sloppysid/faiss_search huggingface dataset:
The Federal Bank Limited January 16, 2023 accordingly, provision should be made. So as a result of that, we have made the provision for the remaining entire balance of SR. So now our net securitization receipt balance is zero, nil. So, whatever is the outstanding, the same amount of provision is also standing. That has created an impact of additional INR 46, crores, INR 47 crores. So that is showing in your treasury line because it comes above the line, not below the line. So it comes -- it gets netted off against the profit on sale of investments, schedule 14. Saket Kapoor: Sir, yes, sir. And also want to point out one factor now the investors are also receiving e-mails post the number. So that's a good exercise. I think it was started by the bank maybe for this quarter. And I congratulate the team for sending us the key highlights over the registered e- mail. So that is a good point of acknowledgment from the IR team, sir. Shyam Srinivasan: We'll make sure that it gets better. See, Mr. Kapoor, you mentioned that in the AGM and we have taken note of that. Saket Kapoor: Sir, thank you, sir, for remembering me and highlighting that fact, sir. And that is again a point also on the artificial intelligence, sir. How is AI going to help us in detecting the NPA or the stress in the system or the early detection, what steps the bank is taking and how are you ahead of the curve in this aspect in depreciation of this case and the NPA? Shyam Srinivasan: As a bank adoption of technology, using contemporary practices has been our very keen focus also, you will observe. So for every part of the bank, whether it's origination, underwriting, collections, credit, deposit structure, we use technology and no different from a point of early detection. Our collections and credit monitoring teams have invested materially in technology that reads ahead of the cycle in terms of various parameters. They have, I think, coined about 112 or 113 indicators, which are early indicators, which enable them to look at an account long before it has any potential stress developing. And then the intervention starts very early. They are building models and using technology to enable that. AI as all of us know, is only a means to an end. It's not an end in itself. So, the teams are working on that. Saket Kapoor: And what portion of our loan book is on floating rate, sir that gets factored in with every change in the repo rate? Shyam Srinivasan: Yes. The external benchmark is about 50% of the book, 50 points. Saket Kapoor: And that is because of the gold portion also, I think a significant part of the loan book? Or is it lower to the industry average? Shyam Srinivasan: I wouldn't know about the industry average, but in our advances, EBM is about 50.4%. Moderator: The next question is from the line of Jay Mundra from B&K Securities. Please go ahead. Page 14 of 22
The Federal Bank Limited January 16, 2023 Jay Mundra: Congratulations on a great set of numbers, sir. First, sir, you mentioned EBLR is 50%, 50.4%. If you can provide the detail for other MCLR and base rate and maybe the fixed rate book. Shyam Srinivasan: Yes, the fixed rate is about 24.8% or 25% and MCLR is 14.5%. And the rest is all FX, base rate, staff and others. Jay Mundra: So, sir, considering 50% is EBLR. And maybe we are nearing the peaking, clearing the peak of interest rate cycle, barring maybe one hike? Going into '24, how comfortable you would be with kind of a stable NIMs or maybe marginal, improving NIMs outlook? Because as you said that the cost of deposit rise may surpass the yield increase in fourth quarter. Then ideally that should be the case for the entire year '24 or there is some different thinking there? Shyam Srinivasan: I think we have moderated our NIM to in the 3.35%, right? That factors all that in. Jay Mundra: So sorry, so I thought 3.35% to 3.40% is for this year and the same is for the '24? Shyam Srinivasan: Yes, which is what you're also saying, right? FY '24, around these numbers. And everything is factored in, mix of the business, the credit quality, the pricing on both assets and deposits, the incremental credit flow in the quality of the book, offset because of higher slippages or lower slippages, all that influences the NIM. Jai Mundhra: Right. Okay. Secondly, sir, on security receipts. So, you have taken probably a prudential step because you have taken the entire SR as if they were, let us say, doubtful three, and hence you have provided 100%. But if I were to calculate let's say, the normalized cost which would have been there if you would have just followed RBI circular. And so, in that sense, what out of this INR 47 crores or INR 47 crores, INR 48 crores, how much was, let's say, mandated provisioning? And how much was prudential provisioning just to understand that aspect? Shyam