The Federal Bank Limited (NSE: FEDERALBNK) Q2 2025 Earnings Call dated Oct. 28, 2024
Corporate Participants:
Souvik Roy — Head of Investor Relations
KVS Manian — Managing Director And Chief Executive Officer
Shalini Warrier — Executive Director
Venkatraman Venkateswaran — Chief Financial Officer
Harsh Dugar — Executive Director
Lakshmanan V. — Group President And Head Of Treasury
Analysts:
Mahrukh Adajania — Analyst
Kunal Shah — Analyst
Parameswaran Subramanian — Analyst
M. B. Mahesh — Analyst
Piran Engineer — Analyst
Rikin Shah — Analyst
Jai Mundhra — Analyst
Nitin Aggarwal — Analyst
Rakesh Kumar — Analyst
Gaurav Jani — Analyst
Yash Dantewadia — Analyst
Ishan Shrimali — Analyst
Saket Kapoor — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Q2 FY ’25 Earnings Conference Call of the Federal Bank Limited. [Operator Instructions]
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 — Head of Investor Relations
Thank you, Sagar, and thank you, everyone. A warm welcome to all the participants. We really appreciate your taking the time to join us today. Now, as you are aware, there has been a recent transition in leadership with Mr. KVS Manian, assuming the role of MD and CEO from Mr. Shyam Srinivasan as of the 23rd of last month. On behalf of the entire bank, we extend a heartfelt welcome to Mr. Manian, and we are confident that under his guidance, we will reach new heights of success.
We have just uploaded the results and our presentation on the exchanges, and in case you could not review them prior to this call, please feel free to call me once this call is over. As always, I’m joined by the senior management and other members of our leadership team to address any questions you may have. I will begin by providing an overview of our progress on key broad-based parameters.
Our total business has now reached INR4,99,419 crores, with the last INR1,00,000 crores added in just over four quarters. This demonstrates the strong foundation for sustained growth. We achieved the highest ever net profit of INR1,057 crores, reflecting a YoY growth of 10.79%, alongside a record operating profit of INR1,565.36 crores. Our ROA for Q2 stands at 1.28% with an ROE of 13.65%.
In terms of asset quality, we made good strides by bringing down our GNPAs to 2.09% and net NPAs to 0.57%. Our PCR has also reached a 16-quarter high. Additionally, our NII reached its highest ever level at INR2,367.23 crores, marking a YoY growth of 15.11%. Our deposit base also saw growth, with total deposits increasing by 15.56% YoY, while total net advances grew by 19.45%, reflecting our strong customer engagement and trust. CASA also showed some solid growth, rising by 11.5% YoY, including a 5% growth in Q1 and 4% in Q2. This positions us among the industry’s leaders in CASA growth rates, with our CASA ratio increasing by 80 basis points QoQ.
Now let’s move to NR. The inflow in NR accounts has been noteworthy, resulting in a 6.8% growth in NR savings. During the first half of FY ’25, which is a significant turnaround from last year’s decline of about 1.5%. This positive trend spans across our portfolio, with an 8.34% YoY increase in NR savings and a 14% YoY growth in FCNR deposits. Our branch banking business remains a strong contributor, as always, to our granular deposit growth, demonstrating improved accretion despite a challenging deposit environment. Notably, we have achieved this growth without significant concessions on deposit rates, diverging from the broader industry trend of elevated rates. Meanwhile, our wholesale banking business consistently generates stable profits through a diversified revenue base. This strategic breadth mitigates reliance on asset-led revenues alone, strengthening our overall financial resilience.
With this, I’ll hand it over to our MD and CEO, Mr. KVS Manian. Over to you, sir.
KVS Manian — Managing Director And Chief Executive Officer
Thank you, Souvik. And good evening, everyone. Welcome to this post-results call. As this is my first call in the current role, I’ll be leaving the substantive part of the heavy lifting of the quarter’s results and its analysis to our capable team. However, I would like to share a few thoughts on the transition. It has been a month since I stepped into this role and about seven weeks since I joined the bank. I had the opportunity of working with Shyam for three weeks during this period, period of three weeks of transition, and it was invaluable for a smooth transition. I would like to extend my heartfelt thanks to Shyam for his contributions over his 14 years tenure in the bank. I know Shyam will be logged into this call as an investor now, and thank you again, Shyam.
I must say that the teams here have given me a very warm welcome, and I feel both optimistic and confident about the path ahead. Over the past weeks, I have embarked on what I call listening tours across the country, meeting with senior zonal teams, bright young managers in the firm, and holding open house forums with a very large cross-section of our employees. These sessions have given me deep insights into the team’s aspirations and also the exciting opportunities to work with for the bank.
In fact, the energy of our teams has been remarkable, and I must admit that their enthusiasm has rubbed off on me, and I feel younger. In addition, I’ve been conducting deep dive sessions with each business unit and functions to understand our current position and identifying growth opportunities. I’ve also met with customers and key stakeholders and partners, and I expect to complete this structured outreach program somewhere around mid-November to third week of November.
These engagements are helping me shape my understanding of the company, businesses, and will be foundational to a strategy refresh that we as a team are working on, which we will present to our board somewhere in the month of December. And this, in turn, will guide our future discussions with all of you. On a lighter note, I have also encountered many people eager to set new targets for me. Jokes aside, I understand external expectations around key metrics that are used to evaluate banks and the aspirations you hold for this bank’s future. Of course, that’s just the beginning, identifying the metrics. The key lies in the plan on the how side of it.
I am pleased to say that our team is ready to push forward on this journey. We are aware of the broader challenges facing our sector and recognize that the path may not exactly be what we thought of it a year ago. Nevertheless, we remain confident in our direction. Together, we are constantly thinking about the next level, as we all call it, and we have already begun to implement new strategies. For example, we are placing a renewed focus on CASA and deposit growth, supported by our newly secured AAA rating on the deposit program. Our goal remains to be the most admired bank, and we are committed to adding momentum to this vision. But, of course, more on this and details on this in the next meeting we have.
