Axis Bank Limited (532215) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Axis Bank conference call to discuss the bank's financial results for the quarter and financial year ended as on 31st March 2024. 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 with us 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. Apart from Puneet, we have on the call, Rajiv Anand, Deputy MD; Subrat Mohanty, ED; Munish Sharda, ED; and other members of the leadership team. We have had another strong year of performance built on our GPS strategy that has set Axis Bank firmly on the path to become a resilient all-weather franchise. We have delivered our aspirational return ratios with better quality and consistency of earnings while maintaining a strong balance sheet position. During the year, we maintained the growth trajectory across our focus business segments, including MSME, Bharat and Retail Assets and improve the quality of our deposit franchise. We also scaled up the branch network as we crossed milestone of 5,000 branches and opened record 475 branches in financial year '24. We have improved our Net Promoter Score ranking to second amongst large peer banks as per benchmarking study undertaken by independent agency [ Cantor ] for Axis Bank. Our flagship digital properties, Open and NEO, continue to lead the market in retail and wholesale segments. Our current position of strength is a result of consistent execution rigor and investments made in building blocks across our people, processes, technology and several multiplicative projects over the past 5 years. This has helped us to not only surpass the GPS commitments we had made, but also deliver distinctiveness and differentiation across our focused business segments as we continue to build new sources of competitive advantage. In quarter 4 financial year '24, the bank delivered consolidated ROE of 20.87% and has now delivered ROEs of greater than 18% for the past 7 quarters. The bank is well capitalized with organic net accretion of 44 basis points of CET1 capital in financial year '24. We stay focused on 3 core areas of execution of our GPS strategy, namely becoming a resilient all-weather franchise, creating multiplicative forces to build competitive advantage and building for the future. As you will see, there is a slight change in narrative through financial year '24. The earlier themes of high-performance culture, a winning mindset and strengthening of the core are now an integral part of Axis Bank's DNA. We'll now discuss each one of these areas. Becoming a resilient all-weather franchise, I will talk about deposits first. Over the last couple of years, we have in deliberate planned steps shifted the quality and strength of our deposit franchise in a marked manner. We have shared the trend on growth of granular deposits, reduction in LCR outflow rates, premiumization through Burgundy and Burgundy Private platforms and embedding of Siddhi, an employee super app and Sparsh, our customer experience transformation program into the DNA of the branches. These initiatives have improved the health of our franchise significantly and the impact of this was seen progressively every quarter in financial year '24 and our deposits market performance. We are carrying this momentum into financial year '25. I'll now take you through performance highlights for quarter 4. We continue to deliver higher growth in LCR accretive retail and small business deposits, that stood at 18% year-on-year, 500 basis points higher than our overall deposits growth. We have improved our LCR outflow rates by 500 basis points in the last 2 years, which is among the best in the sector today. CASA deposits grew 8% quarter-on-quarter and our CASA ratio as a percentage of average assets for quarter 4 financial year '24 stood at 32%, which is among of the best in the sector today. We have further improved the growth trajectory of retail term deposits with 17% year-on-year growth that stood at 13 quarter high. On the corporate salary side, we have redesigned our corporate salary product proposition under Suvidha to win employer mind share and get higher employees wallet share. Further access to 1,600 Suvidha corporate labels from the Citi acquisition with pan-India coverage as compared to few cities earlier is also aiding the corporate savings account growth. Our premiumization strategy has performed well with Burgundy AUMs growing at a CAGR of 32% in 5 years. Burgundy Private launched 4 years back, now includes 35 of the Forbes 100 richest Indians as its clients and manages wealth for over 10,650 families across 27 cities pan country. On the wholesale segment, project NEO is helping to drive higher transaction banking flows leading to better current account balances. Our NEFT market share in terms of value has increased to 12% in quarter 4 financial year '24 as compared to 9% in quarter 4 financial year '23. This was possible due to large CMS wins in the fintech, payment aggregation space. Our deposit mobilization strategy has been led by 2 large transformation initiatives: Siddhi, a super app for our employees; and Project Triumph, leveraging the various business segments within Retail, Bharat and SME, continuing to progress well. We have empowered 80% of the on-roll employees with Siddhi that now supports 24 product and service journeys along with 21 types of nudges and notifications for them to have deeper and more meaningful customer engagement. The improvement in branch productivity is reflected in 49% increase in LCR accretive deposits per branch in the last 5 years. We have seen all-around growth across businesses, and we have now market-leading growth in our focus segments. Refer to Slide 8 of the investor presentation, our higher-yielding focus segments, including SME, mid-corporate, SBB, which is small business banking, rural, personal loan, credit cards together have grown at a CAGR of 25% in the last 4 years and now constitute 43% of the total advances, up by 1,210 basis