The Federal Bank Limited (FEDERALBNK) Q4 FY23 Earnings Concall Transcript

The Federal Bank Limited (NSE:FEDERALBNK) Q4 FY23 Earnings Concall dated May. 05, 2023.

Corporate Participants:

Souvik Roy — head, investor relations

Shyam Srinivasan — Managing Director And Chief Executive Officer

Venkatraman Venkateswaran — Group President and chief financial officer

Ashutosh Khajuria — Executive Director

Analysts:

Mahrukh Adajania — Nuvama — Analyst

Deepanshu — Riddhi Capital — Analyst

Renish — ICICI — Analyst

SimranJeet Singh — Master Trust — Analyst

Pranav — Red — Analyst

M.B. Mahesh — Kotak Securities — Analyst

Anand Dama — Emkay Global — Analyst

Kunal Shah — Citigroup — Analyst

Unidentified Participant — — Analyst

Nitin Agarwal — Motilal Oswal — Analyst

Gaurav Jani — Prabhudas Lilladher — Analyst

Sanket Kapoor — Kapoor and Company — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q4 FY ’23 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. Thank you and over to you sir.

Souvik Roy — head, investor relations

Thank you, Ryan, and good evening, everyone. On behalf of Federal Bank, I welcome you all to our Q4 earnings conference call. I hope you all had the opportunity to go through the investor deck which is available on the exchanges and also on our website. The last year’s performance has ensured that we are on a strong footing and ready to leap forward to the next level of our growth journey.

Coming to the quarter that went by, happy to share that we are on track and in-line with the guidance that we’ve given in the previous quarters. A quick snapshot of Q4, we have recorded the highest ever quarterly net profit. We have seen broad-based asset growth, our asset quality remained stable. The progress made on our strategic priorities is noteworthy, and also I’m glad to mention that we have seen the best recovery numbers ever, and all of this has resulted in robust improvement in our key return ratios, which are at multi-quarter high.

I have the entire top management here on the call with me, and without much ado, I would request our MD to take it over from here. Over to you, sir.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Alright, thanks, Souvik. Good evening, everybody. Like Souvik pointed out, we are encouraged with the performance of Q4 and the financial year, but nothing is ever a straight line. There are good stuff and there are areas that we need to work and improve upon, and certainly that is the focus of the bank. Those of you who had the chance to attend our session in late February and have gone through our deck, we had talked about the things that have gone well, the things that and on focus on the bank, and how do we continuously focus on improving our return outcomes. Happy that what we had mentioned in February ’20 as the likely exit-rate for February and March ’23, we have come in better on that, and we did mention that in the following period, which is FY ’24 and FY ’25, we are looking to improve on this performance. I’m encouraged that the 1.28 full-year, the last exit-rate of about 1.45 of ROA, we are on course to improving and ensuring that the full year ROA for FY ’24 is along guided lines.

Not to miss the point, I did get a few calls after the results and there were some concerns expressed around has the NIM plateaued out? Why has it fallen as much as it did? And I know we can try and talk about it and I will address that and mention both the yield on advances, how did it grow and the cost of deposits, how did it grow, and therefore the deposit pricing increase fully in the book or are there residual? I think there is some residual, but a large part of it has been repriced. Different banks may have different deposit profile and different timing. We believe for Federal Bank, Q1 saw the brunt of it — and sorry, Q4 saw the brunt of it, and therefore, we did see the cost of deposits go up by about 55 basis-points, while the yield on advances went up about 36 odd basis-points. That’s the difference that we [Technical Issues] which did have an impact on the margin sequentially.

We exited last financial year at 320, we exited this financial year at 331, and the average for the year was 331. NIMs, which is along the expected guided lines, and I believe, with a focus on the businesses that we are giving more fillip to, and the mix of business and the repricing opportunities.

I’ve been talking about NIMs for FY ’24 being in the region of about 330 to 335, and the ROE of the business being around 1.3 to 1.35, both of which are very much within our guiding range, and we think we have both the capability and the machinery to make sure that happens. And importantly for long periods of time, our credit quality has been, I would say exemplary, this in a credit costs have been in Q4 particularly flattening at about 19 basis-points, but full-year credit costs about 40 basis points is in the range that we’ve been guiding for, between 40 and 50 basis point, thankfully it’s at the lower-end of the range.

So this combination of fairly balanced credit quality, the cost of credit being best-in class, the NIMs being because we write better-quality business, NIMs are not going to be flat, it’s exaggeratedly high, but the risk-adjusted margin being around this number 3 is what we are working on, working towards, and improvement in fee income, improvement in efficiency are all helping us grow our return ratios quite significantly.

So, in fact, I thought I’d just begin the call by just talking about an area that most people sort of queued in or asked. I didn’t want to go down the band and not talk about it, so I just thought I’ll just upfront this point around our business model, which I think is important for everybody to understand.

We don’t take exaggerated risk. Within our risk framework, we ensure that the business mix is appropriate. Within retail and wholesale, we’ve said 55-45, within retail, we have given accent now in the more recent past, businesses like credit card, personal loan, commercial vehicles and microfinance.

And on the corporate side between corporate and commercial banking, we are seeing good progress. And if you’ve seen our numbers, you’ll notice the fee income from our corporate relationships have been growing at about quite significantly, 35 odd percent kind of growth rate. So, we’re able to get the client relationship. At a client level, we are getting a larger share of the client wallet.

