Note: This is a preliminary transcript and may contain inaccuracies. It will be updated with a final, fully-reviewed version soon.
The Federal Bank Limited (NSE: FEDERALBNK) Q3 2026 Earnings Call dated Jan. 16, 2026
Corporate Participants:
Souvik Roy — Head of Investor Relations
KVS Manian — Managing Director and Chief Executive Officer
Venkatraman Venkateswaran — Executive Director and Chief Financial Officer
Harsh Dugar — Executive Director
Analysts:
Unidentified Participant
Mahrukh Adajania — Analyst
Akshay Jain — Analyst
Param Subramanian — Analyst
Rikin Shah — Analyst
Piran Engineer — Analyst
Unidentified Participant
Unidentified Participant
Unidentified Participant
Kunal Shah — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Q3FY26 earnings conference call of the Federal Bank Limited. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing then zero on your touchtone phone. I now hand the conference over to Mr. Sovik Roy, Head Investor Relations, the Federal Bank Limited. Thank you.
And over to you sir.
Souvik Roy — Head of Investor Relations
Thank you so much. Good evening everyone and a very happy. New Year to all of you. Thank you for joining us today for our Q3 earnings call. Before we begin, a quick housekeeping note. In the last interaction we had mentioned that we would try and avoid scheduling earning calls on Saturdays and we are. Glad we could keep this promise this quarter. As always, the entire senior team is. Here on the call with us today. We’ll begin with the opening remarks from our md. Then Venkat Sir, Edie would take you.
Through the quarter, the main numbers actually. And after which we’ll open the floor for further questions. And given the number of participants on the call and the time available, we request everyone to restrict themselves to one question each so that we can accommodate. As many participants as possible. So with that I’ll hand it over to our md. Manantha, over to you.
KVS Manian — Managing Director and Chief Executive Officer
Thanks Shawik. Before Venkat walks you through the numbers in detail, I would like to make a few introductory remarks about our some of the important events during this quarter refresh. This was one of the 12 strategic themes that we had listed in February. Last, as you are aware, we took on board Vidyawalan as brand ambassador and launched a media campaign Savings key Vidya. We took the next steps forward in this quarter. For decades our customers discovered us by walking into the branch or by speaking to our people.
By experiencing our values in person. Today, the first interaction often happens on a 6 inch screen. The first judgment is formed not in our offices but in our pixels. We are evaluated not just on rates or products, but on experience, simplicity and the quiet confidence with which we project. In those early moments, that was a rationale for our brand refresh exercise. This is not a rebranding. At its core, this Refresh stands on three ideas. Pride in a 90 year legacy while actively shaping the next chapter.
Retaining the colors of the brand is indicative of that openness to evolve how we work, communicate and collaborate while remaining anchored to what we stand for. Make the brand look new, brand look familiar yet fresh. Retaining the connect with our existing customers and ownership. This is not a management’s brand or a marketing’s brand. It is the bank’s brand carried forward by every one of us every day. At the heart of this refresh, a new visual expression of who we are. The Fortuna Wave is a new visual expression of what we are.
It brings more fluidity and freedom of expression to attract newer audiences. The Fortuna Wave represents three things that define our relationship with all our stakeholders. Authenticity, prosperity and togetherness. What we call apartment these are not aspirational words. They describe how we conduct ourselves with our customers, our investors and our employees every day. The intent behind this refresh is simple and deliberate. To enhance recognition, to sharpen differentiation. Importantly, the refresh will go beyond digital identity.
Also, with this brand refresh, we have finalized our new branch design and aesthetics. We will gradually roll out that change as well. Confidence in our direction is also reflected in a significant development during the quarter. In Q3 we received board and shareholder approval through an AGM for the proposed strategic investment by Blackstone. The transaction has also received clearance from Competition Commission of India. This is a strong validation of our strategy, governance framework and execution capabilities.
Beyond strengthening our capital base, it opens up avenues for unlocking business synergies and expanding access to global institutional expertise, reinforcing our long term growth trajectory and deep and stakeholder confidence in our bank’s future. Against this backdrop, our Q3 performance reflects a steady strengthening of underlying fundamentals. Improvements in margins and roa. Reduction in funding costs through improved CASA mix. Growth traction on chosen asset segments and sustained stability in asset quality are actually outcomes of disciplined balance sheet management and consistent execution over multiple quarters.
We are beginning to see the benefits of stronger liability franchise and a calibrated shift in our asset mix towards segments that offer superior risk adjusted returns. Cost discipline and prudent risk management remain central to how we operate and will continue to operate. While competitive intensity remains elevated. Our focus is deliberate consistency over volatility, quality over headline growth. This positions the bank to deliver sustainable performance across cycles. With that, I will now hand over to Venkat to take you through the numbers of the quarter in more detail.
Thank you.
Venkatraman Venkateswaran — Executive Director and Chief Financial Officer
Thank you Maniyan and good evening everyone. Thank you for joining us to discuss our performance for the quarter. I trust you have had a chance to review our investor presentation and disclosure. Let me begin with a quick view of the macro environment for the quarter. Inflation remained well contained with headline CPI moving up 1.33% in December from 0.71% in November, reflecting some bottoming out in food prices and the spring came in below market expectations. The key driver was a sharper than anticipated decline in vegetable price while core CPI edged up.
This was largely driven by higher gold and silver prices. When we exclude these volatile components, underlying core inflation moderated to about 2.4% indicating that broad based pricing pressures remain subdued. On the policy side, liquidity conditions remain supportive following the rate cut in December which helped anchor interest rate expectations. In summary, the macro environment during the quarter remained broadly constructive notwithstanding the ongoing global geopolitical uncertainty. Inflation was slow, underlying pressures were muted and the operating environment remained relatively stable.
