The Federal Bank Limited (FEDERALBNK) Q3 FY23 Earnings Concall Transcript

The Federal Bank Limited (NSE: FEDERALBNK) Q3 FY23 earnings concall dated Jan. 16, 2023

Corporate Participants:

Souvik Roy — Head of Investor Relations

Shyam Srinivasan — Managing Director and Chief Executive Officer

Harsh Dugar — Group President and Country Head – Wholesale Banking

Shalini Warrier — Executive Director

Ashutosh Khajuria — Executive Director

Venkatraman Venkateswaran — Group President and Chief Financial Officer

Analysts:

Mahrukh Adajania — Nuvama — Analyst

Mona Khetan — Dolat Capital — Analyst

Pritesh Bumb — DAM Capital Advisors — Analyst

Renish Bhuva — ICICI Securities — Analyst

Madhuchanda Dey — MC Pro — Analyst

Kaushik Poddar — KB Capital Markets — Analyst

Rakesh Kumar — Systematix Shares — Analyst

Saket Kapoor — Kapoor & Company — Analyst

Jai Mundhra — B&K Securities — Analyst

Krishnan ASV — HDFC Securities — Analyst

Prakhar Agarwal — Elara Capital — Analyst

M B Mahesh — Kotak Securities — Analyst

Manish Shukla — Axis Capital — Analyst

Gaurav Jani — Prabhudas Lilladher — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q3 FY23 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. [Operator Instructions] Please note that this conference is being recorded.

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 so much, and good evening. Welcome to our earnings call for the third quarter. And we are thrilled to report what I can call one of our best quarterly results ever. The quarter has been nothing short of outstanding with record-breaking revenue and profit, and we saw better NIM, better asset quality, and a multiyear high of ROA and ROE. If you remember, this is exactly what I said when I opened the call last quarter, and would like to keep things same for every quarter here onwards.

Now, our diversified business model and focus on risk management has allowed us to drive growth, while maintaining a pristine balance sheet. Our digital transformation initiatives have also played a key role in our success as we have enabled us to reach new customers, improve our efficiency, and increase the adoption of our digital products.

On call today, like always, we have our MD, Mr. Shyam Srinivasan; our EDs, Mr. Ashutosh Khajuria and Ms. Shalini Warrier; along with our Group President, Mr. Harsh Dugar; and our CFO and Group President, Mr. Venkatraman Venkateswaran, along with the other senior officials as well.

But before I turn the call over to our MD and CEO, let me inform the house that this is our MD’s 50th earnings call. So, with that, over to you, sir.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Thanks, Souvik. Thank you, everybody. And, firstly, this is the first call of calendar 2023, so my good wishes and Happy 2023 to everybody. Souvik pointed out we had a good quarter. Yes, we were pleased with the outcomes of Q3 on every count. Not — I don’t want to call out any one particular line, but the overall efforts of the bank across quarters, across years has helped shape the bank to this kind of an outcome. And we believe this is something that we should seek to sustain or improve in quarters ahead, which has been the endeavor at all points in time. Happily, in this financial year, on — each passing quarter looks more compelling and improving as the year rolls by.

NII, at an all-time high; operating profit at an all-time high; net profit at an all-time high, all suggests that we are on course. I wanted to go back and talk about what we said. Some of you may have been part of our presentation we made in — just before COVID in February 20, when we gave out a three-year road map and what we thought we’d exit FY23 with. And I’m pleased that we are ahead of those numbers, despite two horrendous years in the middle. And that gives us the confidence that, A, we have a business model that is reflective of the opportunity. More importantly, the language of the bank is consistent with the presentation we put out and even more importantly the team capability to constantly readjust to developing — developments and yet deliver or not lose sight of the larger objective is intact and growing.

So I would say that the quarter that went by reflected many of those objectives and we are actively carving out what our plans for the period ahead would be. Minimally, this should be the new baseline on which we will keep operating. Yes, there have been some tailwinds in terms of margin expansion because of the timing mismatch between asset repricing and deposit repricing. Some part of it will have challenges, but we are acutely aware of that and we are constructing our business plans to reflect that changes that may happen, yet deliver on the ROA, ROE expansion plans that we have. I had mentioned that we would exit FY23 at about 1.25% ROA. I’m pleased that we’ve beaten that, and the full-year number will probably be 1.25% or better, and certainly that sets the tone for what we would like to hear — year and years ahead to be.

And we promised 10 basis point plus or minus improvement every year is what we will seek out to do and that’s the design of everything we do; business mix, the mix between retail and wholesale, and within retail, secured, unsecured. All these new businesses we spoke of, whether it’s credit cards, microfinance, personal loans, business banking, gold, commercial vehicles, all the elements of those businesses are unclear if each business leaders are looking to scale up.

On smaller basis, they are reflecting 70%, 80% growth. We believe that can scale into even a three-digit number as we go into calendar — we step up into 2023 and 2024. So, momentum is quite strong. We are aware of the headwinds and the narrative around India may not see this kind of credit growth on a sustained basis. I believe, our machinery is in place to support growth and we will, of course, pull back where we see some pain, but, most importantly, our share gain will continue and the momentum that we have in some of our businesses are structural and we think the year ahead should reflect all these efforts.

So without going into any specific numbers, but I’m sure in the course of the call, all of you will want to know more about each of those numbers or pass those numbers better, so I will — between me and the entire senior team will respond to that. The headline numbers are there for all of you to see. Net profit is INR804 crores, it’s certainly very encouraging, and so are the other metrics.

So, let me pause here. We will have questions and we’ll have the entire team — senior team who are on the line try and answer and in case there is any data that you need and we can share, we will share offline.

Thank you very much. And, operator, you may open it up for questions with everybody.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Mahrukh Adajania from Nuvama. Please go ahead.

Mahrukh Adajania — Nuvama — Analyst

Yeah. Hello, sir. Congratulations to you and your team. Sir, my first question is on margin. So there has been a fair bit of repricing of corporate loans as well, right. So, I mean, do you think most of the corporate repricing is done assuming there is no EPLR hike pending? And what is the outlook for margins? I heard you on TV saying that 3.35% is what you still maintain for the full year, which could mean that for the fourth quarter also margins will be 3.35%, 3.36%, which actually means that 13, 14 basis points Q-o-Q times. So what’s your outlook on margins? That’s my first question. And then I have two more questions.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Yeah. I think, Mahrukh, the margin expansion that we saw this quarter had the — an effect of the timing. Full year blended, 3.35%, 3.40% is indicative of the fact that Q4 may not see this higher margin, certainly it will be higher than that number. So I think the repricing that has happened in the cost sides have happened, but the deposit repricing will start showing. This year, this quarter, you saw yields expand on the credit side almost 49 basis points and deposit costs go about 21 basis points. Some part of the residual increase will happen in Q4 and maybe in early part of Q1. To that extent, the 3.49% maybe a little diminished.

Mahrukh Adajania — Nuvama — Analyst

Got it. And outlook for margins in the next year? I mean, longer term?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Again, it will be between 3.35% and 3.40%. We are upgrading our guidance from 3.25% to more like mid-3.35% plus/minus.

Mahrukh Adajania — Nuvama — Analyst

Okay. So longer term as well? Okay. Got it. Got it. And, sir, just in terms of loan growth, outlook for 2024 for your bank and, if at all, you have any further sector?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Hard to call. There are lot of moving parts. We’ve always maintained we will grow in a — much higher than the industry, which we have been. Our outlook at this point in time certainly is in the high-teens. We will have to recalibrate it if things materially slowdown, which I don’t see signs of. I think, bank demand, bank credit growth opportunities continue our share gains in most areas. So, I think, in the high-teens is what we are guiding for at this point in time.

