sloppysid/faiss_search huggingface dataset:
The Federal Bank Limited January 16, 2023 basis points, both in corporate and retail. But when we look to do good credits as in good corporates, top end of the credit spectrum, we are happy to make sure that the pricing is right, but we're getting more business from them. You saw a material increase in fee income on corporate and processing fee income. That's the indicator of a full relationship pricing we're getting. Mona Khetan: And would we be able to get the incremental yields on that wholesale part of the book? Shyam Srinivasan: I think, it’s improved about 50 basis point. Harsh, are you there on the line? Maybe you want to add. Incremental pricing, Harsh? Harsh Dugar: Yes, we have an incremental pricing across the board. And we about 180 and 185 basis points which have seen a full pass-through. And the last repo hike, the full impact of it will be felt in Q4. Mona Khetan: And just finally, so you have a gold portfolio of about INR 20,000 crores. Out of this, what share would be co-lending which sourced from other NBFCs or fintechs? And is this largely part of the non-agri book? Shyam Srinivasan: Fintech-led origination is probably about 10% to 12% of this total. Harsh Dugar: That's right, Shyam, about 11% roughly, 10%, 11%, Mona Khetan: Of the entire gold portfolio of INR 20,000 cores? Shyam Srinivasan: Yes. Mona Khetan: This would be fintech's and NBFCs, right? Shyam Srinivasan: No, fintech is only one. Now we don't have any NBFC colending. Mona Khetan: And would it be fair to assume that this is largely the non-agri part of the book of INR 5,000 crores? Shyam Srinivasan: This is non-agri. Moderator: The next question is from the line of Pritesh Bumb from DAM Capital Advisors. Pritesh Bumb: Just had two questions. One is on the gold loan front. We've seen a dip in Q-on-Q in the retail gold front, even the tonnage has dropped. Any change there? Any change in strategy? Why would it have dropped by about 10% quarter-on-quarter? Shyam Srinivasan: I think in this quarter, there were some readjustments with the fintech partner for originating base on the new digital lending and some changes that need to be put in place, that's happening. So, it will come back in Q4. Pritesh Bumb: Nothing to read into? Page 6 of 22
The Federal Bank Limited January 16, 2023 Shyam Srinivasan: Not that we are alert – alive to achieve. Pritesh Bumb: So why I'm asking is because the gold prices are all-time high. And generally, we tend to see a little bit higher growth in gold loans? Shyam Srinivasan: There's nothing to read into it. We remain as enthusiastic about this business and still think 25% Y-o-Y growth is possible. Pritesh Bumb: And second question was on the credit card business. Now we've been organically sourcing this for some quarters now. But the growth seems of course, the growth number seems very good, but the number of card addition and the business seems to be a little bit than as yet. So despite the opportunity in the partnerships which you have with for the CASA side well, so we don't see any big, large growth which is happening on the card side. What is your view on that? How do you see that business now? Shyam Srinivasan: So we remain excited by this business. Within organic and our partnership-led we've probably crossed INR 1,000 crores of outstanding. And this will continue to grow. Yes, the base is very small. We think we can scale this up, but I wouldn't venture to say that this INR 1,000 crores will become INR 10,000 crores in a hurry. It has to go through its paces. So yes, it's growing nicely. We are putting in a lot of energy behind it, further restructuring, creating new capabilities. And this business within organic and fintech partnerships should scale up to about a meaningful number in the next two financial years versus the base. But like I keep pointing out, on our grand total, it is still the only percentage of the whole gold business. We are not growing this exclusively nor are we making any giant acquisitions in this. So, it's more an organic strengthening of this business, which will grow well, a big opportunity, INR 1,000 crores and growing quite well. Fee income is doing well. You must have seen that these businesses have added to, if you look at our other income, these have added materially on the income line. And thankfully, no credit issues. Pritesh Bumb: And last question was on credit substitutes though the number is small, but we've seen a strong growth. Is the pricing their better because commentary generally was still that the pricing on the bond market side has not yet improved on overall basis. So, anything you find in there as attractive opportunity? Shyam Srinivasan: Usually these are used as a way to consummate a relationship. Sometimes, see, it could be pricing, sometimes it'll be the client convenience. Between credit lending and credit substitutes, we find the most optimum mix. So, it's not the Number one choice, but it may end up being an opportunity to complete the relationship. So, I won't read much into it other than it tends to be choppy. Harsh Dugar: May I add, Shyam? Shyam Srinivasan: Yes, go ahead, Harsh, please. Harsh Dugar: Yes, credit substitutes include three basis components. One is commercial paper NCD, it Page 7 of 22
