Axis Bank Limited (532215) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Axis Bank conference call to discuss the bank's financial results for the quarter ended 31st December 2024. Participation in the 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 proceeding 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; Mr. Rajiv Anand, Deputy Managing Director; 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 so much, Michel. We have on the call apart from Rajiv and Puneet, Subrat Mohanty, ED; Munish Sharda, ED and other members of the leadership team. This quarter, we delivered healthy core operating performance. Our focus has been on profitable and sustainable growth as we continue to calibrate risk internally across portfolios and monitor the changing environment. Balance sheet and capital levels continue to remain strong. Let me summarize the quarter 3 operating performance. Core operating profit was up 14% year-on-year and 5% quarter-on-quarter, driven by healthy operating income growth and further moderation in operating expense growth. Business growth is slower this quarter on a period-end basis, but we continue to grow deposits at a healthy pace of 13% year-on-year and 3% quarter-on-quarter on a quarterly average basis. Focused loan segments have also grown at a faster pace like small business, SME and mid-corporate together grew at 16% year-on-year and 4% quarter-on-quarter. CASA ratio and fee to average assets continues to be the best amongst peer private banks. Consolidated ROA and ROE are at 1.71% and 15.8%. The bank is well capitalized with a CET1 ratio of now 14.61%, with net accretion of 49 basis points in quarter 3 financial year '25 and 87 basis points in 9 months financial '25 period. 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. I will now discuss each one of these areas. Over the last few years, we have significantly progressed towards building a resilient all-weather franchise. These are 3 areas of focus as we navigate the current cycle, deposit quality and growth, retail asset quality and costs where we need to work on sustainable outcomes. On retail asset quality, our normalization cycle is in progress, our recognition and provisioning policies are perhaps the most conservative amongst Indian banks. We expect this to stabilize for the sector over the next few quarters. On the cost side, our expense growth this quarter has moderated to 1% year-on-year as we had been indicating in our prior calls. Let me move to deposits now. The deposit journey for Axis Bank should be looked at from 3 aspects: quality, cost and growth. Please refer to Slide #17. On the first 2 parameters, we have delivered well. We have improved the granulization in our deposit book, which positively impacts the quality of LCR deposits, consequently improving the outflow ratio by 320 basis points over the last 2 to 3 years and is now similar to larger peer banks. We have also demonstrated controlled increase in cost of funds over the last 6 quarters with only 3 basis points increase in the last 3 quarters. The above focus, along with macroeconomic factors, have impacted the period-end growth in the last 1 year. Our quarterly average balance base deposit growth remains higher than industry at 13%. The quality and strength of our deposit franchise continues to improve through Project Triumph, the bank-wide deposit transformation program. Our acquisition engine, expansion plans, product launches, salary credit, Burgundy OEMs remain healthy. We will see the effects of all these efforts in the deposit growth as the impact of reduction in certain portfolios start to stabilize and tight liquidity scenario eases. We have opened 130 new branches in the last 3 months and 330 in the first 9 months of this fiscal. The new-to-bank acquisition engine for the sales account franchise has trended well. In this quarter, we saw a new-to-bank deposits up 15% year-on-year with new accounts opened up 2% year-on-year and balances per account up 15% year-on-year. With a specific focus on home business segment, the bank launched special women's account, ARISE. We believe there is a significant market opportunity in this segment. The bank has made focused interventions to ensure that the salaried customers remain engaged with the bank. We see higher growth and a higher number of customers, both existing as well as newly acquired customers getting salary credits. 24% year-on-year growth in salary uploads in the new-to-the-bank salary book by December '24 and 42% year-on-year growth in premium acquisitions and new-to-the-bank salary book by December '24. The premiumization of our franchise continues to progress strongly, led by 26% year-on-year growth in Burgundy assets under management. On the Wholesale segment, please refer to Slide 37. Our industry-leading customized solutions across liquidity management, payments and collections continue to drive higher transaction banking flows leading to better current account balances. On retail asset quality, we continue to have one of the best asset quality levels across large peer banks in terms of net NPAs and proven coverage levels. Latest bureau data indicates a rising delinquency in some pockets especially in unsecured products, including MFI across the industry. The primary reasons are credit hungriness and over leverage. MFI does not constitute a significant portion of our portfolio, MFI retail being 1% of retail loans. Recent regulatory actions have led us to adopt a cautious stance on this sector, both for direct and indirect sourcing. We observed an increase in risk in certain segments and specific programs for personal loans and cards in the past. Our proactive interventions, including regular portfolio monitoring and early warning triggers have allowed us to recalibrate policies to ensure delinquencies remain within acceptable thresholds. We have priced for this risk that we are seeing manifest today. Given the heightened delinquency levels in the industry, we continue to remain cautious in our outlook towards unsecured. We have continued to strengthen the collection infrastructure, including use of tech enablement at front end to improve collections capabilities. We continue to garner several key external recognitions for the capabilities initiative we have undertaken successfully in the last few years. Axis Bank Foundation has been awarded the prestigious Gold Award at Citi's Fourth Sustainable Agriculture Summit and Awards 2024. We also won the best Indian bank at the prestigious Financial Times Bank of the Year 2024 Awards, which is testimony to the quality and depth of our banking services across verticals. We continue to create multiple data forces to build competitive advantage. We are continuing to innovate and remain open to new partnerships and collaborations. During the quarter, GenWise developed in collaboration with Axis Bank, India's leading app-based club for senior citizens has launched an industry-first UPI payment solution especially designed to address the needs of India's elderly population. The International Finance Corporation, the soft loan window of the World Bank has partnered with Axis Bank to provide a $500 million loan to scale up green project financing in India. The collaboration marks for IFC's first ever group investment in India and the country's inaugural blue loan issued by financial institution. Mintoak and Axis Bank have announced a partnership marking a step in their shared mission to support SMEs. We continue to build for the future. Digital Banking performance continues to remain strong. In this quarter, the bank launched new products, including the personal finance management tool, which is an industry first where the customers have the ability to see their investment in shares across brokers, although the bank made several enhancements to its products, including redesign of several journeys, new journeys such as opening FD via UPI, continued rollout of new for corporates and for businesses, which are digital channels aimed at corporate and small business customers, respectively. In quarter 2, the bank successfully migrated erstwhile Citi Bank customers to Axis Bank digital platforms. Subsequently, digital equity of these customers has seen material improvement. We continue to work on bank-wide programs to build distinctiveness. Our bet on Bharat is growing from strength to strength. The rural advances grew 17% year-on-year and deposits from Bharat branches were up 9%, thereby adding the pace of metrics. We have expanded our multiproduct distribution architecture to over 2,650 branches complemented by 62,000 CSC VLE network across 680 districts and 80-plus partners across the industry. Sparsh, our distinctive customer obsession program continues to pace. We are, through this program, simplifying interactions, driving NPS, automation and digitization with a focus on customer loyalty and business growth. Our retail bank NPS score has matured significantly rising to 148 plus from a baseline of 100 in the past 2 years. In closing, we are well placed in the current macro environment. We continue to closely monitor the geopolitical environment, inflation, liquidity, cost of funds and its impact on our business. We will continue to invest where necessary to remain differentiated and distinctive in our journey towards building an all-weather institution. I will now request Puneet to take over.