Mahrukh Adajania — Nuvama — Analyst

For yourselves, right?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Yes, for the bank.

Mahrukh Adajania — Nuvama — Analyst

Got it. And, sir, just on employee expenses, because you have somewhat higher proportion of unionized employees, do you follow the wage agreement? And, if so, what is the kind of hike and employee expenses or provisions that you are likely to make till the wage agreement for the PSU sector is finalized?

Shyam Srinivasan — Managing Director and Chief Executive Officer

We made — I think, we mentioned it. We’ve increased our wage provisions in Q3 itself. For November and December, we have assumed a particular rate increase and we’ve applied that, so that’s reflecting. That will be in the new run rates too.

Mahrukh Adajania — Nuvama — Analyst

Okay. So, is it possible to quantify? Sorry, if you have, I missed it.

Shyam Srinivasan — Managing Director and Chief Executive Officer

We’ve taken, Mahrukh, what the average has been for many negotiations in the past and taken the higher end of that.

Mahrukh Adajania — Nuvama — Analyst

Got it, sir. So already reflected in the base for two months and that is what it will continue?

Shyam Srinivasan — Managing Director and Chief Executive Officer

In Q3 November and December, we have already taken the higher costs.

Mahrukh Adajania — Nuvama — Analyst

Got it. Got it. And, sir, I just wanted to squeeze in one last question that your deposit growth was higher than your loan growth this quarter and last quarter you did a fair — last quarter, that is second quarter, you did a fair bit of borrowings as well. So why our liability is expanding faster and the deposit growth that came last quarter, was it refinance?

Shyam Srinivasan — Managing Director and Chief Executive Officer

No, we didn’t have any refinance in Q3.

Mahrukh Adajania — Nuvama — Analyst

In Q2, borrowings? No? Q2?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Q2, we had some refinance and borrowings. Q3, no. Q3 is customer deposits.

Mahrukh Adajania — Nuvama — Analyst

Got it. And why would — why our deposits growing faster than loans? Is there anything to read into or it’s just an outcome?

Shyam Srinivasan — Managing Director and Chief Executive Officer

No, we like our CD ratio in the 84%, 85% space.

Mahrukh Adajania — Nuvama — Analyst

Got it. Okay, sir. Thank you, and all the best.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Mona Khetan from Dolat Capital. Please go ahead.

Mona Khetan — Dolat Capital — Analyst

Yeah. Hi, sir. Good evening, and congratulations on a good set of numbers. Sir, firstly, on the margin expansion, we’ve had 20 bps this quarter. So just wanted to understand how much of this would be driven by the asset repricing and how much could also be driven by a higher share of better yielding assets?

Shyam Srinivasan — Managing Director and Chief Executive Officer

See, better yielding assets, Mona, is as a part of the overall portfolio. If you assume commercial vehicle, credit cards, gold, business banking — sorry, not business banking, commercial vehicles, gold, microfinance as the better yielding, that’s still a small part of the entire franchise, right. The credit book of the bank is about INR170,000 crores. The cumulative of these businesses is INR5,000 crores, INR6,000 crores. So even if we are growing at a rapid pace, which we are, in order to materially alter the core NIMs, so, to that extent, it is more dominated by the margin yields, asset yields [Phonetic], but kicking in quite well.

Mona Khetan — Dolat Capital — Analyst

And what’s the better incremental yields on corporate loans?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Pardon me, the incremental?

Mona Khetan — Dolat Capital — Analyst

The yields on corporate loans on an incremental basis. And just wanted to understand if the pricing has become more rational, because this quarter even a higher share of growth came from corporate booking?

Shyam Srinivasan — Managing Director and Chief Executive Officer

I think, corporate, we see it as not just pricing, we certainly are getting better pricing than we did in the past period. Our corporate team has done a remarkable job of passing through rate increase. We — I think, saw 225 basis point rate increase and the pass through is close to 200 basis points, both in corporate and retail. But when we look to do good credits, as in good corporates top-end of the credit spectrum, we are happy to make sure that the pricing is right, but we are getting more business from them. You saw a material increase in fee income on corporate and processing fee income and that’s indicative of a full relationship pricing we are getting.

Mona Khetan — Dolat Capital — Analyst

And could we be able to get the incremental yields on that wholesale part of the book?

Shyam Srinivasan — Managing Director and Chief Executive Officer

I think, it’s improved about 50 basis points. Harsh, are you there on the line? Maybe you want to add on the incremental pricing, Harsh?

Harsh Dugar — Group President and Country Head – Wholesale Banking

Am I audible? Hello?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Yeah.

Mona Khetan — Dolat Capital — Analyst

Yeah. Yeah.

Harsh Dugar — Group President and Country Head – Wholesale Banking

Yes. Yeah. We have an incremental pricing across the board. And we have good one [Phonetic], 80 — primarily 85 basis points, which has seen a full pass through. And the last repo hike, the full effect of it, will be felt in Q4.

Mona Khetan — Dolat Capital — Analyst

Okay. Okay. And just, finally, so you have a gold portfolio for about INR20,000 crores, out of this what share would be core lending, which is sourced from other NBFCs or fintech? And is this largely part of the non-agri book?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Fintech led origination is probably about 10% to 12% of this total.

Harsh Dugar — Group President and Country Head – Wholesale Banking

That’s right. That’s right, Shyam. About 11%, roughly. 10%, 11%.

Mona Khetan — Dolat Capital — Analyst

Okay. Of the entire gold portfolio of INR20,000 crores?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Yes.

Harsh Dugar — Group President and Country Head – Wholesale Banking

Yes.

Mona Khetan — Dolat Capital — Analyst

This would be fintechs and NBFCs, right?

Shyam Srinivasan — Managing Director and Chief Executive Officer

No, no. Fintech is only one. No, we don’t have any NBFCs co-lending.

Mona Khetan — Dolat Capital — Analyst

Okay. Got it. And would it be fair to assume that this is largely the non-agri part of the book of INR5,000 crore?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Yes. This is non-agri.

Mona Khetan — Dolat Capital — Analyst

Got it. Thank you. I’ll come back in the queue. Thanks.

Operator

Thank you. The next question is from the line of Pritesh Bumb from DAM Capital Advisors. Please go ahead.

Pritesh Bumb — DAM Capital Advisors — Analyst

Hi. Good evening, sir. Just had two questions. One is on the gold loan front. We’ve seen a dip in Q-on-Q in the retail gold price, even the tonnage has dropped, any change there? Any change in strategy? Why will that drop by about 10% quarter-on-quarter?

Shyam Srinivasan — Managing Director and Chief Executive Officer

I think, in this quarter, there were some readjustments with the fintech partner for originating based on the new digital lending and some changes that need to be put in place, that’s happening. So, it will come back in Q4.

Pritesh Bumb — DAM Capital Advisors — Analyst

Okay. Happy to rebuild [Phonetic], actually.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Not that we are alert — alive to chase [Phonetic].

Pritesh Bumb — DAM Capital Advisors — Analyst

Sir, why I’m asking is, because the gold price is at an all-time high and, generally, we tend to see a little bit higher growth in gold loans, we [Speech Overlap]

Shyam Srinivasan — Managing Director and Chief Executive Officer

That’s what I’m saying. There is nothing to read into it. We remain as enthusiastic about this business and still think 25% Y-on-Y growth is possible.

Pritesh Bumb — DAM Capital Advisors — Analyst

Sure. And the second question was on the credit card business. Now, we’ve been, organically, sourcing this for some quarters now, but the growth seems — of course, the growth number seems very good, but the number of card additions and the business seems to be a little bit dull as yet. So despite the opportunity in the partnerships which you have with — for the CASA side as well, so we don’t see any big large growth which is happening on the card side, what is your view on that? How do you see that business now?