We are grateful for the support of our board and the trust all of you shareholders place on us as we embark on this journey. I seek your continued patience and support as we work towards an exciting future from here. Thank you, and we are now open for questions.
Questions and Answers:
Operator
[Operator Instructions]
KVS Manian
Sagar, can you mute all the people.
Shalini Warrier
Sagar, somebody’s got some line open, and I think there is a line. Can you just check this?
Operator
That’s from the management side. It was from Mr. Mahesh R.’s line. I have muted that line.
Shalini Warrier
Please do mute the lines, yeah?
Operator
[Operator Instructions] Our first question is from the line of Mahrukh Adajania from Nuvama. Please go ahead.
Mahrukh Adajania
Hi, good evening. Congratulations, Manian. Basically, I have three questions. My first question is on deposit growth. So, the total deposit growth in the quarter was 1%. How do you plan to accelerate it in third and fourth quarters, given that competition is still high? Your deposit cost hasn’t risen much quarter on quarter. So, that’s, of course, positive. But from here on, how do you take it forward? That’s my first question on deposit cost –deposit growth, sorry.
Shalini Warrier
Hi, Mahrukh. This is Shalini here. Good evening.
Mahrukh Adajania
Hi.
Shalini Warrier
Hi. At this point in time, as you would have noticed, and you split it into two parts, if you look at the CASA growth, we’ve maintained the momentum that we’ve had on CASA growth between quarter one and quarter two. We are amongst probably the top three or four in the private sector banks that have announced results on new CASA growth. So, our focus remains on ensuring that we are able to get primary bank status with customers, both existing customers and new to customers, driving greater CASA growth through them. And this is true both for the wholesale banking side of things as well as for the retail side of things.
On deposit growth, which is term deposits, and I’ll call this really the hardcore term deposits, as you rightly pointed out, we’ve calibrated our cost in such a way that we don’t really pay abnormally high rates. We peg ourselves very clearly against a competitive set of banks that we want to peg ourselves against and make sure that we don’t take in high-value deposits at a cost which is, to some extent, not sustainable in the long run. So, keeping our cost of deposits in mind, keeping both the requirements of CD ratio and LCR in mind, but with a higher focus on the CASA growth, which is core to the business, we do believe that we should be able to withstand any liquidity concerns that may potentially come up in quarter three and quarter four.
We will continue to be competitive on certain tenures. If you look at some of our tenures on the website, you’ll see that there are one or two tenures that we always remain competitive on from a rate perspective. And we direct our distributions capability to make sure that we get more new funds from customers in those. So, there is no one single strategy that will work, but it’s a combination of CASA, both existing to bank becoming primary bank partners, new to bank, more acquisition, keeping ourselves competitive on one or two tenures at the maximum on interest rates, and calibrating our growth in that way. We remain confident that we will be able to demonstrate the success of this in the coming quarters, Mahrukh.
Mahrukh Adajania
Okay, fine. And in terms of fees, there have been sharp movements in quite a few buckets, right? So, general service charges have gone up a lot, para banking has gone up a lot. Any special things you need to call out here? How has this traction been so strong in these buckets?
Shalini Warrier
So, I’ll try and address that and maybe Harsh and Venkat may be able to add something. First, on the general service charges, as you know, from 1st of July, there has been a change in the fact that penal charges are now reflected in this rather than in the penal interest portion of it, primarily impacting or rather working through our business banking, small and medium enterprises and commercial banking. So, probably not a like-to-like comparison strictly on that note, Mahrukh, but you’ll see this for every bank. That’s the first point.
Para banking is core to our business, very, very clearly something that we’re very, very close to, and we’ve been driving higher productivity. You may have recognized that I think it was in May and then in June, we announced two new corporate agency partnerships with Tata AIA and with Bajaj Allianz Life. Two new corporate partners were added to our portfolio of life insurance. That has definitely given us a more distribution capability, more products, and therefore more income. So, we remain committed in ensuring that quarter on quarter, our core fee income shows an improving trend. There are still many opportunities out there, and we will continue to work on those. But these are the two main highlights I would give you, Mahrukh.
Mahrukh Adajania
Okay. And what would be the impact of penal interest on NII this quarter in terms of how many basis points of margin?
Venkatraman Venkateswaran
It would be close to about 7%, Mahrukh.
Harsh Dugar
7 bps.
Venkatraman Venkateswaran
7 bps, sorry, 7 bps. What we should understand is the NIM, if we had not moved to this new system, actually our NIM has moved up from 3.16% to 3.19%, whereas the reported NIM is now 3.12. That’s the 7 bps, which I explained. If you’re looking at like-for-like, our NIM has actually improved.
Mahrukh Adajania
Okay. Makes sense. And just the last one on LCR. Sorry, what is the LCR during the quarter, and how do you manage it when guidelines change?
Venkatraman Venkateswaran
During the quarter, the average LCR was 115%, Mahrukh. And in terms of how do we manage it, there are multiple levers which we need to pull in terms of managing LCR. It’s about the tenure of the loan, the profile of the loan, retail versus high value, the mix change, the callable, non-callable. So there are several factors which we are working on. There is some disturbance in the line, Sagar.
Shalini Warrier
Operator, Sagar, there’s some disturbance coming on the line. Is it from our line?
Operator
No, that is from Mahrukh ma’am’s line.
Shalini Warrier
Okay, Mahrukh ma’am’s line. Okay, Mahrukh.
Venkatraman Venkateswaran
So, it’s multiple levers which we are working on and including what Shalini said earlier about increasing the CASA and the deposits, which will continue to be an area of trust. So, a combination of all this is what we are confident of maintaining and improving the LCR levels.
KVS Manian
And Mahrukh, you might notice that the average has gone up from 112% to 115% for the quarter, the LCR.
Shalini Warrier
And if I may add one more thing, Mahrukh, the future guidelines, they’re still draft guidelines. There’s some feedback that has gone back to RBI through IBA and directly. Some amount of maybe, we do think that the treatment of digitally enabled accounts may need a little bit of review at the RBI level. Not sure what will happen, but happy to look at the potential impact of that. But I think what Venkat said, calibrating the distribution to between callable, non-callable, short tenure, long tenure, many levers are being worked on.