Thank you, Amitabh. Good evening, and thank you for joining us. The salient features of the financial performance of the bank for Q3 FY '25 and 9 months FY '25 across our operating performance, capital and liquidity position, asset quality, restructuring and provisioning is as follows: the key financial parameters for 9 months FY '25, consolidated ROA at 1.8%, flat year-on-year. Consolidated ROE at 16.9%. The decline in Y-o-Y consolidated ROE is dominantly attributable to reducing leverage on the balance sheet. Operating profit at INR 31,353 crores grew 18% Y-o-Y. Cost to income at 47% improved 247 basis points Y-o-Y. PAT at INR 19,256 crores, grew 9% Y-o-Y. In Q3 FY '25, our core operating performance was healthy, aided by improving operating leverage. The key metrics for Q3 FY '25 are as follows: the consolidated ROA at 1.71%, consolidated ROE at 15.8%. Subsidiaries contributed 7 basis points to the consolidated annualized ROA and 41 basis points in the consolidated annualized ROE for the quarter. Net interest income at INR 13,606 crores, Y-o-Y growth of 9%, Q-on-Q growth of 1%. Fee at INR 5,455 crores, Y-o-Y growth of 6%, granular fee at 94% of total fees. Operating expenses at INR 9,044 crores, Y-o-Y growth moderated to 1%. Quarter-on-quarter expenses degrew 5%. Our core operating profit at INR 10,102 crores, Y-o-Y growth of 14%, Q-on-Q growth of 5%. Cost to assets at 2.48% has declined 7 basis points since March '24. Provision to assets at 0.56%, down 3 basis points Q-on-Q, net credit cost at 0.80%. The recoveries, including recoveries from written-off accounts and upgrades improved by 5% Q-on-Q. PAT for the quarter at INR 6,304 crores increased 4% Y-o-Y. Adjusted for tax provision write-off in -- write-back in the previous quarter, it is flat quarter-on-quarter. GNPA at 1.46% declined by 12 basis points Y-o-Y, net NPA at 0.35%, largely flat Q-on-Q and Y-o-Y. Our PCR is at 76%, standard asset coverage ratio at 1.2%, stable Q-on-Q, all provisions to GNPA ratio at 151%. The higher tax rate by 6% in the current quarter is attributable to the bank having received favorable ITAT orders in the previous quarter that resulted in a tax provision write-back in the previous quarter. There are no such orders in the current quarter. The bank has accreted 49 basis points on net CET1 basis in quarter 3 FY '25 and 87 basis points in 9 months FY '25. The bank's CET1 including 9 months FY '25 profit stands at 14.61%. In addition, the bank has prudent other provisions aggregating INR 5,012 crores to be largely utilized for ECL transition. This provision has not been reckoned in capital computation and translates to a capital cushion of 38 basis points over reported capital adequacy. The bank assesses its capital position on 2 pillars, growth and protection. We reiterate we do not need equity capital for either pillar. We may opportunistically evaluate issuing Tier 2 and AT1 instruments based on market conditions. Our domestic net interest income was -- net interest margin was 4.06%, flat Q-on-Q. Overall, net interest margin stood at 3.93%, declined 6 basis points Q-on-Q. 3 basis points is attributable to full impact of application of increased outflow rates on our operating deposits, which resulted in us in keeping higher investments during the quarter. This, coupled with higher average LCR in Q3 as compared to the previous quarter has impacted margins by 3 bps. The balance 3 bps is largely attributable to interest reversal and NPA, in part accentuated by seasonality of Bharat banking slippages. The impact of reduction in CASA percentage in deposit liabilities mix has been offset by rate benefit that we see on our liability attack. Our progress on structural net interest margin prices continues. Please refer Slide 10, with improvements across most variables on a Y-o-Y basis. Improvement in balance sheet mix, loan and investments comprised 90% of total assets at December 24, improving 89 bps Y-o-Y. Average domestic advances to total advances improved Q-on-Q. Retail and CBG advances comprised 71% of total advances, improving 167 basis points Y-o-Y and 4 basis points Q-on-Q. Low-yielding RIDF funds declined by INR 8,391 crores Y-o-Y. RIDF comprised 1.1% of our total assets at December '24 as compared to 1.8% of our total assets at December '23. Quality of liabilities at December '24 measured by outflow rates at 25.3%, remain amongst the best in the industry. Quarterly average balance CASA at 39% declined year-on-year. Impact of decline on QAB CASA was offset by rate benefit as discussed earlier. Our fee growth is 6% Y-o-Y, total retail fees grew 5% Y-o-Y supported by our third-party products and liabilities businesses. Transaction banking fee grew 16% Y-o-Y and 9% Q-o-Q reflecting penetration and adoption of NEO in our client center. Trading profit and other income at INR 517 crores declined 57% Q-on-Q, this is explained entirely by reversal of MTM gains on the investment book booked in Q2 FY '25 pursuant to the applicable RBI guidelines relating to investment accounting. Based on movements in the first fortnight of Q4 FY '25 driven by tight domestic liquidity and global factors, MTM is likely to continue to remain volatile in Q4 FY '25. Operating expenses for the quarter stood at INR 9,044 crores, growing 1% Y-o-Y and declining 5% sequentially. We opened 130 branches in the quarter, and 330 new branches in 9 months FY '25. The Y-o-Y operating expense increase of INR 98 crores can broadly be attributed to increase in technology expenses, our growth business investment and BAU OpEx offset by reduction in integration expenses. Technology and digital expense grew 16% Y-o-Y and constituted 10.2% of our total operating expenses. Staff costs increased by 10% year-on-year. We added 2,729 people from the same period last year, mainly to our growth businesses and technology teams. Our headcount declined Q-on-Q. The Q-o-Q decline in operating expenses is largely attributable to our cards business and BAU expense optimization across businesses and function lines. Additionally, integration expenses were nil in the current quarter as we completed legal integration -- legal data integration of the Citi business in the last quarter. Provisions and contingencies for the quarter were INR 2,156 crores, provisions to average assets at 56 bps, declining 3 basis points Q-on-Q. Net credit cost/provisions for NPA was INR 2,185 crores. Annualized net credit cost for Q3 was 80 basis points, increased by 26 basis points quarter-on-quarter, partly attributable to seasonality. The cumulative non-NPA provisions at 31st December 2024 was INR 11,875 crores comprising provisions for potential expected credit loss of INR 5,012 crores, restructuring provisions of INR 415 crores, standard asset provision at higher than regulatory rates of INR 1,898 crores, weak assets and other provisions of INR 4,550 crores. The performance of our subsidiaries has been healthy, detailed performance of our subsidiaries is set out on Slide 62 to 69 of our investor presentation. In the 9 months FY '25, the domestic subsidiaries reported a net profit of INR 1,401 crores, growing 26% year-on-year. The return on investment in domestic subsidiaries was 49%. Axis Finance overall assets under finance grew by 25% year-on-year. Retail book constituted 47% of total loans. 9 months PAT for Axis Finance grew 20% year-on-year to INR 509 crores. Strong asset quality with net NPA of 0.25% and negligible restructuring show the strength of Axis Finance's balance sheet. Axis AMC overall quarterly average AUM grew 24% Y-o-Y to INR 326,098 crores, 9 months PAT stood at INR 378 crores, growing 27% year-on-year. Axis Securities revenues for 9 months FY '25 grew 73% year-on-year to INR 1,314 crores and PAT grew 86% year-on-year to INR 368 crores. Axis Capital 9 months PAT grew 36% Y-o-Y to INR 148 crores and ACL executed 43 ECM mandates in the 9 months ended December 2024. The slippage GNPA, NNPA and PCR ratios for the bank and segmentally for retail, CBG and corporate are provided on Slide 54 of our investor presentation. Slippages are mainly in our retail unsecured book, largely in cards and personal loans. We have seen some slippage in MFI in the current quarter, but retail MFI is approximately 1% of our retail advances and hence, it's not likely to have a large impact on our reported numbers for our books. Corporate and CBG loan book continues to behave well for us. Gross slippages for the quarter were INR 5,432 crores increased 22% sequentially. Of the increase of INR 989 crores, part of it is attributable to seasonality. Segmentally, gross slippages are INR 4,923 crores in retail, INR 215 crores in CBD and INR 294 crores in our corporate business. For the quarter, 29% of the gross slippages were attributed to linked accounts of borrowers, which were standard when classified or have been upgraded in the same quarter. Net slippages for the quarter were INR 3,517 crores, increasing 48% Q-on-Q. Net slippages segmentally were INR 3,394 crores in retail, INR 146 crores in CBG business and negative INR 23 crores for our large corporate business. The recoveries from written-off accounts for the quarter was INR 1,300 crores, improving 32% sequentially. Net slippages in the quarter adjusted for recoveries from written-off accounts was INR 2,217 crores. Segmentally in retail was INR 2,928 crores, CBD INR 50 crores and WBCG, which is our corporate business, negative INR 761 crores. To summarize, Axis Bank is progressing well to be a stronger, consistent and sustainable franchise. Consolidated ROA and ROE for 9 months FY '25 at 1.8% and 16.9%, respectively, is an outcome of disciplined execution. The bank continues to ensure that its balance sheet is clean and healthy through prudent provisioning policies like 100% provision on retail unsecured loans, the day the loan turns NPA and a structured rule-based write-off policy that in the short term impacts reported numbers like credit costs and slippages. The bank has accreted CET1 of 87 basis points in 9 months FY '25 and carries sufficient liquidity, visible to the average LCR ratio of 119%. Given the increased regulatory focus on CD ratio as 1 among multiple metrics to be tracked, deposit growth will be a key constraint to growth in advances in the short to medium term. We continue to monitor geopolitical environment, inflation, liquidity, cost of funds and its impact on our business. Thank you for your patience. We conclude our opening comments. We'd be happy to take questions.

