Axis Bank Limited (532215) Earnings Call Transcript & Summary

Thank you, everyone. Thanks a lot for joining the call. We welcome you all to a discussion on Axis Bank's financial results for the quarter ended June 2021. Apart from me and Puneet, we also have on the call, Rajiv Anand, Executive Director and Head of Wholesale Banking; Ravi Narayanan, Group Executive Branch Banking, Retail Liabilities and Products; Sumit Bali, President and Head of Retail Lending and Payments; and Amit Talgeri, Chief Risk Officer. We started the financial year on the back of strong momentum generated in quarter 4 financial year '21. The intensity of the second wave of COVID infections caught everyone by surprise. The resulting [ hit by ] health crisis and subsequent lockdowns in various states had an impact on our business and collection activities. We are grateful to our employees and partners who have demonstrated great commitment in serving our customers through this quarter while braving the second wave. We prioritize the safety of our employees and customers during this wave. As we speak, about 97% of all our employees have received at least 1 dose of the vaccine. We are also thankful to the health care and frontline workers who serve the nation selflessly during this time. The macro picture suggests India has taken this wave in its stride. The lead high-frequency indicators indicate economic activity has largely returned to pre-second wave levels by mid-July. Having said that, the second wave has tested us all. Firstly, like I said, in limited mobility and the collective efforts of our teams on the ground. Secondly, in the near term, the repayment capabilities of a few customer segments were impacted due to medical exigencies or lockdowns. We, therefore, expect a greater impact in the retail segment than the corporate bank across the financial services sector because of the second wave. We also believe the stress will be transitory, with normalcy returning quickly as economic activity revives, supported by accelerated vaccinations. The robust coordinated policy response between RBI and government has helped to keep the system stable. We expect it will continue to support growth in a calibrated manner. Coming to the bank's progress on the strategy and performance in this quarter, we continue to strengthen the 5 focus areas as part of GPA strategy we started 2 years back: granular risk-calibrated growth, strengthening the balance sheet, technology and digital leadership, focus on profitability and [ mun ] access. We have made significant strides in each of these areas as we get ready to get on to the next cycle of our GPA strategy. The results are visible across the bank's different businesses, which I'll get to in a moment. We have also received multiple independent validations of our progress. In the Greenwich banking survey -- Greenwich is an independent global research agency -- Axis Bank was rated #1 on the quality index for both large corporate and middle market banking segment independently. The bank was also recognized for ease of doing business, knowledge of transaction banking needs, coordination of product specialists and timely follow-up. The retail banking franchise received multiple awards in the Asian Banker's bank quality consumer survey for 2021. These included the Most Recommended Retail Bank in India and Most Helpful Bank During COVID-19 in India. On the corporate banking side, we have 3 trials in about 30 pods working on agile mode, building a corporate digital bank that's benchmarked to global standards. We are winning complex cash management mandates and gaining market share [ in creative points ] business. The fee performance also has been strong on the back of this, with 57% growth in granular transaction banking fees. Our market share in foreign LC issuances has increased by 210 basis points year-on-year to 9.7%. We continue to have strong positioning in GST and NEFT payments with market share of over 9% and 9.7%, respectively. Slide #28 in our investor presentation outlines our progress in the transaction banking space. We identified mid-corporate as an area to gain market share a year back. Our investments here are bearing fruit with strong year-to-year growth of 36% in this segment. The SME business is the other area where our tech-led transformation project, Sankalp, is making a difference in the lives of our customers. Our SME loans grew 18% year-on-year. On retail banking, increasing digitization of [ journeys ], personalized services to our customers and the strong [ rhythm in driven ] in our distribution and sourcing engine are getting clearly reflected in our acquisition numbers. We opened 1.8 million new liabilities accounts in quarter 1 financial year '22. Our analytics and digital banking capabilities are further enhancing our deepening and cross-sell for our existing bank and loan to bank customer portfolio strategies. We have been working on premiumization of our franchise. Over the last 2 years, the wealth management business, Burgundy, has seen very strong growth with an AUM that is now over INR 2.3 trillion, up 48% year-on-year. Burgundy Private, our full-service private banking proposition for our ultra HNI customers that was launched 18 months back, has grown exponentially despite the pandemic. We now manage wealth for over 2,000 HNI families, up from 986 families in June '20. The total assets under management is now in excess of INR 63,000 crores, up from INR 19,018 crores in June '20. We have now more than 100 Burgundy Private partners serving the needs of these families across 26 cities. We have added 1 new city every month since launch. Each partner is a seasoned professional with the average experience over 16 years. We go beyond the wealth management requirements and support banking, lending and business needs of our private banking customers. We bring 1 Axis to them, and this is seen as a clear differentiator in the market. While Puneet will take you through the numbers in detail, I will stress on a few key metrics. Strong growth in quarterly average balances. [ Asset ] deposits grew 19% year-on-year, 7% quarter-on-quarter with CASA deposits 19% year-on-year, 4% quarter-on-quarter. Overall deposits were up 11% year-on-year, 7% quarter-on-quarter. Business in the quarter was impacted because of lockdowns, and we prioritized the health of our colleagues. Retail disbursements grew 230 (sic) [ 330 ] % year-on-year and declined sequentially by 48%. However, the better preparedness of our teams is reflected in the quick bounceback we have seen from mid-June onwards. For last few quarters, our loan growth has been steady in all the 3 segments. The retail growing at 14%, SME by 18% and corporate book by 8% year-on-year, respectively. This balanced book growth is a good indication of our capability to find opportunity pools across segments. The other metric I'd like to highlight is our granularity. We have seen huge increase in new customer additions across segments. 