Axis Bank Limited (532215) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Axis Bank conference call to discuss Q2 FY '24 financial results. Participation in this conference call is by invitation only. Axis Bank reserves the right to block access to any person to whom an invitation has not been sent. Unauthorized dissemination of the contents or the proceedings of the call is strictly prohibited, and [ prior ] explicit permission and written approval of Axis Bank is imperative. [Operator Instructions] Please note that this conference is being recorded. On behalf of Axis Bank, I once again welcome all the participants to the conference call. On the call, we have Mr. Amitabh Chaudhry, MD and CEO; and Mr. Puneet Sharma, CFO. I now hand the conference over to Mr. Amitabh Chaudhry, MD and CEO. Thank you. And over to you, sir.

Thank you, Nirav. Good evening and welcome, everyone. We have on the call, apart from Puneet, Rajiv Anand, Deputy MD; and Subrat Mohanty, ED; and other members of the leadership team. In quarter 2 financial year '24, we continued with the focus on GPS metrics that we had set for ourselves a couple of years back. The P&L performance and balance sheet quality of the bank is now significantly different from the past, which gives us confidence in sustaining it across cycles. Let me briefly explain the structural changes. The current level of 18%-plus ROE is delivered at a much lower risk-weighted asset intensity than in the past. This has helped the bank become self-sufficient on capital. The bank accreted 18 basis points of CET1 capital in quarter 2 financial year '24 and 54 basis points in half year financial year '24, with CET1 levels now at 14.56%. On profitability, there is visible improvement in quality and consistency of the bank's earnings. In quarter 2, the bank delivered among the best core operating profit growth driven by one of the best margin and fee performance amongst large private banks. On loan growth, all the 3 segments have grown [ above ] 20%, with SME book growing 9% quarter-on-quarter. On deposit quality, we have improved meaningfully with one of the best LCR outflow rates and CASA ratio in the sector today. On digital and tech, our people, product, APIs and system architecture continue to be among the best in class. It is validated by so many successful partnerships across the bank and its new product launches, which I'll share later during the call. These structural improvements provide us the flexibility to build a bank for the future with investment in our chosen areas of distinctiveness, namely digital, Bharat Banking and customer obsession, Sparsh, while working on synergies from acquired Citi businesses. We continue to remain focused on 3 core areas of execution of our GPS strategy, namely embedding a performance-driven culture, strengthening the core and building for the future. I will now discuss each of one of these areas. On embedding a performance-driven culture. There is visible improvement in the retail deposit growth and the quality of our deposit franchise. We have made solid progress in improving the quality, granularity and premiumization of our deposit franchise through multiple bank-wide transformational initiatives. The results of these already reflect in our improving retail deposit performance. The growth trajectory of retail term deposits continued to improve with 15% year-on-year and 4% quarter-on-quarter growth on period-end basis and 13% year-on-year and 4% quarter-on-quarter on QAB basis. Low-cost CASA share stood at 44.4%, among the best in the industry and compounding at 15% per annum for the last 3 years. In the last 2 years, the bank's outflow rates of Basel reported basis -- or reporting basis have seen reduction by 550 basis points and are now trending closer to the best in the Indian banking sector. During the quarter, we achieved the milestone of opening the 5,000th branch and adding 207 branches and 110 new centers to widen our distribution network to 5,152 domestic branches. We continue to see all-around growth across businesses. We have seen market-leading growth in our focus segments. Within retail lending, we continue to drive balanced growth across the product portfolio. The retail disbursements in quarter 2 financial year '24 were the highest ever for the nonfinancial year closing quarter. Corporate loans grew 21% year-on-year and 3% quarter-on-quarter, led by healthy pickup across sectors. The disbursement pipeline for quarter 3 continues to be healthy. MSME segment continues to remain a key growth driver for the bank. The combined portfolio of mid-corporate, SMEs and small businesses grew 33% year-on-year and 9% quarter-on-quarter; and now constitute 21% of the loan book, up over 680 basis points in last 3 years. The second point, around strengthening the core. On Wholesale Banking, we have strengthened our capabilities in the transaction banking and treasury segments in the last 2 years. Our API-led transaction banking NEO proposition offers strong product market fit and continues to witness strong adoption. The interest amongst corporates continued to grow at an accelerating rate, with 2.3x customers onboarded in September over last year. Similarly, transaction volumes and throughput have surged by 5x. Additionally, NEO for Business, which is a mobile-first "banking and beyond banking" MSME proposition designed especially for SMEs, went live in the current quarter. We have about 5,000 businesses being onboarded every month with strong adoption rates. The offering has many standout features when compared to market offerings by banks and fintechs. Please refer to Slide 40 of our investor presentation for more details. Under NEO, we'll also be launching in this quarter NEO for corporates, our platform for the large corporates. With full rollout of NEO, Axis remains on track to become the operational bank of choice for our corporate banking clients. As far as building for the future is concerned, digital banking performance continues to remain strong. We have rebranded our award-winning mobile app as open by Axis Bank. Its balance sheet continues to deliver strong growth with over 50% increase in deposits and loans. open is now roughly 5% of the bank's overall business, and we intend to increase contribution by 3x to 4x by fiscal 2027. As part of the open by Axis Bank launch, we have introduced several changes to our mobile banking app and Internet banking portal. In addition to branding changes, these include a revamped landing page, hyper-personalized nudges, personal finance management, [ vernacular ] language for Internet banking, et cetera. Our app continues to remain the highest-rated mobile banking app on the Google Play store with rating of 4.8 based on over 2.2 million reviews. Continuing our aspirations to be a leader in the new platform businesses, we launched credit on UPI on pilot basis working with NPCI. We aim to launch this for customer usage in the coming quarter. Further, Axis Bank was among the first banks to integrate with Public Tech Platform for Frictionless Credit, PTPFC, launched by the RBI and RBI innovation hub. The bank offers "MSME loans in under 5 minutes" leveraging this platform. The bank-wide programs to build digital distinctiveness continue. Our big bet on Bharat is growing from strength to strength. In rural advances, the balance sheet added in the last 24 months is 2x the size of the balance sheet added in the previous 4 years. Our distribution footprint has increased to 2,373 Bharat Banking branches, complemented by 63,000-strong CSC VLE network. We have scaled up with marquee names such as ITC, Bayer and Airtel payments bank, demonstrating progress and success of partnerships and value chain approach. Our digital co-lending platform is live with 8-plus partners. And we have more products and partners lined up to go live on the platform this year. Sparsh, our customer obsession program, is making an impact on our customer experience scores. We believe that only a deeply embedded culture of customer obsession can help us sustain this journey. Earlier this month, we celebrated Sparsh Week, a pan-bank event with a focus to listen to our customers, act on it and celebrate. Over the last 18 months, NPS across retail customer journeys has moved up to 148 over an index baseline of 100. On Citibank consumer business integration, the employees and the customer integration, so far, is on track. We are also witnessing synergy benefits coming through with improvements in productivity and best practices transferred across the organization. One of the key strengths of Citi was the customer service capabilities. The erstwhile leadership team of CitiPhone is leading the upgrade of our service architecture in line with the best-in-class standards. In closing. We believe the Indian economy is relatively well placed in context of uneven and slower global growth outlook. Higher crude oil and food prices remain key risks for CPI inflation. And we expect the policy rates in India would stay higher for longer. We expect the banking system credit and deposit growth both to be around the 13% mark for the current fiscal, excluding the HDFC Limited merger impact. We feel confident that Axis will grow at 400 to 600 basis points faster than next merger industry credit growth over the medium term. We remain focused on our GPS strategy and our areas of distinctiveness in building an all-weather institution that will stand the test of time. I will now request Puneet to take over.