[Operator Instructions] The first question is from the line of Chintan from Autonomous.

Can I ask 2 questions? The first 1 is on your deposit growth. So Axis has done a lot of work on the deposit franchise over the past few years. You showed that in your slides, we can see that improvement. But if I think about the kind of last few quarters, then your deposit growth is lagging some of your private sector peers. And also, if I think about retail LCR deposit growth, that's also lagging a little bit. What can be done to grow more in line with other private sector peers without compromising on price? And the second question, I mean, I've got a few questions on asset quality, but given we are restricted, what I really want to understand is how are your policies more conservative relative to peers. If you can just elaborate on [Technical Difficulty].

Sir, we lost you.

I think I understood the question. So let's -- we'll try and answer.

Chintan, thank you for your question. Let me take the policies question, and then I'll request my colleagues to answer the deposits question. On the policy question, we provide 100% on day 91 on unsecured exposure, whether trigger or linked. We are not -- at least our understanding of market is not everyone provides 100% for retail unsecured loan on the day the asset slips to NPA. So therefore, we are more prudent than some of our peer banks. Second is our policies more impacts some of our reported numbers on account of prudence is we do rule based write off on our retail and SME portfolio. And therefore, the net slippage number gets accentuated in our case because if an asset is not written off and sits in GNPA stock, any recovery from that reduces your net slippage number for the quarter. For us, that recovery only gives us benefit in the net credit cost line. Therefore, that's the reason we chose to call this out because at the start of a cycle, in the first year of start of a cycle, which is either normalization of credit cost, depending on what new participants on the call we have on where we are. Our view is normalization. It's not a credit cycle yet. In the initial quarters, we'll end up bearing more credit costs than banks that have a differential policy. I hope that gives you a fair flavor of why we called that out and why we think we are more prudent than The Street.