Another area that often is asked about is the nature of your business has been the strength of Federal Bank has been a good deposit franchise and a retail deposit franchise. Happy even through FY ’23, which is arguably one of the toughest years for deposits acquisition. We saw reasonable growth. There were areas that in a term we had to make sure that we are not outpriced, but we are comparatively priced and we saw retail term growing about 14% and the overall deposit growing about 17%. We also continuously check to see how our market share is in terms of domestic savings and NR savings. Our share of NR deposits have increased from about 6.5% to 6.8% across the country. Our share of domestic overall savings have been hovering between 0.94 to 0.97 or sometimes around 1%, so we are without paying much higher rates, continuing to hold share. Our next focus is gaining share in domestic savings which through the branch expansions that we’ve had, through the partnerships that we have beginning to see traction.

Last financial year, we opened 75 branches, which thankfully are holding out well and maturing quickly. This financial year, we are looking at about 100 branches. Our Fintech relationships, which is about a year and a half old is graduating into — the accounts that we have booked are graduating into its year two. So, we are seeing balances built.

So on balance, FY ’24, I just want to point out, our focus continues to be not exaggerated risk, credit quality being in and around the guided range of about 40 basis points to 50 basis point, more like 40. The NIM will be around 335 or so, and our commitment, our focus is to make sure that the ROE expansion is well on course and on track, and we believe the foundation of the bank is in a good place, credit quality is holding quite well and we have addressed some of the issues that needs to be addressed from our point-of-view of ensuring deposit growth remains remains priority for the bank.

So let me just pause here and open it for questions. Like Souvik mentioned, the entire senior team [Technical Issues] we’ll be happy to take questions and any clarification. Thank you very much.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Mahrukh Adajania from Nuvama. Please go ahead.

Mahrukh Adajania — Nuvama — Analyst

Yeah, hello sir. So, you already delved upon margins, but if you go by [Indecipherable] then we are talking about some margin expansion from 4Q levels. So how do you, I mean, what will really drive that? I know share of new businesses or new products will. But, does that take into account the possible deposit competition which could happen because now [Indecipherable] because everyone has these excess liquidity. So how does it pan out on margin. And my second question is even on cost-to-income, where do you see that settling, and the third is on loan growth. Is the guidance of high-teens still — do you still maintain the guidance of high-teens?

Shyam Srinivasan — Managing Director And Chief Executive Officer

Yeah, that’s a lot of questions, let me try. Yes, we mentioned that we are looking at the credit growth in that zone. It looks possible at this juncture. Even this financial year has begun reasonably encouragingly new well. So, we are not yet altering our outlook on that count. We are poised for that kind of growth. The mix of business I think you pointed out, there is a fair degree of traction in all these new businesses, and we believe that should give us some kind of fillip. I think this is a question that was asked of us even when we made our presentation in end-February, and we did talk about what kind of mix and how that should help.

And in terms of deposit pricing, it’s our belief that probably the peak of the pricing is already factored in. Now it’s only the play through of whatever you’ve already priced in. It’s unlikely, there may be a material increase in rates at this point in time. And we have factored in all this.

In terms of cost-to-income ratio, we are in the around 49 or so. We did talk about it and we said we believe that each year we should see some progress on that count. This year, even if you take out the one-off expense that we had to carry in the last quarter of last year, the last year’s full-year cost-income was around 52, 53, we have come down to about 49. And we believe we’ll see another 100 basis-point improvement in FY ’24.

Mahrukh Adajania — Nuvama — Analyst

Okay, thank you sir.

Operator

Thank you. Our next question comes from the line of Deepanshu from Riddhi Capital. Please go ahead.

Deepanshu — Riddhi Capital — Analyst

Hi sir, thanks for taking my question. I wanted to understand on the credit deposit ratio, so in the last quarter, we had grown our deposits, but we were controlled on our credit output. So how do we see this. So, this is the first question.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Yeah, go ahead, what is the next question?

Deepanshu — Riddhi Capital — Analyst

And second thing on [Indecipherable] to that sir, our capital adequacy ratio is around at 13% so is it something that we are trying to be little bit conservative on our advances growth?

Shyam Srinivasan — Managing Director And Chief Executive Officer

No, I think our CD ratio is between 81 and 83, it hovers around. It’s just in Q4, we decided to be a little more focused on generating deposits, and we saw that come through. But we have not let go or not intending to let go of credit growth opportunities. It is in the, full-year credit growth is sort of about 20 basis, 20%. Last quarter we saw higher-rate of growth in deposits of credit, but that was conscious. Wherever we have good credit, we picked it up. Wherever pricing was less than attractive, we decided not to pick that up. Our outlook for FY ’24, I’ve already said. If that happens, the credit CD ratio will be around 82 to 84.

Deepanshu — Riddhi Capital — Analyst

Okay, and sir any linkage with the capital adequacy ratio? So are we looking to raise any funds in FY ’24 or are we comfortable on that count?

Shyam Srinivasan — Managing Director And Chief Executive Officer

So, I mentioned when we did our call in the January results, we have a shareholder approval. We are considering options, but we have not narrowed down to anything as yet. But there is a likelihood of a capital raise for growth at an appropriate time, but we don’t have any finite date or time as yet.

Deepanshu — Riddhi Capital — Analyst

Sir, our large question on our credit quality. So, how comfortable are we on that credit quality on the retail side so with the new fintech partnerships and all, and we are trying to increase more from the guys who are at a higher rate. So how confident we are and what kind of rating mechanism we follow, any color on that?

Shyam Srinivasan — Managing Director And Chief Executive Officer

Don’t know what the question is, but I think our multi-year track record speaks to the fact that we are quite both disciplined and conservative on the overall underwriting across product streams. We don’t intend growth coming through flexing or letting go of credit standards. Credit standards on-top of that growth, and we believe that’s possible.