Shyam Srinivasan — Managing Director and Chief Executive Officer

We remain excited by this business. Between organic and our partnership led, we have probably crossed INR1,000 crores of outstanding and this will continue to grow. Yes, the base is very small. We think we can scale this up, but I wouldn’t venture to say that this INR1,000 crores will become INR10,000 crores in a hurry, right. It has to go through its paces. So, yes, it’s growing nicely. We are putting in a lot of energy behind it, further restructuring, creating new capabilities and this business between organic and our fintech partnerships should scale up to about meaningful number in the next two financial years versus the base.

But like I keep pointing out, on our grand total, it will still be only a percentage of the whole total business and that we’re not growing this exclusively nor are we making any giant acquisitions in this. So it’s more of an organic strengthening of this business, which will grow well. A big opportunity, INR1,000 crores, and growing quite well. Fee income is doing well. You must have seen that this business has — have added too. If you look at our other income, these have added materially on the income line and, thankfully, no credit issues.

Pritesh Bumb — DAM Capital Advisors — Analyst

Got it. And last question was on credit substitutes. Though the number is small, but we’ve seen a strong growth? Is the pricing there better? Because commentary, generally, was — still that the pricing on the bond market side has not yet improved on an overall basis, so anything you are finding there as an attractive opportunity?

Shyam Srinivasan — Managing Director and Chief Executive Officer

See. Usually, these are used as a way to consummate our relationships. Sometimes it could be pricing, sometimes it would be the client convenience. Between credit lending and credit substitute, we find the most optimum mix. So it’s not the number one choice, but it may end up being an opportunity to complete the relationship. So I wouldn’t read much into it other than it tends to be choppy.

Harsh Dugar — Group President and Country Head – Wholesale Banking

Yeah. May I, Shyam?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Yeah. Go ahead, Harsh. Please, yeah.

Harsh Dugar — Group President and Country Head – Wholesale Banking

Yeah. The credit substitutes includes three basic components. One is commercial paper, NCDs and it also includes PTC transactions, which are in the nature of credit substitutes investments, and hence classified over there. We do it wherever we see the pricing incidents, number one. Number two, quite a few of our PTC transactions also qualify as priority sector lending as well. So this is one of the primary reasons. But the base was small, but there has been a shift towards credit substitutes partly because the regulatory has also been asking the larger corporates to borrow from the debt capital markets. So we plan with intend being in both sides of the market, on the borrowing side through the loans as well as the credit substitutes.

Pritesh Bumb — DAM Capital Advisors — Analyst

Sure. Thank you so much. Got it. Thanks. Thanks for answering the questions.

Operator

Thank you. The next question is from the line of Renish from ICICI. Please go ahead.

Renish Bhuva — ICICI Securities — Analyst

Yeah. Hi, sir. Congrats on a great set of numbers. So just two questions. One on the new businesses, specifically on the PL side. So if you can throw some light in terms of the monthly disbursement run rate, you know what kind of yields we are getting would be helpful, sir?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Shalini, you want to go?

Shalini Warrier — Executive Director

Hi, Renish.

Renish Bhuva — ICICI Securities — Analyst

Yeah. Hi, Shalini.

Shalini Warrier — Executive Director

Hi. So, on the personal loan side, so very long-term, as you know, we’ve been only focusing on existing to bank customers and doing a fairly digitally oriented propositions for them. During the last couple of months, we’ve now expanded that. We’ve started a digital process for new-to-bank customers, we’re still in a closed user group and will shortly expand that to a larger market in terms of the new-to-bank customers and we also started a couple of propositions with the fintech partners. You see that in the deck that there is a proposition with Paisabazaar and there is another proposition with epiFi that’s going live from a personal loan standpoint.

So the plan is between PC and PL, the whole unsecured higher margin products that we have, we will be scaling it up in the coming days. As Shyam mentioned earlier when he was responding to the question on credit card and, to a large extent, that also mirrors the answer for personal loans, it’s not like we’ve been on a lower base. Yes, we will improve and we will increase our share, but it’s not something that’s going to make a material shift over the last — over the next couple of years.

Having said that, cross-sell to existing customers, cross-sell to fintech partners, expanding to new-to-bank customer through a digital platform will remain the cornerstones of the plan and strategy, Renish.

Renish Bhuva — ICICI Securities — Analyst

Yeah. So, Shalini, I mean, just to ask on this specific partnership on the Paisabazaar and Fi, so have you already started disbursing, I mean —

Shalini Warrier — Executive Director

Yes.

Renish Bhuva — ICICI Securities — Analyst

I think you’ve mentioned that they have already disbursed 3,000 [Phonetic] loans.

Shalini Warrier — Executive Director

Yes.

Renish Bhuva — ICICI Securities — Analyst

So these loans are specifically to Fi and Paisabazaar, both put together, right?

Shalini Warrier — Executive Director

Yeah. So they are both combined together for various reasons. Obviously, we don’t share the split, but they are propositions to the — so in the case of Paisabazaar, as you know, they have a credit scoring methodology through which they get customers to come in and look at credit scores. So we are cross-selling to those customers on it. To epiFi, the cross-sell is to the customers who have been on-boarded as epiFi savings bank customers over the last 12 to 18 months and, therefore, we are cross-selling to them part of the deepening strategy for them. So, different propositions. Paisabazaar relationship gets us more new-to-bank customers, Renish. The epiFi relationship gets us more deepening of the cross-sell and deepening of relationships with cross-sell with epiFi customers.

Renish Bhuva — ICICI Securities — Analyst

Got it. And would you mind to share the average ticket size?

Shalini Warrier — Executive Director

Sorry, I didn’t get that.

Renish Bhuva — ICICI Securities — Analyst

Average ticket size per — I mean, our loan disbursement.

Shalini Warrier — Executive Director

The average ticket size, I presume you can work it backwards then if I give you that, but the average ticket size is about 1,50,000 [Phonetic].

Renish Bhuva — ICICI Securities — Analyst

Okay. Okay. Okay. Thank you. Thank you, Shalini. Shyam, so my next questions to you is, in terms of clarification, so when we say 10 basis point improvement in ROA, so what’s the base we are assuming? So Q3 ROA of 1.3% is the base or what percentage of [Speech Overlap]

Shyam Srinivasan — Managing Director and Chief Executive Officer

Blended ROA for this year will be about 1.25%, full year blended.

Renish Bhuva — ICICI Securities — Analyst

Got it. And from there onwards, 10 basis point every year, it was [Speech Overlap]

Shyam Srinivasan — Managing Director and Chief Executive Officer

In that, each year will be 10 basis. I mean, I won’t say every year. Right now, outlook is for FY24. I’m not committing beyond that.

Renish Bhuva — ICICI Securities — Analyst

Okay. Okay. That’s it. That’s it from my side. Thank you, Shyam, and congrats.

Operator

Thank you. The next question is from the line of Madhuchanda Dey from MC Pro. Please go ahead.

Madhuchanda Dey — MC Pro — Analyst

Team, my congratulations on this —

Shyam Srinivasan — Managing Director and Chief Executive Officer

Madhu, a little louder please.

Madhuchanda Dey — MC Pro — Analyst

Yeah. Hi. Hi. Can you hear me now? Yeah.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Yeah.

Madhuchanda Dey — MC Pro — Analyst

Yeah. So congratulations —

Operator

Ma’am, please use the handset mode. The audio is still distant.

Madhuchanda Dey — MC Pro — Analyst

Yeah.