The Federal Bank Limited January 16, 2023 also includes PTC transactions which are in the nature of credit substitute investments, and hence classified over there. We do it wherever we see the pricing is rich, number one. Number two, quite a few of PTC transactions also qualify as priority sector lending as well. So this is one of the primary reasons. The base is small. But there has been a shift towards credit substitutes, partly because the regulator has also been asking the larger corporates to borrow from the debt capital market. So we have planned with intent being in both sides of the market. On the borrowing side to the loans as well as the credit substitutes. Moderator: The next question is from the line of Renish from ICICI. Renish: Congrats on a great set of numbers. So, just two questions, one on the new businesses, specifically on the PL side. So, if you can throw some light in terms of the monthly disbursement run rate, what kind of yields we are getting would be helpful, sir? Shyam Srinivasan: Shalini, you want to go? Shalini Warrier: Hi, Renish. On the personal loan side, so very long term, as you know, we've been only focusing on existing to bank customers and doing a fairly digitally oriented proposition for them. Over the last couple of months, we've now expanded that. We've started a digital process for new-to-bank customers. We're still in a closed user group and we'll shortly expand that to a larger market in terms of new-to-bank customers. And we have also started a couple of propositions with fintech partners. You see that in the deck, there is a proposition with Paisabazaar, and there's another proposition with epiFi that's going live from a personal loan standpoint. So, the plan is between CC and PL the whole unsecured higher-margin products that we have, we will be scaling it up in the coming days. As Shyam mentioned earlier when he was responding to the question on credit card and to a large extent that also mirrors the answer for personal loans. It's not like even on a low base, yes, we will improve and we will increase our share, but it's not something that's going to make a material shift over the next couple of years. Having said that cross-sell to existing customers, cross-sell through fintech partners, expanding to new-to-bank customers through a digital platform will remain the cornerstones of the plan and strategy, Renish. Renish: Yes. So Shalini, I mean if I was -- ask on this specific partnership on the Paisabazaar and epiFi. So have you already started disbursing, I mean, of course in -- like you mentioned that you already disbursed 3,000 loans. Shalini Warrier: Yes. Renish: So, these loans are specifically to epiFi and Paisabazaar both together, right? Shalini Warrier: Yes, so they're both combined together for various reasons. Obviously, we don't show the split, but they are propositions to the -- so in the case of Paisabazaar, as you know, they have a credit scoring methodology through which they get customers to come in and look at Page 8 of 22
The Federal Bank Limited January 16, 2023 credit scores. So, they're cross-selling to those customers on it. To epiFi, the cross-sell it to the customers who have been on-boarded as epiFi savings bank customers over the last 12 to 18 months. And therefore, we're cross-selling to them, part of the deepening strategy for them. So different propositions. The Paisabazaar relationship gets us more new-to-bank customers, Renish. The epiFi relationship gets us more deepening of the cross-sell and deepening of the relationships with cross-sell with epiFi customers. Renish: And would you mind to share the average ticket size? Shalini Warrier: Sorry, I didn't get that. Renish: The average ticket size per loan disbursement? Shalini Warrier: The average ticket size, you can work it backwards then if I give you that, but the average ticket size is about INR 1,50,000. Renish: Shyam, so my next question is to you, in terms of clarification, when we say this 10 basis point improvement in RoA. So, what's the base of your assuming? So Q3 RoA of 1.3% is the base or 1.25%… Shyam Srinivasan: Blended ROA of this year will be about 1.25%, full year blended. Renish: And from there onwards, 10 basis point every year is what we have taken? Shyam Srinivasan: Interest rate this year will be 10 basis -- I mean I won't say every year. Right now, outlook is for FY '24. I'm not committing beyond that. Moderator: The next question is from the line of Madhuchanda Dey from MC Pro. Madhuchanda Dey: So, yes, congratulations on a great quarter. I have two questions. One is, you mentioned quite a few times about winning market share. So, if you could just throw some more color on who all are losing market share to you? Or which are the focus where you're winning market share? Shyam Srinivasan: I don't know who is losing. I know we are gaining. One of the recent reports that have come out, has taken a five-year CAGR of private sector bank credit growth and places us in the top three in that, consistently growing share. And it's evident in our numbers, right? We probably are the only bank that has doubled our credit book in the last five years. So evidently, credit is growing. Who we are losing to, I can't quite comment. But I can suggest that in our expansion and distribution, all our product clients growing at 18%, 19%. Credit indicates that if the system growth is 17% and some are reporting 12%, 13%, evidently those banks that are at 12%, 13% are losing and we are gaining at 19-odd percent. And it's broad-based, and we believe that will sustain. So, I can't say who is losing, but I can say that we are gaining, and we should keep that increase that distance. Page 9 of 22
