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00:00Welcome to NDTV Profit. I am Harsh Saita and with me we have the management of Federal

00:11Bank. We have Mr. Harsh Dugar joining us with regard to the Q4 numbers as well as what we

00:16can expect from Federal Bank going forward. Sir, FY24 has been a year in which margins

00:25have been under constant pressure. What changes for you, especially in terms of that top line

00:32as well as margin number for FY25 because growth continues to be quite strong for you?

00:37So, couple of things which we are looking at, obviously the margins are under pressure

00:42that the run for deposits is an issue across the banking sector itself, not just Federal

00:47Bank. Couple of things which we are looking at, addressing this and the NIM is looking

00:52at the high NIM accreting products like commercial vehicles, microfinance, credit cards, personal

00:59loans, gold and MSME business. So, that business used to be around 21% of our total advances

01:06has grown to 24% and we are looking to materially increase this over the next 2 to 3 years and

01:12the share in the income also has been steadily increasing. So, that is one part. The second

01:17part is obviously the focus on CASA. We are looking at expanding, we opened about 140

01:22branches last financial year. We are looking at expanding our branch networks significantly

01:26this year, should help us in getting us low cost CASA. So, this is other thing which we

01:30are looking at. Apart from that, increasing product per customer, we are looking at that,

01:35looking at government business and other areas which can get us a liability business at a

01:40low cost. Understood, sir. So, couple of points you

01:45have made, I want to try and break that. FY25, will margins recover? Where should they

01:50be at in FY25? What is the broad level number that you are looking at? And over the next

01:562 to 3 years, as you have described, probably higher margin business, where should margins

02:02therefore normalize at? What should be the new normal for Federal Bank?

02:05So, if you look at it, the pressure on the NIM in the current financial year was largely

02:13on account of the cost of deposits going up. Typically, that's what happens, the advances,

02:17the yield goes up and the deposit cost goes up with the lag. We are presuming that the

02:22increase in cost of deposits, by and large, is done with. On the share of which is what

02:28I mentioned, high margin business, which is at about 24%, 25%, we are looking at their

02:33share to contribute materially more in the next 2 to 3 years. So, we would look at improving

02:38our NIMs for 10 to 20 basis points over the next 2 to 3 years.

02:43Understood. Yeah, okay, point taken. And with regard to OPEX and with regard to the way

02:49you have grown your branch network extremely strong, I know some one-offs on the OPEX front,

02:55but OPEX has been elevated even outside of that. If I do the rough math, outside the

03:00one-off, 8% sequential is what OPEX has gone up by. Would you expect that kind of number

03:07to stay elevated given the branch increase you are doing or what exactly is contributing

03:12to that elevated OPEX? Okay, in the number for Q4, which we gave,

03:16about 162 crores was the impact of provisioning for pension cost, which you are aware of,

03:21which obviously elevated the numbers of cost to income and our OPEX cost. We don't expect

03:25that. That's a one-off, as we mentioned. Apart from that, the branch network cost would definitely

03:31be there because we typically expect branches to break even within 18 months to 24 months,

03:35but we have met with quite a bit of a success of our new branch openings in FY23 and FY24.

03:40So, we hope to replicate that piece with a faster break-even. Secondly, the OPEX cost

03:46on an expanded base. So, cost to income is something which we are looking at trending

03:50downwards and not upwards. Understood. So, where should that cost to

03:54income band be for FY25? You would expect it to stay there around 42 odd percent. Harsh,

04:00not giving a real number, but that's what we would expect it to be.

04:03Sure. Yeah, absolutely. Yeah, doesn't have to be absolutely spot on, but just a broad

04:08range. Understood. And with regard to credit costs, of course, Q4 absolutely muted in terms

04:15of credit cost number, but how do you assess the numbers for FY24 overall? Because we did

04:24see a bit of increase with regard to some of those numbers in Q2 and Q3. Would FY25

04:31in comparison be a smoother year for you or you expect the credit cost number to remain

04:36slightly patchy? See, asset quality to that extent, I mean,

04:41you must give that credit to the bank in terms, it has been fairly consistent over the years.