This provided a supportive setting for us to focus on execution, balance sheet discipline and prudent growth. Now coming to Our performance for Q3 Q3 was a quarter of strengthening fundamentals and measured Progress. We delivered 1041.21 crore in net profit representing 9% sequential growth driven by sustained margin expansion, disciplined cost management and continued improvement in asset quality. More importantly, these outcomes are the result of structural shifts in our balance sheet, not short term action on the balance sheet momentum.
As at the quarter end Total business stood at 5.53364.49 crore growing at 3.71% QoQ and 11.4% YoY. Deposits closed the quarter at 2.97795.82 crore up 3.07% QoQ and 11.8% YoYo. More importantly, CASA balances grew at 6.59% sequentially and 18.86% YoY and the CASA ratio improved to 32.07% an increase of 106 basis points PoQ and 191 basis point Yo5. This we believe is amongst one of the best in terms of CASA growth in the industry. This steady retailization of our liabilities is materially improving the durability of our funding profile and it is now clearly reflected in our margin trajectory.
Gross Advances closed at 2.55568.67 crore up a very healthy 4.46% sequentially and 10.94%. Again. Importantly, the emphasis is growth continues to be led by the segments which we have consciously prioritized. Commercial banking grew by 5.35% QoQ and close to 26% YoY reflecting sustained traction in the mid market and media lending Business banking grew by 3.82% POQ which as you know showed signs of turning around last quarter but was muted at the beginning of the year. So this gives us the close to 4% growth in this quarter, gives us belief that the momentum will continue in the next quarter and going forward.
Retail banking grew by 2.84% QoQ and 14.76% YoY. Gold loan, which is another one of our medium yielding portfolio grew 12% YoY and 9% QoQ despite a calibrated downsizing of a portion of the book in line with recent regulatory guidance. In addition to Bub lap is another portfolio which expanded quite strongly in Q3 at 4.47% QoQ. With growth momentum expected to sustain and improve in the coming quarters. Corporate and institutional banking grew at 8.59% QoQ and 14.46% YoY. The mix of growth remains intentional.
We are expanding in segments that delivered superior risk adjusted returns while maintaining underwriting discipline on margins and core income. Our NII for the quarter was at at 2652.73 crore growing 6.31% QoQ and 9.1% YoY. NIM expanded to 3.18% up 12 basis points sequentially. This was supported by a reduction in our funding cost, cost of deposits, cost of funds and cost of borrowing in addition to improvement in yield on investment and the CRR cut impact. The improvement in margins reflects the combined impact of liability, mix optimization and asset repricing.
As stated earlier, this was a quarter in which we had highest ever NII, highest ever fee income and highest ever OP. Our fee income stood at 896 crore growing at 0.23 per QoQ and close to 19% YOPI. Fee growth remains well distributed and continues to strengthen the quality of earnings. Our cost to income ratio improved to 53.92% down 12 basis sequentially during the quarter we also added six branches along with our calibrated approach to networking expansion on asset quality and risk. Our GNPA declined to 1.72% an improvement of 11 basis point QoQ and NNPA improved 0.42% down 6 basis point QoQ and at an all time low.
Our provision coverage ratio excluding technically written off increased to 75.14% and we continue to maintain around the 75% levels. Credit cost for the quarter was at 0.47% improving 3 basis point QoQ. These trends reflect both portfolio seasoning and sustained focus on recovery and give us confidence in the resilience of our book and our slippage ratio for the quarter was 0.7%. As a result of all the above improvements our ROA increased to 1.15% up 6 basis points sequentially and ROE improved to 11.68% and expansion of 67 basis point.
You’ll notice that despite the 125bps rate cut from last year December to this year December we have our margins have expanded. Our ROA is also better than last year December level EPS for the quarter was at 16.79 rupees up 8.89% sequentially. Also during the quarter we increased our stake in our associate company AGS Federal Life Insurance from 26 to 30% through the acquisition of 3.2 crore shares as at rupees 30.45 per share. The transaction was completed November 25 after receiving all necessary approvals from RBI and IRDAI and it strengthens our long term strategic partnership in the life insurance business.
To conclude, Q3 reinforces the fact that we are building a more stable margin led and buoyant franchise. Our priorities remain unchanged, strengthening the liability franchise, secondly, growing in chosen higher quality lending segments and thirdly maintaining control on cost and asset quality. While competition remains intense, our focus remains on risk adjusted profitability and consistency of outcomes rather than just pure headline growth. The balance sheet that we are building is more granular, more resilient and better positioned across rate cycles.
Thank you and we’ll now open it up for questions.
Questions and Answers:
Operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press STAR and one on the Touchstone telephone. If you wish to remove yourself from the question queue, you may press STAR and two participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
Unidentified Participant
Operator, let’s start. I already see a few.
Operator
Yes, the first question is from the line of Mehruk Ajania from Nuvama. Please go ahead.
Mahrukh Adajania
Hello. Congratulations. My first question is on your outlook on margins, right? You already expanded margins by 24 bips over the last two quarters. So where do we see margins from year on? Given that the growth in mid and high segments is already very strong, so I guess it will stabilize from year on. So what is your outlook on margins for the next two to three quarters? Assuming no further rate cuts and even for the longer term, where do you see them stabilize? And my next question is in your fee income on the distribution income.
If you could throw some light that wasn’t very strong this quarter.
KVS Manian
Those were
Mahrukh Adajania
My questions.
KVS Manian
Hi Maru. So, just to talk about the NIM expansion. It’s a journey. I don’t think we are at the end of that journey. And as we keep changing the mix of our liability profile, as our CASA percentage grows and our medium yield assets continue to grow faster than the low yielding asset size, I think we hope to continue this journey for many more quarters to go. Of course there will be immediate quarter, you will see the impact of the last rate cut play out. So we have to keep that in mind in the next quarter.