points during this period. We will continue to focus on driving growth across our business segments while following capital efficient RAROC model. Refer to the Slides 10 and 11. We have delivered growth and profitability without compromising on the risk, which is reflected in our RWA to total assets trend that have seen improvement as compared to the past, bearing periods of risk weight changes. The fee profile is among the best in the industry today with granular fee comprising 93% overall fee, up 600 basis points since March '19. On the merchant acquisition business, we have moved from #2 to leadership position during the year with terminal market share of 20% as of March '24. As far as strengthening the core is concerned, while we have strengthened the balance sheet and capital position significantly, we have also been consistently building and investing in the entire technology backbone, data analytics, digital and tech teams. We have early leadership in micro services-based cloud adoption and the first Indian bank to be ISO certified for its AWS and Azure cloud security. As part of commitment to Open API ecosystem, we now offer wide stack of 410-plus APIs on the developer portal. Our investment in emerging tech has demonstrated through creation of 3,500-plus RPA bots and leveraging Microsoft Gen AI use cases, focused on conversational banking, automation and AI service enablement. This year, we have also embarked on further strengthening our enterprise class systems of engagement with Salesforce journey that will further aid in making the systems more scalable and future ready. Our second pillar was creating multiple data forces to build competitive advantage. Our readiness to partner with innovative fintech ventures has created a dynamic ecosystem that fosters innovation, enhances the customer experience and sets new industry standards globally. We believe we are well placed to play all the socioeconomic mega trends over the next decade and beyond. The multiplicative forces that we have built through unification of One Axis, 100-plus partnerships and new-age tech platforms give us the right to win. Slide 13 to 16 provide more details. Citibank Consumer Business integration remains on track. Deposits are largely stable, while there has been growth in retail assets and wealth management led by improvement in cross-sell metrics. We are now live with the first change in the migration journey for the transitioning customer base with IFSC migration, enabling payments to Citibank accounts using Axis Bank IFSC. This has been made live in March '24. We have successfully completed the migration of CV/CE loans portfolio in March '24, and the customers have now fully migrated from Citi systems onto the Axis systems. The integration of the other assets and liabilities remains on track. Third pillar, building for the future, we are trying to be ahead of the curve towards building a bank for the future with deep investments on management, time and resources in our chosen areas of distinctiveness, namely digital, Bharat banking and customer obsession. We have started seeing early results of these investments even as we remain focused to further drive scalability and productivity across the organization. Digital banking performance continues to remain strong. Open by Axis balance sheet continues to deliver strong growth with 33% in deposits and 74% increase in loans. Open by Axis continues to be the highest-rated mobile banking app on the Google play store with a 4.8 rating. On the iOS app store too, the rating has increased to 4.8% this quarter. Keeping with the ethos of Dil Se Open, Open by Axis is now available in multilingual mode. Four languages are now supported by both our mobile app and our Internet banking portal. In financial year '25, the bank intends to take further steps to increase accessibility of its digital channels. NEO for business. Our MSME proposition now has 60,000 customers onboarded over the last 2 quarters. NEO for corporates has been scaled up with customer migration currently underway. The migration here will continue to scale up till quarter 3, while we continue to launch additional capabilities. With full rollout of NEO, Axis remains on track to become the operational bank of choice for our wholesale banking clients. Bank-wide programs to build distinctiveness continue. Our bet on Bharat is going from strength to strength. The financial year '24 disbursement sourced by Bharat banking are up 30% year-on-year, rural advances up 30% year-on-year and deposits from Bharat branches up by 12%, thereby aiding the PSL and profitability metrics. In rural advances, the balance sheet added in the last 24 months is 1.75x the size of the balance sheet added in the previous 4 years, which is March '18 to March '22. We have expanded our multiproduct distribution architecture to 2,482 branches complemented by 64,550 CSC VLE network across 683 districts and 80-plus partners across the industry. It has also contributed significantly to the bank's overall PSL achievement at 46.37% for financial year '24. Sparsh, our customer obsession program, is helping improve relationship and transactional intensity with our customers. Our Gen AI conversational chatbot is empowering frontline employees to efficiently address queries on core products. In closing, the Indian economy continues to remain a bright spot with its favorable macros backed by strong and stable domestic policy environment, which bodes well for the banking sector. In the near term, the geopolitical tensions continue to pose risk with the food and commodity prices. We retain our stance of policy rates staying higher for longer and foresee the system credit growth to converge towards deposit growth of around 13% for the fiscal. We will continue to be differentiated and distinctive in our journey to improve our service and performance levels for all our stakeholders. We remain focused towards 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, everyone, for