Yes, the answer to the deposit question, this is Munish here. So we are -- just to answer, we are deeply focused on the quality of our book over the last few quarters. And as you rightly said, we have seen a significant improvement in the quality of deposits and the granulization of deposits in the last 3 quarters, which on Slide #17, you will see the quality of LCR deposits, et cetera, has improved significantly over the years. And we've also significantly reduced the gap between us and some of our peers in terms of the cost of a deposit. Over the last few quarters, our quarter deposit also has gone up only by 3 basis points, which tells you that we have been focused on more granular deposits and not running after -- necessarily after high cost deposits in the market. If you look at the other factors, we are -- when you look at our quarterly average balance growth, our quarterly average balance growth this quarter also is 13%, which is higher than the industry's deposit growth number, which also tells you that we are focused on high-quality deposit growth through the quarter and not only necessarily at the end of the quarter, et cetera. We have been telling all of you that we are focused on building a sustainable and high-growth deposit franchise through multiple initiatives in the bank that we are taking, 1 of which is Project Triumph, which is a multi-quarter initiative to improve the granularization of our deposits and improving the operating rhythm of the franchise. The bank-wide deposit transformation program or acquisition engine expansion of plans, new product launches, our salary credits have seen significant improvement in the last few years -- in the last few quarters, like we told you last couple of quarters back, our Citi acquisition has also given us, enrolled into the salary franchise. We've seen 24% year-on-year growth in salary uploads in the NTP salary book, 42% year-on-year growth in premium acquisition in NTP salary book by December 2024. We've seen 26% growth in our Burgundy assets under management. We are seeing -- we are attacking new segments of customers through we have launched a new product called ARISE. We believe that with all of these initiatives, and with a focus on bank-wide garnering of deposits across all of our businesses and channels, including asset businesses and the commercial banking businesses, we should continue to push for growth better than the industry, as we've done this quarter on a quarterly average balance basis in the next few quarters as well.

[Operator Instructions] The next question is from the line of Abhishek Murarka from HSBC.

Sir, 2 questions. First is just a sort of continuation on the deposit growth question. Now do we think that in search for quality, we may have over calibrated because now it's becoming a bit of a constraint to overall loan growth. So do you think it's time maybe to rely on pricing or to maybe try something else to get the headline or the period-end growth at higher than industry? And how much of a constraint or how do you plan to get LDR lower because even if you think of a system-level deposit growth next year, that would mean that at best, we will do a similar amount of loan growth. So how do we plan to address this LDR constraint? So that's point one. The second question is on asset quality. Can you talk a little bit about the forward flows or delinquencies in unsecured, especially PL cards, business loans, are those still increasing? Have they plateaued? Are you seeing any kind of recovery and therefore, how to read the delinquency and provisioning trends in the next 2, 3 quarters. So yes, that's -- those are my 2 questions.

Abhishek, thank you for your question. On the first question on deposits, while growth is a good number to get after. And like I said earlier, we have done a quarterly average balance basis growth of 13% better than the industry. But you must realize that we are focused on building a granular deposit book. We are not necessarily running after lumpy deposits, which are won on the back of pricing, which can lead to volatility in the books, they come as they go. So we will continue to stay focused on building general deposit book across our franchise.

Fair. And the LDR constraint?

Thanks, Abhishek. I think as we've indicated and you will see in our performance, we have calibrated -- so LDR is not the sole variable. There are multiple ways to manage the balance sheet. We calibrated our balance sheet in a manner we believe satisfies the concern of the regulator and at the current format, we do not see a requirement extraneously put on us to moderate our LDR ratios. So we will remain comfortable operating at that range. You would have seen the same range of LDR in quarter 3 of last year, and you've seen the same numbers through the running 5 quarters of our performance.

The next question is from the line of Mahrukh Adajania from Nuvama.

I have a follow-up question on deposits. So if your total growth remains a bit soft, then the QAB growth going ahead will also be affected. So are you okay with low growth till the system deposit taking improves? Or will you launch some competitive schemes to improve the total growth so that it has a favorable impact on QAB going ahead as well, right? Because we don't necessarily get QAB figures from all banks. Maybe just 2 or 3. And as such, it's hard to compare -- so just a thought on how the total deposit growth will improve or till the -- or just some guidance on whether if the system deposit growth remains tight, then you would rather opt for maintaining margins and calibrating growth? So that's my first question. And my second question is on asset quality. So you've given many, many details. Thank you for that. But you see any spillover stress in any segments other than unsecured and even the small bit of MFI you have, which you already called out earlier. So do you see that the unsecured stress filling into other segments, you may not have a big exposure, but just a system-wide comment as well would help. These were my 2 questions.

Mahrukh, this is Subrat. Thank you for your questions. On the deposit growth in future, you are absolutely right. The MEB or the month end of the quarter end growth has to come. Eventually, if the QAB numbers have to continue to be high, and we are quite aware of that. So Munish listed out a host of initiatives that's on. So we continue to remain confident about the outcomes of those initiatives. At this moment, the system liquidity is also a constraint and the overall deposit growth at a sectoral level is also somewhat constrained because of that. So we will continue to work on it. We are not unaware of the need to continue to have strong month end and quarter end balances as well. But like Munish pointed out, it's a dynamic interplay of the cost of funds, quality of deposits and making sure that we do not have volatile deposits in future, which drives our strategy. You've seen in the past also, if you take a 9-month view, of our deposits for this year and compare it with 9 months of the previous year, even on month-end balances, the growth is higher than the industry growth. So again, once again, you'll request you to not take a quarter or a running quarter basis comparison because that sometimes has a little bit of fluctuations. So we'll continue to work on making sure that the MEB balances also correspond to the growth that we have seen in the QAB balance.

