Fedbank Financial Services Limited — Q3 FY26 earnings call

At a portfolio level, when you do a substantial amount of disbursal in a particular quarter, and that has been an exceptional disbursal quarter, there will be a differential yield which we will play with, and we will play with a little bit, I mean. It's a line call when you look at certain states where we want to play that yield. So, I'm not so worried about it as the mix of the new business is slightly higher in this particular quarter, it shows in that fashion.

Analyst questioned why income and operating leverage were not visible despite good AUM growth, and yield compression in gold loans. Management attributed it to mix and upfront costs.

Asked by Digant Haria

While the flows on the ST LAP continue from the old book, we have transitioned quite a bit of this old book. We had a manpower shortage on the collection side. Whenever you have a manpower shortage on the collection side, agencies handle these collections, and we've transitioned from that piece to in-housing that collection. Whenever you do these transitions, there is that movement happens and which is what we have faced over the past 2, 3 quarters. That trajectory, you will see in Q4 and you've seen in Q2 and Q3, it is the same vintage portfolio, which is giving us those flows.

Analyst asked for trajectory of stressed loans in mortgages, specifically small ticket LAP. Management explained the impact of old book flows and collection infrastructure transition.

Asked by Nischint Chawathe

One on the small ticket LAP business, definitely, there is an environment which is behaving in a particular manner for lower ticket below INR5 lakhs. There have been companies which operate in this particular segment who have reported. There is that MFI piece, which was happening over the past few quarters, that has affected that particular segment, which is below INR5 lakhs. Some people who have looked at this business on the ST LAP side, also, I have seen a little bit of stress on the INR7 lakh to INR5 lakh segment, the spillover of the MFI on that particular segment. We've been conscious of that over the last 2 quarters, you've seen a slight movement of the ticket size for ST LAP for us. We've reduced the exposure for that INR5 lakh to INR7 lakh.

Analyst questioned the 80 bps yield reduction in small ticket LAP over 3 quarters. Management explained market environment, MFI spillover, and their conscious reduction of exposure to certain ticket sizes.

Asked by Pavan

See, one thing I wanted to caution everybody is that our yields has appeared in the investor deck, are vitiated by the DA income number. And that is precisely why we are focusing on core income and core yield. Optically, while it may appear that yields have dropped by 20 bps quarter-on-quarter between Q2 and Q3. That is merely because of the fact that in Q2, we had 20 bps of DA income, which is not there consciously in Q3. So eliminating for DA income, the core yield is the same. There has been no yield reduction. And our focus continues to be on core yield. We will continue to drive that. And I would request everybody to look at the yield, excluding the impact of DA.

Management clarified that the apparent yield drop was due to reduced DA income, and core yields remained stable, emphasizing focus on core income.

Asked by Nischint Chawathe

Basically, the retail ticket size is actually growing. Probably a guy who was eligible for INR1.5 lakh, is today eligible for INR2 lakh -- INR2.2 lakhs with the same gold. But it doesn't seems to be trending towards the bank's turf. If there is a trend, then the yield pressure will be managed through the CLM partnership, CLM models that persist, and we will try to encash on that. But otherwise, as an NBFC, as an AUM strategy, we still rely on the retail and retail is seeing traction. We see pure weight coming from the retail book.

Analyst questioned if continued tonnage growth with rising gold prices would infringe on bank's turf and lead to yield dilution. Management clarified that retail ticket sizes are growing but not trending towards bank turf, and they focus on retail book for tonnage.

Asked by Shubhranshu Mishra

Now in terms of the labor code, see, the biggest impact has been baked in, okay. The biggest impact has been a onetime catch-up in terms of all the retiral benefits like gratuity, leave encashment, etc., due to the basic being -- needing to get hiked to 50% of the CTC. So that exercise has been done.

Analyst asked if labor code impact was one-time or recurring. Management confirmed it was a one-time catch-up for Q3.

Asked by Chintan Shah

Our onboarding LTV has reduced. We are even onboarding customers at a much -- lets say, 1% or 2% lesser than the max cap. On the portfolio LTV, we are standing very comfortably at 59%, which is declared. So I don't think we are on higher end. We are conservative or max at par with the largest player.

Analyst questioned competition and Fedbank's LTV being higher. Management clarified their LTV is conservative (70-71% onboarding, 59% portfolio) and not higher than peers.

Asked by Sonal Minhas

From 1st Jan, there are the new co-lending guidelines, which are applicable. Now there is an accounting change in which the co-lending one happens compared to the kind of accounting which used to happen for DA. That is all I was trying to signal. So, the moving of the lower-yield assets off book would continue to happen. It is just that the accounting might differ going forward. which is why I was pointing more for everybody to bear attention to the core yields and core interest income and maybe eliminate the impact of the DA income there from.

Analyst asked about old LAP vintage and transition from DA to co-lending. Management explained the accounting change for co-lending and its impact on reported yields, emphasizing focus on core income.

Asked by Meghna Luthra