Large part of the last rate cut will play out in the next quarter. Of course we have to try and mitigate that as we have tried in the last few quarters. We will attempt to do our best on that. So, but I don’t think that journey is anywhere close to peak of what. We want to get. Your second question was
Mahrukh Adajania
You did. So you usually have a T+ one repricing except for new loans, right? So part of the repricing would have played out this quarter or no? Yes,
KVS Manian
Yes, yes. For a month, it would have played out. In the rest of the two months, it wouldn’t have played out. So one third of that impact would have played out this quarter. Two thirds of that impact will play out in the next quarter. Yes.
Mahrukh Adajania
Okay, thank you. Okay.
KVS Manian
On the distribution side, we do have a seasonal seasonality every year. Our insurance income is. Distribution income is usually better in the second quarter than in the third quarter. Usually. Having said that, there was also GST impact, GST impact in the last quarter because the commissions were impacted by the change in GST structure. And last, also the product mix. When the markets are buoyant, customers tend to choose Ulip products. And there the commission percentages are lower. So it’s partly reflective of that in terms of volume, our traction continued to remain.
Good.
Mahrukh Adajania
Okay, thank you so much. Thank you.
KVS Manian
Thank you.
Operator
Thank you. The next question is from the line of Akshay Jains from autonomous. Please go ahead.
Akshay Jain
Yeah, hi sir, this is Akshay. So my question is on asset quality. So how do we look at asset quality for MFI segment going ahead? So if I reverse calculate your MFI credit costs, they come out to around 10, 11%. So how should we expect this number to move incrementally? And on other segments they are performing very well. The credit cost you have disclosed to be around 29 basis points. So assuming you build, you know, moderation in MFA grade cost, how should this blended credit cost number move?
So should we expect, you know, it to be much lower than your 50 plus basis point guidance or are we expecting some deterioration in other segments? So that’s my first question. And secondly, on the loans loan mix, so while you continue to state that you will be focusing on the mid year mid yield segments, any quantitative number on, you know how the mix should settle down maybe in three, four, five years. How will, how much will be on a high yielding book, mid yielding book and low yielding book.
Anything on that?
KVS Manian
So let me take the second one. I asked Venkat to answer the the credit cost question, but I’ll take the second one. The way I look at it is this is again a journey. It’s too early to put a stable number to that. Our attempt is to keep working towards growing the mid yield book faster than the high yield book. And remember one thing that we have still not changed the composition of the high yield and very high yield portion because that is the microfinance. Why Cards. You can see good growth in cards.
Other high yield segments. We have not push the accelerator on whether it is personal loans or MFI because we have been waiting for pushing the accelerator on that to get more comfort on the potential credit costs of that. So I think this journey is. We are too early in the journey to tell you how it will look three to five years later. I think the attempt is to keep working towards changing this mix favorably, how much it will reach, where it will reach, too early to say. But clearly our attempt is to improve yields on the asset side by changing this mix.
On the credit cost of.
Venkatraman Venkateswaran
The beginning of the year and in Q1 also we said the full year guidance we gave 55 to 60bps and right now for nine months we are already at 55 bips. So we should end the year somewhere between 55 and 50, 52, 53 bis for the full year. For the quarter the credit cost was 47 bips, of course lower than last quarter. So we’ll continue to see the credit cost getting better in Q4 as well.
Akshay Jain
So my question is like once MFI book settles down.
Venkatraman Venkateswaran
Sorry, hello, Am I audible?
Param Subramanian
Yes, yes.
Operator
Yes you are.
Venkatraman Venkateswaran
Yeah. On the MFI like you said. Yeah. If you have seen the trajectory of slippages, it’s coming down every quarter and the credit cost is also coming down. We are seeing it come down and we expect even Q4 to be lower than what we have seen in Q3. So we should see the improvement being reflected in the MFI as well. Now have we seen a full recovery in mfi? We don’t think so. We are still cautious in terms of growing the MFI business and it’s being grown selectively. We’ll watch for one more quarter before we decide how much to press the pedal on mfi.
KVS Manian
And just to add to that, in the medium term, we should also remember that as we build the medium yield assets, the credit cost on those will be higher than the low yield assets. For example, corporate credit costs are close to zero. Whereas coming out of the. So as of now we are not yet giving significantly different guidance compared to our where we are today. We will evaluate that guidance as we go forward.
Akshay Jain
Understood. So, and just one more question on how is your MSME asset quality progressing and any impact you’re seeing from U.S. Tariffs or you are hearing anecdotally from the industry?
KVS Manian
No, like Venkat mentioned earlier, if you see the what we call the BUV segment, the lower end of SME, we have actually begun to grow that in this quarter with comfort on the credit side. Actually our credit costs are well in control and the portfolio is absolutely, I mean we haven’t seen any deterioration at all. And in the commercial banking, which is the higher end of SME, again, our portfolio quality remains robust. We aren’t seeing any stress in that portfolio. Actually both these segments this quarter costs are lower than credit costs are lower than what they were last quarter.
Akshay Jain
Understood, sir. Thank you.
Souvik Roy
Thanks Akshay.
Operator
Thank you. The next question is from the line of Rickenshaw from IFL Capital. Please go ahead.
Rikin Shah
Good evening sir. Thanks for the opportunity. Had four quick questions. So the first one, you know, on the growth clearly. I’m sorry to interrupt you,
Operator
Mr. Shah, may we request you to please speak a bit louder.
Rikin Shah
Is this better
Souvik Roy
Likely? Did we hear you correctly? You have no question?