Thank you, Amitabh. Good evening and thank you for joining us. We continued to make good progress towards building a stronger, consistent and sustainable franchise. Amitabh has discussed business and transformation projects. The salient features of our financial performance for H1 FY '24 and Q2 FY '24 across operating performance, capital and liquidity positions, growth across our deposits and loan franchise, asset quality, restructuring and provision, is as follows. Our key financial parameters for H1 FY '24 are consolidated ROE at 19.04%, improving 179 basis points Y-o-Y; consolidated ROA at 1.81%, improving 15 basis points Y-o-Y; CET1 at 14.56%, net accretion, including profits, of 54 basis points; our net interest margin at 4.11%, improving [ 33 ] basis points Y-o-Y; operating profit at INR 17,446 crores, growing 28% Y-o-Y; core operating profit at INR 17,028 crores, growing 19% Y-o-Y; PAT at INR 11,661 crores, growing 23% Y-o-Y. Our cost-to-income at 49% was flat on a half year basis. Our operating performance for Q2 FY '24 was healthy across NIM, fee and credit cost lines. Our consolidated ROA for Q2 FY '24 is 1.83%, and consolidated ROE is 18.67%. Our CET1 accretion in Q2 FY '24, including profits, was 18 basis points. Net interest margin at 4.11% improved 15 basis points Y-o-Y, 1 basis points Q-on-Q. Our net interest income at INR 12,315 crores grew 19% Y-o-Y. Fee income at INR 4,963 crores, Y-o-Y growth of 31%. Granular fee is 93% of total fee. Core operating profit at INR 8,733 crores, quarter-on-quarter growth of 5%. Cost-to-assets at 2.41% increased 16 basis points Y-o-Y. Net credit cost at 42 basis points improved 8 basis points sequential quarter and grew 4 basis points Y-o-Y, largely due to lower recoveries from prudentially written-off accounts. PAT at INR 5,864 crores increased 10% Y-o-Y. GNPA at 1.73% declined 77 basis points Y-o-Y, 23 basis points sequentially. Net NPA at 36 basis points declined 15 basis points Y-o-Y and 5 basis points sequentially. Our PCR, at 79%, largely flat Q-o-Q and Y-o-Y. We stand well covered. Our standard asset coverage ratio, which is all non-NPA provisions by standard assets, stands at 1.32%. If we take all provisions by gross NPA, the ratio is 150%, improving 11.28% on a Y-o-Y basis. Moving to net interest margins. Yields on interest-earning assets have improved by 116 basis points Y-o-Y and 14 basis points Q-on-Q. The increase in yield on interest-earning assets during the quarter was largely sufficient to offset increase in cost of funds. As a result, NIMs improved by 1 basis points Q-on-Q. Included in Q2 FY '24 NIMs is interest on income tax refunds and other onetime items that contributed 2 basis points to net interest margins, as against 0 in quarter 1 FY '24. As we had indicated in our Q1 FY '24 commentary, the marginal cost of funds has broadly stabilized. We expect deposit costs to increase further over the remaining part of the financial year, but the pace of deposit costs growth will most likely moderate. Hence, our NIMs will be driven largely by our ability to pass increased cost of funds through better pricing of assets, improvement in our book mix and other structural drivers that we have been working on. Our progress on structural NIM drivers continues with improvements across all variables on a year-on-year basis. Our balance sheet mix improved, with loans and investments comprising 89% of total assets as at September '23, improving 317 basis points Y-o-Y. INR-denominated loans comprised 95.8% of our total advances at September '23, improving 280 basis points Y-o-Y. Retail and CBG advances comprised 69% of total advances as at September '23, improving 32 basis points Y-o-Y. Low-yielding RIDF bonds declined 7,990 crores year-on-year. RIDF now comprises 2.14% of our total assets, as compared to 3.09% of our total assets as at September '22. Composition of liabilities measured through average CASA remained flat at 43.31%. Quality of liabilities measured by outflow rates improved by 550 basis points over the last 2 years. We had strong fee performance in the quarter. Fee income stood at INR 4,963 crores, growing 31% Y-o-Y, 11% sequentially. 93% of our fee is granular. Total retail fee grew 38% Y-o-Y, 11% sequentially. Fee on retail assets grew 42% Y-o-Y, 5% sequentially. Fee on third-party products grew 62% Y-o-Y, 72% sequentially. Commercial cards fee income grew 27% Y-o-Y, 17% sequentially. Our commercial banking fee grew 9% Y-o-Y, 27% sequentially. Trading profit and other income at 71 crores was flat Y-o-Y and declined 528 crores sequentially mainly on account of lower treasury income. Operating expenses for the quarter stood at INR 8,717 crores, growing 34% Y-o-Y, 6% sequentially. It's pertinent to note that there is no Citi BAU expense in Q2 of FY '23. Integration expenses contribute 4% to the Y-o-Y growth in percentage terms and 13% to the Y-o-Y growth in cost in rupee terms. The balance Y-o-Y increase in rupee crore expenses other than described above can be attributable to the following reasons: 9% linked to volume, 51% linked to technology and growth-related expenses and 27% to BAU expenses. Technology and digital spends grew 36% year-on-year and constituted 8.5% of our total operating expense. Staff costs increased by 20% Y-o-Y. We added 10,832 people from the same period last year, mainly to our growth businesses and our technology teams. Q-o-Q in operating -- Q-o-Q increase in operating expenses is largely attributable to the cards business, including nonrecurring expenses incurred for cards benefits rationalization and increased prudence in actuarial valuation of cards reward points. Operating expenses-to-average assets stood at 2.41%, higher 16 basis points Y-o-Y and 9 basis points sequentially. The acquired Citi business is entirely retail, which understandably runs at higher cost and return ratios. The Citi business will be ROE accretive post integration. The cost ratios will remain sticky till the Citi integration phase is over. Provisions and contingencies for the quarter were INR 815 crores, lower 21% quarter-on-quarter. The bank has not utilized any of its COVID-19 provisions. This provision is entirely prudent. For Q2 FY '24, annualized gross credit cost is 70 basis points, lower by 4 basis points Y-o-Y and Q-on-Q. Annualized credit costs -- net credit