Deepanshu — Riddhi Capital — Analyst

Okay sir, thank you.

Operator

Thank you. Our next question comes from the line of Renish from ICICI. Please go ahead.

Renish — ICICI — Analyst

Yeah, hi, sir, and congrats on a great set of numbers. So just two questions, one is on the retail deposit share which has been actually steadily coming down from almost 92% in March ’22 to 85% by March ’23, and especially in second-half, our CD ratio is also coming down, which essentially means that we are sort of maintaining the highly-liquid balance sheet. So just not able to understand then why we are increasing the positive quota-share. I mean, in any which ways, our CD ratio is coming down.

Shyam Srinivasan — Managing Director And Chief Executive Officer

I think, Renish, the first point that is 85, these are point in time, these are certainly not the trend. I wouldn’t make a trend of it. It could quickly set back to 90. I don’t believe these are, and like I said, we were ensuring that we had a good deposit pipeline in the quarter that went by. And we were — we did not shy away from taking those deposits. But that doesn’t suggest that it needs to be the trendline. We are keen to make sure that our deposit growth is able to match up to our credit expansion, and with the combination of that in mind, between term, savings current account, we will ensure that we meet the trilemma of ensuring CD ratios, ensuring mix between deposits and continues to be retail in nature. I would not read much into it as is not as yet, we haven’t seen any reason to view it differently. Haven’t gone out and bought deposits. Even the term deposits that we are our client’s individual deposits.

It is a fact that the NR customers have moved a large part of their savings to term, whenever the rate differential is significant that is bound to happen, and it’s not unique to Federal Bank, I think a market phenomenon. We’ll be foolish to let go of balances to somebody else.

Renish — ICICI — Analyst

Got it. So sir, just a follow-up on that, so maybe it is right to assume that though the retail deposit definition is anything less than INR2 crores this retail, but may be the large part of NRI would have been individual, but maybe having ticket size of more than INR2 crore, and hence that ratio is looking like this. Is that the fair…

Shyam Srinivasan — Managing Director And Chief Executive Officer

It’s a fair assumption. It’s a fair assumption.

Renish — ICICI — Analyst

Got it, and sir, secondly, again on the margin side, so incrementally, when we are saying that the high-yielding books like CVC, MFI, PL etc., will grow at a faster clip, plus the strategic focus on gaining market share on the top side. So why not we are yet aiming for higher means, the 3.3, which is currently standing out.

Shyam Srinivasan — Managing Director And Chief Executive Officer

It’s not that we are not aiming at, Renish, we are definitely aiming at a higher number. But when we speak to the market and give a guidance, we have to be honest about it, and believe that those are the bare minimum we should deliver. We link at this juncture given the prior pricing play-out of deposits in one more quarter, and the — we don’t want to take disproportionate risk in growing any of these new businesses and then have a problem a year or two down. The blend looks like, and I constantly remind ourselves that we are not looking at NIM in isolation, we look at NIM adjusted for credit cost. I still argue that a long period of time, the franchise should look at risk adjusted NIM, risk adjusted margin. You are all seasoned analysts, please look at our bank versus many others and you will find that we’re not disproportionately off.

Renish — ICICI — Analyst

No, no, absolutely, sir. Just a clarification. So, in your opening remarks, you did mention that large part of our deposit base is already repriced. So, would you like to quantify, I mean, what percentage of deposit has already repriced at a revised steady rate.

Shyam Srinivasan — Managing Director And Chief Executive Officer

I would think about 80% is repriced.

Renish — ICICI — Analyst

Got it. So, okay, cool. Thank you, sir, that’s it, and best of luck, sir.

Operator

Thank you. Our next question comes from the line of SimranJeet Singh from Master Trust. Please go ahead.

SimranJeet Singh — Master Trust — Analyst

Yeah, thank you for taking my question. Sir, first of all, congrats for the great set of numbers to you and to your all Federal team. Sir, I have couple of questions. Sir, first of all, can you brief something about the slippage part in the quarter four, where we are seeing that the slippage [Technical Issues] quarter.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Sorry, what did you say? What do you want the commentary on?

SimranJeet Singh — Master Trust — Analyst

Sir, on slippage part, on the slippage part. Slippage in quarter four.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Yes, so you want the numbers? Sorry, I didn’t get the question.

SimranJeet Singh — Master Trust — Analyst

No, the numbers are there with me. How you see that trend going-forward in terms of slippages, because this quarter in Q4 we have seen that it has increased quarter-on-quarter, so how you see in the upcoming quarters slippages. If you can give some guidance or something, comment on that.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Sure. I think the sequential or long period average has been good at 350 and 400. This quarter it is a tad higher. That’s because of some actions we took on the retail lag, is on the Agri portfolio in certain products. But retail has trended down and commercial banking has come down. Some part of minor uptick in business banking. So, it’s not out of range. We think our guidance, if I remember right, when we began the financial year, I said it will be around INR1,800 crores, and thankfully, it came at about INR1,600 crores full-year slippages. And equally recovery upgrade did even better. So, this trendline should and continue, we are about a 1% slippage back which probably some of the best in the market.

SimranJeet Singh — Master Trust — Analyst

Great. And sir, my second question is on the gold loan front, how are you — what is the maximum cap in terms of loans you are looking at this point of time because gold is already at an all-time high. So how you think the gold demand in your bank, I mean at this present juncture.

Shyam Srinivasan — Managing Director And Chief Executive Officer

So am I saying what share of gold will be our overall — as part of our overall business. Is that the question?