Rikin Shah
Yeah, so I had four questions basically. So the first one is on the growth. So on the growth, you know, you’re clearly restructuring the mix towards mid yielding segment which partly is reflecting in your margin performance as well. So when does this restructuring largely gets done? You reach your target mix and we can expect the bank to grow in line or maybe faster than the system. So that’s number one. Second, if I look at the reported margins, they are up 12 basis points sequentially but the lending spreads are broadly flat.
So you know, if you could just provide some walkthrough of where this reported NIM improvement is coming from. Third is on casa. So you know this is again second quarter of a good CASA traction. Last quarter we saw saha momentum was good, it sustained this time and this quarter even CAA has picked up. So just wanted to check on CAS specifically any period and chunky balances that may get potentially reversed or you know, this is real organic improvement in CAR as well. That we saw in the quarter and fourth and the last one just, you know, wanted to get a sense on when does.
When do we expect the first tranche of fund infusion from Blackstone coming in? Would it be in 4QFY26 or maybe 1QFY27? Thank you.
KVS Manian
Thanks Ricken. Ricken, this quarter our asset growth is four and a half percent. So close to four and a half percent. And I, so I don’t know when, when you say that will it recover to industry levels? I don’t know which industry level you are talking about. So. So I don’t have an answer to that question.
Rikin Shah
No, no, fair point. Yeah.
KVS Manian
I am assuming you are measuring momentum by the last quarter.
Rikin Shah
Fair enough. So you’re saying that this momentum should broadly sustain going ahead as well.
KVS Manian
I will qualify it partly as you have seen all our chosen segment, our run rates are quite good and this quarter of course we got very good growth on corporate as well. So maybe the 8% kind of quarterly growth on corporate may not sustain but even if you drop that lower, our run rates will be fairly healthy. Right. So that is on the asset growth on the nim. I will ask Venkat to take it. But before that on casa. Yeah, no, on casa, first of all there are no chunky stuff there. It is all reasonably granular.
But I will just re qualify it by saying that there are usually of course bump ups that happen in the quarter end due to nature of the business. But we should, that is why we disclose our averages through the quarter and if you see the average growth, growth in averages also are quite healthy. So therefore if you remain focused on the averages that we report, it will tell you that it is reasonably secular. CASA growth of course is a. There is no one silver bullet we have used. It is factor of multiple things including better productivity on brand from branches, newer products.
It’s a combination of various things. And this journey of course continues. We, we can do more and we will continue to focus on that. On the Blackstone, of course we are awaiting final regulatory approvals on that. So we are hoping that this quarter it will get in the last quarter will get done. That’s our expectation. We’ll keep you posted with the actual development on that. NIM walkthrough again. Nim, my broad comment will be NIM again is no one single silver bullet. It is a combination of multiple things that improve our nim.
We work on granularly on multiple things to make sure our NIM improves. But I’ll ask Venkat to take the details on
Venkatraman Venkateswaran
That, yes. In terms of nim, like Manian said, several factors have moved on the downside yield on advances has gone down by 9bps. But on the upside we have had several factors. One is cost of deposits is lower, our cost of borrowings has gone down. CRR cut to some extent has come better yield on investments as compared to last quarter and our own average owned fund. A combination of these five, six factors helped us in terms of getting to 3.18. So several things and we have to continue to work on all of them.
Rikin Shah
Got it. Perfect. Thank you. Manian and Venkat sir,
Venkatraman Venkateswaran
Thanks.
Operator
Thank you. The next question is from the line of Piran engineer from clsa. Please go ahead.
Piran Engineer
Hi team. Congratulations on the quarter and thanks for keeping your promise of not keeping it on a weekend. Just getting back, getting back on the NIM question, how much of your TD repricing is left?
KVS Manian
You know as we had earlier indicated our from the cycle started we think it is about 14 months on an average 14 months it takes to fully reprice the term deposits and that means we have about four or five months to go. Two
Piran Engineer
More quarters.
KVS Manian
One and a half more quarters. Yeah, yeah.
Piran Engineer
Okay, okay that answers my question. Secondly just in this quarter also the yield decline of 1012 bips qoq now 23 bips would have come because you all immediately pass on the repo rate come. But what led to the other, you know, 8, 9 bits of decline.
Venkatraman Venkateswaran
Total. Decline is only 8 bits for other 9 bits. So
Piran Engineer
Yield on advances.
Venkatraman Venkateswaran
Yeah,
Piran Engineer
886 to 8 on name basis it’s
Venkatraman Venkateswaran
Only on NIM basis it’s only 9 drop in yield on advance.
Piran Engineer
Yeah, I mean I’m going by A reported numbers 886 going to 874. Now out of that ballpark two three bips would be due to the repo rate cut.
KVS Manian
But you know the incremental business also happens at lower rate. Right. As the rates drop. Incremental business e.g. MCLR repricing would have happened on other assets, non repo assets. New business would come at lower rates because markets do pricing drop in rates. New corporate business would have come at lower rates. So all that also happens. Right? So yes, the yields do go down overall but of course our costs also go down. So.
Piran Engineer
Okay, so then this NIM improvement this quarter going back to Ricken’s question is essentially balance sheet management where the you know we must have reduced liquidity on the balance sheet, more loans on the balance sheet and that’s why we see this this 12B benefit is my understanding.
KVS Manian
So when you say balance sheet management, CASA improvement, CASA percentage improvement has a impact on cost of funds,
Venkatraman Venkateswaran
Cost of deposits
KVS Manian
Go down. Yeah. So it is a mix of both.