cost for Q2 FY '24 is 42 basis points, declining 8 basis points Q-on-Q, growing by 4 basis points Y-o-Y. The increase in the Y-o-Y net credit cost is attributable to lower recoveries and upgrades from prudentially written-off accounts from the corporate loan portfolio. Subsidiaries contributed 7 basis points to consolidated annualized ROA and 37 basis points to the consolidated annualized ROE this quarter. The cumulative non-NPA provisions as at 30th September '23 stood at INR 11,758 crores, comprising COVID provisions of INR 5,012 crores, restructuring provisions of INR 648 crores. This includes provisions on unsecured retail loans restructured at 100% provision cover, and the rest at first-bucket NPA rates. Standard asset provisions at higher-than-regulatory rates of INR 2,266 crores; [ weak ] and other asset provisions at INR 3,832 crores. Our journey to be self-sufficient on capital is progressing well. Our total capital adequacy ratio is 17.84%, CET1 at 14.56%. The prudent COVID provision I discussed previously gives us a capital cushion of 48 basis points over and above reported capital adequacy. The RWA intensity of the bank stands at 67%, stable over the last many quarters. Growth across our liabilities and loan franchise. We'll request you to refer Slides 19 and 20 for details on the quality of liabilities and slides on our loan franchise. Total deposits on a quarterly average balance basis grew 16% Y-o-Y. Our CASA ratio on a QAB basis is 43.31%. Granular term deposits on a QAB basis grew 4% sequentially. Our loan book is granular, well balanced, with retail advances constituting 58% of the overall advances, corporate loans at 31% and CBG at 11%. 69% of our loans are floating rate. 47% of our fixed-rate loan book matures over the next 12 months. Breakup of the floating-rate loan book by benchmark type and MCLR repricing frequency is set out on Slide 11 of our investor presentation. Retail advances grew 23% Y-o-Y, 4% sequentially. 76% of the retail book is secured. For Q2 FY '24, retail disbursements grew 47% Y-o-Y and 24% sequentially, with similar trends across secured and unsecured products. Disbursement growth at a product level is as follows. LAP grew at 47% Q-on-Q. Home loans grew at 26% Q-on-Q. Small business banking disbursements grew at 39% Q-on-Q, and PL disbursements grew at 29% Q-on-Q. PL and cards portfolio grew by 25% and 72% Y-o-Y, respectively. The credit card spend in Q2 FY '24 grew 72% Y-o-Y and 4% sequentially. We are progressing well to build a profitable and sustainable corporate bank. Details of rating composition and incremental sanction quality is set out on Slide 36. Domestic corporate loan book grew 33% Y-o-Y, 4% sequentially. The offshore wholesale advances are largely trade finance related primarily driven by our GIFT City branch. 97% of the overseas standard loan book in GIFT City branch is India linked, and 91% is rated A- and above. The commercial banking book grew 27% Y-o-Y and 9% quarter-on-quarter. The quality of the CBG franchise we are building and the strong relationship-led approach is reflected through the following. Our CBG new-to-bank book grew 38% Y-o-Y. 88% of our CBG loan book is PSL compliant. Moving to the performance of our subsidiaries. Detailed performance of our subsidiaries is set out on Slides 69 to 75 of our investor presentation. The domestic subsidiaries reported a total H1 FY '24 net profit of INR 689 crores, growing 18% Y-o-Y. The return on investments for domestic subsidiaries was 53%. Axis Finance, in Q2 FY '24, grew its overall assets under finance by 31% Y-o-Y. Retail book grew by 1.5x and now constitutes 44% of total loans. H1 FY '24 PAT grew 26% Y-o-Y to INR 265 crores. And Axis Finance has an healthy capital adequacy ratio of 17.9%. Strong asset quality and net NPA of 0.31% and negligible restructuring [ depicts ] the quality of the Axis Finance book we have built. Axis AMC overall quarterly AUM grew 5% Y-o-Y to INR 2,59,800 crores. H1 PAT stood at INR 189 crores. Axis Securities' broking revenues for H1 FY '24 grew 36% Y-o-Y to INR 457 crores, and PAT grew 14% Y-o-Y to INR 113 crores. Moving to asset quality, provisioning and restructuring. Asset quality continues to improve with declining gross and net NPAs. The slippage ratios, the GNPA, NNPA and PCR ratios for the bank; and segmentally for retail, CPG and corporate are provided on Slide 60 of our investor presentation. Q2 FY '24 gross slippage ratio annualized stood at 1.49%, declining 39 basis points Y-o-Y and 38 basis points Q-on-Q. This is the lowest that we have reported in the last 12 quarters. Gross slippages for the quarter was INR 3,254 crores, lower by 4% Y-o-Y and 18% sequentially. Our CBG and CRG slippages are well contained and declined on a Q-on-Q basis. Further, for the quarter, 39% of gross slippages are attributable to linked account of borrowers, which were standard, when classified or have been upgraded in the same quarter. Net slippages declined 29 -- declined 25% Q-on-Q. Net slippages for the quarter was 1,269 crores, with retail at 1,405 crores, CBG at 84 crores and WBCG negative 220 crores. Recoveries from written-off accounts stood at INR 664 crores for the quarter. Net slippages adjusted for recoveries from written-off accounts was INR 605 crores, retail at INR 953 crores, CBG at INR 25 crores and wholesale negative INR 373 crores. To summarize. Axis Bank is progressing well to be a stronger, consistent and sustainable franchise. This is visible through organic business-driven CET1 accretion in the quarter of 18 basis points, and 54 basis points for H1 FY '24; our COVID provision buffer of 48 basis points [ on ] CAR; overall coverage of 150% of GNPA; and limited COVID restructuring at 0.19% of GCA. Consolidated ROE at -- for H1 FY '24 is 19.04%, an outcome of disciplined execution by the entire franchise. Our liability franchise is progressing well, with outflow rates falling 550 basis points over 2 years. Improvements planned over the next 7 to 8 quarters should deliver some results on growth, with inter-quarter fluctuations which are normal for a business of our scale and size. We are well placed in the current macro environment. We continue to watch geopolitical events, inflation, liquidity, cost of funds and its impact on our business. We would be happy to take your questions now.