joining us. We continue to make good progress towards building a stronger, consistent and sustainable franchise. The salient features of the financial performance for FY '24 and Q4 FY '24 across our operating performance, capital and liquidity position, growth across our deposit and loan book, asset quality restructuring and provisioning is as follows: In Q4 and FY '24, our operating performance was strong across NIMs, fee and credit cost lines. We discussed key metrics for FY '24 on a reported basis as follows: FY '24 net interest margin was 4.07%, up 5 basis points Y-o-Y, in line with our consistent commentary that NIM should be compared on a 12-month basis. Net interest income stands at INR 49,894 crores, a growth of 16% Y-o-Y. Fee income stands at INR 20,257 crores, 28% Y-o-Y growth, granular fees is 93% of total fees. Operating profit stands at INR 37,123 crores, 16% Y-o-Y growth. Cost-to-income stands at 48.68%, improving 18.03% Y-o-Y on a reported basis. Credit cost at 0.37%, lower 3 basis points Y-o-Y. PAT stands at INR 24,861 crores, increasing 160% Y-o-Y. GNPA at 1.43%, declining 59 basis points Y-o-Y. Net NPA at 0.31%, declining 8 basis points Y-o-Y. Standard asset coverage ratio of 1.26%. All provisions by GNPA ratio at 159%, improving 13.73% on a Y-o-Y basis. Consolidated ROE at 1.84%, improving 99 basis points Y-o-Y. Consolidated ROE at 19.29%, improving 10.03% on a Y-o-Y basis. I move to numbers that are now reported for Q4 FY '24 on a reported basis. Consolidated ROA at 2.07%. Consolidated ROE at 20.87%. Subsidiaries contributed 7 basis points of consolidated annualized ROA and 52 basis points of consolidated annualized ROE. Bank's CET1 including profit stands at 13.74%, improving 3 basis points quarter-on-quarter. Organic CET1 accretion for FY '24, including profit, was 44 basis points. Change in regulation adversely impacted CET1 by 72 basis points. Prudent COVID provision of INR 5,012 crores has not been utilized or written back to P&L. It has been reclassified as other provisions to be largely utilized upon ECL transition. This provision has not been reckoned for capital competition and translates to a capital cushion of 41 basis points over reported capital adequacy ratio. The reported CET1 at 31st March 2024 of 13.74% is after fully incorporating the impact of INR 1,612 crore investment in Max Life funded in April 2024 and the proposed dividend of INR 1 per share or a 50% dividend rate. The bank assesses its capital position on 2 pillars, growth and protection. We reiterate that we do not need equity capital for either pillar. The bank is proposing to take a purely enabling resolution for equity capital and borrowings from its shareholders in the normal course. Net interest margin for Q4 FY '24 is 4.06%, improving 5 basis points on a sequential quarter basis. Yields on interest-earning assets improved by 11 basis points on a sequential quarter basis. This increase sufficiently addressed the increase in cost of funds of 8 basis points Q-on-Q. NII at INR 13,089 crores, growing 11% Y-o-Y and 4% Q-on-Q. Fee at INR 5,637 crores, growing 23% Y-o-Y and 9% Q-on-Q. The fee for the quarter is 93% granular. Operating profit at INR 10,536 crores, grew 15% Y-o-Y and 15% Q-on-Q. Cost to income for the quarter was 46.94%, declined 252 basis points on a sequential quarter basis. Net credit cost at 0.32%, increased 4 basis points Q-on-Q and 10 basis points Y-o-Y, mainly driven by lower recoveries and upgrades. PAT at INR 7,130 crores, increased 17% Q-on-Q. Y-o-Y PAT is not comparable due to reported loss attributable to exceptional items debited in the P&L in Q4 FY '23 relating to the Citibank acquisition transaction. GNPA at 1.43%, declined 15 basis points Q-o-Q. NNPA at 0.31%, declined 5 basis points Q-o-Q. The bank's own assessment is that we are PSL-compliant at a headline level and at each subsegment in FY '24. Our progress on structural NIM drivers continues with improvements across all variables on a Y-o-Y basis. Balance sheet mix, loans and investments comprised 88% of total assets at March '24, improving 168 basis points Y-o-Y. INR-denominated loans comprised 96.2% of total advances, improving 130 basis points Y-o-Y. Retail and CBG advances comprised 71% of total advances, improving 303 basis points Y-o-Y. Low-yielding RIDF bonds declined INR 9,007 crores Y-o-Y. RIDF comprises 1.5% of total assets at March '24 compared to 2.3% at March '23. Quality of liability is measured by outflow rates improved by 500 basis points over the last 2 years. Our month-end CASA balance, CASA ratio is 43%, continues to be amongst the highest in the large private sector universe, improved 85 basis points on a Q-on-Q basis. Our fee performance was strong, reflected in a fee growth of 9% Q-o-Q. Total retail fees grew 33% Y-o-Y, 12% Q-on-Q. Our third-party products fee grew 59% Y-o-Y, 44% Q-on-Q. Retail cards and payments grew 39% Y-o-Y. Retail assets, excluding cards and payments, grew 20% y-o-y. Trading profit and other income of INR 1,128 crores was higher by INR 909 crores and grew INR 443 crores sequentially, mainly on account of better DCM and trading performance and reversal of MTM booked in previous quarters. Operating expenses for the quarter stood at INR 9,319 crores, growing 27% Y-o-Y, 4% sequentially. It's pertinent to note that there is only one month Citi BAU expenses in Q4 FY '23. We opened 125 new branches in the quarter and 475 new branches through the year, in line with what we guided at the start of the year. Integration expenses continue -- contribute 3% of the Y-o-Y growth in percentage terms and 11% of the Y-o-Y growth in rupee terms. The balance Y-o-Y growth in rupee crore expenses other than above can be attributed to a negative 2% linked to volumes, 51% growth on technology and growth-related investments and the balance 40% for BAU cost. Technology and digital spend grew 32% Y-o-Y and constituted 9.3% of total operating expenses. Our staff costs increased by 35% Y-o-Y. We've