Venkatraman Venkateswaran
It’s not borrowing
KVS Manian
Cost is not balance sheet management. Borrowing cost reduction is a actual, actual cost reduction. So it’s. Yeah, it’s a mix. Like I said, this is not one silver bullet which is solving it for us. Right. We have to work on multiple parameters to improve MIM and we will continue to do that.
Piran Engineer
Understood. Okay. And just lastly in terms of your mortgages and your auto loan books now, those have been fairly stable for the last four, five quarters now. So just wanted to get a sense of when we will start seeing these. Segments pick up
KVS Manian
Right now on the home loan, particularly home loan. As you can see, we have stepped up the pace on our lap book. As you can see, the growth rate in the lap is reasonably healthy this quarter. On the home loan side, we are not finding the risk rewards attractive just now. We feel that the pricing is below the optimal levels that we require and therefore as you can see, we have not grown that aggressively. We of course continue to serve our existing customer needs but we are not going out and acquiring aggressively at those kind of rates.
These are, you know, long term commitment. This is a very long term product and structurally you can lock the balance sheet on poor rate economics for a long time and therefore we are cautious when we get comfortable. So I don’t have an answer as to when we will change that one. We will continue to focus on areas where we think the risk rewards are good. Auto. Hopefully we can, we are working towards, we have made some structural changes internally to make auto work. Auto. We hopefully get back sooner on the home loan.
I would wait and see how the situation evolves, the competitive intensity evolves and how the pricing in the market evolves to see whether we can press the accelerator on that. But the way Priyan I see is we have opportunity to grow the asset. Other assets, as you can see, many of them are growing in their 20s and we will continue to focus on that to build the balance sheet.
Piran Engineer
Got it. And just lastly quickly, branch openings have slowed down a lot this year. Why is that?
KVS Manian
As you know earlier, we have addressed this issue. We have been working on multiple things on the branch side like the freeze of our initiative that we have been doing. So we are kind of reimagining the branch operating model and we wanted settling that before we pushed the accelerator on branch openings. We also wanted to. We were working on the Brand, brand refresh branch formats, reformatting our actual physical layouts of the branches branding. We are also, we have also gone through evaluation of our branch neck in terms of the efficiency of the network, whether we need to relocate some branches, whether we need to review some branch sizes.
So various things are in were in the pipeline. So we wanted to get a better handle on all that before trying to push the accelerator on the branch numbers. You will see better branch traction in the quarter. Four already.
Piran Engineer
Okay. Yeah, that’s it from my end. Thank you and all the best.
KVS Manian
Thank you.
Operator
Thank you. The next question is from the line of Abhishek M from hsbc. Please go ahead.
Unidentified Participant
Yeah, hi, good evening and the congratulations for the quarter. So a couple of questions. The first one, can
KVS Manian
You, can you get closer to the mic or your vision
Param Subramanian
On very audible.
Unidentified Participant
Is this better?
KVS Manian
Yeah.
Unidentified Participant
Okay, thanks. Sorry about that. So the first question is on opex. I just wanted to check that you know now since you are anyway going to grow mid yielding etc. Which is more granular business. What would be the run rate of OPEX? Would it grow at this 4,5% QoQ range and that means annualized high teens maybe or does that taper off at some point of time?
Venkatraman Venkateswaran
Yeah, Abhishek. Hi, this is Venkat on the cost, as we had indicated earlier, the cost income ratio, if you had seen, you know it’s to do with both management of cost and the income traction. So this quarter it’s down because we have had strong income momentum. But our guidance, we have said that over the two to three year period it will be range bound in the 53 to 55 because we will be reinvesting the saves in distribution technology and all the other initiatives. But at the same time our endeavors to ensure that we try and get to a positive job so that the alignment of cost is in line with the income group.
KVS Manian
We had said earlier that this is a tightrope walk. We will do. We will build incomes and we have always stated that so we do. Our guidance has been that don’t build in benefits out of that. If we get that
Akshay Jain
It’s
KVS Manian
A bonus. But we will, we will remain very focused on making sure that we are efficient. But just now we don’t want you to. Our guidance is don’t build efficiencies out of that in the short term. We’ll see in the medium term.
Unidentified Participant
Yeah, exactly. Because if you’re in a build out phase you will need to make those investment. Yes,
KVS Manian
Yes.
Unidentified Participant
Okay. The other one is on you know, two or three segments of your loan mix. One, I wanted to check gold loans. Are you seeing any kind of yield pressure or pressure to raise LTV, etc. And or is, you know, the market largely rational at this point of time as well?
KVS Manian
I’ll ask Harsh to take
Harsh Dugar
That. Hi. The pressure on yield on gold loans in general would be there because of the falling interest rates and some of the PSU banks offering rates. But the gold loan book has grown substantially. We have actually maintained our yields on a gold loan book. The challenges on LTV has actually not happened because our LTV has actually come off. If you look at last quarter, this quarter, the LTV is actually dropped and this is not just for us industry wide phenomena because of the increase in the gold loan prices.
Unidentified Participant
So we
Harsh Dugar
Are not going to push growth by targeting only ltv. So this is where it is. So at this point in time I would say that the yields are being maintained and managed. I don’t see growth has been reasonably good for us and LTV pressures are not there at this point in time.
KVS Manian
In fact, the gold loan growth rate of 9% is in spite of the what Venkat mentioned in his thing running down of our wholesale lending kind of a book we had which is not allowed under the new regulation. So if you gross for that it’s another two, two and a half percent higher.
Harsh Dugar
Actually it’s almost 90% yoy. And if I look at the beginning of the financial, it’s actually 22%.
Unidentified Participant
Okay, okay. And most of it it would be price driven, right? Not really tonnage. Dr. Driven.
KVS Manian
Meaning the growth.
Unidentified Participant
The growth. So basically more tonnage.