Srinivasan: Yes, the entire provisioning was as per RBI's 5th December circular. So, it's not a judgment or prudential element hasn't come in. So whatever RBI has prescribed, said, it has to be provided 100%. So that's what we have done. Jai Mundhra: Okay. So, correct me if my understanding is wrong because RBI had said that you have to -- I think Ashutosh sir also mentioned that you have to treat SR as if they are on your books or loans, right. So as per IRAC, which is followed in loan growth. So, most of your SRs were D3 category, right? Is that what you're saying? Ashutosh Khajuria: Actually, we have not taken any SR. I mean, no loans under with underlying NPAs and all that. None of the SRs have been taken in the past four, five years. So naturally, they would be moving to this 100% requirement. And rather than doing it, valuing these securities and accordingly arriving at the valuation through third party, which is advised by ARCs, which was the practice earlier, you still have for those NPAs some securities. I mean some realisability is there in all. But now because the aging has happened, one shot, everything has been provided, 100%. Page 15 of 22
The Federal Bank Limited January 16, 2023 Jai Mundhra: Right. So the entire portfolio was prior to 2018, right? That is what you have said. Harsh Dugar: Yes, all prior to 2018. Jai Mundhra: Absolutely. Sure. Great. And last thing, sir, Shyam, you mentioned that your wage provisions, you have been making basis the earlier settlements. But if you can provide a number that you are estimating to start with? And what is that number in rupees crores so that just to get an understanding what could be the steady state provisioning and maybe the staff cost number? Shyam Srinivasan: Roughly INR 20 crores a quarter to month we are providing extra. Jai Mundhra: And if I were to strip this INR 40 crores from this quarter, the rest should be BAU and then you add three months of this wage provision. Is that the way to look at it? Shyam Srinivasan: No, it's not November, December. It's effective November 1. Jai Mundhra: Right. So, from next quarter, maybe additional INR 20 crores because for one additional month? Shyam Srinivasan: No, additional INR 20 crores per month. Jai Mundhra: Right, so that is what I said. Shyam Srinivasan: What you're saying is correct, INR 40 crores plus another INR 20 crores, yes, INR 40 crores for two months and INR 20 crores per month. Jai Mundhra: Right. And there is no other, let's say, any other one-off or maybe supernormal kind of wage that is there? Shyam Srinivasan: No, I think in the past bipartite and all, I think the increase has been somewhere between 10% to 15%, 13%. We have got conservatively and taken the highest of that. So 15% we have straight away started from the day bipartite has become due. So from 1st November, 2022, it's due. So, from that date itself, we have started providing 15%. Management: And in part would remain on how the yields move. If yields fall relatively, then you will have to then look at the pension benefits based on the discount rate and all the things. So that is something which is beyond anybody's control. As it comes, then we will be facing it. Moderator: The next question is from the line of Krishnan ASV from HDFC Securities. Krishnan ASV: Just a very quick question on the fee income traction that we have been seeing. And it's been fairly consistent, so that's nice to see. So, Shyam, your thoughts on how much of this is a tailwind of where we are at the macro, the fact that the high-quality large corporates are allowing you a certain environment where the pricing power is relatively free because every other bank is also beginning to see this versus how much of this is purely this capability given the fact that share of wallet has gone up and hence. I mean, is there any way to split hairs on this at all? Page 16 of 22
The Federal Bank Limited January 16, 2023 Shyam Srinivasan: No, I can only confirm that it is not opportunistic or arbitrage, it is structural. If you by any chance see Slide 29, you will see quarter-on-quarter sequentially loan processing, exchange commission, brokerage and other fee income going very steadily, reflecting the underlying business growth. In many quarters back, we said credit growth, 2% more fee income growth, and that's holding out quite well. Krishnan ASV: Just the other thing around asset yield as well, given that you have been building towards the high-quality portfolio for a fairly very long period of time. But it was not reflecting in asset yields because it was a very crowded trade. Even now it seems that way, but at least the pricing power seems to have come back with more and more banks exercising it. Is that just a function of where we are in the repo rate cycle? Do you think that comes off at any point, I mean, at any phase at