[Operator Instructions] The first question is from the line of Mahrukh Adajania from Nuvama Wealth.

My first question is on OpEx. Puneet, you mentioned that there is some nonrecurring item in other OpEx explaining the steep Q-o-Q increase in that item, so could you quantify it? That's my first question. And I have another one, on deposit growth.

Mahrukh, thank you for your question. We're not putting the absolute number out on what the quantum of the onetimer is on a Q-on-Q basis. I just want to clarify for you that we've done 2 things on operating expenses. One, we have become more prudent on the way we actuarially value our cards rewards points. So there's a onetime charge for an actuarial catch-up that is sitting in the OpEx for the current quarter, which should be nonrecurring. And the second is some bits of rewards rationalization that took place in the quarter. We've upfronted the cost of that rewards rationalization. That's the 2 broad heads that have largely contributed to the Q-on-Q increase, but there will be other BAU items for a growing business that we would incur.

Okay. Because if you exclude the integration expenses that have grown, I mean, that have kind of declined, right? There's a 100 crore decline in the Citi-related integration expenses, so if you exclude that, then the OpEx has actually grown over 7% Q-o-Q. So do we expect such high growth because -- I mean, if some other expenses are going to compensate for one-off this quarter, then -- I mean just some broad guidance even on near-term OpEx.

So Mahrukh, I think it's -- I have consistently maintained that integration expenses will be 2,000 crores incurred over 18 months. I have also indicated that 75% of that expense is time proportion. And 25% of that expense will be incurred episodically to accelerate the closure of the transaction, so if you take what I had indicated previously, the cost for the quarter completely represents the time accrual that I would have spoken of. In the last quarter, we accelerated some of the expenses, which I had, anyway, always indicated would be episodic, so this 100 crore decline is just a function of when we incur that 400 crores of expenses, which is the 75-25 proportionality that I spoke of. To your second point, on whether we would provide an indication on what short-term OpEx would look like. I think we are sticking to the fact that the opportunity that we have, given where NIMs and credit costs are, allow us to continue to invest in the franchise. Our investments are growing -- are going into our growth and technology-related business. If you look at Slide 14 of the investor presentation: 51% of the expense growth is under those 2 heads. The BAU OpEx growth is also called out there. That is a good proxy of what you should see on a BAU basis for growth to come through. There is clearly a onetime operating expense for the 2 line items I have called out which ideally should not recur as we move forward.

Okay. And my other question is on deposit growth. So you've done a very good job in improving the quality of deposits. However, the deposit growth is lagging loan growth. Obviously, you had excess LCR which you could have used, and you have, but do you have any more excess LCR? Or now will deposit growth be in line with loan growth? And then does that mean some sort of a pause in the structural improvement of deposit quality that has already occurred over the last 2 years?