added 12,735 people for the same period last year, mainly to our growth businesses and our technology teams. The quarter-on-quarter increase in operating expenses is largely attributable to staff cost, technology and growth-related investments. We added 4,983 people in the quarter. Provisions and contingencies for the quarter were INR 1,185 crores, higher 15% Q-on-Q, largely attributable to a higher coverage of 1% on a full book basis. The bank continues to prudently carry 100% provision on its AIF investments. The cumulative non-NPA provisions at 31st March 2024 is INR 12,124 crores -- INR 12,134 crores, comprising provisions for potential expected credit loss of INR 5,012 crores, restructuring provision of INR 535 crores, standard asset provision higher than regulatory rates of INR 2,029 crores and other asset provision of INR 4,558 crores. Growth across our liability and loan franchise, please refer Slides 36 to 38 for details around the quality of our liabilities franchise and slides on our loan franchise. Total deposits on a QAB basis grew 16% Y-o-Y, 5% Q-o-Q. Our QAB CASA ratio was 40.74%. The outflow rates on our deposits improved by 100 basis points Y-o-Y, indicating improvement in the quality and lendability of our retail and non-retail deposits. In order to ensure like-for-like comparison of deposits growth with peer banks, the bank will report total deposit growth as part of its disclosures in FY '25, along with LCR quality of deposit metric. The bank sold IBPCs in the current quarter aggregating to INR 4,564 crores. Grossed up for IBPC sales, the Q-on-Q loan growth was 4% and the Y-o-Y loan growth is 15%. Our loan book is granular and well balanced with retail advances constituting 60% of overall advances, corporate loans at 29% and our CBG book at 11%. 70% of our loans are floating, 47% of our fixed rate book matures in the next 12 months. Breakup of the floating rate loan book by benchmark type, MCLR repricing frequency is set out on Slide 28 of our investor presentation. Retail advances for us grew at 20% Y-o-Y, 7% sequentially. 72% of the book is secured. Q4 FY '24 retail disbursements, including Bharat bank, grew 8% Q-on-Q. Unsecured disbursements were 25% of retail disbursements for the quarter as compared to 24% in the previous quarter. Disbursement growth in LAP was 23% Y-o-Y and 9% Q-on-Q. Retail agri was 18% Y-o-Y, 25% Q-o-Q. PL was 49% Y-o-Y and 11% q-on-Q. Wholesale banking coverage. Details of rating composition, incremental sanction quality is set out on Slide 55. Grossed up for IBPC sales, the domestic corporate loan book grew 10% Y-o-Y and was flat Q-on-Q. Offshore wholesale advances are largely trade finance related and primarily driven by our GIFT city branch. 97% of the overseas standard corporate loan book is India linked and 93% is A- rated and above. The commercial banking book grew 17% Y-o-Y, 5% Q-on-Q. The quality of the CBG franchise we are building is strong and relationship-led approach is reflected through CBG New to Bank, book grew 14% Y-o-Y, 83% of our CBG loan book is PSL-compliant. Coming to the performance of our subsidiaries. Detailed performance of our subsidiaries set out on Slides 86 to 93 of the investor presentation. In FY '24, the domestic subsidiaries reported a net profit of INR 1,591 crores, growing 22% Y-o-Y. The return on investment of domestic subsidiaries was 54%. Axis Finance overall assets under finance grew 38% Y-o-Y, retail book constitutes 45% of total loans. FY '24 PAT grew 28% Y-o-Y to INR 610 crores and Axis Finance has a healthy capital adequacy ratio of 19.24%. Strong asset quality with a net NPA of 0.28% and negligible restructuring. Axis AMC, overall quarterly AUM grew 14% Y-o-Y to INR 2,74,000, up INR 2,65 crores. FY '24 PAT stood at INR 414 crores. Axis Securities broking revenues for FY '24 grew 58% Y-o-Y to INR 1,143 crores and PAT grew 48% Y-o-Y to INR 301 crores. Moving to asset quality, provisioning and restructuring. Asset quality continues to improve with gross and net NPA in rupee terms and percentage terms declining sequentially and on a year-on-year basis. The slippage, GNPA, NNPA and PCR ratios for the bank and segmentally for Retail, CBG, Corporate are provided on Slide 78 of our investor presentation. Gross slippages for the quarter were INR 3,471 crores, declining 7% Q-on-Q. Gross slippages segmentally were INR 3,110 crores in retail, INR 163 crores in CBG and INR 198 crores in our WBCG businesses. Gross slippage ratio annualized stood at 1.48%, declining 28 basis points Y-o-Y and 14 basis points Q-o-Q. For the quarter, 35% of our gross slippages are attributed to linked accounts of borrowers, which was standard when classified or have been upgraded in the same quarter. Net slippages for the quarter were INR 1,317 crores. Net slippages segmentally was INR 1,616 crores in retail, INR 51 crores in CBG and negative INR 350 crores in the WBCG business. Recoveries from written off accounts for the quarter were INR 919 crores. Net slippages for the quarter adjusted for recoveries from written off pool was INR 398 crores, declining 17% Q-on-Q. Segmentally, retail was INR 1,061 crores, CBG was negative INR 62 crores and WBCG was negative INR 601 crores. To summarize, Axis Bank is progressing well to be a stronger, consistent and sustainable franchise. Consolidated ROA and ROE for FY '24 1.84% and 19.9%, respectively, are an outcome of disciplined execution. The bank has ample and sufficient liquidity visible in an average LCR ratio of 120%, which improved 171 basis points Q-on-Q. Deposit growth could be a key constraint to growth in advances in the short term. In the medium-to-long-term, we believe our advances can grow from 300 to 400 basis points faster than industry. We are well placed in the current macro environment. We continue to closely monitor geopolitical inflation, liquidity, cost of funds and its impact on our businesses. [ With this, we conclude our opening ] remarks, and we'll be happy to take questions.

