Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Federal Bank Ltd (BOM:500469, Financial) achieved an all-time high annual profit and crossed significant milestones in total business and balance sheet size.
- The bank expanded its branch network by nearly 10%, reaching over 1,500 branches.
- Operationally, Q4 was one of the strongest quarters ever, with margins expanding and asset quality remaining pristine.
- The bank's credit quality showed remarkable consistency, with slippages lower than recoveries and upgrades.
- The bank's footprint expansion across the country has led to significant growth in CASA in non-traditional geographies.
Negative Points
- The bank faced a one-off impact due to wage-related matters, affecting the reported net profit for Q4.
- The cost of deposits remains elevated, impacting the overall margin expansion.
- There was a pause in the co-branded credit card partnership, which could affect fee income growth.
- The bank's OpEx growth remains high, driven by investments in new branches and technology.
- The NR deposit growth was slower compared to domestic deposits, indicating a shift in remittance behavior.
Q & A Highlights
Highlights from The Federal Bank Ltd (BOM:500469) Q4 FY '24 Earnings Call
Q: Can you provide insights on the impact of recovery and upgrades on the Net Interest Income (NII)?
A: Yes, recoveries and upgrades do contribute to interest income. The impact is reflected in the NII, and we saw a significant benefit from these recoveries in the last quarter. (Shyam Srinivasan, CEO)
Q: What is the outlook for fee income growth, given the recent softness in certain segments?
A: We expect fee income to grow by 20-25% year-on-year. While there was some softness in Q4, particularly in para banking, the overall trajectory remains strong, driven by card fees and loan processing fees. (Shyam Srinivasan, CEO)
Q: Can you elaborate on the corrective actions regarding the restriction on the co-branded credit card?
A: We are working on the corrective actions as per RBI's guidelines and will present our plan soon. We expect to resume operations shortly. The financial impact is minimal as other products will compensate for any shortfall. (Shalini Warrier, Executive Director)
Q: What is the strategy for managing the rising cost of deposits and its impact on margins?
A: We are focusing on higher-yield businesses and repricing wherever possible without compromising on risk. The cost of deposits remains a challenge, but we expect margin expansion to continue into FY '25. (Shyam Srinivasan, CEO)
Q: Can you provide an update on the succession planning for the CEO position?
A: The Board has set up a search panel and is in the process of finalizing candidates. We expect to submit names to the RBI within the next few weeks, and the process should conclude in three to four months. (Shyam Srinivasan, CEO)
Q: What are the plans for branch expansion in FY '25, and how will it impact the cost-to-income ratio?
A: We plan to open around 100 branches in FY '25. The cost-to-income ratio should stabilize around 50% and improve from there. The payback period for new branches is approximately 18 months. (Shyam Srinivasan, CEO)
Q: How do you see the credit cost evolving, especially with the growth in unsecured portfolios like credit cards?
A: We expect credit costs to normalize around 30 basis points in FY '25. The current low credit cost of 23 basis points is not expected to change dramatically. (Shyam Srinivasan, CEO)
Q: What is the impact of the new investment guidelines on capital?
A: There is no significant impact on capital due to the new investment guidelines. (Venkatraman Venkateswaran, CFO)
Q: Can you explain the dip in treasury profitability this quarter?
A: The dip is primarily due to the absence of the Fedfina listing gain, which was present in the previous quarter. (Venkatraman Venkateswaran, CFO)
Q: What is the outlook for NII growth in FY '25?
A: We aim to improve slightly from the 15% growth seen this year, despite the challenges posed by the rising cost of funds. (Shyam Srinivasan, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
