Federal Bank conducted a conference call on 5 May 2023 to discuss its financial results for the quarter ended March 2023. Shyam Srinivasan, MD&CEO of the bank addressed the call:

Highlights:

The strong performance in FY2024 has ensured that the bank is on a strong footing. The performance of the bank is in line with the guidance given in the previous quarter.

The bank has recorded the highest level of profit in Q4FY2023.

The growth in the assets is broad based. The return ratios of the bank are at multi-year high. The bank has recorded the best recovery performance, while the asset quality has continued to improve.

The RoA of the bank for Q4FY2023 is better than the guidance given in February 2020. The bank looks to further improve on this performance in FY2024 and FY2025.

The cost of funds increased by 55 bps qoq, while the yield on advances increased only 36 bps qoq impacting the margin of the bank in Q4FY2023.

Looking at the asset mix and repricing opportunities, the bank expects the margin to remain healthy at 3.30.3.35% in FY2024 against 3.31% in FY2023 and 320% in FY2022.

The bank expects to further improve return on assets to 1.3-1.35% in FY2024 from 1.28% in FY2023.

The credit cost of the bank is at 40 bps for FY2023 is in line with the guidance of 40-50 bps. The bank expects credit cost to be around 40 bps for FY2024.

The credit growth is expected to be into high teens for FY2024.

The cost income ratio is expected to improve by 100 bps in FY2024.

The bank added 75 branches in FY2023 and aims to add another 100 branches in FY2024

The credit deposit ratio is expected to be at 82-84% in FY2024.

The bank expects capital raising for growth in FY2024 but the timing is not yet decided.

About 80% of the deposits of the bank have been repriced.

The fresh slippage of the bank stood at Rs 1600 crore in FY2024 against the guidance of Rs 1800 crore. The bank expects the steady slippages of loans in FY2024.

The gold loan portfolio of the bank stands at 10-11% of the overall loan book and it is below the limit decided at 15%. The bank is targeting 20-25% growth in the gold loan book for FY24.

The cost of term deposit stands at 6.2% and the overall cost of deposits is at 5.1%.

About 50% of the loan book of the bank is repo linked and 30-40% is linked to the MCLR.

The liquidity coverage ratio of the bank stands at 120% at the end of March 2023 compared with 124-125% last quarter.

The high margin business such as personal loans, credit cards, microfinance, gold loans etc are growing at a strong pace of over 20% and would contribute to the higher margins.

The sharp increase in risk weighted assets of the bank in Q4FY2023 is mainly on account of assigning the high risk weights to unrated accounts. Even for rated accounts, if the exposure of the bank is not included in the rating of the account then the account is considered as unrated and the bank has assigned high risk weights.