Mahrukh Adajania
Okay, thank you. Thanks a lot.
Shalini Warrier
Thanks, Mahrukh.
Operator
Thank you. Our next question is from Kunal Shah from Citigroup. Please go ahead.
Kunal Shah
Yeah. Hi, congratulations for a good set of numbers. So, the first question is on the divergence between the loan growth and the deposit growth. So, how should we look at it going forward? This quarter, it has widened a bit. So, overall, would it be fair to assume that we might slow down a bit on the loan growth side, calibrate with respect to some of the higher-return focus areas? Or maybe we are confident of pulling back the deposit growth? Yeah.
Harsh Dugar
Yeah. Hi, this is Harsh here. Two things. One is obviously we’re pushing the deposit growth rather than pulling down the loan growth. Loan growth we’ll continue to pursue wherever we see growth opportunity without impacting asset quality. So, that will be our focus. Again, that hasn’t changed much. And we remain confident of continuing with what we had earlier guided for. The focus will be more on increasing our deposit mobilization, CASA as well as total deposits.
KVS Manian
Like Shalini clarified earlier, CASA has grown in the last two quarters reasonably healthily. And we’ll continue that, and we’ll put some more focus on the term deposit side to… [Speech Overlap]
Kunal Shah
Okay. And secondly, with respect to Fedbank Financial Services and the investment norms. So, what would be our thoughts in terms of conducting that business? Because most of the lending can be done at the bank’s end as well. And given being a group entity, any early thoughts or maybe any discussions out there on this?
KVS Manian
I think it’s too early. Just now it’s in a draft stage that RBI is — it’s a draft circular. And RBI has sought comments till 20th November. So, we intend to make our representation, as would most of the industry participants who are impacted by this. Let’s see how it pans out. Depending on how it finally takes shape and form, we will decide our course of action. Just now, too early to comment on that.
Kunal Shah
Sure. And just last one with respect to asset qualities were quite a robust one with respect to the slippage run rate being low, credit cost still continuing at the lower levels. Any segments wherein we are seeing any stress on a low base? We are still growing our MFI pool, some of the high-yielding products. But would we look at the recalibration of the proportion of the high yielding given the operating environment currently?
Harsh Dugar
If you notice, growth in the high-margin products has always been cautious, including in the MFI piece. But I must say that in the MFI piece, we do see heightened slippages. But to us, we have been protected because the states we operate in, more than two-thirds of our portfolio, are the southern states. So, to that extent, we have selected geographies which have been quite favorable.
Secondly, quite a few steps taken in terms of how we go ahead in terms of some of the suggestions made by MFIN was something which we had implemented quite some time back. And that is the reason why, while the slippages in the MFI sector has increased, it is well below the levels which we see in the industry, significantly below.
Venkatraman Venkateswaran
And Kunal, just to add to what Harsh said, you would have seen that our total slippage ratio is even below what we had in the first two quarters in the year before, it’s around 0.73% of assets, which goes to show that the asset quality continues to be pristine, and credit cost is well within the 29, 30 bps. And for the full year guidance, we are not making any change to it.
Kunal Shah
Okay. Yeah. Thank you.
Operator
Thank you. The next question comes from Param Subramanian from Nomura. Please go ahead.
Parameswaran Subramanian
Yeah, hi. Thanks for taking my question and congratulations on the quarter. Firstly, again, a question on asset quality. So, in the MFI portfolio, are we seeing any of the FLDGs being invoked? And how do we account for it? And also, if you can speak about the asset quality in the credit cards portfolio that we have.
Harsh Dugar
Just a second. On the first point, you said FLDG in MFI?
Parameswaran Subramanian
Yeah.
Harsh Dugar
No, no, it’s not. Our GNPA numbers are what the actual numbers are, what we have reported. There’s no impact of that on account of any FLDGs because that’s not permitted, and we don’t have that either. The GNPA numbers, which I was talking about, which has marginally increased for us also, is at the gross level itself.
Shalini Warrier
If I can add, Param, to CC and PL. First of all, I think all of us recognize the fact that both credit cards and personal loans are a fairly small percentage of our overall portfolio. Extremely secured, and they’ve been secured for a very long time. And we’ve pivoted towards unsecured only recently. Having said that, within that ambit, yes, we’ve seen a slight uptick in our slippage rates for both credit cards and personal loans, both the organic one and the ones that we do through some of our partners.
It’s not material enough to call out because in the overall scheme of things, it’s still a very small percentage of the overall portfolio. We’ve been also benefited by the fact that we’ve had better than expected slippages on our home loans, car loans, and vehicle loans. Having said that, given the fact that we’ve always had a cautious approach to these assets, we have calibrated it.
As an example, I can tell you that sometime in May or June, we introduced a new scorecard for our entire personal loan booking. And the new scorecard is much more discriminating and differentiating, and therefore, it slowed down some of our disbursements, but we believe that’s a good thing to do in PL.
Credit cards, we continue to remain confident that our portfolio is under control. We do believe there are still growth opportunities over there because it’s a product that you can easily control much more effectively through effective line management. Summary of it is, yes, slight uptick, too small in the overall scheme of things. We do believe we have effective control in place. As an example, we continually do interventions on PL through, as an example, the recent scorecard that we’ve done, CC credit line management. So, that’s what I would say, Param, for CC and PL. In all cases, there are no FLDGs or any other criteria.
Parameswaran Subramanian
Perfect. Shalini, thanks. That’s really helpful. If I heard correctly, so our asset quality in MFI is tracking better than the industry, and we expect that to continue. That is how we are looking at it.
Harsh Dugar
It’s definitely better. Just to give you some insights. Against the industry approval rate of 45%, our approval rates are 33%. So, we have been quite conservative right from throughout, whether it’s multiple lenders, overall indebtedness, or we do not lend at all to delinquent customers. And we have a single loan to every single customer, so there’s no top-up loan. So, those things have actually helped us out in terms of maintaining asset quality.