[indiscernible] we mentioned that, as far as the LCR outflow rates are concerned, we are now perhaps the best in industry. We can't keep improving on this. Actually, I do believe that there is some scope for us to play around with that number, depending on how things play out, and see whether we can continue to use that to fund our loan growth. So from our perspective, we have various levers in hand, which is going after term deposits and support our balance sheet, look at our outflow rates and see what we can do and how much we can lend, continue to work on some of the other levers which we have on the deposit side. And we'll be using all those levers, depending on how the market plays out and where the [ policies ] are, so I don't want to get boxed into how it will play out in the next or the next couple of quarters. Just please be assured that the management team is on top of what these variables are, how they can be used. And that's exactly what we demonstrated in the quarter that has just gone by.

Next question is from the line of Chintan Joshi from Autonomous.

Again, if I can continue on the deposit, perhaps in terms of the levers you have to pull...

[indiscernible], but your voice is coming a little muffled. Can you please speak through the handset?

Yes, but is this better?

[ Slightly ].

Yes. So I want to continue the conversation on deposit. In terms of the levers you have, how high are you willing to let the loan deposit ratio go up? I appreciate it will fluctuate quarter from quarter, but what is the kind of ceiling that we can think of in terms of loan deposit ratio? And then I have one more, on provisions.

The metrics that we work off is LCR because, see, ultimately, it's not just the quantity of deposits that's important, but in this new LCR regime -- not new anymore, but in the LCR regime, the quality of deposits has become as, if not more, important. And so therefore, the metrics that we work, the point that you are making, is -- off is LCR. And typically, you will see -- if you see many quarters, our LCR bobs around between 115 and 120. That's the range that we'd like to keep it.

Okay...

So let me just add, Chintan, to -- Chintan, let me just add to what Rajiv said [ even if he put it across rightly ]. Please understand that, if you look at our retail TD growth across all our segments, it is about 28%, 29%. We are doing as well as anyone else out there on the TD side. It's not that the franchise is not firing from that perspective. We are signing up a number of partnerships. We have the maximum number of partnerships, I would say, on the retail side which will ultimately feed into this franchise. We -- the -- one of the reasons why we did open was to also scale our liability franchise digitally. So there are -- we -- if you look at the number of branches which we have added, Chintan, it's also one of the highest in the last couple of quarters. So our investments continue, on one side. Secondly, the franchise has shown the capacity and the capability to fire. And as Rajiv rightly pointed out, we focus more on LCR and driving our business through LCR.

Okay. And then if I look at your total provision coverage ratio at 150%, it compares quite favorably with peers. I'm wondering if there is potential of release into capital into equity here at some point in the future. Or do you hold these provisions against kind of identified issues?

So our intention at this point in time, which we have been quite consistent about, is that we have no intention of releasing our COVID provisions. We can't keep calling it COVID provisions forever, so by March 2024, we will take a call on where do we put them across, but our intention is not to write back any of it at this point in time. We will keep it for a future rainy day.

Just to supplement what Amitabh said, I just want to make it abundantly clear that these are prudent. They do not reflect any risk on our book as we see it today.

Next question is from the line of Param from Nomura.

My first question is on the retail card fees. So if I look at the retail card fees which you've disclosed, it's up 39% Y-o-Y. The spends, the credit card spends, you're showing is up 72%, so I just wanted to understand. What's the reason for the disconnect here? That's my first question, yes.

Yes. Thanks for the question, Param. So the fees number which you see represents an overall holistic view on all nature of fees. And it wouldn't be exactly linearly mathematically correlated with the spend. Also, do keep in mind that the year-on-year growth in spends also represents the acquired portfolio of Citi which had a different fee structure from what the Axis book has. In absolute terms, though, I must tell you that 39% is a -- quite a good number to see fee growth. That's a focus area for us because we want to diversify the earnings pool that we've seen in the cards business as well.

Yes. I got that. So the 70% includes the Citi fee, but I just wanted to understand because the credit card fee, I understand, would be the bigger driver within the retail card fee, right? So I just wanted to understand. Both these numbers are like-for-like comparable -- why there's a gap. Because one would have expected the retail card fee to be higher.

No. The retail card fee comprises non-spend-related items as well. There are items related to annual fee, joining fee, payment charges, all kinds of other fees. And the fee structures of the Citi portfolio and the Axis portfolio were quite different. The spend number is -- the 72% [ does ] include the spend coming from the Citi cards portfolio which was not in the baseline of the previous year. That's why the spend number is showing a higher percentage growth rate than the fee number. Some part of the fee does come from the spend. And that is dependent on the interchange rates, as you well know, but not all of it. And that is why we are seeing that the -- as the spend goes up -- the spend will continue to grow faster, but elements of fee which are not related to spend will obviously not grow at the same pace.

Okay. Okay. Got that. Got that. And my second question is on the margins. So how far along are we on the term deposit repricing? And secondly, this quarter, we've actually shown an expansion in the loan yields, which I think some of our peer banks have not shown, so I just wanted to understand perhaps directionally what segments are driving this, the expansion in yields; and how we see that progressing going ahead, yes. That's it from me.