Operator

Yeah.

Madhuchanda Dey — MC Pro — Analyst

Yeah. Am I clear now?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Better, yes.

Madhuchanda Dey — MC Pro — Analyst

Yeah. So, yeah, congratulations on a great quarter. I have two questions. One is, you mentioned quite a few times about winning market share. So if you could just throw some more color on who all are losing market share to you, or which are the pockets where you are winning market share?

Shyam Srinivasan — Managing Director and Chief Executive Officer

I don’t know who’s losing, I know we are gaining. One of the recent reports that have come out has taken a five-year CAGR of private sector banks, credit growth, and places us in the top three in that, consistently growing share, and it’s evident in our numbers, right. We probably are the only bank that has doubled our credit book in the last five years. So, evidently, credit is growing.

Who we are losing to? I can’t quite comment, but I can suggest that in our expansion and distribution, all our products’ client growing at 18%, 19%. Credit indicates that if the system grows at 17% and some are reporting 12%, 13%, evidently those banks that are 12%, 13%, are losing, and we are gaining at 19% odd percent and it’s broad-based and we believe that will sustain. So I can’t say who is losing, but I can say that we are gaining and we should keep that — increase our distance.

Madhuchanda Dey — MC Pro — Analyst

Yeah. Thanks. My second question is on this trend, that’s expansion in ROA, which is a near-term outlook for FY24. If you could give us some color on the ROA expansion tree in terms of what you expect to come from PPoP, low credit cost, opex — I mean, all these other components? Any rough color on the same?

Shyam Srinivasan — Managing Director and Chief Executive Officer

See, it’s a mix. We’ve always maintained, it’s never one silver bullet, it’s a steady regular all-round. But the mix of the business, continued improvement in credit standards and our efficiency is going in, our digital capabilities are getting better, and there will always be some opportunities on the treasury and investment side. A combination of it all are working in favor of the bank. We don’t want to take our eyes of any one line, a little 2, 3, 4 basis points in each area, Madhu.

Madhuchanda Dey — MC Pro — Analyst

Thank you very much, sir. Thanks.

Shyam Srinivasan — Managing Director and Chief Executive Officer

No silver bullets.

Madhuchanda Dey — MC Pro — Analyst

Yeah. Thank you.

Operator

Thank you. The next question is from the line of Kaushik Poddar from KB Capital Markets. Please go ahead.

Kaushik Poddar — KB Capital Markets — Analyst

Yeah. Thanks. Shyam, as usual, you have been able to tick all the boxes. So next question is a little complicated, if you may [Technical Issues] put it. In the sense that, see, right now, you are quoting at a price to book of between 1.2%, 1.3% FY24-25, right. So — and the topmost bank, which is HDFC Bank, is probably quoting at 2.1%, 2.2%. What do you have in mind, so that the price-to-book value goes up to that level? Is it possible? And are you thinking anything in that line? Because ultimately the shareholders are looking at something like that, the price to book value going up? It has already gone up. In the last two, three years, it has already gone up. So, are you thinking in something in these terms? And, secondly, you have reached a — capital adequacy ratio is around 13% or something. So you need to raise capital, I guess, next year. So can we expect some marquee name as to whom you may place your shares? Over to you.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Thanks. I’ll probably take the second part of your question first. So, I think, at this point in time, the CRAR without plowing back FY23 profit is in the 13-point-something. When we put that in by end of April, we should be back to 14% odd. Our own internal figure point is somewhere in the 13%. So we will consider, but we don’t have any firm timeline. Certainly in calendar 2023, there may be an opportunity and a requirement if we continue to see good growth prospects, which we think we are seeing good growth prospects. So, we will wait.

Whether we get a marquee name or a bunch of good names or a combination, we will have to see. We haven’t initiated anything on that count. Certainly, we will be looking out. If there are marquee names interested, we’d be happy to have a conversation. But, right now, there is nothing on that count.

On the earlier part of your question, what are we doing to get the shareholder returns? I mean, I can only promise as I have promised every quarter and, hopefully, delivered on most of them, to make the best for the bank to ensure that our performance levels are continuously improving. We don’t take our eyes of that. Unfortunately, stock price is not entirely in our control. I know, it’s a bad statement for an MD to say, but I would be candid, we can only do that much, we can only perform and communicate. Results are many moving parts.

That said, it’s evident that our performance is getting rewarded in the more recent years. We think it’s only a matter of time before we get discovered fully. So I would say we are not taking our eyes off the performance and the commitments we gave and the commitments we give are being honored. We’ll keep dialing that up. Like I said, the language of the bank at all levels, the mission and the passion is unhindered, and I believe that our best is sort of yet to come.

Kaushik Poddar — KB Capital Markets — Analyst

Okay.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Beyond that I can’t comment, Kaushik. I’d be happy if you guys as investors influence the outcome and make sure that the stock gets as deserved. We get the deserved pricing.

Kaushik Poddar — KB Capital Markets — Analyst

Okay. Thanks. Thanks. Thanks. Okay. Okay. Thank you.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Thanks, Kaushik.

Operator

Thank you. The next question is from the line of Rakesh Kumar from Systematix Shares. Please go ahead.

Rakesh Kumar — Systematix Shares — Analyst

Yeah, hi. Hi, sir. Thanks for the opportunity. So, the first question is basically pertaining to the NR deposit number, which is looking a little soft and there is a market share volatility as well with respect to previous quarter number. So any comments you would like to offer on this issue?

Shyam Srinivasan — Managing Director and Chief Executive Officer

I don’t think anything unique. I mentioned in the last quarter also, our deposit — I mean, remittance share is constantly moving up. Remittance coming into India, we are getting a larger share, but it’s translating into deposits, there has been a market change, where people have either used for various other elements of completing their credit payments or investing in something or moving into the market. To that extent, there has been a deposit behavior change of conversion from remittances to deposits. That’s something we have to keep a tight watch. So, as a bank, we’ve been able to gain share in resident savings. So, we’ll keep an eye on this thing. I don’t know if we can read much into it other than the fact that the remittances share has increased. What you’re seeing in the deck is a point in time, typically at the end of Q2, it’s lower and it comes back in Q3. So we will see how that numbers move. But I wouldn’t read much into it.

Rakesh Kumar — Systematix Shares — Analyst

Understood, sir. Secondly, sir, this SA deposit composition industrywide, we see that there is a competition, because there are various reasons apart from the cannibalization issue of the TD rates and there are other issues also, household savings numbers have kind of come down especially towards deposit. So — and we also have seen some impact there. So, any thought that we have put in terms of guidance, if you can help us that maybe one year down the line where we would be in terms of SA deposit composition?

Shyam Srinivasan — Managing Director and Chief Executive Officer

I think, you may have seen it and observed it across the industry, right. When the interest rates are higher, the difference between your savings rate and term rates being very material, there is a migration towards term. Second when there is a chase and award for deposits, people are attracting into higher price term and trying to get customers in. But as business velocity increases and momentum of money supply increases, you will start seeing SA getting generated. Usually, credit generates more deposits. So I do believe — and hopefully nothing going wrong in India in three, four quarters from now, situation should change.

I’m not in the camp that believes that CASA for anybody will keep endlessly increasing, unless you are materially increasing your savings rate, which therefore is equal to term rate. So, I mean, I think it’s better to lock in money longer than to keep savings, which can be in and out. So it’s point in time, but we have to watch out. I don’t think it’s the end of the road for CASA. SA will be impacted as it has been impacted for the entire industry, and I think that will cure itself as the economy starts lubricating better.

Rakesh Kumar — Systematix Shares — Analyst

Got it. Okay. Thank you. Thank you so much, sir.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead.