To your other point, Mahrukh, on the -- this is Arjun here. To your other point on segments where we are seeing stress aside from unsecured. In the current macro, we don't want to not be cautious about any segment -- it is -- as Amitabh pointed out and as Puneet also mentioned, the macro environment does require a lot of caution. So we are observing almost every segment across the board. We talked about MFI, although it's very small, unsecured we've talked about. However, if your specific question is about has it spread already into other areas? And is there a contagion? No, we don't see that yet. But that does not mean we will take our eye off the ball on any particular segment. We will obviously continue to calibrate the growth that we get, try and keep more secured in that mix because that quite logically and naturally is performing better in this current environment. So not calling out any segment saying it's going to be unaffected at the same time, not seeing any contagion yet.

We'll take the next question from the line of Suresh Ganapathy from Macquarie Capital.

Yes. Just 1 qualitative question and perhaps Amitabh, you can throw light on this. So the way to really summarize this quarter number, you are at a multi-quarter low of loan growth and deposit growth. The slippages are at a multi-quarter high. The credit cost is the highest seen since COVID period and margins are the lowest seen in several quarters. So this really looks like a tough environment. So what's the challenge here? I mean, is it really a macro issue? Or how do you come out of this? Because if I were to really put the context, this looks like a really tough quarter in the last several years that we have seen and perhaps it could be representative of the industry. We have to see some of the other banks. But really, the visibility is also not there, Amitabh, at this point in time. So what needs to correct here and what's gone wrong, if you can give us not specifically to you but in general for everybody in the system.

Actually, Suresh, you mentioned a lot of factors. I think a lot of them are interlinked. So if you obviously have a macro, which is uncertain environment where you are seeing a normalization of the credit cycle. You're seeing not only rising credit costs on the unsecured side, but a general constraints in the industry in terms of additional lending or increased risk weights or whatever that might be. Obviously, as you said, the macro remains uncertain, macro remains going forward a little bit tough. The deposit, the liquidity, which had just come back a little bit is gone again. We do not expect the deposit or the credit growth to move from 11%, 12% even in financial year '26. So yes, it is a tough environment. Now in that environment, what are the choices that we can make, one is to ensure that on a going-forward basis, the kind of book which we're creating is the right book, we're not necessarily chasing growth, but you're chasing the right assets. You obviously want to ensure that you continue to build your deposit franchise, the right kind of franchise. And frankly, in this environment, it is easier to build the right kind of franchise because you can take the tough calls in an environment where deposit is growing at a certain rate, sometimes you want to expect whatever is coming because it's just going at such a healthy pace at this time and deposit growth is constrained, frankly, we can make those tough choices, and we are making those tough choices. As you are aware, we used to have, for example, on TD rates, the difference between the 2 banks we want to compete with, that differential has been brought down. We had higher outflow. We have brought down. We are same as peers. We have gone after noncallable deposits much more than maybe some of the others and paid a price for it. We have created a balance sheet where refinance is a decent portion of our balance sheet. We have created a -- paid a price for it. But it is all for the long term of the franchise. Yes, we have had to reduce our disbursements and lending in areas which normally gives you a higher because given what the environment is. We don't want to be lending -- doing unsecured lending, which is then used to replace some of the other loans in the system. So in this environment, given the choices we have is work on deposit franchise, which we talked about, focus on expenses, and you would see that -- as we mentioned in the previous calls, we continue to manage our expenses down, and we will continue to see that theme going forward. Third -- first, stabilize our credit costs and then bring them down over a period of time. You have already talked about the fact that some of the costs are stabilizing, yes, first, it started with credit cards, personal loans and went into MFI a little bit. Let's see whether it pans down to some of other areas. But that's a clear area of focus, investing a lot on the collection side ensuring that we have best-of-breed collections capability in the system using technology. But will that mean that you -- some of the factors or some of the numbers that you quoted will remain on the lower end of the curve. Yes, they might. I mean, it is a given in this environment, for us, it will be more important that the strategy to do the right thing and preserve the balance sheet and preserve the quality of the franchise rather than just trying to deliver the growth for growth sake. So yes, in the next couple of quarters, you could see moderation in the numbers. You could see a moderation in the numbers across the industry. And I would expect that there would be some moderation in the numbers. I mean how would you grow if the industries will grow at 10%, 11% in terms of the deposits and credit growth and your loan deposit ratio is being -- RBI has clearly hinted that it needs to be in a certain range. In the long run, unless you're doing something substantially different, you can deliver the number which might be slightly better, but not substantially better. So I would expect the industry to slow down a little bit unless the macro changes. And both the global and domestic macro right now looks a bit uncertain, till some policy actions get taken and provide more clarity in terms of how we play out.

I'm sorry. And just a second question on the opportunity itself because if I were to look at your loan growth. I mean it's running below nominal GDP, it's running below the system loan growth, of course, you being the third largest private sector bank, better technology, better reach, I mean is it usually the part that the current environment is so bad that we just cannot grow even at system levels and you've taken a conscious choice to really slow down the growth to a certain extent? Or is the combination of resource constraint? Are you really seeing competitive environment still not being saner in some other segments for you to take a call to grow below the system?

So Suresh, the choice is clearly between how do you -- we are quite clear that we don't want to grow at any cost. We are selectively growing the loan portfolio with the desired [ thereof ]. So consequently, our requirement for deposits is based on where we can generate the right assets at the right return. You will see, for example, our cost of funds has not moved that much in the last 3 quarters. Could we have raised more deposits at a slightly higher price, we could have. But then we are reducing things at least in the Axis system, which we don't want. Our reliance on high-cost deposits because somehow we want to deliver more growth. So it is a conscious strategy. It is a tougher strategy, what we believe is the right long-term strategy that we want to grow assets, which give us the right return. And obviously, we want to generate deposits of the right kind at the right price. And all these factors are fitting into each other. So my view is that if some of the macro clears up, our platform is only improving over a period of time. The kind of details and the analysis and the micro segmentation we are doing both on the deposit and the asset side. When the market comes back, you will see Axis doing much better than the others because we have all that ready. You mentioned things like resource constraint, no, absolutely, that's not the case. Can we go and actually increase the size of our portfolio in some of the segments which supposedly give a lower return, I think we can, but we don't want to do that. We don't want to go down that path, which we have walked away from in the past.