143% year-on-year growth in number of new retail savings customers, 69% year-on-year growth in number of new current account customers, 85% year-on-year growth in number of new corporate relationships and 39% year-on-year growth in number of new SME customers added during the quarter. Like I mentioned earlier, collections and recoveries got impacted during the quarter. We had to be cognizant of, obviously, health and safety of our customers and employees. This meant our field teams were constrained for part of April and most of May. As lockdown restrictions eased, June saw a quick recovery and July looks better than June. We saw higher-than-expected retail slippages during the quarter, but we believe it is transitory. We expect moderation in the second half of the year. I want to highlight the [ frequent ] progress we have made on core technology and on our digital banking capabilities. Since the beginning of the pandemic, we have accelerated our digital journey and made a [ few simple ] moves on our tech stack. We are ahead of our plans on our core modernization program. We have among the largest set of open banking APIs for external and internal partners and we are the leader in cloud adoption in the banking sector. Sub-Zero, a proprietary design platform, a cutting-edge developers' portal with over 120 additional APIs, went live during the quarter. Over 1,000 plus technology-enabled sources have been hired since the start of the pandemic with about 60% increase in technology spend during the same period. We are running a twin engine approach: one, our legacy IT stack has been upgraded, replatformed or hollowed out to make it [ Basel-ready ]; two, we have built in an in-house end-to-end digital stack that is on par with the best data platforms anywhere. Our recent product launches and data offerings like buy now, pay later, multicurrency forex cards, small ticket bullet loans, are cutting-edge offerings that have been launched on this platform. We intend to quick scale these offerings, even as we have a pipeline of newer digital first products that are already ready. We're adopting a combination of approaches for the digital ecosystem. Build our own capabilities, partner with fintechs where there is complementarity, and invest in areas that have adjacencies. During the quarter, we entered into a multiyear deal with Amazon Web Services to power our data transformation agenda. Our tie up with AWS will enhance our agility and resilience to manage 2 key features that define our digital business: rapid scale and high velocity. We have taken a cloud-first approach for our data banking platform, having deployed all new customer-facing applications on cloud platform since last year. Today, 15% of the bank applications are already on the cloud, and we aim to take this number to 70% in the next few years. We have deployed mission-critical applications on cloud, including our BNPL product and the new loan management system to support it. The account aggregator platform, our video loan or know your customer journey and WhatsApp banking is also on this platform. Separately, we were the first to set up a dedicated cloud-ready infrastructure to exclusively handle UPI transaction volumes. This has meant we have consistently had amongst the lowest transaction failures in this space. The cloud center of excellence will accelerate our cloud migration and support the growing pipeline of digital bank offerings. We continue to work with multiple cloud partners to maintain our leadership position in cloud. On the regional side, our relentless focus continues as we make progress on the capability front as well as on the business side also. We have around 4 million non-Axis bank customers using our Axis Mobile and Axis Pay apps. These are customers using our apps for convenience, despite not having a deposit relationship with us. This is a strong testimony for our mobile banking apps, which have the highest rating from users among banks in India. With the retreat of Wave 2 of COVID, we launched Grab Deals Fest, offering customers attractive discounts and offers on all purchases on our partners, Amazon and Flipkart. The festival was a great success with us achieving 25x growth both in number of customer transactions and GMV on the platform. Grab Deals is a scalable multi-brand platform for offering our customers great [ year ] offers and deepen our savings account relationship with them. Our existing digital products continue to scale. We introduced video KYC on multiple new journeys this quarter, including salary account opening and credit cards. Our share of accounts sourced via this channel has grown to 20% during the quarter. 69% of our fixed deposits by volume were opened digitally while the UPI transaction value grew 3x year-on-year. On WhatsApp Banking, we now have over 1.2 million customers on board within 6 months of launch. 65% of service requests by volume service in the branches are now available fully digitally through our Branch of the Future initiatives. We have seen very good traction in the adoption of these services by our customers as well as great improvement in straight-through processing and first-time [ invIT ] rates. With the launch of Service Data Lake, we expect further personalization and speed and response to customers in this year. Separately, I would like to update you on the recent developments due to the restrictions imposed by RBI on Mastercard from onboarding new domestic customers. This ban does impact our card business. Over the last few days since announcement, teams have worked to mitigate the impact. While we will explore and keep all our options open, it will take some time to move to an automated network, thereby impacting new issuances in the short term. In the last 1 year, the bank has significantly scaled up the integration of ESG into its overall business strategy and agenda. ESG as a topic is now integrated at the Board level and is directly overseen by a whole-time Executive Director and the relevant committees. Additionally, the bank has set up an ESG standing committee at the management level to drive the ESG agenda. We are making public our commitment to the ESG targets, developing policies for sustainable lending practices, investing in environment management, diversity, equity inclusion within the bank. Our corporate lending portfolio INR 10,000 crores in green sectors as on 31st March 2021, which was up [ 50 ]% year-on-year. We have 1.5-plus million live customers under Axis Sahyog micro finance program as on 31st March, 2021. We are committed to increase share of our green lending portfolio going forward, reduce our carbon emission intensity by 5% year-on-year, and fulfill the target of touching 2 billion households by 2025 under the sustainable livelihoods program. We are embedding environmental and social risk into our lending decisions and internal capital adequacy assessment process. We're making a public announcement on some of these things very soon. Coming to the performance of subsidiaries. In mid-June, we presented the progress of our One Axis journey, providing details and insights on our key subsidiaries. They continue to deliver industry-leading performance during this quarter, with total profits of INR 245 crores, up 98% year-on-year. If we analyze the quarter 1 earnings of these subsidiaries, it will be touching nearly INR 1,000 crores figure. The net worth and earnings of these subsidiaries have grown at a CAGR of 18% and 61%, respectively, in the last 2 years, even as the bank's investment in these subsidiaries stood flat at around INR 18,015 crores. Our employees have been our greatest asset during the pandemic. The management team would like to reiterate the gratitude to our colleagues and the families for standing firmly with the bank during this [ period ]. We have created an employee care Benevolent Fund as an additional measure of security for our colleagues, their families to protect their financial future in case of an exigency. Despite Wave 2 headwinds, we have made strong and visible progress this quarter. There is a positive cultural change within the bank reinforced by the steady upward movement of metrics across all the lines of businesses. Our investments in technology, digital and multiple business transformation initiatives have set us on the right trajectory. We are optimistic and confident about our future. I'll now request Puneet to take over.

