operator by pressing star then zero on
your touch-tone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Souvik Roy, Head — Investor Relations, The Federal
Bank Limited. Thank you, and over to you, sir.
Souvik Roy:
Thank you. Good afternoon, everyone, and welcome to our earnings call. We have announced
the results; I hope all of you have gone through it already. We are pleased to share that the bank
has delivered a strong performance this quarter. We have with us today our MD and CEO, Mr.
KVS Manian, along with the entire senior leadership team, who will take you through the
performance and the key developments that happened in the quarter that went by. With that, I
will hand it over to Mr. Manian for his opening remarks. Over to you, sir.
KVS Manian:
Thank you, Souvik. Good afternoon, everyone, and welcome to Federal Bank’s quarterly results
call. Let me begin by briefing you on some changes to our board. Virat Diwanji, who has been
our National Head of Consumer Banking, joins our board, and we look forward to his continued
leadership. I am also pleased to welcome Rajesh Varrier to the board. He joins us as an
Independent Director. His strong technology background and experience will be valuable as we
continue to strengthen our capabilities in the technology and AI areas.
I would also like to place on record our sincere appreciation to Ramanand Mundkur for his
valuable contribution and service to the bank for the past five years. We thank him for his
guidance and association with Federal Bank and wish him the very best.
Coming to the quarter, we have delivered a strong performance underpinned by sustained
momentum on the liability side, disciplined growth on the asset side, and continued focus on
fees and operating efficiency. A significant milestone this quarter has been our average cost of
deposits crossing one lakh crore. This reflects the progress we have made in strengthening our
liability franchise and improving the quality of our deposit mix. We also garnered a meaningful
share of FCNR and NRE deposits under the special window, participating at a quantum and
economics that we believe are appropriate for us.
On the asset side, we have continued to grow in a calibrated and disciplined manner, with healthy
momentum across our chosen segments. Our focus remains on pursuing quality growth while
maintaining discipline on risk-adjusted returns, which continues to improve each quarter. As we
have articulated in our annual report, sustained momentum and discipline remain central to our
approach. The progress we are making on both sides of the balance sheet reflects this
commitment. A stronger liability franchise combined with disciplined asset growth is helping
sustain our NIM trajectory, and we remain confident in its underlying resilience. The evolving
interest rate cycle should provide an additional supportive factor as we move forward.
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October 16, 2026
Beyond margins, we have delivered a strong performance on fee income. Fee income as a
proportion of average assets has reached an all-time high, with performance broad-based across
various fee-generating businesses. At the same time, we have maintained discipline on operating
expenses and kept our cost-to-income trajectory under control. If you look at the guidance we
provided about a year and a half ago, we have by and large tracked well against our stated
objectives on NIM, ROE and fee income, with certain parameters actually outperforming our
anticipated metrics. Our profitability trajectory and profit growth reflect the underlying strength
of the franchise and the progress we are making towards our strategic objectives. Reported
profitability for the quarter also incorporates the impact of the change in accounting policy
related to ESOP expenses. We will explain later on this call the accounting treatment and its
implications in more detail.
Looking ahead, we remain constructive about the balance quarters of the financial year. We will
continue to pursue growth with discipline, strengthen the quality of our earnings, and remain
focused on delivering sustainable value for all our stakeholders. With that, I will hand it over to
Venkat to take you through the financial performance and the key numbers in greater detail.
Venkatraman V:
Thank you, Manian, and good afternoon, everyone, for joining this call. I will focus on the key
financial developments for the second quarter. As usual, before that, a quick overview of the
macro environment. In the last call we flagged the inflation trajectory, and you would have
noticed that headline CPI rose in each of the months July, August and September: from 4.45%
in July to 4.83% in August and 5.54% in September. It averaged approximately 4.94% for the
quarter. The September reading was the highest so far in 2026 under the revised series, and the
fourth consecutive month above RBI’s 4% target. Food inflation remained the main driver: it
was 5.52% in July, 5.97% in August and 7.74% in September. In August, the MPC held the repo
rate at 5.25% and retained its neutral stance. On October 7, they unanimously raised the repo
rate by 25 basis points to 5.5% and also changed the stance to calibrated tightening. RBI raised
the FY27 growth projection to 7.1% from 6.7%. It also raised the FY27 inflation projection to
5.2% from 5%. Growth basically remained strong. Real GDP grew at 7.8% in the June quarter,
ahead of RBI’s estimate of 7%, and the March quarter was revised up to 8.6%.