Give us some credit for doing a good job. We have -- it's very hard to get to this point, so -- yes. I mean it partly reflects the fact that our overall loan mix has changed. Some loan, some asset categories have grown faster than some of the others, but we have always talked about 4 or 5 things which we are driving within the bank. We are driving cost of funds. We are driving the RIDF numbers. We are driving how we can change the product mix. We are driving the overall yields, so this effort is coming because of lot of factors which are being developed at the same time. And we're maintaining it quite consistently. We also are running a project to see as to how we can price the right yield for an individual customer. I mean ultimately there is a price point. There is a tenor and there is a amount which is perfect for the customer and makes sense for the bank. All of us use pricing grids. We are running a project internally to actually create a pricing for individual customers. So there are a lot of things which are happening below the surface which have allowed us to get here. And it has not been an easy journey. It will not remain an easy journey because some of the repricing -- as you know, the rates have hardened. Some of the repricing [ is still left ], but we have been stating consistently that we will continue to work towards ensuring that we remain in the same zone. That's the kind of the phrase we've been using forever. And I think these quarter numbers reflect the fact that we have been able to keep the same zone, at the higher end of the zone.

Just one more bit. On the term deposit repricing as well, if you could speak a little bit about that. Yes, that's it from me. And congratulations on the quarter.

Thanks for the question on term deposits. Our marginal cost of funding has stabilized, so at the margin, we're not seeing an increase in deposit expenses. The base book will continue to reprice. The pace of repricing of the base book, i.e., the change in cost of funds, should slow down as we get into the subsequent quarters in the year, but we do see a few more quarters for base book to get fully repriced in this cycle.

Next question is from the line of Abhishek from HSBC.

Amitabh and team, congratulations for the quarter. So I have one question on personal loans. Can you talk a bit about -- there have been indications by the RBI that it is a little cautious about it. You yourself, I think, last quarter, had mentioned that there was some pressure in the less than 50,000 ticket size segment. So if you can talk a little bit more about, a, whether the RBI has asked banks in general to be a little, go a little slow on this. And b, also if you can talk about how much of this -- how much of your personal loan portfolio is from top, let's say, Tier 1 versus Tier 2. And where does the stress lie really in the overall personal loan pool?

So you're absolutely right. I think RBI, especially RBI governor, has been calling out the growth in personal loans for quite some time. And obviously, if the regulator is calling it out, we have to take full cognizance of what is being said. On the flip side, we obviously have our risk guardrails. We are monitoring it very closely. And we are very clear in our minds that, the growth in personal loans, if it comes, it has to come not at the cost of risk guardrails or lowering our risk, but it has to come because we are reaching out to more customer segments. Our distribution reach has improved. Our overall efficiency of the process has gone up. And so we are able to get, at the same risk quality, more customers; and so we are able to grow that portfolio. So let me, first, [ get that principle out ]. And we have mentioned that we are seeing stress build up in loans below 50,000. Our share of loans below 50,000 is much smaller. I'll ask Sumit and Puneet to expand. So we are watching these parameters closely. We are not seeing any deterioration, but we are fully cognizant at the same time of what the regulator is saying. I'm not aware if the regulator has called some players specifically and asked them to curtail it or not. It is not in public domain, so I'm not aware of it, but let me ask Sumit and Puneet to kind of expand on the -- some of the other facts.

Abhishek, Sumit here. So 50,000 and below is where we believe there is stress. That portion for us is almost 0. We don't play in that segment and we have consciously chosen to be away from that segment. Historically, if you see, large part of our personal loan sourcing is from ETB customers, and as we've grown, that number has maintained. Number last month -- last quarter also was 83% contribution from ETB segment. This quarter also, the number is 83%. In addition to that, now we have 2 partnerships in place, where again those customers are known to the bank. And we also have their transaction data with the partner, so our scorecard is therefore that much more richer for those set of customers. So we are in -- we are not seeing stress build up. We are in control of the situation, and as Amitabh said, we're not compromising risk for volume at all.

And Sumit, just to clarify. In your PPT, it says that 100% of the PL is given to the salaried segment. Is this incremental? Or on book, 100% is to salaried and nothing is given to self-employed, in terms of PL only.

So salaried personal loan is given only to salaried customers, so the number you see, again salaried personal loan, is to salaried people only. Separately, we have a business loan which is given to self-employed people. That is classified under the small business banking. It's a book of about 12,000-odd crore, which is behaving even better than the personal loans.

Okay, so that is a personal loan given to business owners, so that's why it's classified there and not in your PL book.

Yes. So that's an unsecured loan given for business purpose to SME or professional, hence it is classified as business installment loan.

Got it. Got it. And my second question is actually on your fee. So if I knock off the card fee and the third-party fee, what remains is the asset and liability related fee. Now if I look at that fee, that has not grown much. I think that has declined about 3% Q-o-Q, whereas there has been a reasonable amount of growth in your assets, especially the loans, personal loans and credit cards and all of that -- sorry, not credit cards, with personal loans and other cards -- other loans. So why has that gone down?

Abhishek, thanks for the question. I think you must -- I just request you to think about non-cards and non-TPP fees with reference to disbursements and not to loan book because some of the fee is earned at disbursement. So on a sequential quarter basis, you will see the fee behave as disbursements behave. So that's one element. Second element that I would want to flag off to you is, as a franchise, we are at [ 1.53% ] fee-to-total assets, which basis numbers I see is near best in class in the industry. I think inter-quarter fluctuations will happen in a business our size, but I would request you to consider the fact that, at [ 1.3% ] fee-to-assets, we have a very healthy fee profile. As we stand, 93% of our fee is granular, which makes it sticky and recurring. On an inter-quarter basis, it will be a number that will keep moving around, but I don't think you should read too much into it.

Okay. Actually, yes. I was looking at the disbursement number. And your index disbursement has gone up from 118 to 146 in this quarter, so that's why I thought that line item could have -- would have gone up more.

Next question is from the line of Kunal Shah from Citigroup.

Yes. Sir, the first question is with respect to home loans. Last quarter also, you highlighted that work is in place and we should see the growth visible in the quarters, but still when we look at it, it's like much a lower pace, hardly like 2% sequential growth, 9% year-on-year, so when do we actually see the traction building up and the initiatives out there...