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

Just this question, which Abhishek had asked earlier on the -- how the portfolio is behaving today in terms of the fresh formation of bad loans in the unsecured loan portfolio. If you could just clarify on that question, please.

Mahesh this is Amit here. So just to kind of clarify on that one. So industry-wide, we have also seen increase in delinquencies across unsecured. Now, of course, it's no longer only personal loans and card. We've seen that spread out to MFI as well. On similar lines, we've also seen that in our portfolio. Now obviously, we've been taking risk actions. I think the last 2 quarters, we've also been mentioning the fact that we've been proactively looking at risk interventions, both on account of policies, filters, the 2 prime reasons have been credit hungriness and leverage going up. So our policy filters also ensure that some of these are now recalibrated in our scorecards to ensure the risk guardrails have been tightened. So each of this has been ensuring that the new acquisition that we are booking is of a better quality. And what we will do is, obviously, this will play out over a period of time, but we are quite confident that what we've been booking over the last, let's say, 9, 12 months ever since this whole crisis has kind of played out is of a better quality and will stand us in good stead in the coming quarters.

Sorry, just to clarify, in your assumption, this current run rate of slippages will continue based on what the portfolio is behaving today. Is that the way to look at the final conclusion here? Sorry, Amit, I mean it's a very simple question, saying that, look, you kind of indicated that you have tightened the credit filters and incrementally, the book is starting to behave well. So when exactly is that inflection point that you are seeing based on the current data sets that you are seeing in your book?

So Mahesh, just to kind of confirm, see I think the way we need to look at it is there are 2 parts here. One is a new acquisition over the last 9, 12 months, and second is the way the collection efficiencies have played out. Now 2 things here again. Over the last 9 to 12 months across the industry, we've seen some amount of deterioration in terms of collections. What we have done, however, is over the last 6 to 9 months, we've actually beefed up collections in a big way, both in terms of infrastructure, both in terms of agencies and more importantly, using technology to ensure that we're kind of capable to ensure that we get the right customer faster than most in the market. So these are the 2 things. So 1 is policy correction, risk interventions and collection efficiencies will ensure that what we've booked over the last few months -- actually, the last whole year actually, is ensuring a better run rate to what we currently have in terms of portfolio performance. And that's what will really play out is what I was actually mentioning.

Okay. Puneet, just 1 clarification. In the INR 5,400 crores of slippages, depending on what number you want to assign for the microfinance slippages, it can be a high number or a lower number, is it possible for you to quantify given the extremely high level of slippages that one is seeing in that portfolio for the various players?

Mahesh, thank you for the question. One clarification, and I'll give you a pointed answer to your question. I just want to contextualize microfinance is 1% of my retail book, and roughly about 0.6%, 0.7% of my total advances. So it's not -- and this is retail microfinance, so it is not material in my context. The cumulative book would be roughly INR 6,000 crores approximately. Slippages in that INR 5,432 crores, the microfinance slippage will be a small part, it's not a dominant part of that number. A dominant part of that number is the unsecured retail asset products like the PL and cards.

And Mahesh, to add to that, given the environment in the last few quarters in microfinance, we have significantly slowed down disbursals in that business. And that's also -- also there's a denominator impact in many cases, but it's a very small number. And we'll continue to watch that space very closely. We have the collection capacity, large part, as you know, in microfinance front end seller and the collector is the same. The people are largely busy correcting the portfolio quality at the front end, and we've been very careful over the last 3 quarters.

We'll take the next question from the line of Prakhar Sharma from Jefferies.

Thank you, everyone, and good to hear from you all about trying to manage the balance sheet both on profitability and asset quality. So good to hear that. Puneet, I just wanted to probably check on the behavior of your unsecured book and credit quality. You've been generally sensible on the quality and upfront in recognizing. So how generally as a pattern, it should behave over let's say, the cycle, let's say, started from 1Q '25. Should we see some sort of peaking out and then stability or these buildup will continue for longer. So if you could shed some light on how the pattern on both, let's say, personal and credit card type of loans could pan out?

So typically, these are typically about...

Thanks, Abhishek. Thanks for the question. Sorry. Thanks, Prakhar. Thanks for your question. The macro environment remains tough. We are seeing slowdown on growth and that has to reflect in individual customers, asset health also. Broadly, portfolios in the nature of credit cards and PL do not normalize in 1 or 2 quarters. They do take time to play out. So I would not call this a peak as yet both from an industry standpoint or our standpoint yet. However, having said that, there are lead indicators post corrective action that Amit spoke of that has happened on the portfolio. The lead indicators are measured is delinquency of the new cohorts that we are booking. The early indicators across product sets are showing us a positive sign. These portfolios have not matured. Therefore, for the signs to translate into a concrete outlook by us will take a couple of quarters to crystalize. But once we get that confidence, having observed the data for a reasonably long period of time and not just early successes, we will call that out on subsequent reporting. These anyway, demonstrated through credit action, the fact that personal loan growth is down to 17% Y-o-Y and 1% Q-on-Q versus 23% Y-o-Y in Q2, will show you the fact that disbursement growth on this portfolio would be very small or in some cases, even negative. Same with the credit card portfolio, credit card growth is 8% Y-o-Y, and it grew 1% Q-on-Q versus 22% Y-o-Y for Q2 FY '25. I think what I want to communicate to you is we are taking appropriate corrective action on these portfolios by slowing down growth. The corrective action is visible to us. Early signs of the corrective action are positive. However, to provide a concrete outlook on the portfolios, we need to observe the data a little more closely and for a slightly longer period of time. Obviously, the unknown-unknown to everybody today is how the macros will behave over a period of time. So we remain watchful on these portfolios.

Got it. Just one data-keeping question. Can you clarify the negative or the write back of the standard provisions in this quarter because the balance sheet has grown. So I think you've not used the contingent provisions. Can you just clarify on that? And that's the last question.