The benefit from the easing cycle has now passed through to our liability book. From here, the
margin mix will depend on improvement in assets and the seasoning of our liability plans. Now
coming to the performance overview for the quarter: for Q2, net profit was ₹1,380 crore, the
highest in the bank’s history. It is 45.1% up year-on-year and 17.7% quarter-on-quarter. Earnings
per share stood at ₹22.26, up 44.34% YoY and 16.25% QoQ. Operating profit was ₹2,225.37
crore, up 35.35% YoY and 17.29% QoQ. In fact, if you look at our operating profit, if not for
the one-time impact of the income-tax refund which we had in Q4 of last year — if we exclude
that — operating profit also has been at the highest level for the bank at ₹2,236 crore. Total
business crossed ₹6 lakh crore, and gross advances crossed ₹3 lakh crore.
Net interest income was ₹3,153.4 crore, up 7% QoQ and 26.38% YoY. NIM was 3.32%, down
only one basis point QoQ and up 26 basis points YoY. Our cost of deposits declined 3 basis
points during the quarter and 39 basis points YoY. Last quarter we said that the pace of decline
in deposit cost would moderate, and it has. The cost of deposits fell 3 basis points QoQ against
22 basis points in Q1. With the October rate increase, the externally benchmarked part of our
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October 16, 2026
loan book will reprice ahead of deposits, which will reprice as they mature. We also expect
competition for deposits to intensify once the liquidity situation normalizes.
Total deposits closed at ₹3,42,693 crore, up 7% QoQ and 18.6% YoY. Our CASA balances stood
at ₹1,09,803 crore, up a very impressive 6.44% QoQ and 22.56% YoY; that is approximately
395 basis points faster than deposits. Our CASA ratio improved 103 basis points YoY. Another
important milestone was average CASA crossing one lakh crore during the quarter. NRE and
NRO deposits together reached ₹1,19,055 crore, up 13.25% QoQ and 26.6% YoY. Savings
balances grew close to 4% QoQ and 19.6% YoY. Last quarter we addressed the sequential dip
in current accounts, and we did say that traction would resume as the March-quarter seasonality
washed out. It has, because current-account deposits grew 14.04% QoQ and 33% YoY. CASA
grew 6.4% QoQ, and there is no change to our guidance on CASA. The 103-basis-point
improvement in the ratio YoY reflects the trend in growth versus advances.
Our gross advances closed at ₹3,01,687 crore, up 7.27% QoQ and 21% YoY. We have grown in
the chosen segments, and our stated focus remains on the higher-yielding granular assets that
improve the risk-adjusted return profile of the book. This granularity also feeds into our core fee
lines. Gold loans grew 37.13% YoY and 6.67% QoQ. Personal loans grew 32.21% YoY, and
credit cards grew an impressive 28.27% YoY. Commercial banking continues with a strong
growth trajectory over the years, and in this quarter also grew 6.99% — almost 7% — QoQ and
25.46% YoY. CV/CE grew 21.74%. Corporate and institutional banking grew 17.19% YoY; we
continue to engage with pricing and counterparty quality. Business banking grew 12.39% YoY
and 7.48% QoQ. We did mention in the last quarter that we would grow this book as risk-adjusted
returns justify it, and we are seeing a directional change coming through now. Retail banking
grew by 17.92% YoY. The average CD ratio for the quarter was 86.22%, and we continue to
operate within the band which we have set for ourselves.
On fee income: our fee income was again ₹1,167 crore, up 22% QoQ and 31.86% YoY. Total
other income at ₹1,490 crore is the highest in the bank. Our fee income to average assets is at an
all-time high of 1.11%. Last quarter, fee income was seasonally lower against a strong March
base. This quarter has seen very strong growth, and it is well distributed, as Manian mentioned.