Parameswaran Subramanian
Perfect. That’s really helpful. My second question is on the credit card embargo. So, where are we in that process currently?
Shalini Warrier
Param, I’ll take that question. So, you’re aware of the fact that our co-brand credit cards through FinTech partners, RBI has come back and said that we pause reissuance. Since then, we’ve been working internally, obviously, also with our partners and with RBI to make sure that the framework is completely compliant in all respects. While we do believe we were quite compliant, there were areas that RBI had requested us to review. We have done that entire review, but we are taking it in steps.
The first thing we want to do is we have one model, which is the model we have with an entity called Scapia which runs on a third-party service provider, M2P. That, we believe, is closest to the model that RBI had in mind, and this is based on conversations we’ve had with RBI. We’re very close to crossing the T’s, dotting the I’s on every aspect of what RBI has requested us to look at. In the imminent couple of weeks, we should be able to approach RBI with the confirmation that we’ve done all that is required to be done on this model, and post that, really, it will be for RBI to review and come back, but our conversations with RBI have indicated that we are on the right path.
Couple of other models that we have, in particular, the OneCard FPL may take a little longer because there are some more changes that we need to do to the configuration to ensure that it is completely in line with RBI’s directions to us. That may take a little longer. I’m not able to tell you the timeline because we’re still working through some elements. But we do believe that the model that we have, the first one that I said, should be in RBI’s hands very shortly. Thereafter, Param, I’ll have to really wait for RBI to come back. But the conversations and discussions with RBI so far have been quite productive.
Parameswaran Subramanian
Perfect, Shalini. Really helpful. If I can just squeeze in one question. So, on the NR deposit, over the last two years, we’ve been seeing softer growth for you as well as at an industry level. Now, going ahead, when you expect global rates, say, to come down maybe faster than in India, do you think this number picks up going ahead, and give support to your deposit growth going ahead? How do you look at it based on your experience?
Shalini Warrier
Param, in fact, it’s something that was always troubling me personally as well as a lot of the people. Couple of years, we’ve been seeing a lot of slowdown, as you rightly said, in NR, primarily driven by the opportunities they’ve had for overseas investments, the consumption requirements in the Middle East and other things. But as Souvik said in his introductory remarks, happy to note that our remittance volumes have gone up, and our NR, particularly in non-resident savings bank account has gone up quarter on quarter.
[Indecipherable], one, we’ve increased the pace at which and the number of accounts that we open in the Middle East. We’ve deployed a few more capabilities like online account opening, including with attestation processes that are more robust. We’ve increased the number of relationship managers we have. In fact, I looked at some data recently, and we’ve seen at least a 15% to 20% uptake in the number of accounts opened itself. So, we’ve also looked at opportunities outside the GCC-Kerala corridor because we have now branches in other geographies in the north of India where there is a non-resident population. That we’ve redesignated branches as NR branches. We’ve increased our feet on street, etc. That’s giving us something which reduces to some extent our dependence on the GCC-Kerala corridor. So, that’s second.
The third intervention we’ve done is our existing customers, we’ve revamped some of our products. For example, we have a fairly good product called NRI Eve, which we launched last year and that has started picking up good momentum. So, several actions, and we’re seeing the mojo is coming back, as I say, in NR savings.
We do believe, in fact, just as we speak, we’ve looked at some data on market share. On normal NR savings accounts, our NRE accounts, which is both savings and term, our market share has actually been going up quarter on quarter, month on month. So, yes, Param, a long answer to a short question. The part that we don’t participate in is FCNR. We are very conscious of our strategy on FCNR. We don’t pay high rates and take FCNRs. We don’t believe that’s the right thing. That’s a more opportunistic thing. Our focus has always been how well can we do our NRE savings account and NRE term deposits.
The other point I’d just like to — last point that I’d like to add is, when there is a declining rupee, much as I think that’s not an appropriate — overall there may be other implications of it, but the NR customer tends to react positively to a weak rupee and increases his remittances to India. So, to some extent, that may be a topical or a tactical advantage, but we take advantage of that also.
Parameswaran Subramanian
Yeah, perfect, Shalini. Thanks. Really helpful. Congratulations to the entire team on a great quarter. Thank you so much.
Shalini Warrier
Thanks, Param. Thank you.
Operator
Thank you. The next question comes from M. B. Mahesh from Kotak Securities. Please go ahead.
M. B. Mahesh
Hi, good evening. Manian sir, just one question for you. Given that you have now seen the bank, one area where we’ve constantly found it difficult for Federal has been on the margin side. If you look at most of the large private sector banks and even regional banks, margins are much higher, as compared to what Federal has delivered. Some initial thoughts on how are you seeing this part of the P&L at least?
KVS Manian
Yeah, Mahesh. Yeah, like I said, of course, I am aware of this as a parameter, but there are several levers, right? I think to improve net interest margins, there are several levers on the asset side and liability side. And I think we will deploy a mix of these strategies. Like I said, a detailed strategy discussion, we will have maybe the next quarter. But I’m quite clear, even improving CASA mix is effort in that direction, right? So I think there are multiple levers. We will make sure that we are using all the levers, and I’m fully aware that this needs to get better.
So, of course, the first thing everybody thinks of is doing the high-yield unsecured loans. But given the environment, we have to be cautious about that. So, we have to use a mix of levers, not necessarily only high-yield assets, as a strategy to get better. But let’s talk more about it in quarters to come.
M. B. Mahesh
Perfect. Just one additional question. At the leadership level, is there a need for further strengthening, or do you think that you’re quite comfortable with what you have today?
KVS Manian
No. So there will be areas of talent gap in areas that we want to focus in the future. I am in the process of assessing that. And we may add people in specific areas where talent is necessary. On a broad, at the senior level, I don’t think there is a significant infusion required of any magnitude.
M. B. Mahesh
Perfect. Question to Harsh or Shalini [Phonetic], while you’ve answered the question on MFI, is it at this point of time sitting in the SMA book that we could potentially be surprised in the next quarter or the overall book of the portfolio, including the SMA book, looks fairly comfortable across the bank right now?