Thanks, Prakhar. We've not used any of -- one, we don't have a contingent provision. We have a provision for ECL. The INR 5,012 crores was the number last quarter, it continues to remain the same. The movement in the standard asset is a product mix growth question. So if you are aware, we create higher standard asset provisions for certain product classes versus other product classes. So there is a mix impact on growth, which has resulted in lower standard asset provision. Second, the write-back is we create provisions for unhedged foreign currency exposure. This is confirmation from customers. We've received better quality of confirmation through the current quarter that resulted in a write-back on USC provisions, which gets reported in the standard asset line. So growth has been fully provided for its mix of growth plus USC that shows you the negative number of the slide.

The next question is from the line of Rikin Shah from IIFL. As the current participant is not answering we'll move on to the next question, which is from the line of Kunal Shah from Citigroup.

Just 1 clarification in terms of Bharat Banking you've indicated it during the margin comment and the interest reversals, but would you incrementally say that slippages even on the retail is coming from the Bharat Banking or the seasonal agri stress if you have to look at it maybe compared to the way the movement has been over last Q2 to Q3, generally, it's been in the range of INR 500-odd crores. Does it continue in the similar trajectory or it is still higher this quarter?

Kunal, my apologies. You were not audible. Could you please repeat your question because we weren't able to hear your question clearly. I heard the part that said you wanted clarity on other Bharat Bank slippages, but...

Yes. So overall agri seasonal slippages -- okay generally, when we look at it over the past few years, generally, the incremental slippage on agri seems to suggest it's like closer to INR 500-odd crores. Can we say that incrementally, that has also been higher or this is whatever is the higher slippage that's primarily PL and CC and MFI?

So Kunal, if I was to answer, if I was to anchor the response to your question at the INR 500 crore number, obviously, it will vary quarter-on-quarter. The sequential quarter growth in gross slippages is INR 989 crores, there is a seasonality impact. And then there is the MFI impact, which I called out. The seasonality impact is larger than the number you have indicated and the MFI impact is a small number. That would explain the sequential quarter growth in gross slippages.

And seasonality would be again more with agri or that would be like PL and CC as well, yes, that's the question.

Kunal, there is no seasonality in PL and CC.

Okay, okay, got it. Perfect. Yes, this is helpful. And second question is on OpEx. So I think Amitabh also indicated that we will continue to maybe see it on a declining trend, but the way it is suggesting maybe either to boost the growth to boost the deposits, would we still need the higher investments? And today, if we look at it in terms of OpEx to assets, we are down to less than 2.4-odd percent. Earlier, we have been indicating 2.1, 2.2, excluding Citi. And so, have we reached that level? Or could we see like more gains on the overall OpEx to assets ratio or the operating efficiency?

Kunal, thank you for your question. A couple of clarifications before we respond. I don't think Amitabh has provided any forward guidance on OpEx. I think he reported the numbers that we have on a Y-o-Y basis and Q-o-Q. So we have a 1% Y-o-Y growth, 5% Q-o-Q decline. Second, just from a hygiene perspective, we moved away from cost guidance. So the numbers we've set out used to be something we used to call out, but we don't have a cost guidance currently in any shape or form. Having said that, we had indicated that when credit costs start to moderate, we will optimize our OpEx. You are seeing that optimization of OpEx happening. So we have been able to tighten our belts and bring core OpEx savings to the table. We will continue to work on our efforts to reduce or optimize OpEx further. Please also appreciate that quarter 4 from a business perspective is the strongest quarter for the sector and disproportionately contributes to disbursements and business for the system as a whole and for us compared to the run rates of the first 3 quarters. So as you think about cost for the quarter, you must factor my response while determining those expenses. Overall, we remain focused on making sure operating leverage plays through our P&L. I hope that covers what you were looking for.

We'll take the next question from the line of Rikin Shah from IIFL.

So I just had a question on fee income now. So the fee income in this quarter has been soft at around 6%. And in some of the subsegments like card payments and corporate credit, it is even negative Y-o-Y. Just wanted to understand that are there any levers for the fee income growth to improve? And how does this trend in the coming quarters?

Rikin, thank you for your question. I think let's contextualize this. Our fee to assets in the quarter is also about 1.42%. It remains best in class. Fee income on the retail business is basis incremental disbursements. There has been a structural shift in incremental disbursements that is warranted given how credit has played through some of the segments. So you are, by nature, going to see a moderation in fee expenses, which is playing through our P&L. Further, some of the non-asset businesses where we used to garner fees, has also moderated by virtue of conscious choice. We were sourcing about 1.2 million odd cards same quarter last year. We sourced about 700,000 to 800,000 cards this quarter. These are conscious choices bringing back fee income is we do not think it's a challenge. Fee income will work alongside our conscious strategy of recalibrating book. We do think we can operate at reasonable levels of fee to assets, but yes, you're likely to see the moderation given disbursement -- incremental disbursement profile.

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

Firstly, on liquidity. So I think Puneet, you made a comment saying that we don't see any extraneous constraints on LDR. So I just wanted to understand if there is any change in the operating environment there. And especially on LDR, do you look at -- or does the regulator look at the quarterly average or the closing period because we've been highlighting the quarterly average deposits. And on the LCR, are we operating -- assuming that the graft LCR guidelines will kick in going ahead because that's another constraint on loan growth, yes.

So I think we have said in the past that we have submitted a certain strategy to RBI. RBI accepted it. We are working through that strategy. Puneet talked about the fact that you have seen our numbers for the last 5 quarters, and they have been in a certain range. And we don't believe that we have any problem in maintaining that range. So I mean, rather than going into details of everything, I think our numbers very clearly reflect what we've been delivering. And obviously, they clearly reflect that based on our discussion with RBI, the Reserve Bank is okay with it. As far as new LCR guidelines are concerned, I mean, obviously, we have to wait for them to come through. There are a lot of guidelines, which we are waiting for them to come through and actually also draft guidelines waiting to become final guidelines, just wait and watch. I mean we are aware of what the impact could be. And we are obviously internally looking at what strategies we need to adopt to manage some of the changes. Right now, I don't know when you all say that are we acting as if they're already in place? But let me just say that we are strategizing and we will act when they come into play.

Fair enough. Thanks, Amitabh. One more question, if I may. So on the -- based on the comments on seasonality, would it be fair to say that the PL and CC slippages are largely stable quarter-on-quarter. And secondly, there is a large recovery from written-off in this quarter. Is there any one-off over there?

