IDFC First Bank Limited (539437) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the IDFC First Bank Q2 FY '22 Results Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Kunal Shah from ICICI Securities. Thank you, and over to you, sir.

Thank you, Vikram, and good evening, everyone present on the call. This is Kunal Shah from ICICI Securities. Today, we have with us Mr. V. Vaidyanathan, Managing Director and CEO; Mr. Sudhanshu Jain, CFO and the Head of Corporate Center; and Mr. Saptarshi Bapari, Head of Investor Relations from IDFC First Bank to discuss their Q2 FY '22 and H1 FY '22 earnings. So over to you, sir.

Hello, everyone. I'm Vaidyanathan. I'm very happy to speak to all of you. With me is.

Yes. Good afternoon, everyone. I'm Sudhanshu Jain, I am the Chief Financial Officer.

I'm Saptarshi Bapari, the Head of Investor Relations.

So good evening, again.

So this is the operator. I'm sorry, we are unable to hear you. Ladies and gentlemen, kindly stay connected. We seem to have lost the line of the management. Sir, we are back in the conference. You may now proceed.

Hello, everyone. Good evening. Sorry for the line trip -- that tripped. Now, my name is Vaidyanathan, and I'm happy to speak to all of you. With me is

Yes. Good evening, everyone. I'm Sudhanshu Jain, I'm the CFO of the bank. And welcome all of you to the call.

I'm Saptarshi Bapari, the Head of Investor Relations of the bank. Let's start now.