[Operator Instructions] First question is from the line of Chintan Joshi from Autonomous.

I have 2 questions, one on NII and one on costs. On NII, if I can start with that, last quarter, when we were discussing how NII developed, so I got a sense that there would be more pressure on the liability side and that NIMs would be a little lower than what you've reported, which is a good thing. But I just wanted to understand, was there anything that helped alleviate any pressures or helped post better-than-expected NII performance this quarter? So therefore, what was the underlying improvement since the third quarter commentary and how should we think about the future? On costs, just a broad question. Help us on how we should think about cost to asset evolving in FY '25.

Chintan, thank you for your question. On net interest margins, I can simply answer the question by saying there are no one-offs in our net interest margin or net interest income for the current quarter. The improvement in net interest income and net interest margins is on account of disciplined execution. We've had a book mix shift, and we've had pricing improvements across the portfolio that have driven this outcome. To your second question on cost to assets and outlook. We do not offer guidance or outlook on the cost to assets metric. We have consistently maintained that as long as we can deliver the 18% return -- in and around the 18% return on equity on a consolidated basis, we'd like to continue to invest in the finances. That's where I would leave the response. We do not offer sequential annual or forward-looking guidance of customers.

On margins, can I...

Sorry to interrupt you, your voice is coming a little muffled.

Okay. I'll speak louder. Just on the margins, if I can -- sorry.

Chintan, can I add, Amitabh here. Chintan, I just want to say is that just adding to what Puneet said, while obviously, we have been consistent about the fact that if you look at what's happening in the market, the trend line would be that the deposits are still getting repriced while the asset repricing has happened, but that does not mean that we have some levers at play in our hands. And I think what we've been just trying to do as the enterprise is to just use those levers and see how we can maintain margins and continue to try to improve them. So as and when opportunities arise, we will obviously try to grab them and try to ensure that we don't go south in terms of margins, but we maintain or improve them. I'm not trying to give you any guidance, but I'm just trying to say that the intent of the management team is to obviously continue to deliver, as I said in my opening remarks. So I just want to leave that thought with you. Sorry, you were asking a question.

That's exactly what I was asking.

Next question is from the line of Mahrukh Adajania from Nuvama Wealth.

Congratulations. My first question is on LDR. So would you have a broad framework in mind on, say, peak LDRs, like would you want the LDRs to stay at 90% or 89% or any such peak or cap you have in mind on LDR?

So Mahrukh, we have a clear strategy in mind on the LDR side, not that something which we're guiding towards or talking to the market about, but there's a clear strategy. If you look at our LDR ratios, they have trended in a particular direction. Our hope is that we would like to maintain it within a zone and ensure that we understand and appreciate where the derivative is coming from, and at the same time, have flexibility to grow at a certain rate going forward in the future. Obviously, none of it can happen without deposits coming at a certain growth, right? So that's how we're thinking about LDR.

But for the next few quarters, should we assume that deposit growth would outpace loan growth?

That will be giving a guidance, Mahrukh. So yes, but -- I mean, I can't tell you the fact that deposit growth will be an important determinant in driving credit growth. Without that, being able to showcase credit growth would be quite difficult. But that is something which we have been saying even before all the noise started in LDR. We have been talking about for quite some time that at some stage, the deposit growth and the credit growth needs to converge. This cannot -- this gap cannot continue forever. I think we've been saying that for quite some time.

Okay. Got it. My final question is on cost of funds. So obviously, for most banks, there has been some quarter end deposit mobilization. You, of course, transparently disclosed what's MEB and what's QAB, but given that and given obviously intensive competition, can we assume that cost of funds have peaked because they look very resilient over the last 2 quarters for you, assuming that there are no further policy rate changes?

Mahrukh, thank you for the question. We've previously stated that if the marginal cost of funds remains where it is today, given the current status of our book, we should finish back book repricing in quarter 2 of the current financial year.

Next question is from the line of Rikin Shah from IIFL. Due to no response, we move on to the next participant. The next question is from the line of Pranav from Bernstein.

I have 2 questions. First is on the deposits. So there's been a very clear improvement in the quality of deposits.

Pranav, sorry to interrupt you. May I request you to speak a little louder?

Is it better now?

Yes.

There's been a phenomenal improvement in the quality of deposits over the last few years. Is it fair to say that we have reached a certain level of the target state in terms of the quality of deposits? And therefore, now the growth could once again start being much higher than the system growth, like what the long-term guidance has been? And the second question is more on the third-party fees. There's been a punchy growth quarter-on-quarter. Is that one-off? Or is this a new level of third-party fees that we should expect going forward?

Pranav, this is Subrat. So the journey to continue to improve the quality of the deposit franchise is ongoing. I mean we've kind of highlighted over the last 3 years how the trends have improved in some of the key metrics that we track for deposit quality. We still don't think we have reached anywhere near a plateau in terms of improving these metrics. There is also another lever of productivity that we are continuing to work on. We have mentioned Triumph program that we are working on to improve deposit productivity across the board as well as working on making sure that the bank becomes the primary bank for a lot of our deposit account holders. So I think the progress is satisfying so far. But like I said, we still believe we have levers left, which we'll continue to work on over the next 4 quarters.

If I can just add to what Subrat mentioned, as I think about savings in 3 buckets: retail, corporate and government, retail, as Subrat mentioned, there is work that's going on in terms of improving productivity, improving distribution, improving our -- and continuing to grow on our digital capabilities. We spoke -- Amitabh in his opening comments spoke about Suvidha, which is a new improved version of our corporate salary program, including the 1,600 corporates that have come to us, thanks to the Citi acquisition. On the corporate side, we are working on multiple fronts, salary accounts, given the fact that corporate India is cash surplus at this point in seeking out franchise deposits and finally, driving flows through NEO. And finally, the government side of the business has increasingly become a lot more solution-oriented, which actually works, which actually plays to our strengths, and we are now able to chase across multiple programs. Both at the central and state government, we're able to chase money from the consolidated fund of India all the way down to the beneficiaries. And that also is a partnership that is working well between our government business on one side and Bharat Banking and the distribution that is getting built on the other side.