The Federal Bank Limited January 16, 2023 Madhuchanda Dey: Yes. My second question is on the 10 bps expansion in ROA, which is a near-term outlook for FY '24. If you could give us some color on the ROA expansion tree in terms of what you expect to come from PPOP, from low credit cost, I mean, all these other components, I mean, rough color on the same? Shyam Srinivasan: See, it's a mix. I've always maintained that it's never one silver bullet. It's steady, regular all rounds. The mix of the business, continued improvement in credit standards and our efficiencies going in, our digital capabilities are getting better. And there will all be some opportunities on the treasury and investment side, a combination of it all working in favor of the bank. We don't want to take our eyes off any one line. A little, 2, 3, 4 basis points in each area, Madhu. So, no silver bullets. Moderator: The next question is from the line of Kaushik Poddar from KB Capital Markets. Kaushik Poddar: Shyam, as usual, you have been able to tick all the boxes. So, my next question is a little complicated, if you may, let me put it. In the sense that, see, right now, we are quoting at a price to book of between 1.2%, 1.3% FY '24, '25, right? And the top-most bank, which is HDFC Bank, is probably quoting at 2.1%, 2.2%. What do you have in mind so that the price to book value goes up to that level? Is it possible? And are you thinking anything in that line? Because ultimately, the shareholders are looking at something like that, the price to book value going up. It has already gone up. In the last two, three years, it has already gone up. So, are you thinking in something in these terms? And secondly, you have reached a capital adequacy ratio around 13% or something. So, you need to raise capital, I guess, next year. So, can we expect some marquee name as to whom you may place your shares? Over to you. Shyam Srinivasan: Thanks. I will take the second part of your question first. I think at this point in time, the CAR without flowing back FY '23 profit is in the 13 point something. When we put that in by end of April, we should be back to 14-odd. Our own internal figure point is somewhere in the 13. So, we will consider, but we don't have any firm timeline. Certainly, in calendar '23, there may be an opportunity and a requirement if we continue to see good growth prospects, which we think we are seeing good growth prospects. So, we will wait. Whether we get a marquee name or a bunch of good names or a combination, we'll have to see. We haven't initiated anything on that count. Certainly, we will be looking out. If there are marquee names interested. I'd be happy to have a conversation. But right now, there's nothing on that count. On the earlier part of your question, what are we doing to get the shareholder return? I mean I can only promise, as I have promised every quarter and hopefully delivered on most of them, to make the best for the bank to ensure that our performance levels are continuously improving. We don't take our eyes of that. Unfortunately, stock price is not entirely in our Page 10 of 22
The Federal Bank Limited January 16, 2023 control. I know it's a bad statement for an MD to say. But I would be candid, we can only do that much. We can only perform and communicate. Results are many moving parts. That said, it's evident that our performance is getting rewarded in the more recent years. We think it's only a matter of time before we get discovered fully. So, I would say we are not taking our eyes off the performance. And the commitments we gave and the commitment we give are being honored. We'll keep dialing that up. Like I said, the language of the bank at all levels, the mission and the passion is unhindered. And I believe that our best is sort of yet to come. Beyond that, I can't comment, Kaushik. I'd be happy if you guys have investors influence the outcome and make sure that the stock gets the deserved pricing. Moderator: The next question is from the line of Rakesh Kumar from Systematix Shares. Rakesh Kumar: So, the first question is basically pertaining to the NR deposit number, which is looking a little soft and there is a market share volatility as well with respect to previous quarter number. So, any comments you would like to offer on this issue? Shyam Srinivasan: I don't think anything unique. I mentioned in the last quarter also, our deposits, I mean remittance share is constantly moving up. Remittance coming into India, we are getting a larger share. But it's translating into deposits, there has been a market change. People have either used for various other elements of completing their credit payments or investing in something or going into the market. To that extent, there has been a deposit behavior change of conversion from remittances to deposits. That's something we have keep a tight watch. So as a bank, we've been able to gain share in resident savings. So, we'll keep an eye on those things. I don't know if we can read much into it other than the fact that the remittances share has increased. What you are seeing in the deck is a point in time, typically at the end of Q2 its lower, and it comes back in Q3. So, we will see how that number goes. But I wouldn't read much into it. Rakesh Kumar: Sir, can you, sir, this SAR deposit composition industry-wide, do you see that there is a compression because there are various reasons apart from the cannibalization issue of the TD rates, and there are other issues also, household savings numbers have kind of come down, especially towards deposit. And we also have seen some impact there. So, any thought that we have put in terms of guidance, if you can help us that maybe one year down the line where we would be in terms of SAR deposit composition? Shyam Srinivasan: You may have seen it and observed it across the industry, right? When the interest rates are higher, the difference between saving rate and term rates being very material, there's a migration towards term. Second, when there is a chase and award for deposits, people are attracting it to higher price term and trying to get customers in. Page 11 of 22