Harsh Dugar
If you look at the SMA book as well, apart from the slippages which we have seen, there’s definitely a mild uptick, but definitely far lower like, I’ve guided for in the industry, we are far, far lower. Reason being, like I said, we are not places like Jharkhand or Bihar [Technical Issues]. Two-thirds of our portfolio resides in the southern geography and our credit filters, not now but all along, has been a little conservative which is what is helping us. We do see this MFI issue, hopefully, getting sorted or getting stabilizing in the next two quarters. Hopefully, I don’t see in the next two years any significant uptick in the subsequent quarters on this side on our book.
M. B. Mahesh
Sir, just to clarify, in your assessment, the current run rate of slippages should hold.
Harsh Dugar
Yes. There’ll be a marginal uptick, but nothing more than that, definitely nothing more than that.
M. B. Mahesh
Perfect. Thank you, Harsh. Thank you.
Harsh Dugar
Thanks, Mahesh.
Shalini Warrier
Thanks, Mahesh.
Operator
Thank you. The next question comes from Piran Engineer from CLSA. Please go ahead.
Piran Engineer
Yeah. Hi, team. [Technical Issues] the quarter. Just had one question on gold loans. What percentage of your book comes through FinTech partners and how are you thinking about RBI circular last month on irregular gold loan practices? Are we making any operational or process changes in that regard? So just some qualitative and maybe quantitative commentary would be good.
Harsh Dugar
The share of — our partners share is largely organic, about 90% odd would be organic for us, so that’s not a challenge. That’s number one. So, while there are certain guidelines which have been issued, both in terms of how we view our partnerships, but it’s not something which should be disruptive for us.
Coming to the RBI letter to all the banks on this one, every bank has to confirm and get back to RBI on all these points which they have highlighted, confirming whether it’s on end-use, whether it’s on renewal and all those things. We don’t see an issue in terms of not being able to comply with. The good part is, the entire industry has to align to that part, and this will ensure a level playing field, and that places banks and other players who are doing this and have been doing this in a better position to leverage on this. So, there is [Indecipherable] review which we are doing at this point in time and as directed by RBI we have to do this by end of quarter.
Piran Engineer
Okay.
Shalini Warrier
Sorry, just to clarify, the FinTech gold is honestly extremely low in our overall — yeah, it’s up 10% as Harsh said. So, for us, a very large percentage of it is actually originated by our branches.
Piran Engineer
Okay, fair enough. But just even then, given that, let’s say it’s only [Technical Issues], but the credit appraisals and valuation when the FinTech guy goes to the borrower’s house, the FinTech does the valuation of the gold and therefore disburses the loan, right?
Harsh Dugar
No, we are not doing doorstep.
Piran Engineer
You are not doing doorstep.
Harsh Dugar
No, we are not doing doorstep.
Piran Engineer
So, then the FinTech model is what exactly?
Harsh Dugar
Sorry?
Piran Engineer
If the FinTech model isn’t doorstep.
Harsh Dugar
No, it’s no longer doorstep. No, it’s not.
Shalini Warrier
One moment. Operator, can you just check the line quality? Is it…
Operator
Yes, ma’am. So, Piran sir, when the management is answering the question, could you please help me with the line? There is background noise coming from your side.
Piran Engineer
Yeah.
Harsh Dugar
But does it answer your question? Do you have any more queries?
Piran Engineer
No, my question really was, what is the FinTech model if it’s not a doorstep delivery model?
Shalini Warrier
Sourcing and distribution model, the entire valuation is done in front of the customer at the branch itself.
Piran Engineer
Okay. Got it. I’ll take it offline. Thank you so much and wish you all the best.
Shalini Warrier
Yeah. Thank you.
Operator
Thank you. The next question comes from Rikin Shah from IIFL. Please go ahead.
Rikin Shah
Thank you for the opportunity. And Manian sir, wishing you the best for your tenure ahead. I will look forward to you outlining the strategy next quarter. Just a few basic questions. The first one, if you look at the wholesale banking self-funding level, is there a further scope of optimizing it from current 33% level? And if we do the peer benchmarking, is there a possibility to improve that? That’s number one.
Number two, wanted to clarify that yield on advances have further decelerated sequentially. Is it only due to the change in the penal charge regulation, or anything more than that?
Thirdly, it is pertaining to the one-off gain from the sale of stake in ECPL, if you could quantify the gain coming from that. That’s all from my end.
Harsh Dugar
This is Harsh here. I’ll take the point. The first one about being self-funding. We are at 32%, 33% of self-funding right now and there’s definitely scope for more. And if you see that trend in the last eight or 10 quarters, we have been trending upwards. So, we are convinced that there’s not [Phonetic] more scope that much further, and more so given the focus on deposit mobilization.
On your second point, the NIM has actually increased and not decreased [Technical Issues].
Venkatraman Venkateswaran
The impact of the yield is, like you said, Rinkin, is only because of the penal interest portion. And the last point was on the equivalence [Technical Issues]. Approximately around INR9 crores realized in Q2.
Rikin Shah
Perfect. Thank you very much.
Operator
Thank you.
Shalini Warrier
Operator, I think the line problem is not just necessarily the speaker’s problem. Is this coming from our line?
Operator
Yes, ma’am. Now I can see there is a static which is coming from your line. You want me to reconnect your line?
Shalini Warrier
There is the static coming from…?
KVS Manian
Yeah, go ahead.
Harsh Dugar
Okay, go ahead.
Operator
So, I’ll just disconnect this line and I’ll reconnect your line.
Harsh Dugar
No, no, it’s okay. We’ll move some laptops and phones from vicinity.
Operator
Right. So, see, now it’s not coming that much. So, we’ll move on to the next question. The next question comes from Jai Mundhra from ICICI Securities. Please go ahead.
Jai Mundhra
Hi, good evening. And thanks for the opportunity. So, first question on deposits. So, is there any specific reason why deposit growth and especially CD growth was flattish earlier versus earlier trend and also seen in conjunction with the higher loan growth?