Our cost-to-income ratio improved to 52%, down 196 basis points YoY and 42 basis points QoQ.
We will continue to operate in the range of 52% on the C/I ratio, as explained in the past as well.
The focus will be on ensuring that revenue growth is faster than cost growth. We will be investing
in technology, in new branch openings and other initiatives which will position us well for the
future.
Manian also mentioned that we will explain the ESOP/employee-cost-related change. Until last
year, we followed the intrinsic value method for ESOPs granted to non-material risk takers; for
material risk takers, it was fair value. From April 1, 2026, we have standardized this, in line with
best practices, and we are moving to fair-value accounting for ESOPs across all employees. This
change has resulted in an incremental employee cost of ₹32.7 crore and a consequent PAT impact
of ₹24.5 crore. So, when you are modelling employee cost and profitability, please keep this
accounting change in mind.
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On asset quality: our GNPA improved to 1.32%, down 20 basis points QoQ and 31 basis points
YoY. Our NNPA continues to be best-in-class in the industry at 0.17%. Both GNPA and NNPA
are at decade lows. Our PCR, excluding technical write-off, is at 86.78%, and including technical
write-off, the coverage is at 94.4%. Credit cost is at 0.31%, down sequentially by 10 basis points
and 19 basis points YoY. Our ROA improved to 1.32%, up 10 basis points this quarter and 23
basis points YoY. You will recollect that we had given a guidance of ROA improvement of 3–4
basis points per quarter, and we did mention that it will not be in every sequential quarter, but
for the year we had given the guidance. Our ROE improved to 13.57%. Last quarter we did
explain the sequential dip in ROE reflected the share-warrant subscription money received ahead
of deployment, and we said that it is expected to reverse as the capital was deployed.
Our book value has grown to ₹266.32, and gearing stands at a very healthy 16.8%. In conclusion,
the bank has delivered its highest-ever profit and highest-ever other income. Total business
crossed ₹6 lakh crore; deposits crossed ₹3.42 lakh crore and advances crossed ₹3 lakh crore.
Over the year, profit has grown 45%, margin expanded 25 basis points, cost-to-income improved
by 196 basis points, credit cost declined by 20 basis points, and operating coverage ratio
improved by 1,300 basis points. The macro picture has carried higher inflation and tighter policy,
and also the overhang of competition for deposits remaining intense. Our priorities are
unchanged: strengthen the liability franchise, grow our chosen segments at the right risk-adjusted
return, and hold the line on cost and asset quality. The granular and secured character of this
balance sheet is what allows us to continue. Thank you all, and we will now open up for
questions.
Moderator:
We take the first question from the line of Mahrukh Adajania from Tara Capital Partners. Please
go ahead
Mahrukh Adajania:
I had a few questions. My first question is on general asset quality: given the inflationary
environment, does that affect any of your segments, especially the high-yield segment? Have
you seen any stress in any of these segments so far? That is my first question. My second
question is on your leveraged FCNR deposits. The leverage seems to be lower than other banks,
right? So any thought process behind it? And my third question is on talk about MFI. You have
already clarified on exchanges, but what I want to understand is: why would the bank be keen
on acquiring an MFI, given that the cycles may be too short, they are very volatile, and they
have very steep and deep bad cycles? So, just your thought process around it.
KVS Manian:
On your first question related to asset quality: we have not seen any impact on our asset quality
from the environment that you were talking about yet. Having said that, we remain watchful,
and, as you know, we have also been cautious about growing certain segments. If you look at
our agriculture book, we have not pushed the pedal on that. For example, our microfinance book
— we have not pushed the pedal on that. Therefore, we have been cautious about some of those
segments, and we continue to watch the outcomes of El Niño, geopolitics, interest-rate scenario,
inflation — all of that. Just now, we do not see any impact on our portfolio. That is your first
question.