Thank you, Amitabh. Good evening, ladies and gentlemen. Thank you for joining us this evening. I will discuss the salient features of the financial performance of the bank for Q1 FY '22, focusing on our operating performance, capital and liquidity position, growth across our deposit and loan franchise, journey of becoming a more prudent and conservative franchise, asset quality, restructuring and provisioning. Our operating performance continues to be strong as reflected through increasing Y-o-Y NIMs, growth in granular fees and operating profits and PAT. NII for Q1 FY '22 stood at INR 7,760 crores, growing 11% Y-o-Y and sequentially growing by 3%. Net interest margins for Q1 FY '22 stood at 3.46%, representing a Y-o-Y growth of 6 basis points. Sequentially, the NIM was impacted by product mix change, interest reversals, CRR increase, market pricing pressure in the wholesale segment and our mortgages business. We have substantially completed the computation of interest on interest as per the RBI and IBA directives and maintain that the provision made in Q4 FY '21 should be adequate to cover the reimbursement costs. On fee income, our fee income stood at INR 2,668 crores, growing 62% Y-o-Y. 62% of our fees comes from our retail business, 38% comes from our wholesale franchise. Granular fees comprised 92% of total fees as against 86% a year ago. Transaction banking fees, including ForEx trade and FI payment, grew 67% Y-o-Y. Commercial banking fees grew 19% Y-o-Y and fees from cards and our liability franchise grew 78%. Trading income stood at INR 499 crores, degrew 20% on a Y-o-Y basis. Other income stood at INR 421 crores, grew 34% Y-o-Y. The recoveries from written-off retail assets pool improved 26% on a Y-o-Y basis. This gives us some comfort that recoveries could hold up even on fresh slippages [ over the ] lag. Operating expenses for the quarter were INR 4,932 crores, degrew 8% sequentially and grew 32% on a Y-o-Y basis. Staff costs increased by 32% Y-o-Y. The Y-o-Y increase in staff cost is not comparable as Q1 FY '22 has impact of increments for 2 years. In FY '21, we gave increments to staff from Q3 FY '21. Further, we've added 5,000 people to our staff strength over the same period last year. Gratuity costs can increase due to the incremental change in interest rates impacting staff costs. We have continued to top up gratuity expenses for the social security code, the prudent stance we had taken last year. Other operating expenses grew 33% Y-o-Y and are mainly attributable to higher business volumes, collection expenses. Our investments in IT continues. Our IT expenses were higher by 63% on a Y-o-Y basis. Statutory costs, including PSLC and DICGC premium were higher Y-o-Y by 30%. Operating expenses to average assets was 2.05%, higher 5 bps Y-o-Y and higher 9 bps on a sequential quarter basis. The adverse impact of netting of the balance sheet, which I will discuss subsequently on this call, has resulted in a cost to assets impact -- adverse impact of 2 basis points. The cost to income stood at 43% on -- for the quarter, lower by 38 bps on a sequential quarter basis and higher by 4.52% Y-o-Y. Core operating profit was INR 5,896 crores, growing 13% Y-o-Y, and declining sequentially. Core operating profit margin improved 8 bps Y-o-Y. Provisions and contingencies for the quarter were INR 3,532 crores, declining 20% Y-o-Y. The bank made a prudent provision of INR 155 crores for restructuring that has not been invoked or implemented as at reporting date. The bank has not utilized any of its COVID-19 provisions in the current quarter. The reported credit cost for the quarter is 1.88%, representing a Y-o-Y decline of 38 basis points and a sequential Q-on-Q increase of 18 bps. Annualized Q1 credit cost net of recoveries from the written-off pool stands at 1.7% compared to 2.11% for Q1 FY '21 and 1.48% for the previous quarter. Profit before tax was INR 2,884 crores, representing a Y-o-Y growth of 102%. Profit after tax INR 2,160 crores, representing a Y-o-Y growth of 94%. Annualized ROE for the quarter stood at 9.11%, a 1.59x growth on a Y-o-Y basis. The strength of our balance sheet is reflected through the cumulative non-NPA provisions at 30th of June, which stand at INR 12,425 crores. The key components of the provision are COVID-related provisions at INR 5,012 crores, restructuring provisions of INR 703 crores, weak assets and other provisions of INR 6,710 crores. The standard assets cover, defined as all non-NPA provisions by standard advances stands at 2.05%, improving 10 bps over March 21 and 49 bps over June 2020. Our provision coverage, all provisions, NPA plus non-NPA divided by GNPA, stands at 118% as compared to 104% for June 2020 and 120% as at March 21. The bank is very capitalized, it's carrying adequate liquidity buffers and provisioning buffers, which place us in a strong position. The RWA of the bank as at 30th June stands at 64% as compared to 68% of June 2020. This improvement in RWA is reflective of the quality of business being done by the bank. Our total capital adequacy ratio is 19.01, and our CET1 was 15.42%, improving 154 bps and 192 bps on a Y-o-Y basis. The [ prudent ] COVID provisions that we carry as of June 2021 provide us with a capital cushion of approximately 67 basis points over and above the reported capital adequacy. Our average LCR ratio for the quarter was 115%, excess SLR was INR 74,974 crores. The bank was reporting structured collateralized foreign currency loans extended to customers who also place deposits with a bank on a gross basis as advances and deposits, respectively. For improved presentation, we have netted off loans from deposits received in India. This has resulted in the balance sheet reducing by approximately INR 8,700 crores. Prior period numbers have been regrouped where appropriate. Our liability strategies driven through premiumization, granularization and deepening has started to show early results. The focus on customer acquisition, leveraging the corporate relationships and deepening the government liabilities business and the customer connect established by the bank through COVID has not yielded us -- has not just yielded us the recognition of the best retail franchise during COVID, but also improved all liability metrics. Total deposits on a post-closing basis grew 16% Y-o-Y and 2% Q-on-Q. We prefer to focus on quarterly average balances instead of month end balances for our liability franchise. On a QAB basis, CASA grew 19% Y-o-Y and 4% Q-on-Q. CASA ratio stood at 42%, improving 342 basis points on a Y-o-Y basis. SA grew 19% Y-o-Y and 7% Q-on-Q. And CA grew 17% Y-o-Y and degrew 0.39% on a quarterly average balance basis. We -- if you look at the different saving account segments on a Q-o-Q basis, salary segment grew 13% Y-o-Y and 5% Q-o-Q. Government segment grew 25% Y-o-Y, 18% Q-on-Q. And the NRI segment grew 17% Y-o-Y and 5% Q-on-Q. Our term deposits on a quarterly average balance basis grew 7% Y-o-Y, of which retail deposits grew 11% Y-o-Y and 2% sequentially. The growth in our NRTD business is reflective of the quality of the wholesale franchise we are building. Our corporate customers parked their surplus short-term liquidity with us, resulting in the growth. A large part of the incremental NRTD deposits over March 2021 are LCR-accretive and noncountable. Further, as was seen in the SA balances, 30% of the incremental NRTD deposits are from Government Client Group, reflecting traction in that customer segment. Our overall loan book grew by 12% on a Y-o-Y basis and was flat sequentially. Granular secured retail loans and SME business and high-quality large corporate businesses continue to be key drivers of our loan growth. Our loan book continues to remain balanced with retail advances constituting 54% of the overall advances, corporate loans at 36% and our Commercial Banking group at 10%. The book represents healthy characteristics with 80% of the retail book being secured. 85% of the corporate book being rated A and above. And the CBG book being diversified across geographies, industries. 96% of that book is secured and 67% is of shorter tenure. On a segmentary basis, retail disbursements grew 3.3x Y-o-Y, but declined 49% sequentially. The growth in disbursements and book are largely driven by transformational and digital projects underway across the retail products segment. Our virtual access virtual channel is helping us deepen customer connect and improve cross-sell. The secured to unsecured retail disbursement mix has started [ turning ] back to pre-COVID levels. Our brand sourcing of retail loans was at 50% in Q1 FY '22. Retail loan book grew 14% Y-o-Y, 50% is secured. We continue to see strong traction in the retail loans across secured products like HL, up 14%, rural book up 18% Y-o-Y and our small business banking book up 35% Y-o-Y, aided by the team's cadence, digital initiatives and higher productivity. We have been expanding our coverage to rural and semi-urban geographies through our DTO strategy while strengthening partnerships with agri, corporates and OEMs. During the quarter, we included 488 branches to our DGO strategy, taking the total count of the DGO branches to 2,065. As a result, BTO disbursements grew 211% on a Y-o-Y basis. Corporate book. We are progressing well on our endeavor to build a profitable and sustainable corporate bank. Corporate disbursements grew 63% Y-o-Y and degrew 52% on a sequential Q-on-Q basis. 94% of the incremental sanctions were A minus and above. Our corporate book customer assets grew 4% Y-o-Y with corporate loans up 8% Y-o-Y and 1% Q-on-Q. We remain focused on delivering higher growth from our chosen segments. The mid-corporate segment grew 36% on a Y-o-Y basis. Our Commercial Banking segment grew 18% on a Y-o-Y basis. These segments will help bring greater granularity, reduce risk while meeting our [ ARO ] criteria. The growth in our overseas corporate loan book is primarily driven by our Gift City branch. Exposure, 95% of the overseas standard corporate loan book is India linked and 92% is A and above rated. Of our total standard fund, nonfund and investments outstanding to NBFCs is INR 31,534 crores. 