Saket Kapoor — Kapoor & Company — Analyst

Namaskar, sir, and thank you for this opportunity. Sir — firstly, sir, how is this cost to income going to shape up going ahead now that the rising interest rate scenario — what should be factored in in terms of how this line item will be going ahead?

Shyam Srinivasan — Managing Director and Chief Executive Officer

We had mentioned that we will try and improve that by 100 basis points each year. Happily, we have delivered this year. We’re at about 48% and change. Our target is to push it closer to 48% or 47.5% in the next financial year, and that’s what we’ll be focusing on. And it’s a bunch of things, both — as you know, the cost to income is both cost and income. It’s not one or the other. Efficiency and better mix of business and income growth, both — on both counts work is going on. We’ve demonstrated it at this point in time, and we believe that it will continue.

Saket Kapoor — Kapoor & Company — Analyst

And, sir, we have factored in this higher cost of deposit going ahead. That is the figure [Speech Overlap] that figure here?

Shyam Srinivasan — Managing Director and Chief Executive Officer

When we’re moderating our NIM guidance to some extent it factors in the potential higher cost of deposits in periods ahead.

Saket Kapoor — Kapoor & Company — Analyst

Didn’t get you, sir? Come again.

Shyam Srinivasan — Managing Director and Chief Executive Officer

In the NIM guidance, which we’ve had some moderation from the high of 3.49%, it factors in the increased cost of deposits in the period ahead.

Saket Kapoor — Kapoor & Company — Analyst

Okay, sir. Sir, as you mentioned, that there is a strong demand for credit and majority of the banks are continuously focusing on the retail segment. So if you could give us some more granular details where is this demand arising from and what are the factors that have led to it and the strength of this going ahead, the demand in credit that we are witnessing for the last two quarters?

Shyam Srinivasan — Managing Director and Chief Executive Officer

So, as a bank, those of you who’ve been following us for a long, we’ve always said we will be reasonably equally weighted retail, wholesale, within wholesale the different businesses, within retail the various businesses. We are not suggesting that now one business alone will carry us. That is not our mantra and it’s served the bank well, both through bad periods and good. And no different for the future ahead. I think, there are opportunities for all our businesses, particularly our share being lower, there is opportunity for us in all our businesses, some more than the other is where we would share.

To that extent, Mr. Kapoor, I think the opportunity for us is not in any one business and I think all our businesses have an opportunity to scale up and we are pushing that hard.

Did I miss some part of your question, is that what you said or is there something else?

Saket Kapoor — Kapoor & Company — Analyst

Sir, I’m trying to look at the factors which has led to the bankers like you putting up or having comfort in the statement that there is a strong credit demands, so just wanted to understand the feel-good factor that the banking system have today that is leading to this huge demand, credit demand, and the sustainability of the same going ahead? What are the factors that are contributing to it?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Got it. I got it. I think the big one that shifted the needle in the last, let’s say, three, four quarters has been the fact that, A, there was pent-up; B, the other cost of money was higher and, therefore, people shifted to the more formal banking system. So these are drivers of banks’ credit. Banks had more appetite. Everybody had capitalized well. Credit quality had improved. So, banks were willing to lend and there was an opportunity.

Now, as that moderates as we go into FY24 and beyond, those banks have continued to be well positioned. We’ll have a larger chance of getting the share. Those have increased their distribution and all the businesses will get a larger share. Those who have increased their product offerings and are hungrier for credit growth will pick up share and it’s — we think the formalization of India is giving rise to more credit opportunities. I know these are not headline statements. There are lots, GST collections are going up, that many more people are filing GST, that many more data is available, that much more digital footprint is available, that much more pre-approved capabilities are coming into banks. The use of bureaus, the use of credit score cards, the use of third-party digital data are all enabling.

Saket Kapoor — Kapoor & Company — Analyst

Right. Right, sir. And if I look at the line item, sir, these two small points, when we look at your — the line item in the treasury part, on a Q-on-Q basis, there is a decline. So what explains this decline in both the revenue part booking as well as on the bottom line that is under the segment results?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Ashutosh, do you want to give?

Ashutosh Khajuria — Executive Director

Yeah. I think, what you’re seeing is, there is a one-time impact of RBI circular, which came in December. This is more about a clarification on securitization receipts. So prior to 2018 also, they have included all the securitization receipts to follow. The norm, which is applicable post-2018, that means you have to consider as if you are invested in securitization receipts. Well, in the underlying is your own asset, you have to treat as if that asset was continuing as a loan and accordingly provision should be made. So, as a result of that, we have made the provision for the remaining entire balance of SR. So now our net securitization receipt balance is zero, nil. So whatever is the outstanding, the same amount of provision is also standing. That has created an impact of additional INR46 crores, INR47 crores. So that is showing in your treasury, because it comes above the line, not below the line. So it comes — it gets netted off against the profit on sale of investments — 2014 [Phonetic].

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. And, sir — and also want to point out one factor that we — now, we, investors, are also receiving emails for the numbers, so that’s a good exercise I think started by the bank maybe for this quarter and I congratulate the team for sending us the key highlights over the registered email. So that is a good point of acknowledgment from the IR team, sir.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Thank you. Thank you. We’ll make sure that it gets better.

Saket Kapoor — Kapoor & Company — Analyst

It gets better, sir.

Shyam Srinivasan — Managing Director and Chief Executive Officer

I think, before you mentioned that EBM and ISD [Phonetic], we’ve taken a note of that.

Saket Kapoor — Kapoor & Company — Analyst

Sir. Thank you, sir, for remembering me and highlighting that patch, sir, and that is against — point also on the artificial intelligence, sir. How is AI going to help us in detecting the NPA or the stress in the system or the early detection? What steps the bank is taking and how are we ahead of the curve in this asset in detection of the stress and the NPA?

Shyam Srinivasan — Managing Director and Chief Executive Officer

As a bank, adoption of technology using contemporary practices has been our very keen focus. Also, you’ve observed. So far in every part of the bank, whether it’s origination, underwriting, collections, credit, deposit structure, we use technology and no different from a point of early detection. Our collections and credit monitoring teams have invested materially in technology that reach ahead of the cycle in terms of various parameters. They’ve, I think, coined about 112 or 113 indicators, which are early indicators, which enable them to look at an account long before it has any potential stress developing and then the intervention starts very early. They are building models and using technology to enable that. AI is only — as all of us know, is only a means to an end. It’s not an end in itself. So the teams are working on that.

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. And what portion of our loan book is on floating rate, sir, that gets factored in with every change in the repo rate?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Yes. The external benchmark is about 50% of the book. 50.8% [Phonetic].

Saket Kapoor — Kapoor & Company — Analyst

And that is because of the gold portion also having a significant part of the loan book or is it lower to the industry average?

Shyam Srinivasan — Managing Director and Chief Executive Officer

I wouldn’t know about the industry average, but our — in our advances, EBM is about 50.4%.

Saket Kapoor — Kapoor & Company — Analyst

Okay. Thank you, sir, for the answer.

Operator

Thank you. The next question is from the line of Jai Mundhra from B&K Securities. Please go ahead.

Jai Mundhra — B&K Securities — Analyst

Hi. Good afternoon, and congratulations on a great set of numbers, sir. Firstly, sir, you mentioned EBLR is 50%, 50.4%, if you can provide the detail for other MCLR and base rate and maybe the fixed rate book?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Yeah. The fixed rate is about 24.8% or 25%, and the MCLR is 14.5%. And the rest is all FX base rate, staff and others.