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

Yes. So once again to touch up on margins. So as you indicated, there is not much of interest reversal benefit, even though this time, we have combined both interest reversals as well as spreads together in 5 basis points. But when we look at it in terms of the incremental spreads, so given that cost of deposits have also gone up by 8 odd basis points. Are we seeing the entire mix shift and the overall -- when we look at it, the pass on in terms of the lending rates, leading to this kind of improvement in spreads as well and does it give the flexibility to increase the deposit rates, I think in less than INR 2 crores, we are still below many of the -- many of our peers. And to just shore up the retail deposits, should we do that in terms of the deposit rate hike?

Kunal, thank you for the question. I just would like to clarify interest reversals on GNPAs when booked and interest reversals on GNPA has been upgraded on a realization basis, we treat as normal course of business. Exceptions would be something like an income tax refund or some onetime income that has come through. On account of a large recovery, et cetera, is what we would call Smartpay. So my response that we do not have a onetime interest income in the current quarter should be read in that context. To your second question.

But sorry, anything reversal within this, any interest reversal within this, which is in the normal course because we are seeing good recoveries as well of INR 2,100-odd crores?

Look, Kunal, we have recoveries and upgrades every quarter. So like I said, it is in the normal course, we have no exceptional item and I'll reiterate that for you. We have no exceptional item in the net interest income line for the current quarter. To your question on our ability to pass on increase in cost of funds, we had an 8 basis points increase in cost of funds on a sequential quarter basis, our yields on interest earning assets moved up by 11 basis points. So that should address your question on incremental spreads. On a full year basis, we had a roughly 95 to 97 basis points increase in cost of funds and we had a [ 94 to 97 ] basis points increase in yield on interest earning assets on a full year basis. So the quarter on an exit basis is better than the full year. But even on a full year, full year basis, we've been able to pass on our cost of deposits.

Sure. And secondly, with respect to the composition of the retail book, so that's also moved towards the high yielding. In fact, when we look at the mortgage that has grown nearly at 5-odd percent compared to 20% growth in retail assets. So would that strategy continue? And what would be our plan with respect to the home loans? Because most of the other segments, we are seeing like the overall rural banking as well as SBB and all growing at a rapid pace compared to that of the home loans. So is it more like the trying to manage the margins and that's the reason home loan is growing or it's maybe the competitive environment?

So I think we have shared our strategy on how do we decide in a constrained environment on which assets we need to grow. We use RAROC, just a return on capital as a measure to drive that decision. And if you look at RAROC on mortgage business if mortgage is the only thing I do with the customer, it tends to be much lower than a lot of other asset classes. So I think what you see on ground or what you see in our numbers is a reflection of that strategy. And if we continue to remain in a deposit-constrained environment, that strategy would ensure or would continue to force us to ensure that we grow some of the lower RAROC asset classes at the lower rate than some of the others. So I think we have been very consistent about how we go about our loan growth across weighted asset classes. And depending on what the environment is, we will continue to drive our strategy accordingly.

And just to add to what Amitabh said, I think as a system, we have the ability to grow asset classes faster, but all depends how the borrowing environment is. And in the right time, we can grow each of the asset business. Our overall asset growth this quarter is about 7%, which is a fairly strong growth. And if the economics is right, deposit situation or the liquidity is fine, you will see all asset classes growing.

The next question is from the line of Piran Engineer from CLSA.

Team, congrats on the quarter. Some of my questions have been answered, but I have a few clarifications. Firstly, did we mention at the end that we'll now grow 300 to 400 bps faster than the industry?

Piran, thank you for the question. We mentioned that we'll grow 300 to 400 basis points faster than the industry over the medium to long term. Medium to long term being defined as 3 to 5 years -- sorry, 300 to 400 bps points.

Yes. So that is -- I mean, our stance has changed because the industry is growing faster or because you want to reduce LDR? Or like over the medium to long term, I don't think LDR should be an issue. So just wanted to understand why the change in stance.

Piran, we heard your question. Thank you for your second question. I think what we -- we haven't changed our stance. What we are saying is in 2 parts. In the short term, deposits growth will drive advances growth. Our expectation is deposits will grow 13% next year and advances, therefore, being driven by deposit growth should be in the same range for the industry. That's the first comment we made on the call, and that's an industry level comment, not a bank level comment. The specific bank level comments we've made on this call is to say, we have the confidence in the franchise to grow 300 to 400 basis points faster than industry in the medium to long term. I hope that sets context right to both instances, one...

Okay. Perfect. No, that clarifies it. Secondly, and I know you can't maybe share too much of details, but if you can just give some sort of comfort on in the last -- in the recent past, has RBI in discussions with you highlighted any sort of tech deficiencies, KYC issue, customer onboarding, et cetera, et cetera, because in the last 3 months, we've seen RBI been pretty active and we saw something today also. So I just wanted to get some sort of comfort on this front, if you don't mind.

Yes, sure. This is Subrat. I mean, look, listen, we can't disclose what communication goes on between us and the regulator. However, if you remember, even during the Analyst Day that we had in November, we spent considerable amount of time talking about our tech architecture, the focus on resilience and availability because those are the cornerstones of the strategy that we have put together within our technology landscape. What that means is in terms of making sure that we are partitioning some of our core banking systems, moving some parts of it to cloud to make sure that some of the high-velocity, low-value transactions are separately managed. We continue to build fairly industrial strength, back-end infrastructure, update the end of life, end of support applications and operating systems. All of that is part of what we think are very integral apart from all the cutting-edge work that we do on the digital side to keep the shop running and running at a fairly resilient and predictable manner. So we continue to do that, and we'll continue to give you the update. A lot of questions in the past have been asked about the investment in tech that we do. A lot of it has gone into resilience and availability. So we'll continue to be on that path. Like I said, this is an area that can surprise you any day. So we are being very, very careful about this.