99% of the same is rated A or above, with none of them having been granted moratorium. MFI book is a negligible amount of INR 3,684 crores and real estate is INR 17,563 crores, 60% of which is lease and discounting. Our wholesale products banking business team remains focused on simplification and driving innovation across [ CA ], CMS, ForEx and trade. During the quarter, we became the first bank to execute an entirely paperless import transaction with a host-to-host connectivity for 1 of the largest auto ancillary manufacturers. This has been a culmination of over 6 months journey with the cross-functional teams across coverage, products, IT operations coming together to make this possible. This digital offering would help the bank to further lift the growth trajectory of trade and FX close business. The building blocks of our CBG business are now in place. Commercial banking disbursements grew 157% on a Y-o-Y basis. Within CBG, the small and medium enterprises grew 18% Y-o-Y. Early results of our tech-led transformation in commercial banking is measurable through higher RM productivity and nearly 70% reduction in [ log in to sanction ] tax. The number of new customers added on the asset side increased 39% on a Y-o-Y basis. CBG CAR deposits now contribute 25% of our overall current account balances, grew 20% Y-o-Y and 2% sequentially, reflecting the quality of the CBD franchise we are building. Non-asset-based fees in the CBG segment grew 45%. The depth of our CBG relationships are also demonstrated by the fact that CBG contributes to 20% of our Burgundy Private and Burgundy account acquisitions. Prudent and conservative franchise. COVID provisioning, we hold COVID-related provisions of INR 5,012 crores as of June. We believe that this places us well for emerging or residual risk from Wave 2. We reiterate that this does not -- this should not be construed as a sign of relative weakness of the quality of our loan book. We have provided for all restructured assets as if they were classified as NPA. We carry a provision of INR 703 crores against these assets, against a regulatory minimum of INR 238 crores. This includes a prudent provision of INR 155 crores made in Q1 FY '22 for approved, but not implemented restructuring. The overall provision cover for restructured loans stands at 23% with 100% cover on all unsecured retail loans. The gross slippages for the quarter were INR 6,518 crores, lower than Q3 FY '21, but higher than Q4 FY '21. At the bank level, 22% of the gross slippages are upgraded in the same quarter. Additionally, 7.5% of reported gross slippages represent linked accounts that continue to remain standard through the quarter. 19% of the retail book, 37% of the corporate book and 41% of the CBG book on a segment basis represent accounts upgraded on the same quarter. In that backdrop, which is 22%, plus 7.5%, 29% that I've explained, it's better to focus on our next slippages. Asset quality for the wholesale bank is holding up well. Net slippage ratio on an annualized basis for this segment in the quarter stood at 0.27%, amongst the lowest that we have had in the last 11 quarters. We see similar trends in our CBG portfolio as we called out for the wholesale book. Net slippage ratio on an annualized basis for this segment stood at 0.55%. We have negligible restructuring under Cohort 1 and 2 for this segment. Retail collections were most impacted due to our cautious stance and exposure of our employees and collection agents to the virus, coupled by access restrictions in place by local governments. The net slippage ratio on an annualized basis for this segment stood at 4.53%. 55% of the slippages for the quarter comes from secured products where the LTVs are in the range of 35% to 50%. The demand resolution for the retail portfolio was 98% through Q1 FY '22, a tad lower than Q4. Demand resolutions came down in the first 2 months of the quarter due to mobility restrictions, which impacted field collections. However, it was heartening to note that June '21 demand resolutions reached 99.5% of March '21 levels. Share of advances remained marginally elevated in Q1 FY '22, but July [ take down ] rates were back to March '21 levels. They, however, remain higher than pre-COVID levels. Early [ bucket ] resolutions in June '21 continued across all asset classes and retail credit cards are either at par or slightly better than March '21. Recoveries from written off retail accounts has picked up in June '21 and are 85% of March levels. Recoveries during the quarter were more than 3x as compared to the same quarter last year. Given the inventory buildup, the positive outcomes in the collection efforts discussed, visibility of asset quality, an early improvement should be seen in Q3 FY '22, subject to no COVID Wave 3. The bank has been judicious around restructuring loans. Implemented fund-based restructuring COVID 1 and 2 as a percentage of DCA is 0.33% of the book as of June '21 and compared to 0.3% as at March '21 on [ ewoka 3 ]. In value terms, the implemented fund-based restructuring fund-based outstanding of loans under COVID-19 Resolution Scheme 1 and 2 stands at INR 2,192 crores. Linked nonfund-based facilities which are not -- where original terms have not been changed is INR 992 crores. 95% of loans restructured under COVID 1 and 2 have security. The LTV of the secured retail loans range from 40% to 60%. On a segmental basis, the restructured loans was 0.62% of the Wholesale Banking group book, 0.21% of the retail book and 0.03, I repeat 0.03% of the commercial banking book. In addition to COVID 1 and 2 restructuring, the standard outstanding restructured loans under the MSME scheme stand at INR 332 crores. The GNPA and NPA of the bank has improved 87 basis points and 3 basis points on a Y-o-Y basis. The bank has a healthy PCR of 70%. As compared to March 2021, the GNPA and NNPA increased by 15 basis points each. The bank wrote off INR 3,341 crores in the current quarter as compared to INR 2,284 crores in Q1 and INR 5,553 crores in Q4 FY '21. The NNPA, GMP and TCR ratios of the bank and segmentally for retail SME and corporate are provided on Slide 42. The asset quality of Axis Finance remained stable with a net NPA of 1.8% and near nil restructuring; i.e. Axis Finance has near nil restructuring. ECGLS. Our overall approach to ECGLS was conservative. Total amount disbursed under all ECGLS schemes is approximately INR 12,100 crores, lower than our loan market share. We have not granted ECGLS 2. We have only granted ECGLS to our existing customer set post the full credit assessment. ECGLS was approximately -- was given to approximately 28,000 customers across the bank. 99% of these customers by number was sanctioned under ECGLS 1. ECGLS 1 and 2 disbursements represent 97% by value with nil disbursements in ECGLS 4. We continue to track the behavior of this portfolio as repayment moratorium ends Q2 FY '22. The BB and below book as a percentage of customer assets stands at 1.19% as of June, INR 2,800 crores, i.e., 21% of the BB and below book is rated better by at least 1 external rating agency. INR 330 crores, representing 3% of the BB and below book could have been upgraded as borrowers did not seek restructuring. During the quarter, we collected INR 440 crores, 6% of the fund-based book outstanding at the end of the previous quarter. Investment and nonfund-based BB and below book also declined in the current quarter on account of recoveries. The cumulative addition to the pool is INR 159 crores, translating to 11%. The balance represents downgrades into the BB and below pool. All accounts downgraded in the current quarter were less than INR 100 crores, and the average ticket sizes of accounts downgraded were INR 16 crores. INR 188 crores slipped from the BB and below pool during the quarter. The average ticket size of our fund-based BBB+, BBB and BBB- book is INR 10 crore, I repeat INR 10 crores with no individual fund-based exposure in 4-digit crores. We request you to refer Slide 43 of the investor deck which presents the summary of the net NPA BB and below on restructuring pool. Our segment results are not comparable given the change to segment classification and a revision in the internal FTP framework, and therefore, current quarter is not comparable to previous quarter same year. In summary, we've acted consistent with our commentary and chosen to identify stress early in the portfolio, we used ECGLS and structuring selectively, and hence recognized larger slippages upfront and provided for the same. As I close, allow me to resummarize the salient points for Q1 FY '21. Our operating performance improved reflected in core PPOP growing 13%, PAT 94%. Legacy asset quality has been proactively dealt with, early signs in the form of net slippages in the corporate book, being amongst one of the lowest in 11 quarters. Our prudence and strength of balance sheet is demonstrated through a precautionary COVID provision of INR 5,012 crores, cumulative non-NPA provisions of 12,425 crores. We maintain that this is not reflective or indicative of underlying asset quality and provides a cushion. We have steadily improved our liability franchise performance with granular retail deposit book, CASA + RTD growing 15% Y-o-Y and 3% Q-on-Q. Our subsidiaries continue to improve on the industry position and profitability. The domestic subsidiaries reported a profit of INR 245 crores for Q1 FY '22, growing 98%. The return on investments on subsidiaries stands at 54%. We continue to monitor progress on current and future COVID waves across India. We believe our businesses are resilient and are well-equipped to capitalize on opportunities and deal with contingencies that the pandemic may pose. [ We realize that it is hard to stopping ] specific guidance. We would be happy to take questions now.