all? Shyam Srinivasan: It is to some extent, yes, it's where we are in the cycle, but I also think having seen this for as long as I have, at any point in time somebody has discretion problems in the industry. So somebody ends up being crazy. So it's not something that you can always say. But yes, broadly, the power is now not entirely to some maniacal behavior. There is some order that is list out. Moderator: The next question is from the line of Prakhar Agarwal from Elara Capital. Prakhar Agarwal: Just couple of questions. One is on MSME. So how do you see the competition level moving in there? Are you able to pass on the rate hikes efficiently in that? Or probably the competition is pulling that back? And a related question to that is, since you are on a fixed rate book as well, have you been able to pass through the entire rate hike at a system level to these guys or probably you that also is lagging the transmission? Shyam Srinivasan: That was by the nature of fixed rate, it cannot be you cannot pass through right away, right, it has to only maturity you will. Prakhar Agarwal No, on a fresh disbursement… Shyam Srinivasan: On fresh, yes. MSME, I think the general theory we hold, yes, there are little more pricing opportunities. But even there, the better customers are getting both opportunities and are demanding. And if you want the better credits, there's a price trade. And we try to use that trade opportunity by getting in other businesses of the client. And we've seen meaningful progress there, both, Harsh, both businesses have seen a good traction on other income. And so as business banking. Prakhar Agarwal Sir, just second -- that is on the second part of clarification. On the fixed rate book, the part that I meant was for fresh disbursements have the loan yields risen by the similar amount that the system has gone up or it's slower? Shyam Srinivasan: Shalini, Harsh, on the... Page 17 of 22
The Federal Bank Limited January 16, 2023 Harsh Dugar: Yes. See, on the fixed rate loan, it's not that fixed rate loans have gone up by 2.25% across the board. So obviously it has been passed on, but not necessarily the same intent, same spread, so. Shyam Srinivasan: Even auto loans have not gone up by 200 basis points. Harsh Dugar: Yes, exactly. Prakhar Agarwal: And what would be the level of pass-through, if at all you could quantify that number. I know it's a broad number, but? Shyam Srinivasan: 80 to 100 basis points. Prakhar Agarwal: Okay, that's 225 or 200 basis is what they've asked. Shyam Srinivasan: Shalini, would that be right, Shalini, on the auto loan? Shalini Warrier: Yes, Shyam, that would be about right, yes. Prakhar Agarwal: Got it. And just last bit on your expansion. So, you probably highlighted that you will probably plan to add around 65 branches for the financial year. How are we looking at our branch network over period of next two, three years? So, we have been fairly stagnant over last five years. So just from that sense, going forward, how are you looking at that? Shyam Srinivasan: In the April, May call, '22, we had said we'll add between 50 and 75 in FY '23 and similar numbers two years from there or a little more. 250 branches is what we said we'll add over a 3- year period. As I speak to you, I think we have crossed 60 this financial year and well on course to make it maybe 75 branches this financial year. And roughly between 80 to 90 branches each year over the next two years. So roughly 250 branches. Yes, the size of the branch changes, the role of the branch is more sales and service oriented. But I don't see branch alone. We are putting in a lot of mobile capability as in not digital mobile as in physical mobile as in bus branches. We are the only bank that has got two buses plying in Madurai and Lucknow as branches. We've got our DBUs and of course various mobile-related solutions. Moderator: The next question is from the line of M.B. Mahesh from Kotak Securities. M.B. Mahesh: Congratulations on great results. Just a couple of questions. First one on the again, this question was asked but again asking this again. If you were to look at your cost of funds moving between now and the next few quarters, keeping things as where they are, where does it peak out? And correspondingly, on the loan side, a similar trend as well? Shyam Srinivasan: Harsh, yes, you want to go? Harsh Dugar: Sorry, please come again, Mahesh. Page 18 of 22