So we're going to try to take you through some brief numbers, and we hope to be able to address all your questions. Let me just start with a very brief remarks about what we saw this particular quarter. Our loan book at the bank level has now touched INR 117,000 crores. The retail assets of the bank is now 67%. The customer deposit of the bank is INR 83,900 crores. The CASA ratio is 51%. Capital adequacy is 15.6% and NIM is 5.76%. And our gross NPA is 4.27%, which has come down from last quarter of 4.61%. And net NPA is 2.09%, which has come down from last quarter of 2.32%. Now, while these are the headline items, I'd like to just dwell a little deeper and take you -- give you some deeper color into the whole thing. Now, in case you have the presentation with you, I'd like to take you straight to Page 39, where we start with retail liability franchise. On the retail liability franchise, which is basically the foundation stone to any bank because we need deposits first to lend and then to make margins and to make profits and so on. So as far as deposits are concerned, we are happy to say that our CASA deposits of the bank continued at INR 46,269 crores this quarter, with limited marginal growth over the last -- over March, but that's when we reduced our interest rates. I call it marginal because it gives you the absolute numbers. It's kind of flattish. But 1 key thing that has been achieved while in the process because it dropped savings rates from peak rate of 7% to 5% and really we are very happy to note that the numbers continue and our customers of -- relationships are sticky with us. We think it's because of a strong brand, they enjoy really good service we provide to customers. Interest rates are still attractive. And overall, we think that we have a lot of momentum. New number of bank accounts being opened with the bank continues to be very strong. So all things are good on the liability side. We really don't worry about it anymore. The other thing is upon the retail deposit rates, we have now dropped it down to really, I guess, among the as low as any other bank in the system and as low as any large bank. And therefore, on the cost funds front, we are quite attractive now, and that actually enables us to start participating in prime home loans as well. Number two, a CASA ratio of 51.28%, which we're quite happy about. We frankly had expected this to dip a bit when we dropped our interest rates, but, well, it's still 50% plus. Number three is our core deposits, what we call the retail CASA, retail term, which is called because the stickiest form of money, that continues to be strong at INR 64,000 crores. And -- so basically, all things go on the liability side, like I said, if we want more money, we can raise it. At this point of time, our liquidity ratio is 174%. We are allowed it to be something like 120%. So clearly, we're having like a few INR 3,000 crores, INR 4,000 crores, INR 5,000 cores extra amount of liquidity, which is obviously draining our profitability. And we just hope that during the next quarter, we can drain out some of this excess liquidity. Then the second thing is about granularization of liabilities, There, we made -- scored some big hits actually. We are happy to say that deposits which is above INR 5 crores, it's now come down to as low as 19% from 72% at the time of merger. So you can really see it's a highly diversified liabilities base. Our top 20 depositors, which we are [indiscernible] the concentration, the concentration risk top of 20 depositors was 42%, is now down to 9.4%. So all things go down, top 10, top 20, everything. Now I want to move the -- your attention to Page 42. Page 42 is an important page. This talks about what is the extent of long-term legacy liabilities the bank still carries. As of September 30, 2021, we carry INR 27,667 crores of legacy liabilities, on which we are paying an interest of 8.67%. The maturity of that is easily going to determine when we get -- because we're going to obviously reprice this at like 4.8% or even less than that. So we have close to INR 1,000 crores to be taken out of repaying this money on a P&L sense and annual basis. Now the question is when does it mature? So in this financial year of FY '22, INR 2,100 crores are mature. In FY '23, INR 6,500 crores will mature. In FY '24, INR 5,700 crores will mature. In FY '25, INR 8,000 crores will mature. So that gives a color about when we will get to see the color of that INR 1,000 crores. That is as far as the liability side is concerned. On the asset side, let me keep it very quick to you to share with you that the retail lending business has grown quite well. And our retail lending book has now crossed INR 78,000 crores. Then on Page 45, basically, you can see what's the breakup of the INR 78,000 crores. The home loan is at 16% of the retail book. Loan against property is 20%. SME loans is 14%. Wheels is 13%. Consumer loans, which is basically consumer durables, personal loans and 2-wheelers and stuff like that, is -- sorry, wheels is -- 2-wheeler is part of wheels. This is just consumer durables and personal loans and such products. That's 19%. And JLG and rural business is 9%. So that gives you a quick color about what is the breakup of our retail portfolio. This is, of course, our breakup of the whole book of business. The next is we'd like to break up this portfolio, not just within retail, but we'd like to break this up at the bank level. At a bank level, there are 2 ways to evaluate this. One is we evaluate this as a percentage of funded and nonfunded. And the other one is to evaluate as a percentage of funded itself. So let me start with evaluating our book as a percentage of the total book, that is funded plus nonfunded. So funded plus nonfunded if you take it as 1 block, 29% of that is corporate loans, 10% is infrastructure, 12% loan against property, 9% is home loans, 10% is consumer durables, 8% is SME loans, 2-wheelers is 4%, JLG is 5%. So you -- and credit card is 1%. So you get a drift of the portfolio of the -- I think it's INR 141,000 crores is the total funded plus nonfunded book, and this is the numbers I told you. Now if you take this as a percentage of funded book alone, there, home loan is 10%, loan against property is 14%, consumer loans is 12%, SME is 10%, and corporate loans is 18% and infrastructure is 9%. So the short point of these numbers is that now our asset side is really well diversified across, let me say, corporate, even retail is really not 1 block. Within retail, there is home, there is loan against property, there is consumer durable, there is vehicle loans and wheal loans and JLG, there is rural. So it is a really diversified business lines that we have. And we think that more as we go ahead and share with you where is the growth coming from? Now as far as growth is concerned, where really is the growth? Because after all retail has grown by 30% during the last quarter -- I mean Y-o-Y. So September '20 to September '21. So that's around the 30%. So -- and at the bank level, we've grown 10%. Now where does 30% come from? And that question is answered by thinking about home loans. So home loans have been our biggest growth area. Home loans have grown by 46% year-on-year. And really, we are finding that the check bounces in home loans is really low. And -- we also find that, of course, customers have enough LTV and there's emotional collateral and all that. And also, we have found that there is a significant demand coming up in home loans. Of course, it also helps the fact that we have entered into the prime home loan segment now, because we brought our cost of funds down. So that's a big growth for us, 46% there. Loan against property has grown by 25%. SME loans have grown by 24%. Wheels, basically the 2-wheelers and stuff like that, that's grown at 12%. And consumer loans have grown by about 27%. So these are our key growth areas. On the wholesale side, we had brought down the loan book, as you know, in the initial stages of the bank, basically, we saw so many red flags, so many accounts are growing up, and we had just so many problems. So initially, we did bring down the wholesale book. But I'm actually happy to share with you that we are now at a particular -- in fact, I will share the numbers with you. On the wholesale side, at the -- this is a non-infrastructure corporate loans, and that book is now INR 21,056 crores. The infrastructure financing over and above this corporate loans I talked about is another INR 10,000 crores. So if you add INR 10,000 crores and INR 21,000 crores, that's INR 31,000 crores today. Now -- what is our wish list? Is it that we want to keep bringing it down? The answer is no. We are frankly quite happy with the way we are now building our wholesale book. We've had -- we've disbursed fresh loans of close to about INR 7,600 crores -- fresh, new to credit, new to bank of INR 7,600 crores in the wholesale side since the time of the merger. And I'm happy to say it's like -- it's as good as -- there is no delinquency there. If at all, it's marginal. And it's like pristine, pristine. So therefore, we are quite comfortable with what we're doing. But the important thing is that we want to just do this in proportion to our network. And we want to do a good smell test on the customers whom we are boarding so that we don't have any subsequent problems. So net-net, we want to still maybe, given a choice, we'd like to flat -- keep a flat to slow growth. We don't want to degrow it anymore, but really, it will depend on the opportunity in the marketplace and the risk reward and our ability to stay competitive in wholesale because remember, all the big banks are also fighting it out in the game and really offering very fine prices and so on. Now that's on the asset side. Now I'd like to come back to quality, and then I'll move it from there. Now on asset quality front, I'm again happy to say that we had -- we are witnessing very good trends. First, the numbers put it other way. So in June '21, our gross NPA was 4.61%, now it is 4.27%. Our net NPA was 2.32%, now it is 2.09%. Now in this -- during June '21, 1 large toll road account of about INR 860 crores had gone -- had become NPA because during COVID, we could not get collections. Now that account is -- we feel that in the end, that money will all come back. It's NPA, all right? INR 860 crores, but we feel that money will come back because end of the day, the client will begin to start getting revenues. COVID movement has all started and all -- COVID -- sorry, some disturbance here. Basically, traffic flow has started and so on and so forth. Therefore, we feel that, that money will come back. And if you adjust for that, meaning if you do not -- if you were not to consider there is an NPA for a moment, our gross NPA would be 3.47% and net NPA would be 1.42%. Now let us break up this NPA for you between 3 categories. One is retail assets; one is wholesale. One is corporate assets and one is infrastructure assets. On the retail side, pre-COVID, our NPA always and always used to be, like close to 8 or 9 years now, has been a gross of 2% and net of 1%. At COVID, it touched 4% gross -- in the peak of COVID, it touched 4% gross and 1.9% net. This quarter, it has come down to 3.45% and 1.66%. So you can see there is a dip quarter-on-quarter, 2 quarters running. Our own guidance is that we have earlier a few times carried to the market that we will come back to pre-COVID numbers of 2% growth and 1% net and it just has to happen. We felt that and we guided for '22, '23 at some stage. But of late, now they're seeing the strong trends on collections that they're seeing, we feel that it will come back earlier than that, maybe 3 quarters or something. But certainly, in that zone, maybe -- we feel that gross will come down to 2-ish and net will come down to 1%. So really, seeing the collection numbers, et cetera, we are very happy, and we feel very confident of reaching our guidance ahead of time than what we guided earlier. And one, in fact, this retail NPA coming down back to 2% and 1%, which has been a historical rate, it's a huge positive news for us, not because the numbers itself are good, but more because of the fact that even if an extraordinary event like COVID could only disturb us maybe for a year and after that, we're back to pre numbers, then it's kind of like an extraordinary event of a century couldn't really disturb the long-term stent comes back, it gives us the confidence that we are on good track and so on. Now the second bit I told you was the wholesale. On the wholesale side, there is a gross NPA, now it's 2.85% and 0.84%, which is ex infrastructure. And we're quite happy, I told you, and given a choice we'd like to keep the book there. We have no intention of degrowing it. If it degrows, I'd say, probably despite of efforts. Third is infrastructure. Gross NPA in infrastructure is 15.8% and net NPA is 9.8%. But really this is legacy. And the good news is the book is only INR 10,000 crores now. And sooner or later, maybe by the next 2, 3 years, we'll wind the book down once and for all. So that's so much quickly I talked to you about the key indicators and the growth in the asset quality. I'd like to stop here, and I'd like to request Sudhanshu to take us through the profit and loss that happened during the quarter. Thank you. Sudhanshu?