[Operator Instructions] The first question is from the line of Mahrukh Adajania from Elara Capital.

Question is on slippage. So you did give the net slippage ratio for retail. So can you give the absolute number for retail and corporate? And then within that, some color on what would it be for housing and other secured loans, like just a gross slippage ratio or some quantitative color?

Mahrukh, we don't provide data on a product-by-product basis. But the answer to your first question, the absolute value of net slippages for the retail book is INR 3,741 crores, which will be roughly about 93% to 95% of the slippages for the quarter. Like I said, the wholesale segment has performed well and so has CBG. The cumulative slippage across those 2 segments will be about INR 235 crores on a net slippage basis.

And the gross slippage would be what for retail?

The gross slippage for retail would roughly be about 84% of our gross slippage number. That would be about INR 5,400-odd crores.

And my next question is on your credit costs. In the fourth quarter, you had highlighted that the credit cost was higher than what it should be because of provisioning policy change and some write-offs. So that is what kept our 4Q credit cost elevated. So if I remove those one-offs from 4Q then the rise in credit cost is quite sharp in the first quarter. We know about the second wave, but what would be the outlook on credit cost? Because anyway, the sequential credit cost has gone up quite sharply, excluding one-offs. I mean, are you being extra conservative or...

So Mahrukh, I think we've explained that we have provisioning policies that are entirely rule-driven. And just to recap, I provide 100% on unsecured retail loans on the 91st day. So in a quarter where slippages are elevated because of the pandemic, provisions will come through. And like I said earlier, the early collection trends are looking positive. Subject to a COVID Wave 3, we should see collections impact on slippages giving us benefits starting Q3 FY '22. I also just want to recap for you a comment that I made earlier. When you look at our gross slippages, you must look at the fact that 22% of our gross slippages are upgraded in the same quarter, and this is a like-for-like account basis. And 7.5% of our slippages as reported are linked accounts, which continue to remain standard through the quarter. So please look at the gross slippages in that context also.

Sure. And just one clarification, that your total standard provisioning that you have mentioned, that would include the mandatory provision, correct, the [ standard ] mandatory standard provision?

Yes, the INR 12,425 crores includes the regulatory standard asset provision.

The next question is from the line of Sumeet Kariwala from Morgan Stanley.

I just had a question on LCR. So the liquidity coverage ratio is broadly flat Q-o-Q. But when I look at the average deposit growth sequentially, it's going to back [ the ] rate, it's quite a meaningful one. And logo that much. You also explained that the wholesale deposits are non-callable, et cetera. So -- and I know there are multiple other factors which impact. I just wanted to understand why the [ LCR is not ] Am I clear, hello?

Sorry, Sumit. Puneet couldn't get your question. Could you just have -- come again, because we lost you in the static.

Yes. Sorry, I had a question on LCR. So if I look at your liquidity coverage ratio, it's broadly flat Q-on-Q at 115%. Now when I look at the growth in deposits on average basis, sequentially, it's quite meaningful. Loan growth has not been that high. You explained the deposit growth, which has come from the wholesale deposits is also non-callable. I just thought that the LCR should have improved sequentially. What am I missing?

No, it's -- thanks for the question. I think it's a matter of the composition of how we are looking at the deposits. So there is a stock and then there is an incremental run rate which comes in. And therefore, the stockless run rate is how we calculate the overall fee. So I think it is something which will be a glide path towards trying to improve the LCR. What we are trying to say is that as we speak, our approach has been to start looking at NCR-accretive deposits, whether it be noncallable or whether it be granular retail. So a combination of that, hopefully, as we go along, the calibrated glide path will work to our advantage.

Okay. The reason why I was asking this is I wanted to clarify whether the margin declined sequentially, has that to do anything with higher excess liquidity on the balance sheet this quarter versus last quarter? And I don't have the average numbers, which is why I'm trying to ask this question.

Sumeet, just give me a moment. I'll come back to you with a response to your question on the surplus liquidity. I know for the current quarter, our excess SLR stands at INR 74,000 crores. If I reference that to the prior numbers and the average for the prior quarter, that should explain the answer. But why don't we continue in the interest of time, I will respond to your question in the course of the call.

Okay. No, that was just [indiscernible] because the margins came down Q-o-Q, I understand the interest reversal part. But is it to do with liquidity? Anyway, I'll take this offline.

So Sumeet, let me complete that answer. I have the number. So our surplus SLR was INR 58,000 crores compared to INR 74,000 crores in the current quarter. That itself should explain part of the surplus liquidity and the NIM pressure that we have. Second is the bigger impact on our NIM has been our product mix. So as you realize that we have had an increase in the better quality foreign exchange book that provides us a better NII -- so it's NII accretive. But from a spread perspective, it's decretive. So there's a product mix impact in the NIM that's played through. And the last impact on our NIM is the CRR increase, which is the regulatory cost that has come through in the first quarter. So those are the 3 key variables that have impacted our NIM for the current quarter on a sequential basis. On a Y-o-Y basis, you would note that we have a NIM improvement by 6 basis points.

Okay. Got that. And if I may just chip in 1 last question. So how should I think about margins in the next 1 to 2 years? What kind of improvement is possible? Some guidance, range, drivers would be very helpful for me.

Sumeet, I think we don't guide margins, but directionally, if I was to tell you, there is a part, and since you've asked this from a longer time frame perspective, we do -- you would note that there's a couple of structural actions we are taking on our balance sheet. One is the RIDF PSL compliance that we have been playing through. So as our RIDF balance is declined, we should see a structural improvement in our NIMs. It's about INR [ 58,000-odd crores ] on our balance sheet, and those clearly deplete NIM for us. So that's 1 structural improvement in NIM. Second is you would see the first action that we started taking for the large part of last year, about 83%, 84% of our disbursements were secured. In Q1, we started getting comfortable in reopening and 79% of our disbursements were secured. So as we open up and change our product mix back to the historical secured, unsecured mix that we had on the retail side, we should see a margin uplift. And as the domestic book grows compared to the overseas loan book that we have at GIFT City, the book composition, which is proportionality should have been [ proven. ] Those would be directional comments I would offer you. We don't provide a guidance range [ on news. ] So sorry, I won't be able to offer...

Sumeet, just to add to that -- Sumeet, just to add to that, I'm Amitabh -- you know as you saw, the granularity of our CASA growth is gradually slowly moving in the right direction. Hopefully, we can continue to execute the way we've been executing -- that should also feed into our NIM story over a period of time. Now again, we are just trying to point to the things you can look at. Again, not trying to guide in any way.

The next question is from the line of Kunal Shah from ICICI Securities.

Yes. So, the first question was on employee cost. I don't know if you have addressed that in the opening remarks. But last time you said that you are providing for this employee cost and there was some one-off during the second half. But when we look at Q1, again, the employee cost trajectory is quite high. So what would be the reason for that?

If you look at our employee cost on a quarter -- on a Y-o-Y basis, Kunal, the first impact is last year with the onset of Wave 1. We had deferred increments for our staff and our staff did not receive increments in Q1 of last year, but increments were made available to all our teams in Q3. So Q1 does not carry the increment effect of FY '21, whereas Q1 of FY '22 carries the increment effect of FY '21 and '22 itself. So there's 2 increments versus no increment impact on the Y-o-Y number of Q1 FY '21 to Q1 FY '22. The second increase in staff cost is we've added 5,000 people to the franchise as we are a growing business. And as we get more granular, we keep applying we keep adding people on a basis of our internal productivity metrics. Therefore, that's the second impact on staff cost. The third effect is we did take a social security code provision last year. And as I mentioned earlier, because there is an interest rate change in the current quarter and there is an increment on staff cost in the current quarter, we've topped up the social security code provision in order to consistent -- be consistent with the prudent position we had taken. That's the broad 3 reasons for why staff costs have increased year-on-year.

And quarter-on-quarter [indiscernible].

Okay. And so on quarter-on-quarter again, we spent 12-odd percent?

The quarter-on-quarter increase will typically be attributable to increments for the period and gratuity cost increase on account of interest rate changes between last quarter and current quarter.

Sure. And overall, in terms of the fee income, I think you have been taking several measures in each of the verticals to shore up the fee income. So how should we now look at the overall traction once we see the overall situation normalizing? So there is a breakup in terms of the overall retail fee as well as in terms of the corporate and the commercial banking, but which segments would drive it relatively higher? And finally, in terms of the overall balance sheet growth, how should we see the traction on the fee income side?

So Kunal, I think a couple of things, I would say, without giving you a number. Very clearly, our focus is to build granular fee. And you would note that our granular fee proportion in our total fee has increased on a Y-o-Y basis. Our granular fees is now 92% of our total fees compared to 86% of the fees last year. So we will continue to drive our fee growth, which is granular, both on the retail and wholesale side. On the wholesale side, our Transaction Banking business is gaining traction. And you will see the fee growth that has come through, which is set out on the slide that you were referring to in terms of fee growth. That fee growth is driven by a couple of things. One is a market share increase, both in the FX loss business as well as the LC business. And as we build our franchise out and deepen our relationships, we expect that granular fee to continue to grow. On the retail side, clearly, subject to any regulatory headwinds that may hit us, our annular retail fee, both on the liability and asset side would be linked to the growth in the businesses that you are seeing in the current quarter. I hope that answers your question.