SimranJeet Singh — Master Trust — Analyst

Yes. You know, [Technical Issues] is. What will be the percentage going forward? And second, how you see the gold asset quality going forward, gold asset quality, means in terms of the growth.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Gold, unless there is odd or any wrong practice, gold as the business continues to be attractive and we will continue to grow that. The rate of growth depends on I think both the opportunity and the timing. If the other businesses are growing rapidly, gold usually tends to grow slower. We believe that in 20%, 25% growth in FY ’24 is very possible in gold, and we will do. And as a percentage of gold as a percentage of overall portfolio, today, it’s about the 19, so it is about 10%, 11% of our overall outstanding. We have our internal cap that it should never cross 15, but we are distance away from that. So, you could believe that we will grow about 20 odd percent in gold. Portfolio will be okay. Yes, there are some practices that needs to be corrected. But gold as a category continues to be profitable and growing, and continues to be an opportunity to grow.

SimranJeet Singh — Master Trust — Analyst

Sir, then my last question is that, sir, and my last question is, is there any acquisition target that Federal Bank is looking for in the upcoming time?

Shyam Srinivasan — Managing Director And Chief Executive Officer

I think there was one, I would not just casually speaking in a call like this, I have to go through a process. But, suffice to say, we are organically focused. If there is anything that’s useful, relevant, accretive and at an affordable price, we will consider. All four of this makes it a very rare opportunity that something will show up, but if it does, we will consider appropriately enough, but right now, nothing.

Operator

Thank you. Our next question comes from the line of Pranav from Red. Please go ahead.

Pranav — Red — Analyst

Sir, thanks a lot for the opportunity. Sir, just have one query. In terms of CD ratio has actually reduced, but if we consider C+I, that is credit plus investment to deposits plus borrowing, that ratio is almost constant. So that should not have actually suppressed the NIM so much, so that is one part. So, congruous to the part, can you just elaborate how much percent of advances are yet to reprice and how much percent of deposits are yet to represent by what amount, so that we can have a stable outlook for NIM for next coming quarters.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Pranav, I think the answer to the question goes back to where I had guided, we are — we think 330, 335 is the outlook that we are visualizing at this point in time, certainly in the quarters ahead, we will look at revisiting that guidance, but at this point in time, suffice to say that. Taking into consideration all the points you have pointed out, which are valid points, we think we are poised for margin range of 330 to 335.

Pranav — Red — Analyst

So this is just because of the mismatch between the timing right of repricing.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Yeah, largely, yes.

Pranav — Red — Analyst

Okay, okay. So that is one question. Second is in terms of employee expenses, can we assume now this is a stable base or are there any one-offs in this current quarter INR597 crores of expense?

Shyam Srinivasan — Managing Director And Chief Executive Officer

One off in this quarter, nothing. I think at the last year last quarter had the upfronting of the entire family pension, that was not there this year. So, to that extent. Yeah, if pension requirements go up because yields fall, that can change, but at this point in time, this is the run rate. Venkat, would I be right?

Venkatraman Venkateswaran — Group President and chief financial officer

Yes, Shyam, that’s right. There are no one-offs in this quarter’s number.

Pranav — Red — Analyst

Perfect sir, thanks a lot.

Operator

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

M.B. Mahesh — Kotak Securities — Analyst

Yeah, hi Shyam. Just two questions from my side. If you could just quantify what is the current cost of term deposits that you are carrying today, as well as the term deposits.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Current cost of?

M.B. Mahesh — Kotak Securities — Analyst

Term deposits.

Shyam Srinivasan — Managing Director And Chief Executive Officer

You mean the cost of deposits, or cost of term deposits.

M.B. Mahesh — Kotak Securities — Analyst

Cost of term deposit. If I look at your website, you currently have the one year book is at about 6.8% to 7%. Just trying to see where is the term deposit rate in your book as well.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Venkat or Damodaran, would you have it on top of your head?

Venkatraman Venkateswaran — Group President and chief financial officer

The blended would be currently for deposits around 6.2. I am talking about term.

M.B. Mahesh — Kotak Securities — Analyst

So you have cost of deposits which you have reported is 5.1. You have — but if you work backwards, it can be at this number, right? It appears to be a bit low.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Mahesh, can you come again? 5.1, you said is the cost of deposit.

M.B. Mahesh — Kotak Securities — Analyst

Yeah, for your CASA ratio that you have, just trying to work backwards as to what would be the implied term deposit book interest rate that you’re carrying today. Shyam, just trying to work through this statement that you made, that we are closer to the peak of cost of deposit repricing. Just trying to understand. When we compare it with the headline base that you report as to whether we are there or not. Just trying to reconcile these numbers.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Maybe you should take that with Venkat, and he will through offline give you the details.

M.B. Mahesh — Kotak Securities — Analyst

On the other side, when you look at the yield, it is up about, let’s say, about a little over 120 basis-points since the start of this rate cycle. Your repo book is approximately about a little over 50%. This by itself should have created a 120 basis-points delta favorable. But if I look at the other parts of the book, which also would have repriced during the course of the last nine months, where is it that we are missing here in terms of numbers.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Anybody wants to do? Ashutosh or Venkat, you have anything that you can offer or we should give that as a clarification later.

M.B. Mahesh — Kotak Securities — Analyst

Okay, let me just rephrase it then, how much room is still available for the yields to move up in your portfolio, given the current interest rates.