Shalini Warrier
So, yeah. So, thanks. I covered some of this in Mahrukh’s thing, but I’ll just repeat some key aspects of it. I think the line is giving me some trouble, but to your question, Jai, if we split it into two parts, insofar as the core CASA is concerned, you would have seen that Q-on-Q growth has been pretty good. In fact, we’ve cross market players who have announced the results amongst various private sector banks. We rank somewhere quite good on Q-on-Q growth.
A part of it has been driven by the fact that we have been focusing a lot more right now to make sure we have core transaction banking to our corporate banking customers, core primary bank to our retail banking customers, as well as driving more productivity through our branches to get more accounts and get more accounts funded with a larger amount. We’ve also added a couple of new products in the previous quarters, the benefits of which we’re getting in this quarter, like the NRI Eve product that I spoke about, the Stellar that I spoke about. NR savings has also shown an improvement.
So, if I split it, CASA is definitely something that we’ve improved, and we will continue to improve. Term deposits, we’ve never been a player who’s looked at price as a weapon to get more funds. If you see our cost of deposits, we’ve kept it quite moderate and controlled over the quarters, and the data is there on the investor pack. Yes, there are one or two tenures where we remain competitive. We try and drive more productivity and more funds into those tenures because ultimately term deposit is a pricing play. So, we want to make sure that we calibrate it and really do it from a customer retention and acquisition perspective.
Do we need to do more? Absolutely. I’m sure we all agree that we need to do more. I’d like to make sure that we focus more and more on getting good growth on CASA, both current and savings accounts, both resident and non-resident. Term deposits will continue to be tactical interventions that we do based on rates. So, yeah, especially the higher end purchased deposits, it’s honestly tactical. If we believe there is a need, we can always do that. But we’ll do it more on an opportunistic basis.
Jai Mundhra
Sure. Thanks. In line with that, the CD ratio, the LDR has now, the way we calculate it, is now above 85%. So, incrementally, should one look at it that now the CD ratio has peaked and incremental loan growth and deposits should grow more or less hand in hand?
Shalini Warrier
Yes. That has been our strategy and that has been the plan. The gap, we will ensure, is narrowed or eliminated completely. But as Harsh mentioned in response to, I think, Kunal or one of the earlier questions, the intention is not to necessarily slow down our loan growth. We do believe there are opportunities, good quality opportunities, so it’s a question of making sure that these two keep pace with each other, Jai.
Jai Mundhra
One last clarification. You said that we are maintaining our guidance on growth. Just to clarify, the guidance was 20% or 18% to 20%? Just wanted to make sure.
Harsh Dugar
It’s around 18%, Jai.
Jai Mundhra
Sure. Thank you and all the best.
Shalini Warrier
Thank you.
Operator
Thank you. The next question comes from Nitin Aggarwal from Motilal Oswal. Please go ahead.
Nitin Aggarwal
Yeah, hi. Good evening, everyone. So, to Manian sir, we are excited to have you lead the bank to drive the next phase of growth and profitability expansion and best wishes for the future.
KVS Manian
Thank you.
Nitin Aggarwal
Sir, I have two questions. One is, if I look at the margins, again, the two banks that you have worked with are at the two extremes when you compare amongst the top private banks. So, while there has been a very strong growth in high-margin lending products over the years, but that has not reflected in lending yields over the last one year. So, what is the actual gap between the yields on these products combined versus the overall portfolio yield? That is question one.
And second is on the MFI segment, wherein we have reported strong growth even on a sequential basis. Most players that we are looking at have reported a sharp decline even during 1H, and more so in the second quarter. So, are we not looking to slow down here? And what proportion of MFI book is via co-lending partners?
Harsh Dugar
Yeah. I’ll take the second question first. If you look at the MFI also, if you look at YoY, if it’s YoY about 76%, and if you look at QoQ, it’s actually 8%. So, there has been a definitely slowdown in terms of growth in what we have seen in this last quarter. Not just that, even the budget internal targets which we look at, we are not pushing for that and revising that internally given the external situation. Having said that, these high percentages look high not because the growth is so significant, but because the base is also not very large. So, that is the other reason why it is there.
And the second point on MFI was on partners. We are doing it through a BC model, which is what is working for us.
Nitin Aggarwal
Yeah. I also wanted to check as to what proportion is via co-lending partners and therefore any creditor [Phonetic] risk that is devolving on us.
Harsh Dugar
Co-lending we just started. It is a very small share compared to our entire book on JLG and SHG. It’s a very small percentage.
Nitin Aggarwal
Okay, okay.
Harsh Dugar
And in one case, our co-lending partner is also in another entity, also a BC partner. There is this alignment of the way we look at the credit filters in the [Technical Issues]
Nitin Aggarwal
Okay, got it. And the other question on the gap between the yields on the high margin lending book overall and the rest of the portfolio.
KVS Manian
So, Nitin, it is, of course, like I said earlier, high yield book is one way to increase margins, which of course, given the environment, we want to do it, but do it in a calibrated manner. We’ll continue our ambition to grow that because we are, relative to the industry, much lesser on the unsecured loans, right? So, there is an opportunity. But having said that, unsecured loan is also BL and microfinance, right? So, we can increase our BL without increasing necessarily the same pace for microfinance. Or in car loans, it is also a mix of new car and used car loans.
So, there are several levers to improve yields on the asset side and liability side. So, I understand. So, for example, I would say a mix of old car financing or used car financing, we have to increase. That will give us an uptick in the yield. A mix of LAP and home loan. So, there are multiple levers. I understand that we need to get better at the NIM level. And as I said, as we go forward, we will strategize suitably to make sure that we show an uptick on the NIM.
Harsh Dugar
And at the same time, we want to also ensure that our asset quality continues to be pristine, and credit costs are well within how it has operated.
KVS Manian
Yeah.
Harsh Dugar
It all comes together…
KVS Manian
So, finally, it’s about risk-return equations. We will suitably strategize as we go forward. And as I also mentioned, NIM expansion is also about the right liability strategy, right? So, we will do a combination of all that. And we are aware that we need to work on this. Yes.