Yes. And lastly, if I heard you correctly, you made INR 155 crores of the provisioning on a restructuring approved, but not implemented?

That is correct.

So then maybe that additional, if we are making 10% kind of a provisioning, can you assume that another INR 1,500-odd crores is there in the pipeline?

Kunal, that would not be a correct conclusion to draw because my restructuring provisions, as I told you earlier, I made provisions as per my NPA rates. So on unsecured, I would have made 100% provision, and unsecured, I would have made provisions as per the secured first market rate. So direct imputation would not be correct. If you directionally want to look at that number, the provision covered on the restructured book is 23%. You can make an estimation of that number.

The next question is from the line of Adarsh Parasrampuria from CLSA.

Amitabh, a couple of questions. On the SME side, obviously, post COVID because of many dispensations available, the net slippage numbers have been negligible. When do you expect the true litmus test when these dispensations are getting over and what's the outlook there as you track those portfolios?

Thanks for the question. I think the true litmus test for that -- so first, let me set context to our book and then our assessment of the true litmus test: One is our ECGLS book is not large. And [indiscernible] to customers after the full credit assessment. So we don't believe that, at least for what we have funded through ECGLS, there should be an impact because we did a full assessment -- a material impact. To your question on when do we see ECGLS impact play out through asset quality. Absent further dispensation, the 1-year period runs out in Q2 FY '22. And therefore, assuming a 90-day recognition cycle, you should start seeing something on the slippages front, early Q3 from an industry perspective.

That's helpful. And my second question goes back to cost in -- obviously, you'll have explained why staff costs went up. But for most banks that we would track, cost income has [ hedged ] while it did in the first half last year, rate activity was low. It actually setting [indiscernible] bank, I also see that you are at or recently [indiscernible] at pre-COVID levels. [ The bank is ] lower. So we are catching up on some investments -- we are, what -- you've seen that, could you explain why that gap is there?

So Adarsh, again, thanks for the question. I won't be able to compare and contrast why a certain bank has a certain cost income ratio. I'll probably highlight to you 2 effects: One is the cost income ratio has a cost impact and an income impact. It is public information that the NIMs of the other banks that you referred to are higher than us, and we've said we have a clear trajectory to improve our NIMs. So the income effect on cost income plays out through our financial statement. Therefore, a better way to look at our ratios and the progress that we are making on the cost side is to look at cost to assets. Cost to assets has gone up in the current quarter. I just want to call out for you that 2 basis points out of the increase is on account of the asset shrinkage because we reclassified or netted off advances against deposits. So on a like-for-like basis, my cost-to-asset ratio would have been 2.3%. This is primarily driven by the fact that we continue to make our investments in growing the franchise. And I called out earlier, the IT costs were higher by 63% on a Y-o-Y basis and so were my collection expenses. So that's the reason why my other expenses other than staff were up. I still maintain that we will be on a cost-to-asset basis 2% or thereabouts on a full year basis, and we should be able to pull this back.

Adarsh, just to add to what Puneet said, it's very important to understand that during the pandemic, actually, we have doubled down on our IT, digital analytics expense because we believe that this represents a perfect capacity to actually gain market share. So as Puneet very rightly pointed out, the income should come through the next couple of years. Please also understand and appreciate that we have very large transformation projects on in almost every part of our business. We have mentioned in our call about Sankalp, which was the -- our SME-led transformation initiative. I talked about the fact that we've launched a best-in-class transformation program for the wholesale banking products. which is, again, a 18- to 24-month program, which will take us, we believe, into a completely different offer in terms of what we can offer to our corporate banking clients. And we have similar projects on in other businesses. We have not talked too much about it. And as you go through these transformation projects, the expenses tend to be upfront and obviously, the benefits come later. But as again, Puneet pointed out, we are confident that we will maintain the benchmark we set for ourselves, it will be below 3% cost to assets, and that has not changed. So I'm just trying to put all of that in perspective. Keep all that in mind. And -- So obviously, as a bank, we are very, very committed to some of those numbers.

Perfect. Thanks a lot, Amitabh and Puneet. All the best.

The next question is from the line of Prakhar Agarwal from Edelweiss.

Just a couple of questions from my side. One is on the Statement that you made on slippages that probably come from [indiscernible] [ Q3 ], we may start seeing some sort of benefit. Given the fact that large part of second wave happened in Q1, do we expect that Q2 numbers will be as affected as the first half? Second, even if we see some sort of reversal stage, do we also see that probably the buffer that they have created -- COVID buffer that they have created realization starting in Q2?

Let me answer the second question. I'll ask Puneet to answer the first. as we have worked very hard and taken a lot of pain to get our -- to build up this additional cushion. And I know this cushion does not reflect on our [ reason on the ] asset quality, but I think -- and by way, we created this cushion based on certain rules which we have set up, which have been signed off by our Board, our audit committee and the special auditors. We [ aren't ] going to run back to all of them and say, "Oh, by the way, we want to change the rules because XYZ has happened". The risk within the system remains. All of us are talking about the potential of a third or a fourth wave. We have -- we will think 100 times before we start reversing any of those provisions which we have created. So my answer, I think I'm giving a long answer. What we're really saying is chances of it getting reversed in a hurry are quite low. Puneet, do you want to add...

Thanks for the question. I think to your first question on normalization, a couple of positive trends we are seeing in June and July, which is demand resolutions have gotten back to about 99.5% of March '21 levels. Our overall recovery efforts are also strong, but I think the way to look at the number is when there is an inventory buildup in the system because of pandemic induced stress, the inventory rundown does not happen instantaneously. So this is not something that will pop up and play out in a month or so. I think given the inventory buildup that we have, coupled with the positive outcomes and collections that we are currently seeing, we think Q3 FY '22 will be the period where normalization will take place for the system and for us.

Just 1 more question. In terms of the ARPU that you would have -- [ obviously ] more than last year, have you done some analysis as to how much of that has already slipped or restructured or would have taken these figures [indiscernible] to some extent? Just wanted to get a sense of those customer base [indiscernible] [ commodity ] and what is already in some state or other has been a certain pressure point.

So Prakhar, we do a lot of internal analytics. We don't call out the effective impact of what the moratorium customer did because there are multiple routes that the moratorium customer could have taken. So it's something that we track, but we don't publicly disclose what percentage of the moratorium pool [indiscernible].

Okay. Just one last thing. You made certain comments about recoveries this quarter about retail corporate. If you could just repeat, it will be [ a great help ].

Sorry, Prakhar. I missed your question, please.

I see you in your opening statements, you made some certain comments about recoveries in this quarter. If you could just repeat about where these recoveries are coming from and the annual growth comments?

So a couple of things that I called out. I said 22% of the gross slippage got upgraded within the same quarter on a same named account basis and 7.5% of the gross slippages are linked accounts that continue to remain standard. An account will continue to remain standard if it pays and is below 90 DPD across the quarter. So those were the 2 callouts that I made for the gross slippage number. In terms of rupee crore recovery, rupee crore recovery is not as strong as the previous quarters given collections was not accessing customers for a meaningful part of April and May and early part of June.

The next question is from the line of Aakriti Kakkar from Goldman Sachs.

Just 2 questions. Number one, on the write-offs. This quarter, again, we've written off almost about a 0.5% of the loan book. Last year, we wrote off 2.2%. So can we just understand what's the write-off policy, what's driving this? Numbers stand out successively -- we've been writing off a pretty significant amount of loans. So I just wanted to understand this spread a bit better.