So Kunal, Sumit here. A couple of statistics. Our quarter-on-quarter home loan disbursement is up 26%. If I look at our previous quarter number, our book was quarter-on-quarter minus 0.05%. This quarter, it is plus 2%, so we are seeing good momentum build up. These numbers from here on will continue to improve. We have taken a couple of strategic initiatives which are going live. In addition to that, even the normal business is growing. That initiative would be additional to the regular BAU business.

Okay. Sure. And secondly, in terms of the overall employee addition during the quarter of almost like 4,500. So was -- in the opening remark, it was highlighted that most of them were towards the technology and included in this technology cost which we highlighted. Or this is, across the segments, that number is also getting quite higher.

Kunal, thanks for that question. What we did call out was that a large part of our OpEx growth which is -- the comment we made is 51% of our OpEx growth is towards technology and growth-related businesses. On the head count, the head count is pan bank. Please appreciate that we also added, as Amitabh indicated, 204 branches in the quarter. There will be head count that will be deployed for that business, in addition to all of the growth that we are delivering, so the head count growth will be principally across our business teams plus technology team. That's the key message that I would request you to please take away.

Okay, yes, okay. And one last question. Anything with respect to attrition in Citi deposit? Because if we look at -- maybe [indiscernible] in terms of this lower deposit growth vis-à-vis the other peers. Even in absolute term when we look at the traction, that still seems to be like 15,000-odd crores, 20,000-odd crores vis-à-vis like more than 50,000-odd crores for the other players, so any qualitatively -- obviously, you say like you won't split between the -- between both after the merger, but qualitatively, any sense if it's largely because of that...

No. So Kunal, actually, you're right. We can't split it. It's now a combined book, but qualitatively, let me reassure you that the -- from the day it came over, the Citi deposit book has actually been growing and has been growing a little faster than it was in the prior period, so you can rest assured on that front that it is not leading to any sort of depletion. In fact, there are more accounts being opened and there are more balances in those accounts now.

Next question is from the line of Saurabh from JPMorgan.

Just 2 questions. So one is to what level would [ you be ] comfortable taking your unsecured book to. It's about 11-odd percent, so directionally, what level could you take it to? And the second is in terms of the difference between your gross credit cost and net credit cost. So as we mature in the cycle, would you -- I mean, how would you think about the differential between the two? These are my 2 questions. And congratulations on the good numbers.

Saurabh, thank you for the questions. If you look at Slide 60 of our presentation: Our gross credit cost is about 70 basis points. Our net credit cost is, for the quarter, at 42 basis points, so there's roughly a 28 basis points gap. The same number for the previous quarter would have been a gap of 24 basis points. So there will be inter-quarter fluctuations, but directionally, the way we are seeing this pan out is asset quality is holding up well. Gross credit cost is a number we should monitor. The [ jaw ] between gross credit costs and net credit costs will shrink simply because recoveries and upgrades will not be at the same pace that we have had previously. So that's directionally how gross and net would move. My request again is please don't look at gross and net on sequential quarter basis or on a quarter-on-quarter basis because wholesale recoveries are episodic and can change that number. A good way to look at that number, in our minds, is on a full year basis. Directionally, the gap will shrink. i.e., recoveries and upgrades are likely to decline as we move forward. That's our view for ourselves. That's also our view on how industry will behave given how we see it.

Okay. And secondly, sir, on the unsecured, what percentage can you take it?

So on the point about unsecured, the way I would like -- I'd request you to think about it is that -- if you see Slide 16. The RWA intensity of the portfolio is not changing. I mean it's been around, just bobbing around 66%, 67% for the last 6 to 8 quarters. I think that should give you an indication of how we are thinking about risk. The intent here is not to increase risk to be able to deliver 18% ROE. The intent is to deliver 18% ROE with this level of RWA intensity.

Next question is from the line of Jai Mundhra from ICICI Securities.

Sir, a question on OpEx, right? So we have given that we are committed to 2.0% OpEx-to-cost. And that is excluding Citi expenses and integration, so if you can tell us, what is the number right now if we were to exclude Citi expenses and integration? Integration, one can deduct, but what is the like-to-like number as of [indiscernible]?

Jai, thanks for the question. I think there are 2 ways to answer it. We can deduct Citi expenses and give you the cost-to-asset ratio net of Citi expenses. We've always indicated that we will not report Citi numbers separately because it's an integrated balance sheet. When we announced the deal, we said that Citi operates at roughly 200 basis points higher cost-to-assets than us. They were 5% of the business, so 10 basis points, so the other way to answer your question is, adjusted for Citi, against the 2.41% that we have reported in the current quarter, the outlook will be around [ 2.10% ] would be the target as we would stand.

Sure. Understood. That is clear. And secondly, on your comment on deposit pace moderating, the pace of deposit costs moderating. Of course, that is visible in your numbers, so far, but I mean just an observation that, since March, right -- so our deposit -- total deposit growth has also been very, very muted, so in this -- for the last 2 quarters, maybe you have not, let us say -- if you were to accelerate the pace of deposit growth, would that -- would the current run rate would -- also sustain? I mean, have you any thoughts there that, if you were to accelerate from here onwards, the behavior should also be similar? Is that the correct understanding?

Look. I think for -- our comment is marginal cost of funds have stabilized. Given our own growth aspirations, our callout remains that there will be a increase in cost of funds/cost of deposits. That pace should slow. The incremental increase should slow down in the consequent quarters. We'll stay true to what we think we need to deliver on growth. And our comment on cost of funds is in light of the growth we think we would like to deliver.

Next question is from the line of Piran Engineer from CLSA India.