The second question related to leveraged FCNR: we have disclosed our position, and I think
what we focused on was the right quantum, right economics and right granularity. That exercise
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was important for us, and I think we did what was appropriate in that context. As to the rest of
the questions, I will leave them — they do not need an answer because there is nothing to discuss
right now, so we do not discuss.
Moderator:
We take the next question from the line of Chintan Joshi from Autonomous. Please go ahead.
Chintan Joshi:
Thank you for the opportunity, and congratulations on the great quarter. My first question is
again on FCNR. Given FCNR — Federal Bank is strong in the NRI base — do you have a much
higher share of CASA? So what is adding this number? And if you can provide margins
excluding the FCNR impact — you know, what is the FCNR funds which have been deployed
in loans or bulk deposits, which have been deployed, and what is still sitting in liquidity? So that
is my first question.
KVS Manian:
As I said, I think what we wanted to ensure was that there was right granularity to it, right
economics to it, and we think what we have done is appropriate given the size of our balance
sheet. It is appropriate given our ALM, economics, granularity, all of that put together, and
deployment opportunities — all of that. So, I think we did what is appropriate from our point of
view. The rest of it — deployment into what and all — is a matter of a lot of detail; so, I will
leave that to if you require a one-on-one discussion, we can do that. But a lot of that is not really
additive; finally, all of that is reflected in the main figure that we have reported, right? Finally,
it is all in that.
Chintan Joshi:
Fine. Second is on loan growth. Loan growth, if I remove the external leverage, is now around
18%. So how sustainable is this loan growth, and is there any revision in growth guidance?
KVS Manian:
We continue to maintain what we had guided: mid-teens as the growth-rate guidance. We
continue to maintain that guidance.
Chintan Joshi:
Okay. And lastly, on inorganic growth: I understand that you will not be able to comment on
any specific deal, but what is the philosophy when you refer to any inorganic acquisition, given
the hard work you have put in over the years in stretching the asset quality? Will you be
comfortable going into segments like MFI or similar segments?
KVS Manian:
From our point of view, I think I have stated this earlier: on our inorganic philosophy, one, we
are quite clear that whatever we do, we must see it as accretive, and we are very disciplined
about that. There are instances where we have given up opportunities where we have found it
not accretive enough, and some of them are known. Therefore, the first principle is that it should
be accretive. Second, it can help us acquire new capabilities or scale. And, of course, our
preference over a period of time, though we are a universal banking franchise, is that that will
determine the opportunities we evaluate and take forward. I have earlier said that we also believe
that a single-pull strategy is probably better than a big-bang strategy, and these are some of the
guiding philosophies we will follow when we look at an opportunity and close it.
Moderator:
We take the next question from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah:
First of all, OPEX — even if I adjust for the overall ESOP issue — OPEX appears to be quite
high, both the other cost as well as the employee cost. I do understand we added almost 750
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branches [as heard]. So, would this be largely the infra-related spend which would have been
there, which is leading to this kind of rising OPEX?
KVS Manian:
You have to see it in the context of cost-to-income and our past guidance on that. We have
always maintained: do not bake in advantages on cost-to-income. Therefore, first of all, it is in
line with our guidance — the cost-to-income guidance that we have given. Number two: this, of
course, includes extra advantages [as heard], extra people we have added. As you know, we have
added a new sales channel; we are investing in technology. So, there are several lines of expenses
that we are incurring. And, of course, there is some actual impact that has happened; it is the
combination of things. But I would say that it remains within the overall guidance that we issue.
Kunal Shah:
Yeah, the question was more in terms of how we are looking at OPEX. We have seen this getting
towards, like, 2.3 now — more than 2.3 on average assets. So would this kind of investment
continue, and is it limited only for the near term? Or maybe there is a negative review to the
earlier guidance?
KVS Manian:
Not negative, but if you recall all our calls over the last several quarters, we have maintained
that: do not bake in benefits on our OPEX, and that guidance remains as of now. At that time,
we had indicated that for a couple of years we would like to invest for a sustainable future
trajectory, and that guidance continues.