The Federal Bank Limited January 16, 2023 M.B. Mahesh: Harsh, the question is simple. See, today, if you look at the cost of funds and you look at the rate of change that you're seeing out there between now and the next couple of quarters, how does it move? Like it's gone up from 4.4% to 4.6%. Where does it peak out? And at what pace does it change? Harsh Dugar: See, where will it peak out would depend on where the RBI stops raising the policy rates. It would be a function of that. But I think this 20 to 25 basis points hike per quarter till the rates are moving up in next at least a couple of quarters is possibility. So it may move up. M.B. Mahesh: Interest rate is unchanged and that's what I'm keep that unchanged, you would say that it's how does it move? Harsh Dugar: Yes, about 20 basis points per quarter it should happen. M.B. Mahesh: And on the asset side, how much is pending now? Harsh Dugar: Asset side, I think, should grow with another it should be higher than in the fourth quarter, my expectation is that it would be higher. So, if it is 20 basis points increase on the deposit pricing, on the yield side we should have anything between 25 to 30. M.B. Mahesh: The second question to Shalini ma'am. Ma'am, just the progress on the Federal Bank subsidiary. How has it gone? What has been progressed in terms of efficiency that you've been able to extract so far? Thank you. Shalini Warrier: Mahesh, are you referring to the insurance subsidiary or the… Shyam Srinivasan: No, he is talking about FedServ Shalini. Shalini Warrier: FedServ, sorry. I think Venkat will comment on that one, I'm sure, in addition to what I will say. So Venkat has to say a few words. I think clearly, we're seeing a huge amount of energy or potential that has come out of it. A lot of the activities that we have normally been done in the branch are now being done in a more effective manner. The number of employees has crossed, if I'm not mistaken is in the 700 range right now. We've also migrated a lot of the activities like the call center into it, both inbound and outbound, collections activities. And we are in the process of migrating a few more activities that we do in the branch to it. So clearly, we're seeing the benefits of it. Probably you won't see the direct benefit on the cost-income ratio, that's because there are so many things that are moving in the cost information. But the best way to look at this, Mahesh, is what we would have been the cost if we had to do some of these activities as we've been growing in the bank. So, if we see that in terms of the benefit, clearly you can see that is giving us benefits. Venkat, I think you're closer to it now, and you should probably add to what I said. V. Venkateswaran: Yes, Shalini, yes, thanks. Mahesh, we have a fairly ambitious plan to scale up what activities can be done by the operation subsidiary. Currently, as we speak, close to 900 headcounts split Page 19 of 22
The Federal Bank Limited January 16, 2023 between two locations. There is clear visibility of adding at least another equal number to support all the bank's activities, which are permissible as per the RBI's approval. And there are some additional activities as well, which we will now start performing from the operational subsidiary. And we are looking at more than cost saves, yes, there will be. But what we are looking at is creating operational centers of excellence where the process will be reengineered and use of -- earlier there was a question about AI and all that, to the extent possible where processes can be automated using some of the new-age technologies, we will do that. So that through that route, we bring in the efficiencies which will be eventually reflected in the bank's numbers. So to sum up, very ambitious plans to scale it up. We have grown from almost 600 to 900 in a year. And probably the pace at which it will grow will be further speeding in the next 12 to 18 months. Shyam Srinivasan: Maybe we can bring it to a close, Souvik. if there are more questions, we can take it offline. Souvik? Souvik Roy: We can close it, sir. No problem. There are few more questions, but we can close it as of now. I think, yes, we can. Shalini Warrier: Yes, how many are pending in the line? I mean if they have signed up and waiting, it's not fair to cut them out. Souvik Roy: So, there are close to seven, sir. Shyam Srinivasan: Is there any burning questions? Souvik Roy: We can take, sir. So we have Manish Shukla next on the line, and few again joined for the second time, I think, in the queue. Shyam Srinivasan: We'll take five minutes more. Souvik Roy: Sure. Moderator: Sir, so should we take the next question? Shyam Srinivasan: Yes. Take the next two question, please. Moderator: The next question is from the line of Manish Shukla from Axis Capital. Manish Shukla: I’m saying that while individually credit card and PL may not be a large part of the portfolio, the high-yielding segment that you've added, collectively, how large do you think they will become, let's say, around the load? Shyam Srinivasan: If you recall, Manish, a few years ago, I said by FY '23 end around this March, these three businesses, commercial vehicles, credit cards and micro finance, these three businesses will be Page 20 of 22