Venkatraman Venkateswaran — Group President and chief financial officer

So, I think there are two parts. In MCLR, there is a room — in MCLR linked loans because that grows with lag, and it is more to do with the proportion of the stock for a particular bucket and all. So, the computation of MCLR is like that. So, on repo side, the repricing has been happening at the same time when the repo rate hike was happening, except in those cases where the recent period is monthly or quarterly or annual. So, where, like in case of, I mean, majority of these are T plus one itself. But in some cases where the reset would be for longer, but that should not be material. MCLR linked loans, definitely there is a room to grow unless the repo rate itself goes up further, assuming that, that’s the pivot, that is the maximum and all that, then I think it would only be the spread on which the yield would go.

Ashutosh Khajuria — Executive Director

I can just add a bit over here. 50% of our loans are repo linked, which had been completely repriced. 13% to 14% is MCLR based, which I would feel half of it would have got repriced and half of it still could be getting repriced. Some are fixed-rate loans, both shorter tenure and longer tenure. Those also will get repriced, so about 15% of our portfolio in advances, I think still have scope for improvement and repricing.

M.B. Mahesh — Kotak Securities — Analyst

Okay, okay, thanks Ash.

Operator

Thank you. Our next question comes from the line of Anand Dama from Emkay Global. Please go ahead.

Anand Dama — Emkay Global — Analyst

Sir, thank you. So first, we have seen some decline in the gold loan portfolio. So that basically is primarily with the issue that we had with the rupee earlier on or is there something else.

Shyam Srinivasan — Managing Director And Chief Executive Officer

No. I think you’re partly right. It’s not an issue, it’s just that digital lending criteria required them to — they did pick up, but unfortunately there were more work to do. So, to that extent that has slowed down, but the organic branch led is continuing to grow. But some of that goal being a short tenor product, did runoff.

Anand Dama — Emkay Global — Analyst

Okay, okay, so next quarter onwards, we should see a quarter-on-quarter growth.

Shyam Srinivasan — Managing Director And Chief Executive Officer

We expect growth back again. Also because it’s growing off a smaller base, a lower base.

Anand Dama — Emkay Global — Analyst

Sure, sure. Sir, secondly, if you look at our risk-weighted assets growth, that seems to be far higher than somewhere about 20 odd percent versus loan growth. So is it primarily because of the growth that we have seen in the PL microfinance book and so on, or is there anything else in terms of risk adjustment that we have done.

Shyam Srinivasan — Managing Director And Chief Executive Officer

I think it’s the latter. You may all be aware, there is a regulatory requirement for clients who are unrated carry a higher-risk weight, if there is an unrated, and unrated assets, they are not declared. So looked at our portfolio. If the client had not given their ratings, then it would be a higher-risk weight. So that’s a one-time activity and should not be up for any significant impact.

Venkatraman Venkateswaran — Group President and chief financial officer

Basically, it is to align with the regulatory requirement. We have classified some of those rated accounts also as unrated because our amount is not reflected there in that rig. So, because of that, a part had to be classified, and that process is on to get our amounts included in the rating process.

Anand Dama — Emkay Global — Analyst

Sure, that’s very helpful.

Shyam Srinivasan — Managing Director And Chief Executive Officer

I hope you understood that explanation, that’s important Anand.

Anand Dama — Emkay Global — Analyst

Yeah, yeah. And sir, lastly if you can help with the LCR ratio that we have for the current quarter.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Around 120.

Anand Dama — Emkay Global — Analyst

How much was that last quarter?

Shyam Srinivasan — Managing Director And Chief Executive Officer

Around the same, 124 or 125. Damodaran, are you there? Yeah, he is not there, but it is roughly 124, 125.

Anand Dama — Emkay Global — Analyst

And sir, we have done any working on the ECL provisions, and if there is any shortfall or like we already carry excess provisions.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Venkat.

Venkatraman Venkateswaran — Group President and chief financial officer

We have worked on it, but at this stage, we don’t disclose in terms of the workings at all. We have done the calculations and we are confident of meeting once the regulations come in play.

Anand Dama — Emkay Global — Analyst

Okay, we don’t have to do any additional provisions, right? Or we have it comfortably placed.

Shyam Srinivasan — Managing Director And Chief Executive Officer

We will come back when we have a better data on that, a better timing for that. I don’t know if we can appropriately talk about it.

Anand Dama — Emkay Global — Analyst

Sure, no issues. Thanks a lot.

Operator

Thank you. Our next question comes from the line of Kunal Shah from Citigroup. Please go ahead.

Kunal Shah — Citigroup — Analyst

Yeah, hey Shyam. So firstly, on the wholesale, I missed the comment. But there was a significant increase in the wholesale portfolio on a quarter-on-quarter basis. So, and at what costs are we raising and how much was that impact in this particular cost of deposits. And given that it would be towards the end of March, do we see maybe a further impact in Q1 of our relatively higher deposit costs, because that will have a full-quarter impact.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Ashutosh, which was that one? [Indecipherable] Ashutosh. Sorry, please come again.

Kunal Shah — Citigroup — Analyst

Wholesale deposits

Ashutosh Khajuria — Executive Director

Wholesale deposits, when we see there is a significant price on a quarter-on-quarter basis, if we just look at the calculated numbers given from the CASA plus [Speech Overlap]

Shyam Srinivasan — Managing Director And Chief Executive Officer

CDs issuance for short-term, three months, two months CDs.

Kunal Shah — Citigroup — Analyst

Okay, so we will not see that full impact coming through in Q1 as well and keeping the deposit cost elevated.

Shyam Srinivasan — Managing Director And Chief Executive Officer

It will mature in April also, part of it has already matured. I mean April, part of that book has already matured, may also it would be maturing. It is widely spread. So, I think if you compare the CD issuance number March ’22 versus March ’23, there was an increase, and which is showing a higher percentage of wholesale.