Nitin Aggarwal
Right, sir. Got it. Thank you, and all the best.
Operator
Thank you. The next question comes from Madhusudan Kothari [Phonetic] from FI.Money [Phonetic]. Please go ahead. Madhusudan, your line is unmuted. Please proceed with your question.
Harsh Dugar
Let’s move to the next one.
Shalini Warrier
Sagar, we can move to the next one. He may have to come back in the queue.
Operator
[Operator Instructions] The next question comes from Rakesh Kumar from B&K Securities. Please go ahead.
Rakesh Kumar
Yeah, hi, sir. Thanks for the opportunity. So, I have two questions. So, firstly, the amortization of the premium on the investment, so has there been a change because of the investment guideline, or that bank is now taking incremental exposure in the shorter duration G-Sec or lower coupon G-Sec?
KVS Manian
Lakshman, you want to take that one? Hello, Lakshman.
Lakshmanan V.
Yeah, am I audible?
KVS Manian
Yes, you are.
Rakesh Kumar
Yes, sir.
Lakshmanan V.
Yeah, so the amortization has happened as per the guidance, so nothing different than what is supposed to be done over there. As regards our overall investment book, it is happening in pace with the overall growth in NDTL. We are not doing anything significantly different on the banking books than what we would do otherwise. Everything else on the SLR side is otherwise short-term bidding call. Duration wise, no serious change that we have already taken in the last about three months.
Rakesh Kumar
So, why there is so much change in amortization of premium on a year-on-year basis, sir? So it has come down from INR865 crores to INR480 crores [Phonetic]?
Shalini Warrier
Just a moment, please.
Rakesh Kumar
Yes, ma’am.
Venkatraman Venkateswaran
Lakshman sir, this should be because of the discount amortization what we are doing.
KVS Manian
Yeah. So, what I suggest is, Lakshman, can you take this offline and explain that to Rakesh?
Lakshmanan V.
Yeah. Sorry, I couldn’t hear the question. So you were asking about the reduction in the discount amortization, right?
Rakesh Kumar
Correct, sir. So, why there is a change? Is there a change in the investment guideline by the RBI, or we have changed our strategy per se from the exposure point of view?
Lakshmanan V.
Our amortization guidelines haven’t changed. It is as existing, but entirely driven by the change in the investment guidelines as applicable from the 2nd of April.
Rakesh Kumar
Okay. And, sir, just one question coming again back to what Nitin asked that if we look at the high-yielding papers, high-yielding credit and low-yielding credit contribution from the loan composition and to the NII, there’s a stark change that is there from June to pertaining to the NII contribution, interest income contribution, coming to the September. And if you look at, there is a risk rate increase also, but the credit yield has fallen. So, just I wanted to know that what has happened to the relatively lower-yielding credit? So, is there a such a sharp fall that on an overall basis there’s a yield decline.
Venkatraman Venkateswaran
Rakesh, as we clarified, there is no overall decline in yield in credit on the asset side. The difference is fully explained by the penal reclassification. So, I haven’t got your concern.
Shalini Warrier
So, Rakesh, are you referring to — just to clarify, are you referring to slide 16?
Venkatraman Venkateswaran
Yeah, that is a representation issue. Yeah, just explained that.
Rakesh Kumar
I’m referring to the same thing. So, if I look at the interest income contribution is 34%, and if I look at June quarter, the interest income contribution is 28%.
Lakshmanan V.
Basically this includes what we have given over here is the net interest income. Earlier used to be gross. Net is the right measure for doing it.
Venkatraman Venkateswaran
So, it is a representation difference. Earlier we used to give the gross interest yield on the asset in this chart. Now we are giving the NIM. Obviously NIM contribution is more.
Rakesh Kumar
Okay.
Venkatraman Venkateswaran
So, there is no big change in terms of the strategy or complexion or yield.
Rakesh Kumar
Okay. Got it, sir. Thank you.
Operator
Thank you. The next question comes from Gaurav Jani from Prabhudas Lilladher. Please go ahead.
Gaurav Jani
Yeah. Thank you, sir. Just one question from my end, Manian sir. So, while you did touch upon margins being work in progress, what are your thoughts on opex? That has also been a drag. And just an extension to that, how are we looking…
KVS Manian
View on?
Gaurav Jani
Opex.
KVS Manian
Okay, yeah.
Gaurav Jani
Opex has also been a drag, right? And an extension to that is how are we looking at opex in the second half and in FY ’26? Thanks.
KVS Manian
So, like I said, opex levels at what they are is, I do understand that if you benchmark it to the best-in-class it is not measuring up. I’m aware of that. But having said that, like I said, I don’t have a strategy as on date. But yes, opex is also a measure of what we do with the top line rather than only the expenses.
So, we have to work on a mix of improving the denominator income as well as work on the cost side. My guess is there will be more work initially required on the income side than the cost side. But having said that, I am still in my assessment stage. We will come back in a more concrete manner in the next quarter. Venkat, do you want to add something.
Venkatraman Venkateswaran
Just one other point. Just, Gaurav, looking at quarter-on-quarter movement of the total cost side, to a large extent, it’s driven by the actual valuation when the yields have fallen. So, that has contributed to some increases in our cost.
Gaurav Jani
Sure. And if you can just please comment on how would opex look like in the second half, given the fact that probably we’re looking at a shift in the festive season in Q3. So, would opex levels go up in Q3 and then in Q4 because of better growth, and how should we look at it?
Venkatraman Venkateswaran
See, the overall H2 will be around similar level as H1, because we do believe that while some of the income lines will play out. On the cost side, if you have seen past levels, typically Q4 is the one where we’ve seen some uptick. But at the same time, there’s also a big uptick on the Q4 income as well. So, we don’t see a major shift in the cost-income ratio in between the two halves. And also our distribution strategy remains the same.
Gaurav Jani
Understood. Thank you so much. That is it from me. All the best.
KVS Manian
Thank you. Souvik, maybe last two questions.