Rahul (sic) [ Aakriti ], thanks for the question. The right of policy is codified and the way our policy works is retail gets written off versus a predefined quarter after which the account is 100% provided for. So if an account is 100% provided on -- in quarter X, it will be written off on a predefined frequency after quarter X's completion. No discretion at my hand, no discretion at anybody's hand in the system, it will just get written off in due course. We continue to retain our right to recover. These are potential write-offs. And obviously, the recoveries start reflecting in other income in due course. To your question on what has impacted the current quarter's write-off if you recollect, last quarter, we had explained the fact that on our commercial banking business, we had enhanced our provisioning policies.And the provisioning policy resulted in a set of accounts being fully provided. We also codified the write-off rules on commercial banking. And pursuant to those qualified write-off rules, the write-off of part of the CBG portfolio has taken place in the current quarter. So as we stand today across our commercial banking business and across our retail business, there is no discretion available in our system in so far as write-offs are concerned. They are automated and will get processed with a time gap after the account is 100% provided for. The current quarter is materially impacted by the CBG write-off versus the change last quarter.

And are we done with that? Or it might still continue for a couple of more quarters?

It's the rules. So Rahul (sic) [ Aakriti ], since it's a rule, whatever policy the rule has gets written off. I will not have discretion of parceling the write-off across quarters. In so far as the CBG policy change was concerned, the stock -- the rule got applied to the stock and the stock got taken care of.

Understood. And essentially, what you're saying is predominantly, it's come from CBG portfolio. Understood. The second question is on the -- on building the high-yielding portfolio. I think this microfinance corporate action you took. And I'm just trying to understand, over the next couple of quarters or next few years, how do you think about building the high-yielding portfolio, so microfinance on the portfolio? What other areas you're focusing on? You've talked in great deal about your digital initiatives. So any new product that's going to come out, what kind of scale and size you can build up over there? So just some color on that would be useful.

Rahul (sic) [ Aakriti ], thanks for the question. I think I just want to clarify, there is no corporate action to report or speak of on the MFI portfolio at our end. So there's nothing there. Our current -- and when there is something to report, we will formally report as per the process. The MFI book for us stands at INR 3,684-odd crores, which is a small proportion of our book. Yes, it helps us meet our PSL requirements. And therefore, it is a business that we will look at as part of our retail and agri business. I hope that answers your question. If I miss something, happy to take a follow-up.

So just to add, Amitabh, here. Obviously, it is our endeavor as we look at various possibilities and policies out there to go after opportunities which makes sense on a risk-reward framework. For example, the wholesale, we have been talking about how we want to expand our mid-corporate portfolio. And we've been doing a pretty good job of it, and you've seen that grow in a very big way. Similarly, we've done for [indiscernible] private. We talked about the deep geostrategy on our retail side, where we have extended it to now more than 2,500...

2,056.

Sorry, 2,056 branches, and we continue to intend to kind of expand it as we move forward. You will hear more from us as and when we are ready or we have anything substantial to report in terms of some of the choices we have made or we will make -- we will obviously share it with you. We are a bit cautious about announcing it until we have achieved something and we have achieved something substantial and something substantial, which is better than what others are offering. So in that sense, as and when we are ready, we will share it with you. So you can expect, obviously, we are not going to let some of these opposites go, you refer to MFI and some of the other things. As and when they happen, we'll let you know. I'm not talking about a corporate action, I'm talking about general opportunities that might exist for us.

Sure, sure. I mean, just put differently, for new business opportunities that you may be considering perhaps on the high-yield side -- of course, MFI, I get your message very, very clearly. But what about the other unsecured products, what can come out of your digital capabilities that you have spent a lot of money over the last couple of quarters?

Yes. So you've heard us talk about, at least on the digital side, some of these things. We have talked about BNPL. I think we are 1 of the first banks to come out with a product of that nature. Fee chargers led it. We are obviously learning along the way. It has already started reaching volume, which, yes, we are quite happy about, but we will come and share that volume with you when we believe we are ready -- we have something to announce to the market. But it is already in the last couple of months, reached a volume size. And more importantly, what we are collecting, which is satisfactory to us, and we are quite happy with it. We have done something similar on small denomination loans. We are working on that too. And again, I don't want to overdo it or overstate it. As and when we are ready, we will share it with you. We do want to work under the cover and only when we have reached a certain shape and size and market presence, we'll come and talk to you about it. So we will not do it the day we kind of announced the launch of it. We'll be very, very careful.

The next question is from the line of Antariksha Banerjee from ICICI Prudential Asset Management.

I just wanted to run through some numbers and see what if the numbers are correct, sir. So in your Slide 18, you report your retail portfolio breakup and 20% of the retail portfolio is unsecured, which gives us INR 66,000 crores kind of book, is that number right?

It is broadly correct. Yes, Antariksha, it should be correct.

And you also reported your gross slippage in retail is about INR 5,400 crores. And you said that secure constitutes 55%, which means 45% of this INR 5,400 is [ around 2,430 ]. Is that the right number?

Yes. So I think the way you need to look at it is it was 55% of net slippages is what I called out. You're looking at the 55% of the gross slippage, therefore you'll have to change the reference point please.

But -- because this was giving a very scary picture of the unsecured retail slippages. So is there anything that you see in the unsecured retail, which is grossly different from last year? I mean, I can do the numbers again. But how would you compare it to last year in your unsecured retail portfolio?

This quarter was a particularly severe quarter in terms of impact on the unsecured business. Going forward, June has been better than May and July has been better than June: things are improving. And as Puneet also alluded earlier that we should see a full fledged recovery, this trend should continue to Q3. So we do not see a repeat of last year provided no third or fourth wave of COVID.

Sure. Because I think looking at the margin, you're also more positive on growing unsecured as I look at your disbursement. Hopefully, the trends are better than last year and the weaker customers have been weeded out.

So the last point you made is absolutely correct. The weaker customers have been weeded out. If you look at our overall book composition, it still remains about 80-20. And on the margin, it may be slightly that unsecured is higher, but I think we are comfortable being in 80-20 or 78-22. That kind of number is what we will be holding on to.

And if I just compare the slippages or delinquency, whatever you now want to talk about between [indiscernible] in the unsecured portfolio, is there an order of magnitude difference? Or is it largely comparable?

It's largely comparable between both the unsecured SME and unsecured [ personal loans. ]

Antariksha, I just want to supplement Sumit's answer. I think since your question was asked in the context of personal loans, I just request you to look at Slide 18 of our presentation. Effectively, you will see that 100% of our personal loans are to salaried segment, and therefore, Sumit's answer generically applies to the portfolio. But in the PL, our PL is all salaried. So that distinction...

I mean that implies that the credit card number -- I mean the effect from the credit card, self-employed numbers is that much larger, right? So that's the concern. I mean if I look at your credit card growth Q-o-Q, I know the percentages there could be some like around [indiscernible] as well, but the growth has started again, right? I think you're intimately more positive on growing credit. A bulk of that comes from salaried? Or are you still doing a self-employed growth as well? I just wanted some sense on this.

Antariksha, I'm happy to work the numbers with you off-line. I think I'd like to understand the math that you're doing before I respond to it. I think the limited point I was making is to Sumit's point, that 100% of PL is salaried, but happy to spend time with you working this number offline.

Since you asked on the credit card, this is Sumit here, I think that portfolio is in very good shape, whether we look at all the metrics there in terms of revolve, slippage, et cetera, it's doing pretty well. That's not something we are making to grow that portfolio.

The next question is from the line of Abhishek Murarka from HSBC.

Just a couple of quick questions. One, when you called out that the retail slippages, 55% was from secured, is there a predominant segment over there, which part of secured is that coming from? Is it home loan or LAP or auto? Just some qualitative color there would be helpful. And I can come back to my second question.

To start with, I think a predominant portion of this is actually mortgages. And I think when Puneet gave an opening statement, he actually mentioned the fact that a large part of that is where the LTVs are in the region of 50%. These what we would like to believe are probably temporary cash flow mismatches. And because of such low LTVs, we believe that you would see larger recoveries once the legal dues start flowing in.