Congrats on the quarter. Some of them have been answered, but I have a couple remaining. Firstly, on your sharp increase in repo-linked loans in the last 2 quarters, that too without much growth in home loans, is it fair to say that you're moving to better-quality corporates? Or is it just more bargaining power in the hands of the corporates now?

Almost all the lending that we do on the SME side is repo, so it's not just the retail side. Even all of SME, which is, whatever, 12% of our portfolio, would comprise repo.

But that hasn't increased much in the last 2 quarters, right? It's gone from -- it's actually just flat at 11%, so whereas your share of repo-linked loans has gone up from 41% to 46%, so I'm presuming it's large corporates that are being repriced.

So large part of the increase is from the SME side, as I just explained. There is some repricing that's happened on the corporate side as well that will explain this increase.

Okay. Okay. Fair enough. Secondly, just getting back to a previous question on what explains the increase in loan yield when loan mix has largely been the same. Is it fair to say that there's some lagged impact of MCLR hikes that were taken 6 months back? Or is there -- have we increased rates across products?

Piran, thanks for the question. I think, like I called out in the [ structural NIM ] journey, one is portfolio composition, which is retail, SME, wholesale, but there's another driver under that which is the product mix. Further, there has been a driver, which is RIDF reductions, as we see them. Lastly, there is a driver on the currency composition of the advanced book, so it's not just 1 lever where you see constant performance, which is wholesale, retail, SME, but the other 4 levers that I have spoken of have meaningfully moved in our favor, consequently helping us improve overall portfolio yields. You will get the directional input on Slide 12 of our investor presentation. It'll give you directionally where each of those levers have moved.

Got it. Okay. And lastly, just a clarification. Did I hear Amitabh say 28%, 29% retail TD growth?

No. Amitabh indicated that, on a year-on-year basis, the RTD growth is 15%. That's the numbers that we've reported, so that's the accurate number that you should be looking at, please.

Ladies and gentlemen, we'll take the last question from the line of Nitin Aggarwal from Motilal Oswal.

So my question is on the branch expansion. We have seen a pickup in branch expansion this quarter, so how are we looking at the trend? And also, given our specific guidance on cost-to-assets, what sort of branch expansion are we baking in over FY '25?

So as we had mentioned a couple of quarters back, we are looking at doing about 500 branches this fiscal. And we are on the path to delivering that. So this is something which is there in the public domain. So that's what we are headed for in terms of branch expansion. And the way we look at branch expansion is to look at white spaces across states and different geographical catchments and see how we can establish both in terms of local intelligence as well as analytics to ensure that these 500 are established. And that's how we have moved towards what we have done at 200-odd branches in the first half, and we are confident we will do the 500 this year.

Right. So basically, what I want to understand is, like, the way we have explained the rise in OpEx from the baseline to the current quarter. What are the levers that we have when we look at a decline over FY '25? What will bring it down? What components will grow slower? What can possibly like drive this reduction?

I think from -- the directional answer to that question would be, one, growth productivity benefits for all of the digital and tech investments that we are making should flow through over a period of time. You would also note that we've been in the process of transitioning the book from a mix perspective of 47%, 48% wholesale, 52% retail to now roughly 58% retail, 42% wholesale plus CBG. Given where we've gotten to, you have now started seeing over the next -- last couple of quarters wholesale growth and retail growth match each other because -- and therefore, proportions haven't changed. Wholesale growth comes at a much lower cost-to-assets ratio. And therefore, as the book now grows across our segments, we should see some optimizations come through. So we do have a plan on being able to optimize where we need to get to. I would, however, reiterate what I said to an answer to a question earlier post: We will -- like to continue to invest in the business as we move forward. The opportunity set that we see is large, and if that means continuing to invest to deliver the right outcomes and other lines of our P&L, we'll continue to do so. The 2.1% we have indicated, the around 2.1%, including Citi, is what we would target on an FY '25 [ basis ]. If we have to review that number, we'll come back to you, but as of now that number stands.

All right. And I have one more question, on the credit card business. The ETB mix of card has declined quite sharply. Like how do you look at that? And any threshold on this that you would like to maintain? I understand that the KTB mix is going up. I mean just why this decline, but any threshold on ETB share that you would like to observe?

Yes. So thanks for the question. The way I'll request you to look at that is the -- and to contextualize it is in the -- to look at partnerships as a whole because there's also -- in addition to just ETB and NTB, in the form of digital partnerships, we have a very amenable [ mid part ] which is what we call the KTB, i.e., known to the bank, where we are able to underwrite customers a lot more effectively based on the wide-ranging set of partnerships we have and the data which those partners are able to [ come into ] an underwriting [ score ]. So we use that very effectively and we've been able to grow that book quite well. We have noticed that the data which the partners put together also is quite a good predictor on credit behavior, so that's holding out pretty well as well. Therefore, as we continue to invest in partnerships as a means of growing, both to get the numbers and to deliver higher customer value, we will find that the ETB-KTB mix will keep moving. We also keep an eye on that and we'll keep calibrating that in the quarters going forward, but on a particular quarter, the mix could change. For example, you could have offers running with a particular partner which would then, in that quarter, increase the mix, so I'd request you to look at that in the context of 3 segments, ETB, KTB and NTB, rather than the traditional way of just 2 segments.

Thank you. I now hand the conference -- sorry. Thank you very much. And I now hand the conference over to Mr. Puneet Sharma for closing comments.

Thank you, Nirav. Thank you, everyone, for taking the time to join us on our call this evening. Wishing you and your families a very happy Diwali and all the best for the upcoming festivities. If any questions have remained unanswered, please do reach out to our IR team or myself; and we'll be very happy to pick them up. Good evening. Have a great [ festive season ].

Thank you very much. On behalf of Axis Bank, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.