Got it. Okay. Just my last question on yield improvement. So one part is loan mix, but simply driven by pricing, how much further can yield improve?

Piran, thanks for the question. Honestly, pricing is market dynamics, very difficult to call out. I can give you a response. The rate increase has not been fully passed on to customers. So it will be a function of how our peer banks and market behaves on incremental price pass on our customers.

Okay. But how much has been the incremental amount? That's really my question. So the repo-linked book obviously has not changed that half of your book, but the fixed rate book, which is about 30% what sort of rate hikes would be have taken in 4Q? And I understand that's only on the fresh disbursement, but still.

Understood. Since we don't put out the data on rate hikes on a quarterly disbursement basis, but I can give you a pointed answer to your question. Our yield on interest-earning assets has moved up by 11 basis points in quarter 4 against an 8 basis points increase in cost of funds.

Next question is from the line of M.B. Mahesh from Kotak Securities.

Just 2 questions. One is there has been a slowdown in the credit card outstanding on a sequential basis, while the CL book has kind of done reasonably well. If you could just kind of qualitatively call upon as to what's happened on these 2 products?

Yes. Thanks for the question. Can you hear me? This is Arjun here. So this is -- actually, what we've seen is that credit card spends have moved in line with the cyclical patterns, and we've also seen that the overall outstanding in the industry. The growth rate has tapered but I wouldn't say they've slowed down. This is a reflection of 2 factors. We've been calling out for a long time that the revolve rates in the industry have been coming down. And as that happens, we see that people pay down more of the balances, and therefore, the balance is left outstanding at the end of any statement cycle come down. So that's one qualitative aspect. You will also note that we have not slowed down on the pace of acquisition, and this is for the seventh quarter in succession, we have done. And in fact, this quarter, we did 1.28 million cards. So we've continued to grow our cards acquisition and we're doing that in a thought-through calibrated fashion. We will be building out the balances in a combination of spending and lending as we have done in the past to build those back. But we don't see this as any kind of a protracted slowdown or an indication of a slowdown in the industry at a gross level.

Just to clarify, qualitatively, some comments from the asset quality side of it?

Sorry, some comments on the asset quality of cards is it?

Cards and the unsecured bonds.

So they remain within our guardrails. And as I mentioned, our growth is in a calibrated and thought-through fashion, which one aspect of that calibration includes assessment of how we see early risks moving and we're fairly dynamic in the way we change our policies in response to what we see. Both on cards and on personal loans, we continue to do that. We've not seen anything worrisome on the asset quality. Having said which, we continue to keep a close eye on it because we obviously understand the nature of these 2 portfolios to be what they are. So we're not taking any -- we're not stepping back on anything, but we're keeping a close eye, and we'll continue to do so on so far.

And Puneet, Amitabh, on this notification that you have done with respect to raising capital, it doesn't look like next year loan growth seems to be very high. Aspirationally, the number on ROE still looks fairly healthy. If you could just kind of comment what's the rationale around this possible capital raise?

Mahesh, thank you for the question. What we simply said is we assess our capital position on 2 pillars, growth and protection. We reiterate that we do not need capital for either pillar. These are purely enabling resolution for the financial year.

The next question is from the line of Param Subramanian from Nomura.

Most of my questions have been answered. Just one on deposit growth. So if you see this year, we closed at about 13%, which is in line with the sector, 13% Y-o-Y. And even last year, if we adjust for what we got from Citi, we grew above 10% Y-o-Y. So of course, we've improved the quality of the franchise quite a bit and the outflow rates have come down, but do we start becoming a market share gaining entity from, say, next year onwards? That when you are talking about sectors growing at 13% deposit growth in FY '25, what number would you have in mind for the bank?

This is Munish. So I won't be able to give you guidance on the deposit growth rate for next year, but like Amitabh shared in his address, there are a number of things that we are doing to improve the quality and the market share gain that we are running for through a number of structured programs that we're running across the franchise. We continue to hope that we will -- our growth rates will be in line with the -- with our front trends and we will continue to invest in the growth of the franchise through distribution expansion, through our tech initiatives for enablement of our sales force. So difficult to say a number whether we'll -- how much market share we'll gain in the next few quarters.

[Operator Instructions] The next question is from the line of Saurabh Kumar from JPMorgan.

Just 2 questions. So one is, could you just comment on the net slippages, both in corporate and SME, they continue to be negative. So how long would you expect that situation to last? And the second is I just want to confirm on this borrowings number. I just want to get to how much is the refinance. The number I'm getting basis your disclosure is about INR 1.1 trillion. I just want to confirm if that number will be about right, like the total refinance borrowings of the total borrowings. These are 2 questions.

Thanks Saurabh for your question. On the refinance number, give me a couple of seconds to come back to you. Sorry, I missed your first question, if you would be kind enough to repeat that, please?

Yes. Just on the refinance, is this considered like for an adjusted LDR calculation, will this be -- because this would be backing certain assets, so is there like an adjusted LDR which you do taking out refinance or no?