Souvik Roy
Yeah, maybe we should wrap up, sir. We’ll take last two questions, maybe. Yes.
Operator
Thank you. The question is from Yash Dantewadia [Phonetic] from Dante Equity Capital [Phonetic]. Please go ahead.
Yash Dantewadia
Yeah, hi. Congratulations on a great set of numbers. Am I audible?
KVS Manian
Yeah, you are, Yash.
Yash Dantewadia
Yeah. So I would want to know the percentage of secured and unsecured. And when I say secured, I don’t mean vehicle loans and those sort of loans. I mean mortgages and LAP loans. What is the exact breakup of unsecured and secured today in our loan book?
Harsh Dugar
Unsecured retail is about 4.6% of total advances, Yash.
Yash Dantewadia
Yeah. And going forward, where are we focusing, on what segment are we focusing our advances on based on the current environment for the quarter three and quarter four, based on the festive season, etc. Which segment are we going to focus on? And this question also goes to Manian sir, in terms of which segment he wants to focus on going forward, where he specializes in or whatever. We need to understand where the advanced growth is going to come from this segment. And how margin accretive is that segment going to be.
KVS Manian
Yeah. So, like I said, I’m in the process of assessing how we should grow. And I do recognize there have been questions around NIM, there have been questions around yield, and cost to income. All three will play a role in terms of how we decide the mix going forward. It’s something that we will deliberate upon internally and come back. But having said that, the fact remains that as on today, the unsecured mix is low. And like I said, there could be many other unsecured lines other than what we have seen already, which could give us better yields than this but may not give the same yield as an MFI product. We need to carefully evaluate our mix. I think there are enough options in the middle without going to the extremes, where we can work on improvement of yields and NIM. But like I said, a more detailed strategy on this we will talk next quarter.
Shalini Warrier
I think, just to emphasize the point made earlier, yield has also been impacted this quarter by the penal charge reclassification. We’ll have to remember that.
Yash Dantewadia
Noted. Ma’am, any sort of ROE guidance for this financial year, ROE and ROA? Can you reiterate if you’ve already given it?
KVS Manian
Guidance for ROE and ROA?
Harsh Dugar
ROA and ROE, again, Yash, in line with what we have said at the beginning of the year, we are at 1.28% [Phonetic]. And we should be around similar levels. And it also depends on when the rate cut happens. If that happens later in the year, probably will be going about another [Technical Issues]. But based on current outlook, we’ll be around similar levels 1.28%. And ROE, again, 13.5%, around that level.
Yash Dantewadia
Right. Thank you so much for taking questions. Have a great day.
Operator
Thank you. The last question is from Ishan Shrimali [Phonetic] from Tara Capital [Phonetic]. Please go ahead.
Ishan Shrimali
Hello, sir. Am I audible?
KVS Manian
Yeah.
Ishan Shrimali
Yeah. Sir, with the current interest rate environment, how does the management foresee NIM evolving over Q3 and Q4? Is there a target for maintaining or expanding margins in high yield segments like gold loans, personal loans? And just to follow up on that, is there any specific product or loan segments which can boost the NIM?
KVS Manian
You already talked about some products there as options. Like I said just now, we will evaluate our mix and see what can give us the right risk-return tradeoffs. We need to improve our NIMs with the right control on credit costs. And I think, like I said, there are several options in between. Just to take an example, you can do HCV or LCV and there can be a NIM and a yield difference, right? So, there are multiple options across products. You can do business loans and personal loan mix, you can change in favor of business loan and improve the NIM. So, there are multiple levers that are available to us as management. And we intend to make use of all of those going forward. Like I said, what exactly we will do, we will think about it and come back to you next quarter.
Ishan Shrimali
Okay, sir. That’s it from my side. Thank you.
Operator
Yes. That was the last question.
Souvik Roy
Sagar, one sec, Sagar. There’s just one question left, I think, in the queue. Mr. Saket Kapoor [Phonetic] is there. I think we can wrap it up after him. Just one last question.
Operator
Thank you. Next question from Saket Kapoor. Please go ahead.
Saket Kapoor
Yeah. Thank you, Souvik, and thank you for the opportunity. My question is to the opening remark made by you, Venkat sir, when you said that the path may not be the same, though. What were you alluding to, if you could just give a brief understanding? And also to the NCD issuance that we are going ahead with of INR1,500 crores, if you could throw some light on the nature of the [Indecipherable]. Thank you.
KVS Manian
What I meant by saying that the path may not be similar, is if the environment has not worsened, let’s say, on the unsecured side than we have done. Like Harsh mentioned slightly earlier in this call, we are going behind our budgets right now because the environment is not necessarily conducive to — Shalini also mentioned that we tightened our personal loan norms over the last quarter.
So, obviously, when we started the year or when we made the budgets for the year, we had seen deterioration in the environment. So, that’s what I meant by — in fact, if you see even in the secured side, there are products like CD [Phonetic] [Technical Issues] at the beginning of the year. So, there are several changes in the environment that are happening, and we need to be conscious of that. So, that’s what I meant by the path may not be the same to get there. So, yes, we do want to get higher NIMs. We do want to improve our unsecured mix. All of that is true. But the way we get there or the speed at which we get there could be different given the environment. That’s what I meant.
On the bond issue, we are looking at doing an infrastructure bond to fund the infrastructure assets that are there in our books today. And one more avenue for raising funds, and we’ll go out to the market and raise. Many banks have already done it. So, it’s the first time for us, the infrastructure bond. But it’s an instrument many banks have already used.
Saket Kapoor
Yes, sir. Thank you for this opportunity. And other remaining question on corporate loan book growth and all, I will contact Souvik sir about the same. And all the best to the team, sir. And Shubh Deepawali to everybody. Thank you.
KVS Manian
Thank you.
Shalini Warrier
Thank you to everybody on the call. Happy Diwali to everybody.
KVS Manian
Happy Diwali to all of you. Thank you very much for joining us.
Shalini Warrier
Happy Diwali, again. Thank you. Bye. Thank you, Sagar.
Operator
[Operator Closing Remarks]