Jai Mundhra — B&K Securities — Analyst

Sure. So, sir, considering 50% is EBLR, right, and maybe we are nearing the peaking period in the peak of interest rate cycle, barring maybe one hike. Going into 2024, how comfortable you would be with kind of a stable NIMs or maybe marginal improving NIMs outlook, because as you said that the cost of deposit rise may surpass the yield increase in fourth quarter, then, ideally, that should be the case for the entire year 2024, or there is some different thinking there?

Shyam Srinivasan — Managing Director and Chief Executive Officer

I think, we have moderated our credit — NIM to 3.35%, right, that factors all that in.

Jai Mundhra — B&K Securities — Analyst

But — okay. So — sorry, so I thought 3.35% to 3.40% is for this year and the same is for the 2024?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Yeah. Which is what you’re also saying, right. FY24, around this numbers and everything is factored in; mix of the business, the credit quality, the pricing on both assets and deposits, the incremental credit flow, the quality of the book, the offset because of higher slippages or lower slippages, all that influences the NIM.

Jai Mundhra — B&K Securities — Analyst

Right. Okay. Secondly, sir, on the security receipts, right, so you have taken probably prudential step, because you have taken the entire SR as if they were let us say doubtful 3% and hence you have provided 100%, but if I were to calculate the, let’s say, the normalized cost, which would have been there, if you would have just followed RBI circular, and so, in that sense, what — out of this INR47 crores or INR47 crores, INR48 crores, how much was, let’s say, mandated provisioning and how much was prudential provisioning? Just to understand that aspect.

Shyam Srinivasan — Managing Director and Chief Executive Officer

The entire provisioning was as per RBI December circular. So it’s not a judgment or credential element hasn’t come in. So whatever RBI has prescribed, they have said it has to be provided 100%. So that’s what we have done.

Jai Mundhra — B&K Securities — Analyst

Okay. So correct me if my understanding is wrong, because RBI had said that you — I think, Ashutosh sir also mentioned, that you have to treat SR as if they are on your books or loans, right. So as per IRAC, which is followed in loan growth, so most of your SRs were B3 category, right. Is that what you’re saying?

Shyam Srinivasan — Managing Director and Chief Executive Officer

See, actually, we have not taken any SR. I mean, no loans with underlying NPAs and all that, none of the SRs have been taken in the past four, five years. So, naturally, they would be moving to this 100% requirement.

Jai Mundhra — B&K Securities — Analyst

Okay. Okay.

Shyam Srinivasan — Managing Director and Chief Executive Officer

But rather than doing it, valuing the securities and accordingly arriving at the valuation through third-party, which is advised by ARCs, which was the practice earlier, you still have for those NPAs some securities. I mean, some realizability is there and all, but now because the aging has happened, one shot, everything has been provided, 100%.

Jai Mundhra — B&K Securities — Analyst

Right. So the entire portfolio was prior to 2018, right, that is what you are saying?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Correct. Yeah, it is all prior to 2018. Absolutely.

Jai Mundhra — B&K Securities — Analyst

Sure. Great. And last thing, sir. Shyam, you mentioned that your wage provisions you’ve been making basis the earlier settlements, but if you can provide a number that what you are estimating to start with and what is that number in rupees crores, so that just to get an understanding what could be the steady-state provisioning and maybe the staff cost number?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Probably INR20 crores a month we are providing extra.

Jai Mundhra — B&K Securities — Analyst

And if I were to strip this INR40 crores from this quarter, the rest should be BAU and then you had three months of this wage provision, is that the way to look at it?

Shyam Srinivasan — Managing Director and Chief Executive Officer

No, it’s not November, December, it’s effective November one only.

Jai Mundhra — B&K Securities — Analyst

Right. So from next quarter or maybe additional INR20 crores because for one additional month.

Shyam Srinivasan — Managing Director and Chief Executive Officer

No, additional INR20 crores per month.

Jai Mundhra — B&K Securities — Analyst

Right. Right. So that is what I said.

Shyam Srinivasan — Managing Director and Chief Executive Officer

What you are saying is correct, INR40 crores plus another INR20 crores. Yeah. INR40 crores for two months and INR20 crores per month. You’re right.

Jai Mundhra — B&K Securities — Analyst

And there is no other, let’s say, any other one-off or maybe supernormal kind of a wage [Speech Overlap]

Shyam Srinivasan — Managing Director and Chief Executive Officer

No, I think, in the past bifurcates and all, I think, the increase has been somewhere between 10% to 15%, 13%, 14%. We have gone conservatively and taken the highest of that. So 15% we have straightaway started from the day bifurcate has become due. So from 1st November 2022, it’s due. So from that date itself, we have started providing 15%.

Jai Mundhra — B&K Securities — Analyst

Understood, sir. Yeah. So that is all from my side, sir. Thank you, and all the best.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Any part would remain on you know what, how the yields move. If yields [Speech Overlap]

Jai Mundhra — B&K Securities — Analyst

Right.

Shyam Srinivasan — Managing Director and Chief Executive Officer

— positively then you will have to then look at the pension benefits based on the discount rate and all those things. So that is something which is beyond anybody’s control. That as it comes, then we will be facing it.

Jai Mundhra — B&K Securities — Analyst

Sure. Thanks so much, sir.

Operator

Thank you. The next question is from the line of Krishnan ASV from HDFC Securities. Please go ahead.

Krishnan ASV — HDFC Securities — Analyst

Yeah. Hi. Many thanks. Wish you all a very Happy New Year as well. Just a very quick question on the fee income traction that we have been seeing and it’s been fairly consistent, so that’s nice to see. Just, Shyam, your thoughts on how much of this is a tailwind of where we are at the macro, the fact that the high-quality large corporates are allowing you a certain environment where the pricing power is relatively free, because every other bank has also been relatively good versus how much of this is purely the capabilities within the fact the share of wallet has gone up and, hence — I mean, is there any way to split hairs on this at all?

Shyam Srinivasan — Managing Director and Chief Executive Officer

No. I can only confirm that it is not opportunistic or arbitrage, it is structural. If you, by any chance, see Slide 29, you will see quarter-on-quarter sequentially loan processing, exchange commission, brokerage and other fee income growing very steadily, reflecting the underlying business growth. See, many quarters back, we said credit growth, 2% more fee income growth and that’s holding up quite well.

Krishnan ASV — HDFC Securities — Analyst

Right. There is the other thing around asset yields as well given that you have been building towards the high-quality portfolio for a fairly long period of time, but it was not reflecting in asset yields, because it was a very crowded trade, even now it seems that way. But I think the pricing power seems to have come back with more and more banks exercising it, is that just a function of where we are in the repo rate cycle? Do you think that comes off at any point — I mean, at any place at all?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Krishnan, to some extent, yes, it’s where we are in the cycle. But I also think having seen this for as long as I have, at any point in time somebody has discretion problems in the industry. So somebody ends up being crazy. So it’s not something that you can always say, but, yeah, broadly the power is now not entirely to some maniacal behavior. There is some order that has been restored.

Krishnan ASV — HDFC Securities — Analyst

Got it. And that was my question. Thanks. Thanks, and have a great day.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Prakhar Agarwal from Elara Capital. Please go ahead.

Prakhar Agarwal — Elara Capital — Analyst

Yeah. Hi, sir. Thanks for the opportunity. Just a couple of questions. One is on MSME. So how do you see the competition level moving in there? Are you able to pass on the rate hikes efficiently in that, or probably the competition is pulling that back? And the related question to that is, essentially on a pay-cheque [Phonetic] book as well, have you been able to pass through the entire rate hikes at a system level to these as well [Phonetic], or probably that also is lagging the transmission?

Shyam Srinivasan — Managing Director and Chief Executive Officer

That will by the nature of itself it cannot be — you cannot pass through right away, right. It has to — only on maturity, you will.