Kunal Shah:
Sure. Second question is on the fee side. Does this include the fee on the leveraged FCNR book,
which is leading to the higher fee income? Or is this more business as usual, and we should
continue to see this trajectory? Because again, fee income was something that we were expecting
to build. Is there any one-off in the fee income, or is it all structural?
Venkatraman V:
If you have seen the document we have given you and the disclosures we have given you, it is
almost every line of the fee income — processing fee and other service charges. So, yes, there
is some component of the FCNR there, but it is not that significant; if it was that significant to
call out, we would have called it out.
Kunal Shah:
Okay, got it. So, it is a combination? We are looking at it from a very low base in the last two
quarters; last two quarters were super suppressed because of NIM and other issues. And
therefore, to some extent, it is also reverting back to normal. That is contributing. If you go back
to earlier quarters, our trading income was not as low as the last two quarters, right? So, it is a
combination, I would say. Yeah, to some extent it is a good trading quarter. Whether we can
assume that the same will repeat — yes, it may not repeat.
Moderator:
We take the next question from the line of Nitin Aggarwal from Motilal Oswal Financial
Services Limited. Please go ahead.
Nitin Aggarwal:
I have a couple of questions. One is on lending yields. If I see, while our focus has been to grow
the mix of high-yielding deposits, given how the repricing has been playing out, the lending
yields have been coming down bit by bit every quarter. So, not counting in any rate-hike-related
gains from here, can we say that the lending yields have now bottomed, and therefore how do
you expect margins to play out over the coming quarters?
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KVS Manian:
Yes, you can say that. If you see last quarter’s lending yields — you look at it, if you just adjust
for the FCNR being impacted on that — if you adjust for that, it was more or less constant or
slightly higher, I would say, compared to the last quarter. So, we have already seen the bottom
of that cycle last quarter, I would say. This quarter is more of the FCNR impact, but I would say
last quarter we saw the bottom of that cycle.
Nitin Aggarwal:
Okay. And so on margins: this quarter we have held essentially flat. How should one look at
margins over the coming quarters?
KVS Manian:
Broadly, I would say for the year we gave a broad guidance that it will be 5–6 basis points per
quarter improvement, and we had said that it will not be linear; it will vary from quarter to
quarter, but on an average, we should get that. We are still striving to get that number.
Nitin Aggarwal:
Okay. Second, just as a data point on the LCR ratio, if you can share that number.
Venkatraman V:
We see our desired band of 110 to 120. We are continuing to operate within that kind of a band
as an intention. So I do not look at 117 to 119, because we are in that band. Sometimes 117,
sometimes 120, or 115; it can be anywhere between 110 and 120. That is our target band where
we want to operate.
Moderator:
We take the next question from the line of Piran Engineer from CLSA. Please go ahead.
Piran Engineer:
Congratulations on the quarter. One thing — this is a clarification: is there any one-off effect
from raising of AT1 bonds [as heard] for the FDA/FCNR?
Venkatraman V:
We have not raised bonds. There are some long-processing transactions which are running [as
heard].
Piran Engineer:
Got it. And also, could you help me understand the NIM thing in totality? If you had not raised
FCNR, our NIMs would have been at least a percentage higher — is that a fair conclusion? So
it is flat because you did the FCNR, and except that, it is higher?
KVS Manian:
That is a slippery slope of calculation. All I can say is you would have, of course, been higher
for sure. How much is a matter of what assumptions you make. If this FCNR scheme did not
come, it does not mean no FCNR would have come in the normal course of business. So all
those are very complicated calculations to make. All I would say is: yes, has the FCNR impacted
NIM? Of course it has impacted NIM, especially the lending yield on the liability side has
impacted the NIM. But how much is a matter of what model assumptions you make.
Moderator:
We take the next question from the line of Jai Prakash Mundhra. Please go ahead.
Jai Prakash Mundhra:
Hi. I have a few questions. First, on gold loans: we have been at around 10.4%. If you can specify
what is the usual average tenure of this product? For you to change the rate in a rising-rate cycle,
or do you believe because it is a short-tenure product, it may not have any issue from the NIM
expansion perspective?