04:46The last quarter in particular, the credit cost was at one basis points annualized. So,

04:50I mean, that's an absolutely low level. That's not expected to continue for a lending business,

04:55but we do not expect any surprises over here in terms of asset quality. Both our retail

04:59book and our real estate book are quite pristine in terms of asset quality. So, I don't think

05:05there's any surprises over there. We expect that to only trend downwards and not upwards.

05:10The high margin business also, which we are doing and supposedly which are considered

05:14as slightly higher in terms of, lower in terms of asset quality, we are also treading that

05:20very cautiously. So, in terms of asset quality for FY25, we only expect it to get better

05:25than from where we are at. In general, even the banking sector, if you look at it, asset

05:28quality has in general for across the banks been trending downwards and we expect FY25

05:33to be more different. Understood. And that should basically allow you to grow well or

05:38continue to grow well, because you've done very well this year in terms of growth, 20%

05:42on loans, 18% on deposits. What's the sense, that kind of trajectory to continue maybe

05:48for the next two to three years? Most certainly, yes. If you look at the system level growth,

05:53where it was more than 20%, but if you exclude HDFC, 60% margin, it was about 16.5%. So,

06:01I would expect the industry growth for advances to be about 16.1% and we would expect to grow

06:07definitely at that, higher than that. So, a 20% growth is something we should be doing

06:11guiding, give or take, depending on how the industry trends and how the economy behaves.

06:16But there's no reason to believe that it will be any bit different. In fact, if at all,

06:20it will only get better. On the deposit side, it has been a challenge. We've seen an 18%

06:25growth against the industry growth of 13.5%, and we expect to grow faster and gain market

06:30share both on the advances side as well as the deposit side. Understood. One thing that

06:37analysts, whenever I speak with them, seem to be pointing out with regard to Federal

06:41Bank is, ROAs don't seem to be, once they reach the 1.4%, it starts to become slightly

06:50difficult to breach that number. When can we expect that we go beyond the 1.4% to the

06:571.6%, 1.7% kind of number? So, we've been guiding a 7 to 8 basis points

07:02growth in ROA year after year. And if you look at even Q4, if you take off the cost

07:08of pension, term of cost, which we incurred, we are almost at 1.4, that is 1.38, 1.39 levels,

07:14which is the same as last quarter. And hopefully, with immense improvement and better control

07:19on the cost part of it, and we have quite a few levers. Asset quality is something

07:23where we are almost kind of fully leveraged on. But if you look at name in terms of TASA

07:27share to increase, and the C2I to come down, there are enough levers for us to pull to

07:33hopefully improve the ROA as what we've guided for.

07:36So could we expect a 1.6% in FY25? No, that's a tall task, much as I would love

07:43to have that. That's a tall task. Sure, okay, fair. Any guidance at all?

07:48We definitely expect an improvement from where we are at, which is what we've been

07:52guiding for. Sure, understood, understood, got it. And

07:55with regard to leadership, there's been all this chatter that's happening, I'll try to

07:59be as candid as possible. What's the kind of timeline, if not any name dropping happening,

08:05but what's the kind of timeline that the bank is expected to finalize the leadership by?

08:10See, as you would be aware, there's a search committee which has been appointed by the

08:15board and the NRC, which is evaluating candidates, both internal and external.

08:19They expect, I mean, that's something we should go to the RBI for its approval. So I expect

08:23that to happen sooner than later. And I presume it will be because it has to be at least three

08:30or four months ahead before Shyam retires. So to that extent, also be able to expect

08:35something to come sooner than later. Understood. Thank you so much, Mr. Dugar,

08:40and wishing you all the very best for your own role here, as well as, of course, wishing

08:47the bank all the very best going forward into FY25.

08:52Thank you so much, Ash, thank you. Well, the management of Federal Bank

08:56having a candid chat with us on Q4, as well as going forward, what one can expect.

09:02With that, completely out of time on this one. Stay tuned to NDTV Profit for more.

09:06For now, goodbye.

Federal Bank's Q4 Report: Operating Profit Slips 17% | NDTV Profit

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