Prakhar Agarwal — Elara Capital — Analyst

Not fresh investments, sir, the fresh disbursements.

Ashutosh Khajuria — Executive Director

For the fresh disbursements, we have. Shyam?

Prakhar Agarwal — Elara Capital — Analyst

Yeah.

Shyam Srinivasan — Managing Director and Chief Executive Officer

On fresh, yes. Fresh, yes. MSME, I think, general theory, we hold just a little more pricing opportunities. But even there the better customers are getting both opportunities and are demanding. And if you want the better credits, there is a price trade, and we’ll try to use that trade opportunity by getting in other businesses of the clients and we’re seeing meaningful progress there, both — Harsh’s both businesses have seen a good traction on other income and so as business banking.

Prakhar Agarwal — Elara Capital — Analyst

In contrast to that, the second — just on the second point of clarification, on a fixed rate book, the part that I meant was, for a fresh disbursement, have the loan yield driven by the similar amount that the system rate has gone up or it’s slower?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Shalini, Harsh, on the [Technical Issues]

Harsh Dugar — Group President and Country Head – Wholesale Banking

Yeah. See, on the fixed rate loan, it’s not that fixed rate loans have gone up by 2.25% across the board. So, obviously, that’s been passed on, but not necessarily the same intent, same spread. So —

Shyam Srinivasan — Managing Director and Chief Executive Officer

Even auto loans have not gone up by 200 basis points.

Harsh Dugar — Group President and Country Head – Wholesale Banking

Yeah, exactly.

Prakhar Agarwal — Elara Capital — Analyst

And what would be the level of pass through, if at all, you could quantify that? I know it’s a broad number, but —

Shyam Srinivasan — Managing Director and Chief Executive Officer

80 to 100 basis points.

Prakhar Agarwal — Elara Capital — Analyst

Okay. Of 2.25%, 80 to 100 basis points is on the pass throughs?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Shalini, would that be right? Shalini, on the auto loan?

Shalini Warrier — Executive Director

Yeah, Shyam. That would be about right. Yeah.

Prakhar Agarwal — Elara Capital — Analyst

Got it. And just last split on your expansion. So you’ve probably highlighted that you will probably plan to add around 65 branches for this financial year. How just — how are we looking at our branch network over a period of next two, three years? So we have been fairly stagnant over the last five years. So just from that going forward how do we look at that?

Shyam Srinivasan — Managing Director and Chief Executive Officer

In April call, April-May call 2022, we had said we’ll add between 50 and 75 in FY23 and similar numbers two years from then or little more. 250 branches is what we said we’ll add over a three-year period.

As I speak to you, I think we have crossed 60 this financial year and well on course to make it maybe 75 branches this financial year and roughly between 80 to 90 branches each year over the next two years. So roughly 250 branches. Yeah, the size of the branch changes, the role of the branch is more sales and service oriented, but I don’t see branch alone, we are putting a lot of mobile capability as in not digital mobile as in physical mobile as in bus branches. We are the only bank that has got two buses flying [Phonetic] in Madurai and Lucknow as branches. We’ve got our DBUs and of course various mobile-related solutions.

Prakhar Agarwal — Elara Capital — Analyst

Got it. That’s it from my side. Thank you so much.

Operator

Thank you. The next question is from the line of M B Mahesh from Kotak Securities. Please go ahead.

M B Mahesh — Kotak Securities — Analyst

Yeah. Hi, Shyam. Congratulations on a great results. Just a couple of questions. First one, on the — again, this question was asked, but again asking this again. If you were to look at your cost of funds moving between now and the next few quarters keeping things as where they are, where does it peak out? And correspondingly on the loan side, a similar trend as well?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Harsh — sorry, Ashutosh, you want to go?

Ashutosh Khajuria — Executive Director

Sorry, please come again, Mahesh?

M B Mahesh — Kotak Securities — Analyst

Ashutosh, the question is simple. See, today, if you look at the cost of funds and you look at the rate of change that you’re seeing out there, between now and the next couple of quarters, how does it move? Like, it’s gone up from 4.4% to 4.6%, where does it peak out and at what pace does it change?

Ashutosh Khajuria — Executive Director

See, where will it peak out would depend on where the RBI stops raising the policy rates, it would be a function of that, but I think this 20 to 25 basis points hike per quarter till the rates are moving up in next at least a couple of quarters is possible. It may move up [Speech Overlap]

M B Mahesh — Kotak Securities — Analyst

[Speech Overlap] interest rates unchanged and that’s what — I’m keeping that unchanged, you’d say that it’s — how does it move?

Ashutosh Khajuria — Executive Director

Yeah. About 20 basis points per quarter, it should happen.

M B Mahesh — Kotak Securities — Analyst

And on the asset side, how much is pending now?

Ashutosh Khajuria — Executive Director

Asset side, I think, should grow with another — it should be higher than — in the fourth quarter, my expectation is that it would be higher. So if it is 20 basis points increase on the deposit pricing on the yield side, we should have anything between 25 to 30.

M B Mahesh — Kotak Securities — Analyst

Okay. Perfect. The second question to Shalini, ma’am. Ma’am, just a progress on the Federal Bank subsidiary. How has it gone? What has been progress in terms of efficiencies that you’ve been able to extract so far? Thank you.

Shalini Warrier — Executive Director

Mahesh, are you referring to the insurance subsidiary or the —

Shyam Srinivasan — Managing Director and Chief Executive Officer

No, no, he is talking about FedServ, Shalini.

M B Mahesh — Kotak Securities — Analyst

Operations.

Shalini Warrier — Executive Director

FedServ, okay. FedServ. Sorry. I think, Venkat will come in on that one, I’m sure, in addition to what I will say. So, Venkat, I will just say a few words only. Clearly, we are seeing a huge amount of energy or potential that has come out of it. A lot of the activities that we have normally been done on the branch are now being done in a more effective manner. The FedServ number of employees has crossed, if I’m not mistaken, it’s in the 700 range right now. We’ve also migrated a lot of the activities like the call center into it, both inbound and outbound, collections activity. So — and we are in the process of migrating a few more activities that we do in the branch to it. So, clearly, we’re seeing the benefits of it. Probably we won’t see the direct benefit on the cost to income ratio and that’s because there are so many things that are moving in the cost to income ratio. But the best way to look at this, Mahesh, is what would be — have been the cost — we had to do some of these activities as we’ve been growing in the bank. So if we see that in terms of the benefit, clearly, we can see that FedServ is giving us benefits.

Venkat, I think you’re closer to it now and you can probably add to what I’ve said.

Venkatraman Venkateswaran — Group President and Chief Financial Officer

Sure, Shalini. Yeah. Thanks. Mahesh, we have a fairly ambitious plan to scale up what activities can be done by the operations subsidiary. Currently, as we speak, close to 900 head counts split between two locations. There are clear visibility of adding at least another equal number to support all the bank’s activities, which are permissible as per the RBI’s approval and there are some additional activities as well, which we will now start performing from the operations subsidiary. And we are looking at more than cost saves, yes, there will be, but what we are looking at is creating operational Centers of Excellence where the process will be re-engineered and use of — earlier, there was a question about AI and all that, to the extent possible where processes can be automated using some of the new age technologies. We will do that. So that through that route we bring in the efficiencies, which will be eventually reflected in the bank’s number. So, to sum up, very ambitious plans to scale it up. We have grown from almost 600 to 900 in a year and probably the pace at which it will grow will be further speedened in the next 12 to 18 months.

M B Mahesh — Kotak Securities — Analyst

Perfect, sir. Thank you.