The Federal Bank Limited January 16, 2023 But as business velocity increases and momentum of money supply increases, you will start seeing SAR getting generated. Usually, credit generates more deposits. So, I do believe, and hopefully nothing going wrong in India and 3, 4 quarters from now, situation should change. I'm not a camp that believes that CASA for anybody will keep endlessly increasing unless you are materially increasing your savings rate, which therefore is equal to term rate. So, I think it's better to lock in money longer than to keep savings which can be in and out. So, it's a point in time, but we have to watch out. I don't think it's the end of the road for CASA. SAR will be impacted as it has been impacted for the entire industry. And I think that will cure itself as the economy starts lubricating better. Moderator: The next question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead. Saket Kapoor: Firstly, sir, how is this cost to income going to shape up going ahead now that the rising interest rate scenario, what should we factor in, in terms of how this line item will be going ahead? Shyam Srinivasan: We had mentioned that we will try and improve that by 100 basis points each year. Happily, we have delivered this year. We're at about 48 and change. Our target is to push it closer to 48 or 47.5 in the next financial year. And that's what we'll be focusing on. And it's a bunch of things, both as you know, the cost to income is both cost and income, it's not one or the other, efficiency and better mix of business and income growth, on both counts work is going on. We've demonstrated it at this point in time, and we believe that it will continue. Saket Kapoor: And, sir, we have factored in this higher cost of deposits going ahead. That is the figure. Shyam Srinivasan: When we're moderating our NIM guidance, to some extent it factors in the potential higher cost of deposits in periods ahead. Saket Kapoor: I didn't get you, sir. Come again. Shyam Srinivasan: In the NIM guidance, which we had some moderation from the high of 349, it factors in the increased cost of deposits in the period ahead. Saket Kapoor: Sir, as you mentioned, that there is a strong demand for credit, and majority of the banks are continuously focusing on the retail segment. So, if you could give us some more general details where is this demand arising from? And what are the factors that have led to it and the strength of this going ahead, the demand in credit that we are witnessing for the last few quarters? Shyam Srinivasan: So as a bank, those of you who have been following us for long, we've always said we will be reasonably equally weighted retail wholesale. Within wholesale, the different businesses, within retail the various businesses. We are not suggesting that one business alone will carry us. Page 12 of 22
The Federal Bank Limited January 16, 2023 That is not our mantra. And it serves the bank well, both through bad periods and good. And no difference for the future ahead. I think there are opportunities for all our businesses. Particularly our share being low, there's opportunity for us in all our businesses. Some more than the other is where we would say. To that extent, Mr. Kapoor, I think the opportunity for us is not in any one business. And I think all our businesses have an opportunity to scale up and we are pushing that hard. Did I miss some part of your question? Is that what you said? Or is there something else you want? Saket Kapoor: Sir, I'm trying to look at the factors which have led to the bankers like you putting up putting or having comfort in the statement that there's a strong credit demand. So just wanted to understand the feel-good factors that the banking system had today that is leading to this huge credit demand and the sustainability of the same going ahead. What are the factors that are contributing to it? Shyam Srinivasan: I got it. I think the big one that shifted the needle in the last, let's say, three, four quarters has been the fact that, A, there was pent up, B, the other cost of money was high and therefore people shifted to the more formal banking system. So, these are drivers of banks' credit. Banks had more appetite. Everybody had capitalized well, credit quality had improved. So, banks were willing to lend and there was an opportunity. Now as that moderates, as we go into FY '24 and beyond, those banks have continued to be well-positioned. We'll have a larger chance of getting the share. Those who have increased their distribution in all the businesses will get a larger share. Those who have increased their product offerings and are hungrier for credit growth will pick up share. And it's we think the formalization of India is giving rise to more credit opportunities. I know these are not headline statements. GST collections are going up, that many more people are filing GST. That many more data is available, that much more digital footprint is available, that much more preapprove capabilities are coming into banks. The use of bureaus, the use of credit score cards, the use of third-party digital data, are all enabling. Saket Kapoor: And if I look at the line item for this, still small point. When you look at you’re -- the line item in the treasury part, on a Q-on-Q basis there is a decline. So, what explains this decline in both the revenue part booking as well as on the bottom line under the segment results? Shyam Srinivasan: Harsh, do you want to give the response? Harsh Dugar: Yes. I think what you are seeing is there is a onetime impact of RBI circular, which came in December. This is more about a clarification on securitization receipts. So, prior to 2018 also, they have included all the securitization receipts to follow the norm, which is applicable post 2018. That means you have to consider, as if you are invested in securitization receipts wherein the underlying is your own asset, you have to treat as if that asset was continuing as a loan and Page 13 of 22