Ashutosh Khajuria — Executive Director

Yeah, yeah, and even on a quarter-on-quarter. I would say.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Yeah, I think that would not be material. CD rates of greatly cooled down. It has already come down by about 30-basis points, 40 basis-points.

Operator

Thank you. Our next question comes from the line of [Indecipherable]. Please go ahead.

Unidentified Participant — — Analyst

Hey, am I audible?

Shyam Srinivasan — Managing Director And Chief Executive Officer

Yes, you are.

Unidentified Participant — — Analyst

Yeah, thanks for the opportunity. Just some quick follow-up questions on the margins. First of all, do you mind sharing what our exit margin are for fourth quarter? i.e., what’s the margin for month of March.

Shyam Srinivasan — Managing Director And Chief Executive Officer

For the month of March, I don’t know if I would have that ready-made. But the full quarter is 331, can be very different in March, in fact March maybe a slightly higher month, so, because it has got 31 days.

Unidentified Participant — — Analyst

Adjusting for these, is it higher or lower than the average quarterly margin.

Shyam Srinivasan — Managing Director And Chief Executive Officer

March would be higher, so I would think, you should — the blended number is a better number for your calculation. I’m guessing you want to do that for your extrapolation on what is the exit rate. I think 331 is the number you should take.

Unidentified Participant — — Analyst

And then on deposits, that’s the average maturity of our fixed deposits and the average.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Large part is in 12-month bucket.

Unidentified Participant — — Analyst

And also, on our guidance of, you know, margin in FY ’24 to be 300 to 205 [Phonetic] basis-points. How much of mix impact of this to margins, are we assuming.

Shyam Srinivasan — Managing Director And Chief Executive Officer

How much of?

Unidentified Participant — — Analyst

How much of increase in margin due to mix are we assuming in that forecast.

Shyam Srinivasan — Managing Director And Chief Executive Officer

No, the 330, 335 is quite reflective of where we are right at the exit-rate at the bank.

Unidentified Participant — — Analyst

I mean we are increasing on those higher-yielding [Technical Issues].

Shyam Srinivasan — Managing Director And Chief Executive Officer

Play through right, there is a play through, because like Ashutosh and others pointed out some deposit cost accretion happens, some new business that goes at a higher margin, so the blended outcome will be 330, 335.

Unidentified Participant — — Analyst

Yeah. I just wanted to know much how, how many basis-points roughly increasing margins are we assuming in FY ’24 is due to the improvement in mix towards higher yield products.

Shyam Srinivasan — Managing Director And Chief Executive Officer

No, you could do that. Take the businesses that are relatively higher-yielding and they are growing at about — some of them are growing at well above 30%, 40%. So that should give some kind of indication. Businesses, credit cards, personal loans, commercial vehicle, microfinance, and to some extent, gold. These businesses are growing at, barring gold, others are growing at well north of 40%, albeit on a small basis.

Unidentified Participant — — Analyst

That’s all. Thank you so much.

Operator

Thank you. Our next question comes from the line of Nitin Agarwal from Motilal Oswal. Please go ahead.

Nitin Agarwal — Motilal Oswal — Analyst

Hi, good evening, everyone. So interesting to see the profits for four quarters of FY ’23 been INR600 crores, INR700 crores, INR800 crores, and INR900 crores. I hope this run rate sustains. I have three questions. First is, while you indicated that deposit repricing was higher than 4Q and you are guiding for slightly higher margins. Now for FY ’24, can first-half margins be lower versus the second-half as deposit repricing will continue and benefit from improving mix of high-yielding loans will take time to play-out. So that’s question one. And second is on the restructured book, wherein we still have 1.6% of restructured loans. So, if I compare this to like most of the large private banks, the restructured book has been fairly dissolved and most of them are like fairly below 1 now. So how do you see the dissolution of this restructured book going-forward. And the third question is on core fee income, which has grown on a Y-o-Y basis, but still broadly the same for past third quarters now. So how do you see that the trend here.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Yeah. I mean, that the fee income is first, and we come back to all your questions. I think the number you mentioned about INR540 odd crores, but do see the mix on that. I think, processing fees is broadly consistent. It’s linked to volume and is trending quite well. The fee related to the third-party products and others have moved quite, even sequentially move quite well, the one that is solidly moving back and forth is the profit on FX which tends to be choppy only because it depends on the environment. In Q4, it was lower, Q3, Q4, Q2 was higher. We believe that should come back. So the fee income piece, what is important is exchange commission brokerage, other fee income, we have seen good progress and that should continue. So, the overall income non-Treasury related is tracking well. FX continues to be opportunistic. Sometimes, the environment is not conducive. So, we believe that should continue to grow. The other two questions, remind me the order, I am sorry, I skipped the second question [Speech Overlap]

Nitin Agarwal — Motilal Oswal — Analyst

Yeah, one on the restructured book, how do you see the dissolution of that. And this is our third one is on the margins. Can first-half margins be lower than the second half.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Your assumption would be probably right. I do think it will be consistent with the same. The blended number is what we are talking of about 330, 335. I could have a slightly more softer start and then catch-up. So yes, that could be a fair assumption. On restructured, Raj or Ashutosh, you want to give the clarity on that.

Ashutosh Khajuria — Executive Director

I think there are two-ways of having the restructured book measured L1. One is, you know when you have restructured as per new terms and conditions, and once the moratorium is over and you have three instalments or six instalments coming in time or so, you take it out of restructured book and treat it like any other standard asset. The other way is, you know, I mean, the tax continues as a restructured book and you have a longer time period given to that asset, which either it gets reduced by repayment. But if you have a housing loan, like the composition of our book and all, so these are the loans per say 15 years, 20 years or so, now there the repayment would be gradual and all that, but we have not removed any of the accounts from these as long as it is standard and meeting it’s new terms and conditions.