KVS Manian
Yeah, no, so our tonnage has not gone up this quarter. Yeah. So somewhat.
Venkatraman Venkateswaran
And on LTV we are at 52. From LTV perspective, we are.
Unidentified Participant
Sure, sure. Perfect. The personal loan book, like nfi, you indicated that you’re still looking at, you know, the environment and where the credit cost will settle. Is it the same in the personal loan book or are you seeing any kind of comfort there? And you could start growing. I know you indicated that you’re still watching, but what is that metric or indication that would make you start growing? That?
KVS Manian
No. So compared to mfi, we are more comfortable in the personal loan space. Yeah. So. And we are, I would say we are in baby steps in terms of. Actually we did the highest personal loan disbursement in the last 12 to 12 months in the last month, actually in the month of December. So we are trying to build that, but slowly. Baby steps I would say yes but we have more comfort in that space than the MFI space just now.
Unidentified Participant
But we are just now
KVS Manian
Focused that product on our existing customers alone. We haven’t gone out to acquire customers on that product which is something that we are evaluating. We will see the economics of that must justify. We are looking at the options there.
Unidentified Participant
Sure. And in terms of book growth, when does that start contributing at least incrementally
KVS Manian
The personal loans.
Unidentified Participant
See
KVS Manian
Just now it is a small book. So even if it grows at a reasonable pace I think it will take time for it to really make a dent on the overall scenario. It’s a very small book. As you. As you can see this 3,000 or 3,600 crore book. So let’s. Let’s start building it then we will see the impact over a period of time. Too early to start talking about an impact arising out of that.
Unidentified Participant
Got it? Got it. Okay, thanks. I’ll get back in the queue for more questions. Thank you. Thanks
Param Subramanian
Abhishek. Thank you.
Operator
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants we request you to please limit your questions to one per participant. If you have a follow up question you may rejoin the queue. The next question is from the line of Nitin Agarwal from Motilal Oswal. Please go ahead.
Unidentified Participant
Hello. Yeah, hi. Thanks for the opportunity and good evening everyone. Hi. So I have two questions. One is on the yield and the rating distribution of your corporate exposure. How are you looking at that? If you look at the slide 20, 21 and so the mix of a rated corporate has gone down in this quarter by nearly 500 basis point. And so understand like of course the bank is working on improving the yields. But how are you looking at this equation? Any desired number that you would like to reach any color around this.
So this is.
Harsh Dugar
We had very consciously said that he would not be focusing large part on the low yielding one. And isn’t corporate banking the triple A name drive the maximum price extraction from the banks? So we have consciously let go of certain large assets which has made this difference in terms of asset quality. I can assure you that we are not going down the risk spectrum to build a book. We will be more granular, we’ll be more mid corporate and we’ll be deeper geography but not dilating the great standard.
It’s just the not focusing so much on the triple A names because reciprocity doesn’t come from there. Neither does the yield come in from. There. Are two things which I would like to further Stress how we strengthen our listing. We ensure that they’re either very securely asset backed or they’re proper cash flow trapping over there.
Unidentified Participant
Right. And so just like on this see at the same time we have also reported a pretty strong growth sequentially. So while we have let go of this asset but still we have to put it a 6% growth. So does that mean that the growth otherwise was like running in double digits in corporates this time? And
KVS Manian
Nitin, you have to see it in the context of the last one year. We have also grown this book slow right over a period of time. So the restructuring of this book had. Impacted the growth of this book for. The last three four quarters. Actually it had not grown very fast. So and we had started focusing on mid corporate but obviously it takes time for mid corporates to build and I think now we are able to see the progression towards that. Yes, of course. But some opportunistically some assets have happened in corporate which has also which were decent yield and therefore we have also done that.
So like I mentioned earlier, don’t go by the 8% you see in this quarter in that as a steady state run rate of growth for that segment of business.
Unidentified Participant
Right sir. But is like the unwinding more or less over or you expect more unwinding. To happening
KVS Manian
Is over. It is. We have to now build. Yeah,
Unidentified Participant
Okay, okay, sure, sure.
KVS Manian
Like I said, all these are process some long term loans sitting there. You can’t easily unwind. So it’s always a process. But by and large I would say yes.
Harsh Dugar
Very short term in many cases and very opportunistic. So if you do see opportunities at any point of time, we will do that part. So we look at from our balance sheet perspective our risk return point of view and reciprocity. So this is something which you are doing as a conscious call.
Unidentified Participant
Okay, okay. And the other area that I wanted to check upon is a margins. Like last two quarters we have reported a 24 basis point NIM expansion. So do you think that margin will be a bigger driver in ROE expansion as you alluded that it will like even going forward the margins will continue to expand. So will this turn out to be a bigger driver in our overall blocks and on which the margin expansion or ROE expansion is going to be based?
KVS Manian
NIM is obviously one of an important driver for ROE expansion. There is no question about that. Having said that, yes. Can fees also add to that? Of course there are other things that will add on to that. And margin also is both an asset side game and a liability Side game. So I would say all three, liability side mix, asset side mix and fee improvement, all three need to drive our ROA trajectory.
Venkatraman Venkateswaran
Having said that, I just want to caution you that for the coming quarter Q4, our endeavor will be to maintain NIMS around the current level given the fact that we still have the impact of the last rate cut to be passed the two months. Yes,
Unidentified Participant
Right. Got it. Thank you. Thanks so much. Those are my questions.
Operator
Thank you. The next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah
Yeah, hi. Thanks for taking the question. So on fee income side, maybe at the discussion earlier you alluded to the overall distribution income. But if we look at it maybe the overall fee income growth or fee. Income to assets, where do we expect it to settle over next 12 to 18 odd months once all the factors play out? Because it still seems to be settling. Closer to one odd percent even in. This quarter and that’s been largely flat.