KVS Manian:
If you look at the overall structure of our book, it is fairly healthy. Thirty-three percent of our
book is fixed, 45% is floating, and the rest of it is MCLR-linked. So, we have a good mix of
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floating and fixed book in our balance sheet now. And gold loans are typically a one-year kind
of product. So, we do not see any issue, and I think this mix overall does — it is a very good
mix for us to work with NIM over cycles.
Jai Prakash Mundhra:
No sir, I am saying the yields on gold loans are higher than the blended yield, and the other
floating rates will go up in line with the repo. Do you think that this product can also see similar
upward movement in yield, or this may not have, because it is a fixed-loan product?
KVS Manian:
No, but it is a fixed loan; every month something matures, right? So, the maturity will be
replaced at higher levels. And it is a one-year maturity product, largely. We have a little bit of
long-term loans; it is a one-year maturity product, and every day some new loan matures, which
will obviously be priced at higher interest rates.
Jai Prakash Mundhra:
So that is the precise question: if yields would go up, do you see scope to increase the price?
KVS Manian:
Of course, of course. Why would we not? The only thing is that there is a lot of competition
from PSU banks which charge less than 9%. So that is the big question.
Jai Prakash Mundhra:
But they were always charging less than us. Okay. Second, we discussed the ₹32 crore, right?
Apart from this ₹32 crore, was there any other impact this quarter, or maybe some bad debt [as
heard]? Is this a new normal for staff cost, or how to think about this?
KVS Manian:
The ₹32 crore is the one-time impact of changing accounting policy. It is the one-time impact of
₹32 crore. And just to go back to the question you asked: on the gold-loan pricing, there were
many people charging higher than us also in the market on gold loans.
Jai Prakash Mundhra:
On staff cost: so the ₹32 crore is, let us say, one-time; the rest of the base is reasonably the new
normal base, right? That is the way to look at this?
KVS Manian:
It is a combination of two or three things. One is, of course, we are adding people, and that is
adding to cost. As we are adding branches and people, therefore it is adding cost. Second is that
actuarial impact is there, and that keeps fluctuating a bit. As interest rates rise, some of that will
get written back in the next few quarters — that retirement cost. It fluctuates with the market.
Volumes can go up, and therefore we have to see what the impact is. Is there an impact? Of
course there is an impact, but how much is something that we would get a better handle on as
we go on. And, of course, we must remember this is just the gazette notification date yet [as
heard], and we do not know what the final outcome will be. But I think we will be in a better
position over the next quarter or so to be able to estimate this better.
Jai Prakash Mundhra:
Right. So, last question on ECL: I think last quarter you had mentioned that the impact is less
than 2% of net worth. I believe there is no change in that. But just because the G-Sec yields have
hardened by 40 basis points, does that impact the ECL transition impact at all? Or that less-than2% number was only for credit loss, and hence the ECL impact because of extreme hardening is
a separate impact, right?
KVS Manian:
Yes. We talked about the expected credit-loss impact, and that does not change with this.
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Moderator:
We take the next question from the line of M.B. Mahesh from Kotak Securities. Please go ahead.
MB Mahesh:
Okay, one question then it is. On gold loans: this quarter the LTV has moved up from around
the mid-fifties to the early sixties in about a quarter. If you can clarify what is happening in the
quarter. And additionally, on that yield question: you have also seen an improvement in lending
yields for the past couple of quarters in this portfolio, suggesting that you have taken some rate
actions on the portfolio, which I think you will probably see for the next couple of quarters. Are
these two assumptions right that are happening here?.
KVS Manian:
Yes. LTV has moved from about 55 to about 60, 61 also. Some momentum has happened there,
but having said that, we have also grown 10% in the last quarter; this quarter we have grown
10%. So it is a mix of things. And yes, we have taken rate actions, and we are trying to get better
yields on the portfolio. If yields really increase, I do not know — 100 basis points — you see
the sensitivity on the customer base, or is the pushback more at the PSU-bank level rather than
the customer level?
Venkatraman V:
We play the fine balancing game between what NBFCs do and what the PSU banks do.