If I can just extend that. Most of -- across the sector, we are seeing a higher amount of restructuring or slippage in the mortgage book. In general, what is your feeling? Why would that be? I mean it is generally an auto debit book, which can directly be -- I mean, there's no physical restriction in terms of collection, et cetera. So why is slippage generally going up in that segment?

So Abhishek, I think the way to think about this is if I wanted cash flow relief, I would seek the relief on the largest EMI payout that I have just from a customer behavior perspective. And effectively, if you look at the loan portfolio across the industry, -- in rupee terms, the largest EMI would be for this asset. The reason we feel comfortable is the LTV values. And secondly, from a consumer behavior standpoint, people don't like losing their homes -- [indiscernible] the asset. So as things improve, this portfolio should come back. It's -- we'll have to see how long it takes to come back. But that's probably the reason that the home loan EMI is the 1 where you're seeing some traction.

So Puneet, logically extending that, it means that in July at least, when things would have been much better than April, May. And you would have seen all your EMI cycles also by now. You should have seen a very strong roll back from these set of customers. So have you noticed anything like that? Because as you say that nobody wants to lose their house. So they would want to come back. And the moment liquidity demand for cash is down, they would want to pay back or make up their arrears.

So you make a fair point. But unfortunately, the way the regulation is that once they become an NPA. For me to be reclassified outside of NPA, I have to clear all dues.

Not for reclassification, sorry. But just generally, collections from these accounts. Because you said we'll have to wait to see how it comes back. I was just thinking that it should have come back by -- in July. So have you seen anything like that?

So like I said, July collections on a portfolio basis has improved and is showing the right trajectory so that we can confirm to you is happening on our portfolio.

Okay. But any particular trend on this portfolio, which would have slipped, that's not availability?

So again, I think what I will, Abhishek, tell you is about 99.5% of March levels on demand resolution, but I think you could -- if you apply that across the board, roughly should play out across all the portfolios.

Sure, sure. I appreciate that. And just 1 second question on the corporate and commercial banking. Now most of your loans are A and above, and that's where you're focusing in general, I just like to know what would be the yields in that segment? Just broad -- sort of broad indicative yield would help?

So yields in this sector would vary between for a AAA government entity would be, let's say, between 4.5%, 5% for a year to anything between 7% to 9% for SME loans.

Okay. So broadly, the Commercial Banking group there, it would be roughly 7% to 9%.

Correct.

The next question is from the line of Nilanjan Karfa from Nomura.

Let me ask a previous question on the retail slippages. And actually, you clarified 45% -- that 45-55 breakup is on the net number on retail. But even that is showing up. So if I can run again the number out of Q3 [ 40 ] billion of retail, 20% is unsecured, it's about [ INR 662 billion ]. If we have a net retail slippage of what 35-odd billion, let's take a simplistic number, and 45% of that is about INR 16-odd billion. So 16 billion upon [ 662 ]. And if you analyze it, it's [ 13%. ] I mean, you would assume that a large part of this would have gotten rid of in the Wave 1. So what is it that has slipped in the retail? And since you pointed out -- I mean, the reason is that all the data on Slide 18 basically would point to that 31% of credit cards is probably a higher risk segment out there. Would that be sort of a fair assessment of what things have [ handled ] on the secured side?

I think a couple of things that we need to look at. Yes, so unsecured is impacted by wave 2 of the pandemic more than secured. Couple of things that you would need to see that it's partially cards, yes, but I think our cards business is on the mend as Sumit spoke of. Annualizing a high slippage quarter, in my mind, is not the right way to look at that number because effectively, what you're saying is wave 2 that hit us in Q1 of FY '22 will keep impacting us in all 4 quarters of the year. So one, arithmetically, I don't agree with the conclusion that annualization of the number is reflective of the risk because there's lumpiness in the slippages given the environment. So that's 1 correction I would like to offer to the ratio that's being tried to be computed on the call. And the second is, like we said, there is a demand resolution number that we are seeing uptick and that should help with recoveries in due course. So annualization is not correct, sir...

If I can -- if I can interject, sorry, the dilution number on the demand dilution, which you said is what 99% of March. I thought you mentioned that number for the entire book and not for the retail?

So effectively, what I what -- yes -- apologies. What I'm saying is that, that is reflective of our portfolio as a whole. And there isn't a material differentiation for me to call out between retail and wholesale here. Second point I would make is, given that my net slippages on wholesale is exceedingly small, the demand resolution is effectively reflective of my retail book. And I would again reiterate to you that annualizing a high slippage quarter number is not the most appropriate way to look at the portfolio because it assumes the same market scenario and the same dynamic scenario to run for the next 12 months consistently. I think that's where I'll pause and request [indiscernible] this manner.

Sure, sure. No, that was not the intention. I'm just trying to -- because we end up looking at annualized number always for every quarter. Secondly, on the secured side, and I think there were questions around that also. Did we -- if you can qualitatively comment on home loans and rural loans and whether rural, there are gold portfolios, which also the gold lending portfolio, which also defaulted. And if you can compare these qualitatively versus, let's say, the full year of FY '21 -- at this point Q1 versus full year FY '21?

So I'll just add a couple of points to what Puneet said. Between the period from about 15th April to 15th June is where a lot of things were topsy turvy. And unsecured, which gets classified at 90 DPD, Therefore, we are talking almost 2 months out of 3 months gone there. Subsequently, for the month of July, what Puneet said in terms of demand resolution, our entry rates in terms of flow into delinquency, [ but we are ] the lowest now. Our 0 to 30 resolution is back to pre-COVID level. Mortgages, whatever slip, we are pretty confident of getting them back on track in the second half of this year, just that it takes -- you could collect all the 4 EMIs who have them on track. So that's -- we're not -- and as Puneet said, let's not analyze what we saw this quarter. This is a very severe quarter. And the bounce back also has been pretty sharp. Gold, absolutely nothing to worry. There was dispensation in terms of LTV, which the regulator had allowed. We had chosen and now wisely in hindsight that we would stick to a 75%, 80% LTV. So there's nothing there in terms of delinquency or provisioning. So largely, it is the mortgage piece where if the LTVs are somewhere between 50 to 60 and the [ affinity ] people have to [ home ] or whether to possibly, if it's a self-employed business that is 40%, 50% equity, chances of recovery are pretty high.

All right. Just 1 final question. I mean, if we look at LTVs from the annual report, obviously looks like the March quarter. But if I look at the split of the maturity tenure on the liability side, looks like we have built out a very large portfolio, which is of a 10-year, which is 3 to 5 years plus. Is that a deliberate strategy? And it has actually happened over last I think 1 or 2, 3 years. How does that pan out given the current interest rates environment? I'm happy to take it offline if you want.

No. I'm happy to give you a first cut answer and then maybe discuss this with the offline again in detail. But I think my first cut answer to that question is the majority profile of assets are not reflective of the interest rate risk that we run because a dominant part of our portfolio is priced off a floating rate benchmark. So the entire corporate book is effectively floating rate. Our mortgage book is external benchmarking. So if there is an interest rate cycle risk that comes through on the liability side, as long as the external benchmark moves, we should be able to get asset pricing. The ALM position would be a liquidity position. And on the liquidity side, I think our core deposits and our term deposits cover us for that bucket of asset creation. I hope that addresses your question.

Thank you very much. We'll take that as the last question. I would now like to hand the conference back to Mr. Puneet Sharma for closing comments.

Thank you, ladies and gentlemen. Thank you for having spent the time with us and discussed our results. It has been a pleasure. I hope that you and your families stay safe. And if there are any follow-up questions, please feel to reach out to [indiscernible], and we'd be happy to clarify. Thank you, and have a good evening.