KVS Manian
So Kunal, I don’t think we are, I will say that again, like in some other cases, I don’t think we. Are looking at settling. Wherever we are is not the place we are settling it. Clearly there are levers that we have this quarter. We launch our wealth proposition in the market and that’s a business that we will grow over the next few quarters and years. Our trade and forex has upside possible. I don’t think we have yet got the trajectory that we want to. So there is potential to grow that, that our card business continues to grow.
Well,
Param Subramanian
That
KVS Manian
Would add to fee income going forward. So these are things that are still to play out. So I, I think we are far from saying that we are settled at a 1% level. We want to see upside on that and we will drive trajectory upward trajectory.
Kunal Shah
Okay. And this would be visible over like. Maybe four to six odd quarters. So maybe this wealth management and card business and all that should be driven over a period.
KVS Manian
Yes. As you can see even in the last two quarters you have seen some trajectory. Right. It has moved up to 1% from 1992 that it used to be. So there is traction. So you see, I mean, hopefully you will keep it on a continuous basis. You not necessarily have to wait for four to six quarters.
Kunal Shah
Sure. Got it. Okay. Yeah, thanks. Yeah.
Operator
Thank you. The next question is from the line of Param Subramaniam from Investec. Please go ahead.
Param Subramanian
Hi, good evening team. Congrats on the quarter. Few questions firstly on lcr. What is the LCR as of this quarter and what is the impact for us from the, you know, RBI change in regulations from April positive negative.
KVS Manian
So our quarter end LCR was about 114% and average was about 127. 123. 123 average was 123. We expect about 5 to 6% impact out of the new regulation from RBI. Approximately
Param Subramanian
This is a negative impact.
KVS Manian
Yes.
Param Subramanian
Okay, okay, okay, fair enough. And so then what does that mean for your growth so broadly we talk about 1.2 to 1.5x nominal GDP growth. Right. So is there any change to that after you know, you know taking into account both these things. Firstly you’ve got, you know, you’ll have capital next year. There is the dragon of this LCR norms as well. So how to think about the growth trajectory,
Venkatraman Venkateswaran
It’s also a function of opportunity and the external environment. Having said that, we will continue to remain focused on medium yielding segment growth and as you saw last quarter, four and a half percent advances. So assuming all things equal we will try and be around the same levels and yeah, the high teens is what we are working towards.
Param Subramanian
High teens loan growth. Okay, okay. So that will. 16 for next year is what you’re talking about. Okay, okay. And okay so that part is clear and on this corporate loan growth bit so I think you mentioned, so that is, I mean there is a growth sequentially. So what is, I mean and we can see it in the RBA data as well. Is this substitution of bond market primarily or is there some Capex related lending here? Could you give some color on this corporate lending
Harsh Dugar
Mix of it? Basically a part has also come from, from the fact that the bond markets had priced higher in the bank lending had come out in line. So that was one part of it. So that what you’re saying is right. There’s also been an increase in requirements of both working capital by the, if you look at the, the data also the paid off take from the corporate sector has also increased. So that has also led to it a little bit of Capex. I won’t say substantial but a little bit has come from there as well.
So all the three has actually contributed.
Param Subramanian
Thank you.
Harsh Dugar
Yeah, yeah,
Param Subramanian
Yeah. Okay. Okay. Yeah, thank you. Just one last question again this has been asked before but if you would just explain the margin work. Right. So I mean in that slide 9, the top left, you know chart that you’re showing it’s showing yield on loans and cost of funds are down broadly the same. Yeah, I mean there is a CRR positive. We can see four or five basis point which we are aware but I mean there’s a 12 basis point improvement. Right. So. So how exactly do we.
Souvik Roy
I’ll take the top line after the call.
Param Subramanian
Okay? Okay. Okay. Okay. Fair enough. Yeah.
Souvik Roy
Thank you all. Congrats
Param Subramanian
On the quarter again. Yeah, thank you so much.
Operator
Thank you. The next question is from the line of Jay Mundra from ICIC Securities. Please go ahead.
Unidentified Participant
Yeah, I said congratulations on the quarter, sir. You spelled out on NIMS and loan growth trajectory. If you can share your aspirational ROA over the next two years, that will be much helpful.
KVS Manian
Jay, you know, in our February document we had shown some. We have given you a guidance on what how to look at our ROA over the next two, three years. Right. I don’t think that changes. I think we are just now in the execution mode on the same strategic plan. And that continues to be your guidance on what we think our roas.
Unidentified Participant
Sure, sir, sure. And lastly that if you have the quantifiable number from RBA trade relief measures. Right. So RBA had given this window of dispensation for exporters. If they want they can take moratorium. Do you have any quantum of such requests where people would have taken. Very, very negligible.
KVS Manian
Insignificant. Negligible. Negligible.
Unidentified Participant
Okay, sure. Answer. If you can quantify the labor new labor code intact. Have you done any higher provision on gratuity etc.
Venkatraman Venkateswaran
Point number eight captures the quantum J and we have distressed it. It’s part of the distortion.
Unidentified Participant
Okay, sure. Thank you. So it’s a very small amount.
KVS Manian
It’s not material amount, but it is. Disclose
Venkatraman Venkateswaran
They have provided.
Unidentified Participant
And this is done for now, right? I mean you need not do for the. I mean this is one time and. It is done also. Right. There’s no recurring.
KVS Manian
This is the direct impact relating to our employees. Now people we work with, they may have an impact on in the sense our contractors and suppliers and partners, they will have this impact and that can have a knock on impact on us over a period of time that those are not quantifiable.