Saurabh, to do an adjusted LDR because at the end of the day, the LDR is a prescribed formula. So it is total loans by total deposits. If a loan is financed by refinancing, it will still sit in the numerator, but will not be in the denominator, if the denominator has not been classified as the deposit, I hope that clarifies. On the amount, I will come back to you on what the amount is. And the second question that you have...

Negative slippages on corporate and SME.

I think we've had -- if you look at the performance that the bank has delivered, we've had negative slippages on the wholesale book quarter 4 last year, quarter 3 this year and quarter 4 this year. So the wholesale book is actually on [indiscernible] and quality has improved. But let's be honest, wholesale recovery is episodic. So will that consistently continue and repeat itself every quarter? Difficult to say. Our CPG book has behaved well. We did recognize a set of assets during the COVID period, and we are seeing recoveries come back from that class of assets. It's small but likely to continue. We're not seeing a divergence there from a recovery performance standpoint. On the refinance number, I think we called out a INR 110,000 crores. The exact number is about INR 114,000-odd crores, so we have one part ROA in that...

The next question is from the line of Rikin Shah from India Infoline.

Just one question, Puneet, if you could provide some color on the nature of trading gains in this quarter. And I also observed that in the investment breakup, the HTM proportion has gone down to HFT. So does that have to do with the new investment norms? And how should we think about the financial impact in the quarters to come by?

Rikin, thank you for the question. The new investment norms are applicable 1st April. So the 31st March balance sheet is prepared and reflected under the old norms. On trading gains, to your question, we have trading profit and other income of about INR 1,128 crores against -- that grew by INR 743 crores sequentially. A large part of that gain has come through our debt capital market, our treasury trading performance and MTM, a reasonable size reversal of MTM losses booked in the last quarter.

Right. Puneet just to clarify on this, while I'm aware that these norms kick in from 1st April, is the investment book positioning in anticipation of that? And if you could also help us think about what could be the potential implications on the financials in the coming quarters, this is the new norm? That would be helpful.

So there is no positioning ahead of these norms. This is Neeraj Gambhir here. There's no positioning ahead of these norms. We basically take the existing book and reclassify the existing book basis what works from the overall strategy perspective. To your question about how it will affect the overall pattern of investments by the banks, I think it's too early to say. As you would know that the ability to move bonds from HTM to AFT at the start of the year has gone away. While we, as a bank, did not use it in the last several quarters. I think several other banks in the market did use that. So whether that will change the trading pattern of the banks, I think that remains to be seen.

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

One question on fee. So if I see our core fee or retail fee as a proportion of...

Jai, sorry, but your voice is not coming clear. Can you please speak through the handset.

Yes. So wanted to understand on core fee-to-asset ratio, which has been improving and has improved quite substantially from 1.1% to 1.2% and now to 1.35%. Of course, we have had some changes in the loan mix. But how -- but given now, as of now, I mean how should one think at this ratio? Could this be a part of your ROA expansion, if I were to -- if you were to see that?

Thank you for the question. We operate at C2 assets higher than equivalent private sector peer banks. We do not -- please do not estimate or expect further optimization on the fee-to-asset ratio on a go-forward basis.

Right. And lastly, just basis previous question on the new investment norms, I think all banks were supposed to redraw balance sheet on 1st April. I mean if whatever -- if you can share, does that mean an accretion to CET1 capital and maybe the rough quantum within that? And do you also have to sort of do such thing for your subsidiary also?

Thank you for the question. We have redrawn performance, the investing portfolio. Sorry, my apologies, am I clear now?

Yes.

Yes. Thank you for that question. We have redrawn the balance sheet position as a 1st April. We are, however, unable to discuss its impact currently. We'll discuss that as part of our quarter 1 commentary when we report Q1 FY '25 results. There was a question around CET1 accretion. I'd just like to flag off that the guideline is -- has multiple balancing factors. While appreciation goes into AFS reserve, some of the risk weights on classes of investments also move up. So it will be a function of specific portfolio positions as at reporting date. Therefore, we would not like to comment on it as of today.

Ladies and gentlemen, we'll take the last question from the line of Sameer Bhise from JM Financial.

Congrats on a good set of numbers. So I think good job on reducing the RIDF concentration in the overall pie. Can you elaborate on how the bank is positioned on PSL with respect to some of the subsegments?

Thank you for the quarter. For FY '24, the bank's own assessment is that it is compliant on PSL at the headline level and at each subsegment level.

Okay. And most of that has been primarily organic or -- I mean, in terms of PSLC acquisition, some details will be helpful.

It's a mix of organic and PSLC. Our organic performance has improved year-on-year. But yes, we do incur a PSLC cost, which is reflected in our cost-to-assets ratio. It's a combination of both that has got us to the achievement with organic now contributing more than it did in the last financial year.

Okay. That's helpful. Finally, could you share the gross slippage number across wholesale and retail segments?

Our gross slippage number for the quarter is INR 3,471 crores. It declined 7% on a quarter-on-quarter basis. INR 3,110 crores is retail, INR 163 crores is our CPG business and INR 198 crores is our WBCG business, which is wholesale.

Thank you very much. I'll now hand the conference over to Mr. Puneet Sharma for closing comments.

Thank you, Nirav. Thank you, everyone, for taking the time to spend the evening with us. I hope we've been able to address all of your questions today. If any questions remain unaddressed, please do reach out to Abhijit and the IR team, we'd be very happy to take questions on a one-on-one basis and offer further clarifications. Good evening, and have a good day.

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