Somebody asked this question earlier also, and we played the middle band, right? We play the
middle band where our rates are better than NBFCs, but they are better than the lowest-cost
providers. This is a fine game to play, but we are able to do that. Marginally, we keep pushing a
bit to improve our rates there. There is no perfect answer to your question.
Harsh Dugar:
Typically, in the higher LTV, they give us a higher yield also over there. So that is another
component. The income-generation gold loan is also under the income-generating loan, which
typically gives a higher yield. It is a product we just launched in Q2.
MB Mahesh:
Sorry, I did not get that. You said income-generation gold loans?
Harsh Dugar:
Income-generating gold loans — in the sense that the customer segment and the product purpose
are for productive purposes of generating income. That is a new classification, and we have
come back with certain disposition around that in the new gold-loan policy. So, we launched a
product around that in the last quarter, and that gives slightly higher yields.
Moderator:
We take the next question from the line of Param Subramanian from Investec. Please go ahead.
Param Subramanian:
Thanks for taking my question. On the quarter, I just wanted to clarify on OPEX, the other OPEX
in the quarter. As in, is it processing fee and, you know, a crossing that is happening over there,
say relating to general expenses — some of that?
KVS Manian:
Not materially, but yes, some. If you are looking at borrowing side, there can be some cost, and
on the lending side some fees, but it is not material.
Moderator:
We take the next question from the line of Ravi Purohit from Security Investment Management
Private Limited. Please go ahead.
Ravi Purohit:
Yeah, hi. Congratulations on a good set of numbers. A couple of years back, I think we had
outlined our strategy to add financial services, right? We had mentioned that we had significant
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large exposure to NRIs on the deposit side, but not so much on the product side. And I think
there have been discussions and rumors about the general [MFI as heard]. So the two do not
seem to go hand in hand, and so I was wondering if you can share whether our thoughts on
monetizing or utilizing the very strong NRI franchise remains a focus area, or if you can share
some more insights there. And second, on initiatives that we have taken on the CASA side,
which we seem to have done significantly better in the last one year — if you could just share
some thoughts on both sides.
KVS Manian:
We remain committed — first, on the fact that our NRI franchise needs to be holistically covered,
and one of the items there was building our wealth business. We remain committed to doing
that. Coming to initiatives on CASA: there is no one silver bullet on the initiatives on CASA.
There are multiple things that we have done to get CASA right, and now we have got it right for
the last six to eight quarters or so, and we will continue; there are still new initiatives happening.
It is not my intention to discuss all the initiatives on this call here. I assume that would be a long,
long discussion
Ravi Purohit:
Right. And so, just to clarify: in Q1, I think the integration/merger happened, right? Investors
are kind of a little wary about this IDFC/IDFC First–like news [as heard] that has been floating
around. I am sure you will have the best interest of shareholders, but these mergers have been
very tough.
KVS Manian:
Thank you for your advice. I will take note. Thank you.
Moderator:
We take the next question from the line of Gaurav Jani from PL Capital. Please go ahead.
Gaurav Jani:
There are two questions from my end. The first is: this quarter we have seen a pretty strong
growth in our higher-yielding segments — unsuited [as heard], business banking. So is it a fair
assumption that next quarter also, given the impact of the rate hike, our margins would probably
be pretty positive? That is number one. And the second is: we could talk about whether this
growth is sustainable in these segments — the momentum. And just one data-keeping question
on staff cost: the other OPEX — could we call out the change due to the interest-rate movement?
That is it..
KVS Manian:
Your first question was on the asset side. We have always called out the medium-yielding
segments as the category of assets that we want to grow, and we had called out that in some we
were successful and in some we were still trying to get better. A few quarters back, that was not
showing the traction that we wanted, but in the last two to three quarters you can see good
growth. Similarly, in personal loans, now for a couple of quarters we have built traction. Last
quarter, and even here, we talked about business banking — that is a segment that you would
like to build traction going forward, which you are seeing now. So each of these are initiatives
that we have put into various quarters, and it is finally about executing those initiatives in the
right manner and making sure that we see the outcomes. That is what is happening.