Shyam Srinivasan — Managing Director and Chief Executive Officer

I think, we can bring it to a close, Souvik. If there are more questions, we can take it offline. Souvik?

Souvik Roy — Head of Investor Relations

We can close it, sir. No problem. There are few more questions, but we can close it as of now. I think, yeah, we can.

Shyam Srinivasan — Managing Director and Chief Executive Officer

No, how many are pending in the line? I mean, if they’ve signed up and waiting, it’s unfair to cut them out.

Souvik Roy — Head of Investor Relations

Sure. There are close to seven, sir, questions.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Is there any burning questions?

Souvik Roy — Head of Investor Relations

Sir, we can check, sir. So, we have Manish Shukla next on the line, and few have again joined for the second time, I think, in the queue.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Okay. Will take five minutes more?

Souvik Roy — Head of Investor Relations

Sure.

Operator

Sir, should we take the next question?

Souvik Roy — Head of Investor Relations

Yeah.

Shyam Srinivasan — Managing Director and Chief Executive Officer

We’ll take the next two questions.

Operator

The next question is from the line of Manish Shukla from Axis Capital. Please go ahead.

Manish Shukla — Axis Capital — Analyst

Yeah. Thank you for taking my questions. Shyam, you said that individually credit card or PL [Technical Issues] probably not be a large part of —

Operator

Mr. Shukla, sorry to interrupt you, please use the handset mode. The audio is muffled.

Manish Shukla — Axis Capital — Analyst

Yeah. Am I audible now?

Shyam Srinivasan — Managing Director and Chief Executive Officer

Yes, you are.

Manish Shukla — Axis Capital — Analyst

Yeah. Thank you. I’m saying that while individually credit card and PL may not be a large part of the portfolio, the high yielding segments that you added, collectively, how large do you think they become, let’s say, about to a round alone [Phonetic]?

Shyam Srinivasan — Managing Director and Chief Executive Officer

We — if you recall, Manish, a few years ago, I said by FY23 end, around this March, these two — these three businesses, commercial vehicles, credit cards and microfinance, these three businesses will be about INR67,000 crores and we think that will double in the next two years or a little more than double.

Manish Shukla — Axis Capital — Analyst

And in terms of the credit underwriting, the only reason I ask this question is that we’ll probably see the margin related benefit or yield related benefit being front ended, whereas typically credit cost come and hit us with a lag. We’ve seen this could play out elsewhere in the system —

Shyam Srinivasan — Managing Director and Chief Executive Officer

Not in The Federal Bank, Manish. That I will say with some integrity of confidence and arrogance. We have not allowed that to happen.

Manish Shukla — Axis Capital — Analyst

Sure. So you remain confident that they will not jeopardize the ROA [Speech Overlap]

Shyam Srinivasan — Managing Director and Chief Executive Officer

Right now, it will be INR5,000 crores, INR10,000 crores. We are extremely adamantly focused on that.

Manish Shukla — Axis Capital — Analyst

All right. The last question, Shyam, is that for better part of last 10 years the risk-weighted asset density for the bank has been hovering around 60%, which is lower than some of your larger private sector bank peers. Going forward, do you think you’ll still be in this ballpark trajectory, or the plan is to push it higher?

Shyam Srinivasan — Managing Director and Chief Executive Officer

No, no, sorry, repeat. Come again.

Manish Shukla — Axis Capital — Analyst

The risk-weighted asset density, the risk weights to total assets —

Shyam Srinivasan — Managing Director and Chief Executive Officer

Yes.

Manish Shukla — Axis Capital — Analyst

— for the bank has been hovering around 60%, between 58% to 62%.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Yeah.

Manish Shukla — Axis Capital — Analyst

Whereas most of your larger private sector banks’ peers would be 65%, 70% plus, and that explains the yield and margin difference obviously. Any plans of pushing it higher or your ballpark will be in the same vicinity?

Shyam Srinivasan — Managing Director and Chief Executive Officer

It is an outcome of the business model, Manish. It’s not so much as that’s the number, which is. The businesses that they are pursuing and the mix of the business will reflect in that. There would be some movements and that will reflect in the NIM and the ROA. That’s how we have brought it up from — unfortunately it went down to 0.76% and we’ve brought it up to 1.25% and credibly and consistently we keep pushing that up and that’s our commitment.

Manish Shukla — Axis Capital — Analyst

All right. Thank you very much.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Thank you. Any other question, operator? Is there anybody — one last question.

Operator

Sir, we have —

Souvik Roy — Head of Investor Relations

Just one more, sir.

Operator

The next question is from the line of Gaurav Jani from Prabhudas Lilladher. Please go ahead.

Gaurav Jani — Prabhudas Lilladher — Analyst

Thank you, sir, and congratulations. Firstly, just wanted to theoretically understand, say, for example, RBI raises the repo by 250 basis points, is it safe to assume that the entire 250 basis points will be passed through in terms of overall yields.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Over a passage of time, yes, may not be penny to penny, but largely yes.

Ashutosh Khajuria — Executive Director

I think, for reposing rate accounts, yes. But for others, it could be some part of it or maybe entire — depends on which segment we are into.

Gaurav Jani — Prabhudas Lilladher — Analyst

Understood. No, just wanted to theoretically understand as to how much could the rate —

Ashutosh Khajuria — Executive Director

On the retail loan side, we have been able to do it nearly 200 basis points out of 225. And the last hike has happened only in December, 35 basis points. So out of 190 hike, we could move to somewhere around 200 basis points on the retail side. A similar number was there even for corporate, CIB, somewhere closer to 180 to — 181, 182 basis points or so. So, I think, and there is another segment where it was just 155 or 160, so it depends on what type of intensity, competitive intensity is there in the market.

Gaurav Jani — Prabhudas Lilladher — Analyst

Understood. Just last question, sir, sorry to harp on this a bit more, but the cost of funds have, sort of, beaten estimates. So how should we look at it in terms of the fact that this quarter we saw a fair bit of increase in the wholesale deposits, but seems that the cost of funds was pretty much went to [Technical Issues].

Shyam Srinivasan — Managing Director and Chief Executive Officer

So despite increase in ordinary deposits, the percentage of wholesale deposits to total deposits still is very small. So even if that segment has seen some sharp hike in rates of interest, it’s not impacting the whole stock to that extent.

Gaurav Jani — Prabhudas Lilladher — Analyst

Understood. I’ll probably take it offline. Thanks. Thanks. Best of luck.

Shyam Srinivasan — Managing Director and Chief Executive Officer

The granularity is the retail nature of deposits, which gives us an edge.

Gaurav Jani — Prabhudas Lilladher — Analyst

Understood. Understood. Thanks a lot.

Operator

Thank you. Ladies and gentlemen, we will take that as a last question. I now hand the conference over to Mr. Souvik Roy for closing comments.

Souvik Roy — Head of Investor Relations

Thanks, Azan. So, in closing, I want to thank you all for joining us today. We are committed to delivering value and we will continue to focus on our growth and strategy. As always, the management team and I are available to answer any questions that we may have skipped today. We appreciate your continued support and look forward to updating you all on our progress in the future. Thank you, all, and have a great year ahead. Thank you.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Thank you, everybody.

Shalini Warrier — Executive Director

Thank you, everybody. See you. Bye-bye. Thank you.

Ashutosh Khajuria — Executive Director

Thank you.

Harsh Dugar — Group President and Country Head – Wholesale Banking

Thank you.

Venkatraman Venkateswaran — Group President and Chief Financial Officer

Thank you.

Shyam Srinivasan — Managing Director and Chief Executive Officer

Thanks.

Operator

[Operator Closing Remarks]