Thank you for the question. As we responded to the question earlier, PL and CC has no seasonality. It's a product that plays through its life cycle over...

No, I meant adjusting for seasonality, Puneet. So basically, is PL and CC stable quarter-on-quarter, slippages?

So look, like I said, I think we won't directly or indirectly answer product level slippages on this call. Effectively, what we're simply saying in our commentary to you is a dominant part of the increase of the INR 989 crores on account between Q3 and Q2 could be attributable to seasonality in slippages and in a long part the MFI portfolio, which would not have seen the same number in quarter 2. So that should explain the number to you in totality.

Fair enough. And Puneet, the bit on recovery from written-off being higher this quarter.

Look, wholesale recovery is always episodic. We did not have wholesale recovery in quarter 1. We got better recoveries in quarter 2. We have wholesale recoveries in quarter 3, so we continue to monitor it. But -- very difficult to predict how wholesale recoveries play through on a quarter-by-quarter basis.

Ladies and gentlemen, we will take the last question for today, which is from the line of Nitin Aggarwal from Motilal Oswal.

Appreciate the tough steps that the bank is taking in this kind of macro environment with a focus on delivering sustainable performance. So I have like a couple of questions. One is around the credit cost. So we have mentioned that we have tightened the provision policy, and that has resulted in a 15%, 20% higher provisions, which will continue in the near term. So how much this actual impact because of that is in this quarter number? And when I look back, like we have particularly operated coverage ratio if I take the last 5-year average, coverage ratio has been around 75%, 76%, which is where we are right now. So does this tighter policy means that our coverage ratio will go up because anyhow we are operating at this coverage ratio of 70s prior. So how do we see that?

Thank you for the question. Again, from a hygiene perspective, I don't think we indicated on the call that we've tightened provisioning policies in the current quarter. What we indicated on the call is we believe our prudent -- our policies on provisioning are more prudent than most on the street. And the illustration we provided to that statement is we provide 100% on unsecured retail on day 1. Our understanding is The Street does not do that. So it was a comment around prudence. On your question on PCR. For us, PCR is an outcome. We run with very prudent and conservative provisioning rules. So the way the bank operates is we have a provisioning rule for each asset class. An example of that is 100% provision on retail unsecured. Depending on the composition of slippage, the rule will trigger and provisions will be created. These are nondiscretionary rules. Therefore, credit cost is an outcome of the rules, and PCR for us is a reported number. Fundamentally, if I was to review all of our provisioning rules in comparison to Street, I would conclude basis we are benchmarking that our roles and provisioning are more prudent than most on Street.

Right. So Puneet I was referring to this provisioning rules only, wherein we have mentioned that we now operate at 15% to 20% higher where we used to previously operate. And this only should drive an increase in PCR. So that's where the question was from.

So I guess that question is coming from reading Slide 55 of our investor presentation where we have a bullet point which says provisioning is tightened. That comment on Slide 55 is on a through-cycle basis. We give you 15-year numbers from FY '10 to 9 months FY '25. In the early part of that cycle, we did not have the stringency of the rules that we have today. And we were operating at 15% to 20% lower PCR based on the then prevailing rules. So that's the context of the comment. You will see that comment at least over the last 7 to 10 quarters that we've been presenting results. So if that's led to confusion that, that change has happened in the current quarter, we apologize for it, but that's a change we laid a while ago.

Okay. Yes. And on margins, wherein domestic NIMs are stable but the global NIMs have declined 6 basis points for the reason -- so I was wondering that isn't the fall in global margins are pretty high as the overseas business is pretty tiny, like for us. So how much was the real decline in the overseas business margin? And how do we see our 3.8% NIM guidance in this kind of environment and the strategy that we have adopted?

Thanks for your question. We stay true to our outlook or guidance, that 3.8% through cycle should stand. Given all that we are seeing today, we see no reason to revise that outlook. We remain confident that we will defend -- we remain confident that we will defend our 13 basis points excess over our through-cycle guidance to the best of our ability. And that is the only outlook we would look to provide on margins today. To your question on global margins versus domestic margins, there is the relative mix of the non-rupee book has increased period-on-period. That reflects a change in the weighted average margins that you see between domestic and global. And second is there is an impact of excess offshore liquidity that we've been holding that has played through in global margins. So those are the 2 reasons why domestic margins and global margins vary. The excess liquidity of 3 basis points, the excess liquidity we had called out as part of the 3 basis points on account of LCR impact. These are all annualized impacts. They're not for the quarter. So I just want to be abundantly clear in case I misunderstood.

And 1 more question, if I can just squeeze in. If you can share some color on the trending in unsecured retail slippages because right from the beginning of the year, we have talked about and you were the early ones to talk about that -- about the increase in slippages in certain product categories. So how is that trending this quarter in unsecured retail, particularly the credit cards.

So like we responded to a question earlier, the macro environment remains tough. We have taken portfolio action. Portfolios like cards take a longer period of time to play out because you issue a card, then there is utilization, then there is nonpayment of MAT, then there is delinquency and then there is credit cost. So cards as a product has a longer life cycle than most other retail unsecured products. We have taken corrective action on the portfolio. Early signs of delinquency basis the corrective action on the portfolio, which has been booked after corrective action is positive. We have not seen enough time elapsation on that portfolio to draw a conclusive comment on whether this is turn or not, please allow our time to let this portfolio vintage for us to come back to the concrete outlook. Currently, that -- that's how we see the cards portfolio. Our portfolio growth has been moderated. It's grown 8% year-on-year and degrown 1% quarter-on-quarter, which is a function of the extensive tightening that has taken place on new alternatives.

Thank you, sir. As that was the last question for today, I would now like to hand the conference over to Mr. Puneet Sharma for closing comments. Thank you, and over to you, sir.

Thank you, Michel. Thank you, everybody, for taking the time to speak with us this evening. If any of your questions remain unanswered, please feel free to reach out to Abhijit. We'd be happy to pick those questions up and respond to you. Thank you, and have a good evening.

Thank you, members of the management. On behalf of Axis Bank, we thank you for joining us, and you may now disconnect your lines.