On margins, I already gave guidance; we will stick to that guidance — we said 5–6 basis points,
not necessarily linear, but that kind of improvement on an average is what we are striving for.
Growth guidance: again, I gave specific guidance — mid-teens guidance — so we will stick to
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that. Other than the ₹33 crore, like we mentioned, the ESOP accounting change: yes, interestrate fluctuations do cause a difference to that retirement cost, but that is something that keeps
fluctuating, and we do not call that out usually as a variation. It is too complicated to keep calling
out. Nothing material.
Moderator:
We take the next question from the line of Madhuchanda Dey from Moneycontrol. Please go
ahead.
Madhuchanda Dey:
Congratulations on a good quarter. My question is very simple. If you could share your thoughts
on the road to a 1.5% ROA and beyond — especially given that your asset quality is very strong,
there is not much headroom [as heard], and you mentioned that you do not want to cut back on
costs because those are next being built [as heard]. So, almost basically it is on the NIM and a
bit on the fee side. Given this scenario, what kind of timeline do you see for that kind of target?
KVS Manian:
If you just go back and look at our ROA four quarters back, it was close to 1.1%, and we are
today sitting at about 1.33%. So there are liability-mix actions, asset-mix actions which have
resulted in that, and fee-growth options. Therefore, the execution on those fronts continues.
Madhuchanda Dey:
Would you like to give any timeline for that kind of target?
KVS Manian:
We have given you guidance on the ROA in the past: three to four basis points per quarter is the
improvement we want to strive for. That is the broad guidance we had given earlier, and we stick
to that guidance. Again, this may not be linear every quarter, but on an average — this quarter
we were 10 basis points up.
Moderator:
We take the next question from the line of Jayant Kharote from Axis Capital. Please go ahead..
Jayant Kharote:
My first question is on your risk-adjusted margin. Given when you started this transformation,
you focused on medium-yield books, and that sort of kept investor comfort on the trajectory of
credit cost as well. Of course, this is in the context of other rumors that are on the file [as heard].
I want to understand: are you talking specific language around margins, or has it been expanding
to risk-adjusted margins? That is the first question.
KVS Manian:
These are always risk-adjusted margins; we are always reporting our risk-adjusted margins.
Every quarter for the last four to six quarters, we have seen improvement in our risk-adjusted
margins. So, philosophically, we focus on risk-adjusted margins and incremental yields. I do not
know how to answer that; I have shown you the last six quarters that it is happening. The proof
of the pudding is in the action. Of course, the context is: are you willing to add more risk for
more yield? We have already said that we are keen on medium-yielding assets, and that is the
method. Does medium-yielding assets add some risk? Yes, it does add some risk. Does it
improve yield? Yes, it does improve yield. The question is whether, net of the two, it works or
not. Medium-yielding assets have been our focus; that is what we have decided. Mediumyielding is what all of us are very comfortable with. The question was high-yielding assets,
where we are doing very good working for this time [as heard]. Let us move on, please.
Jayant Kharote:
Yes. The second question is on OPEX. You have guided on cost-to-income in the past, but I
think you were also saying on cost-to-assets there is quite a meaningful increase, especially when
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asset growth accelerated this quarter. So even if we assume you are holding the line tight on core
people/OPEX, the movement seems hardly — barely like two-three basis points — especially
when credit costs are below normal. So that job does not seem to have played out this quarter,
or am I misunderstanding it? If you remove the residual income and look at the core operating
jobs [as heard].
KVS Manian:
We have always been saying that this is a type of work that we will do. We are working towards
improving incomes and therefore being able to invest more through higher OPEX, and that
remains our strategy. We are very conscious about what kind of cost we incur and what kind of
income improvement we can get. Like we guided, we had said that we were operating at about
54-ish on cost-to-income, and we said we will continue to operate around that — and around
that, a few basis points here and there. So please assume that we will operate at around that kind
of cost-to-income for the time being.
Souvik Roy:
Thank you. If you have any further questions, feel free to reach out to our offline, we'll be more
than happy to assist and wishing you and your families a very happy Diwali. Have a wonderful
weekend ahead.
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