The Federal Bank Limited January 16, 2023 about INR 6,000 crores to INR 7,000 crores. And we think that will double in the next two years or a little more than double. Manish Shukla: And in terms of the credit underwriting, the only reason I ask this question is that we'll probably see the margin-related benefit or yield-related benefit being front-ended, whereas typically credit cost come and hit us with a lag. You've seen this script play out elsewhere in the system? Shyam Srinivasan: Not in settlement, Manish, that I will say with some degree of confidence and arrogance. We have not allowed that to happen. Manish Shukla: Sure. So you remain confident that they did not jeopardize the ROA trajectory. Shyam Srinivasan: No, by now it would be INR 5,000 crores, INR 10,000 crores. We are extremely adamantly focused on that. Manish Shukla: All right. The last question, Shyam, is that for better part of last 10 years, the risk-weighted asset density for the bank has been hovering around 60%, which is lower than some of your larger private sector bank peers. Going forward, you think you will still be in this ballpark trajectory or are there plans to push it higher? Shyam Srinivasan: Sorry, repeat, come again. Manish Shukla: The risk weighted asset density, the risk weights to total assets for the bank has been hovering around 60%, between 58% to 62%, whereas most of the larger private sector banks, peers would be 65%, 70% plus, and that explains the yield and margin difference, obviously. Any plans of pushing it higher or you will ballpark be in the same vicinity? Shyam Srinivasan: See, the outcome of the business model, Manish, it's not so much as that's the number which is, the businesses that we are pursuing and the mix of the business will reflect in that. There will be some movements, and that reflect in the ROA. That's how we've brought it up from unfortunately, it went down to 0.76%, and we brought it up to 1.25%, and credibly and consistently, we'll keep pushing that up, and that's our commitment. Any other question, operator? Is there anybody? One last question. Souvik Roy: There is one more, sir. Moderator: The next question is from the line of Gaurav Jani from Prabhudas Lilladher. Gaurav Jani: Congratulations. Firstly, just wanted to theoretically understand. Say, for example, RBI raises the repo by 250 basis points. Is it safe to assume that the entire 250 basis points would be passed through in terms of overall use? Shyam Srinivasan: Over a passage of time, yes. May not be penny to penny, but largely, yes. Page 21 of 22
The Federal Bank Limited January 16, 2023 Management: I think for repo-linked rate accounts, yes. But for others, it could be some part of it or, I mean, maybe entire depends on which segment we are into. Gaurav Jani: Understood. Just wanted to theoretically understand as to how much is the rate? Harsh Dugar: On the retail loan side, we have been able to do it nearly 200 basis points out of 225. And the last hike has happened only in December, 35 basis points. So out of 190 hike, we could move to somewhere around 200 basis points on the retail side. A similar number was there even for corporate CIB, somewhere closer to 182 -- 181, 182 basis points or so. So, I think -- and there is another segment where it was just 155, 160. So, it depends on what type of competitive intensity is there in the market. Gaurav Jani: Understood. Just last question, sir, sorry to harp on it a bit more. But the cost of funds have sort of beaten estimates. So how should we look at it in terms of the fact that this quarter we saw a fair bit of increase in the wholesale deposits, but it seems that the cost of funds were pretty much managed well. Shyam Srinivasan: So, despite increase in wholesale deposits, the percentage of wholesale deposits to total deposits still is very small. So even if that segment has seen some sharp hike in rates of interest, it's not impacting the whole stock to that extent. Granularity is the retail nature of deposits, which gives us an edge. Moderator: Ladies and gentlemen, we will take that as a last question. I now hand the conference over to Mr. Souvik Roy for closing comments. Souvik Roy: Thanks, Faizan. So, in closing, I want to thank you all for joining us today. We are committed to delivering value, and we will continue to focus on our growth and strategies. As always, the management team and I are available to answer any questions that we may have skipped today. We appreciate your continued support, and look forward to updating you all on our progress in the future. Thank you all, and have a great year ahead. Thank you. Shyam Srinivasan: Thank you, everybody. Shalini Warrier: Thanks, everybody. See you. Bye-bye. Thank you. Shyam Srinivasan: Thank you. Moderator: Ladies and gentlemen, on behalf of the Federal Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Page 22 of 22