Unidentified Participant
Sure, sure. Thank you very much. Thank you very much, sir. And all the way.
Operator
Thank you. The next question is from the line of Gaurav Jani from Prabhu Dasiladar. Please go ahead.
Unidentified Participant
Thank you, sir. And congrats on a good quarter. Just touching upon the margins again. Right. Seems to me that you know largely the improvement is from balance sheet management. Right. We have reduced the proportion of liabilities overall LDRs have gone up, borrowings have come down. I think that’s the main contributor apart from the CRR cut. Now My question is how sustainable is this cfo sir, did mention about margins probably being steady in the next quarter. How would we achieve that? I mean surely from the loan mix.
Because there’ll surely be normalization in terms of liability growth right in the next quarter. So yeah, that’s my first question.
KVS Manian
Yeah, I mean I thought we already answered that, that we continue to work on the liability makes, asset makes, all of that and therefore we all that will be new, accretive and that’s our effort. But yes, the repo rate cut will play out fully in the next quarter. So there will be a negative impact of that. We’ll have to look at how we can mitigate that.
Unidentified Participant
Secondly sir, on the, you know, TD rate cuts, right. So the first tranche of repo rate cuts that happened followed was followed by, you know, system wide TD rate cuts. So you know, what is your sense on further TD rate cuts? Is that possible?
KVS Manian
Yes and no. So there are in fact after the last rate cut the drops in rates, of course savings rate did not drop at all. Term deposit rates, very moderate cuts have happened. Not as much as the repo rate cut, but lower cuts have happened. But not fully reflective of the repo rate cut. Yes, but increasingly, as you know the market after the last rate rate cut, actually the bond markets
Unidentified Participant
Have
KVS Manian
Hardened, rates have hardened. So the opportunity to cut rates was lower post the last rate cut. And that’s true for the entire sector.
Venkatraman Venkateswaran
And also as said earlier, we also want to focus on growth and keep the momentum on growth going. And to achieve that we have to ensure that the deposit growth keeps pace. So it may not be wise to cut the rate at this point.
Unidentified Participant
Thanks. Just if I may squeeze one more sir, you know on the provisions side. Right. We have been buffering up on the standard asset provisioning. So it will help if you could just run us through as to, you know, what are you thinking or you know, how are you planning in terms of ecl. We have been shoring up standard asset provisions. So does it mean that, you know, we would continue to see credit costs of about 50 basis points moving towards the eclipse or then because or you know, better improvement in asset quality.
We will see credit costs coming off.
Venkatraman Venkateswaran
Credit cost. Like we said earlier, guidance will be around the 55, 60bps. We are still waiting for the final guidelines from RBI based on the draft. We have worked out the impact. We’ll have to see how that plays out. And there are certain concessions which the industry has asked. If that comes through, the impact will be quite minimal. And for which we have in the past indicated what that quantum will.
Unidentified Participant
But as of today we are in. Line with ECL or we are a bit short.
KVS Manian
Little bit short.
Unidentified Participant
Perfect. Thanks a lot.
KVS Manian
When you say short, you mean from credit cost perspective.
Unidentified Participant
That’s right, that’s right.
KVS Manian
So you know, fundamentally.
Venkatraman Venkateswaran
Yeah,
KVS Manian
Fundamentally we don’t think ECL changes the credit cost dramatically over a period of time. It should align with credit costs. We cannot have a accounting mechanism which does not reflect the actual credit cost. Right. So we don’t believe that ECL mechanism is. There may be a one time impact of the.
Unidentified Participant
But
Venkatraman Venkateswaran
Even for that transition period which RBI is giving over, if they said they’ll do it over a few years, you won’t see any material bump up.
Unidentified Participant
Understood, sir. That’s it from mine. Thank you so much.
Operator
Thank you. Ladies and gentlemen, this will be your last question for today, which is from the line of Serje Sulliv from Renaissance Investment Managers. Please go ahead.
Mahrukh Adajania
Yeah, hi, good evening. Congrats on a good set of numbers, sir. On the fee income front. So we have gradually improved to 1%. But how much further improvement do we foresee over the next couple of years? Like just a broad range will be helpful?
KVS Manian
I don’t have a specific guidance on that. I mean but having said that our effort. I just mentioned that there are levers that we have not yet used. Well, cards, trade and forex, all of that has to still play out. We are trying to get those things done. So upward trajectory we would hope to get. How much is time will tell.
Mahrukh Adajania
And so on the unsecured portion of the book, has most of the stress gone out? How do we see the growth on that front? Are we going to push growth and unsecured.
KVS Manian
On the, you know, we have already been pushing growth on the organic card side. Organic cards, our own cards. We are already growing it reasonably fast. In the last few quarters we have seen our book grow reasonably fast on that. On the FinTech partnership cards, we are still cautious on that. We are not growing that fast enough. Pl I would say we are making baby steps. As I mentioned earlier on microfinance, we are still cautious. So that’s the current status.
Mahrukh Adajania
So we’ll be happy with, as you said earlier, a high team’s growth of around 16% in the next year.
Harsh Dugar
The overall growth. Overall, that is overall.
Mahrukh Adajania
Okay, great. Thank you so much.
Harsh Dugar
Thank you.
Operator
Thank you ladies and gentlemen. That was the last question for today. I would now like to hand the conference over to Mr. Saw Vikroy for closing comments.
Souvik Roy
Thanks. Thanks and thank you, everybody, for your time and for the timely connect. And if any case you need further. Clarifications, you can reach out to us. Happy to connect after the call. Thank you so much and have a great weekend. Thank you. Thank you. Thank you so much.
Operator
Thank you. Ladies and gentlemen, on behalf of Federal bank, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.