So that’s the basic difference. If you have a short-term restructured, two years or three years. By now, you know, part of it would have been repaid and therefore, it would have come down some of their banks, or they would have taken it out on account of satisfactory performance as per the revised terms and conditions. So, I mean, the composition is the one wherein you remit. We have not removed any accounts from that book as long as — I mean, even if it’s meeting its so called new or revised terms and conditions.

Shyam Srinivasan — Managing Director And Chief Executive Officer

All right. Add to that Nitin, I think the performance on the restructured book not just one. I think across all the four quarters of FY ’24, ’23 in the quarter that the demand comes up, there has been consistently good and haven’t shown any adverse behavior. So, the tag in itself doesn’t mean that they are under any significant risk as evidenced by four quarters of performance post COVID also.

Nitin Agarwal — Motilal Oswal — Analyst

Alright, thanks a lot, sir. This helps very much. Thank you so much.

Operator

Thank you. Our next question comes from the line of Gaurav Jani from Prabhudas Lilladher. Please go-ahead.

Gaurav Jani — Prabhudas Lilladher — Analyst

Thank you. Just some clarifications on the yield and cost dynamics. Now based on the numbers that you guys have disclosed. The cost of deposits have gone up by about 90 basis-points over last three quarters, right? Systemically, what we understand is cost of international deposits or cost of international CV has gone up by about 200 basis-points. So, is it a case that we have taken a lower increase in cost of TDs versus the system. I mean, fair to assume that, and going-forward, do you see the run-rate of increase in cost of deposits coming down.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Yeah, I think I mentioned this earlier also Gaurav, that we believe that the most of the increases of deposits are in the price. I don’t believe it should go up materially at this point in time. There may be some buckets some tenure for a shorter period maybe, but not significant.

Gaurav Jani — Prabhudas Lilladher — Analyst

Sure, secondly on the yield side, there seems to be, I would have a negative surprise which I have, so the last part of the portfolio, which is corporate and housing, did we see some bit of competition coming there, which is why we would have taken a cut on use or something on that, sir.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Greater competition, I mean, if we pursue the better credits, which we do and quite uncompromisingly so, we have to be thoughtful about pricing. We may not have all the pricing power we want. So, this reflects that. We haven’t taken any undue risk, and then I go back to originally where the business model of the bank is. We will not be in the camp that takes disproportionate risk for growth.

Gaurav Jani — Prabhudas Lilladher — Analyst

Understood. Sure, so can you repeat your clarification on the RWA versus loan growth and a sub-question to that is, how do we look at hence capital raise if RWA growth would in the next year, loan growth in FY ’24.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Ashutosh, you want to re-clarify that?

Ashutosh Khajuria — Executive Director

Yeah, actually there is a requirement — regulatory requirement that if your loan amount is not included in the rating exercise specifically by name, then you cannot take it as a rated loan for your book, and therefore it would go into unrated and would require 150% of, you know risk-weight and all. Even if it’s AAA or AA or A, so what is required is to go back to clients as well as rating agency and say that why my name is there. This process was done, it has been resolved in the majority of the cases, but still some remaining cases where it is in-process, so work-in progress. So, on 31st March we straight away has taken it as an unrelated one, and therefore, higher credit risk-weighted assets are coming in disproportionately higher vis-a-vis the previous quarter, because this phenomenon is of fourth quarter, so you see the difference between December and March. Loan book has not grown by that much as the CRW has grown.

Gaurav Jani — Prabhudas Lilladher — Analyst

Understood, they would have not been registered with the rating agencies and…

Shyam Srinivasan — Managing Director And Chief Executive Officer

What I am saying is they will come back, so there would be a release of capital.

Gaurav Jani — Prabhudas Lilladher — Analyst

Understood, understood. Just a clarification on from Ashutosh sir on the higher treasury income, and the reason for that.

Ashutosh Khajuria — Executive Director

Higher treasury income.

Gaurav Jani — Prabhudas Lilladher — Analyst

Yeah.

Ashutosh Khajuria — Executive Director

[Speech Overlap] This is something which is, you know, independent of the interest-rate cycle. So, whatever is coming through, it’s more of customer derivatives transactions or forex related sale to retail through our exchange bureaus and all other things. As far as interest rate products are concerned, it’s more or less the bare minimum which we earn in any quarter by the charge. It would be in one particular quarter, last year fourth quarter, it may not have been there, but whatever is appealing is without any benefit of interest rate cycle at a segment yield.

Gaurav Jani — Prabhudas Lilladher — Analyst

Sure, sure. Perhaps, one more question, please.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Yeah, go ahead.

Gaurav Jani — Prabhudas Lilladher — Analyst

Just one sort of guidance on the fees. The fees to assets has done fairly well in FY ’23 and increased to about 75 basis-points versus 60 odd in the previous year on a full-year basis. So, what would explain this one. And secondly, do we see this healthy [Indecipherable] coming through in FY ’24 and ’25?

Shyam Srinivasan — Managing Director And Chief Executive Officer

Yeah, If you track back many quarters maybe many years, the conversation has been, how has the Federal Bank capability to originate fee income and fee as a percentage of assets. And, I think we’ve demonstrated for long periods of time that’s focused and is beginning to reflect full range of products, disciplined origination capability, cross sell to existing customers. I think I mentioned the corporate — when we get good corporate credit, we are looking at the client wallet. So, I think fee income on corporate has gone up 37%. So, I think that’s a design and there is a distribution capability for that design. The rates you’re seeing growth should continue.

Gaurav Jani — Prabhudas Lilladher — Analyst

I understood. Thank you so much. That’s it from me. All the best.

Operator

Thank you. Our next question comes from the line of Sanket Kapoor from Kapoor and Company. Please go ahead.

Sanket Kapoor — Kapoor and Company — Analyst

Namaskar sir and thank you for the opportunity. First is a clarification, sir, on the treasury income part. It has not been affected by the softening of the G-TEC yields. This is what you were trying to narrate and it is independent of that or could you come again on the same.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Yes, you’re right, your assumption is right. Your assumption is right, basically some revision release has happened for the trading book and all, and so with movement in that, because the opportunity to — see, I’ll just give you some comparison, in a falling yield scenario or even if the yields are lower and all that, the profit on sale of investment, which basically is the profit on the interest-rate products is always will — I mean for our bank is three digits, it could be INR200 crores, INR300 crores INR400 crores, as against that in this year, you will see it in the lower double digit. So that’s what the difference is. Otherwise, other than that you have on HFE book, which is up to 90 days and all that and the traders keep trading in that and make whenever the opportunities are there that they may come up. The larger amount comes from the investment portfolio when the yields fall. So, that opportunity has not been there for last almost one and a half year or so. What we have seen currently is the softening of yield and [Speech Overlap] Probably if this continues, we will see that in FY ’24.

Ashutosh Khajuria — Executive Director

I will just add, bulk of the softening of the yield has happened in the last after margin. Otherwise, through the last quarter, the yields have been fairly range bound. So as has been clarified, the income that we’re seeing on the treasury side is essentially the HFE trading activity on various asset classes. And that is what is showing here, plus a write-back of provisions, serving to softening of yields relatively compared to the third quarter.

Sanket Kapoor — Kapoor and Company — Analyst

Okay, so this line item will most significantly, if the softening remains, the way it is today. That is a fair reason.

Ashutosh Khajuria — Executive Director

Let me clarify, I think this is a reserve call and when the fruit is ripened, is left to be trading less and all that. Now if it falls from 730 [Phonetic] to 7%, isn’t the time to book the profit or wait for expecting that it will go to 670, now this is something you cannot project or you cannot extrapolate or give a guidance on, because that opportunity should be left with the trading. So sometimes you find such opportunities coming in a particular quarter where you see because of some measures sharp fall has happened, and moves the profit, and buy again when it goes up and all. So, I think this is something which you cannot predict as to in one quarter, how much would be there, right. Just [Indecipherable] it should be in the mark-to-market at least, and even if we don’t book, but the book should be priced at yeah. So that effect will always close. If you have a positive mark-to-market as per current instructions, as per current Indian GAAP, you cannot take it to your profit book. [Speech Overlap] it is a positive MTA. Correct. So, the second point was when the Board decided on the dividend payout what worked out for loading that dividend from last year levels and the profitability.

Shyam Srinivasan — Managing Director And Chief Executive Officer

Yeah, I think that I will respond to it, there was a question that was earlier asked about capital adequacy and capital raising. We considered, the Board considered multiple options, and he said, if you’re going to be in the market for raising capital this year, we should be more thoughtful about how we use our capital. But having said that, we did believe that the reward for our shareholders should be there. We also considered the fact that in the last 12 months or last four to 18 months, Federal Bank stock has delivered the best returns amongst all stocks. We, I think, had 46% to 50% growth. So on balance, the Board considered 50% is an appropriate number.

Sanket Kapoor — Kapoor and Company — Analyst

I didn’t get your point, so is it stock performance, how will the stock performance determine the dividend payout dividends. Dividend payout is towards what the earnings have been. A INR15 GPS and declaring INR1 dividend.

Ashutosh Khajuria — Executive Director

The shareholder looks at a combination of things. Dividend is one thing that they have, how does the stock perform in the past period as the stock had not performed. There was a concern that the stock is not good and is giving me returns, so it’s a balancing act.

Sanket Kapoor — Kapoor and Company — Analyst

So, we will be into the capital-raising exercise going ahead. What is the thought process?

Shyam Srinivasan — Managing Director And Chief Executive Officer

I don’t have any time. I mentioned there is nothing that I can confirm at this point in time, the bank is considering, we think, in the course of FY ’24, we will, but I don’t have any commitment as yet, we are working on it.

Operator, I think it’s coming up to six. There are no other questions. We can stop the Q&A maybe. I just wanted to mention one thing. Most of you know, probably all of you do know that Mr. Ashutosh Khajuria completed his term as the Executive Director of the Bank at the end of April and has accepted to continue with us for one more year as a chief mentor and focusing on a certain bunch of areas of his expertise and helping the Bank for another year. So, to the market we made the announcement at the end of April that he is retiring, but the Board has appointed him to be with us for one more year. So, I want to thank Ashutosh in this platform, and also advise all of you that Ashutosh will be with us for another year and share his expertise and guide us through for FY ’24 as well. So, Ashutosh, thank you.

Ashutosh Khajuria — Executive Director

Thank you. Thank you very much.

Shyam Srinivasan — Managing Director And Chief Executive Officer

If there are no other questions, we will bring this to a close. Souvik, Operator?

Souvik Roy — head, investor relations

Thank you, sir and thank you all again for your participation on the late Friday evening. We appreciate the ongoing support of our stakeholders like yourself, and we remain committed to delivering value to all of you. So, look forward to updating you on our progress in the future. Best wishes for Buddha Purnima and goodbye till we meet again. Thank you.

Operator

[Operator Closing Remarks]