Yes. Thank you, Mr. Vaidyanathan. So coming on first -- starting first with the income, the bank's core operating income, which comprises of NII and fee & other income, and excluding trading gains, it grew by 41% on a Y-o-Y basis from INR 2,075 crores to INR 2,930 crores. This included a growth in NII itself from INR 1,784 crores to INR 2,272 crores. As a result, the NIM for the quarter reached to 5.76%, which was 4.91% in Q2 of last year and 5.51% in the preceding quarter. The NIM expansion was driven by gradual improvement in the cost of funds, mainly cost of deposits as we have been bringing the saving rates lower. Coming on to the fee front, as we all know that last year, during Q2, there was a COVID lockdown and the economy was stalled. But this year, whereas Q1 was quite impacted due to COVID wave 2, in Q2, economy has normalized quite a bit. Our disbursements are higher by 70% as compared to Q2 last year. And have -- and that has contributed to higher loan processing fees. Further, we have seen a huge traction in transaction fees and higher fees from distribution of third-party products and wealth management. The third part of the income is trading gain, which for the quarter was lower at INR 122 crores versus INR 335 crores in Q2 of the last year. So that's all on income. So I said initially that we had a robust increase in fee -- in total income -- in core total income, which was at 41% on a Y-o-Y basis. As the economic activity picked up, the OpEx also increased by 47% from INR 1,610 crores in Q2 last year to INR 235 crores (sic) [ INR 2,359 crores ] in the current quarter. Again, this increase was linked to higher loan originations and higher collection expenses as the collection activity sort of picked up during the current quarter. We also continued to invest in digital and other initiatives and also had opened up a few branches and ATMs last year. And hence, that increase is also sort of coming in if we compare versus the last year's Q2 quarter. And the combination of all this has led to our core PPOP, excluding trading gains, increasing by 23% on a Y-o-Y basis. It has reached INR 571 crores in Q2 of FY '22, and this was INR 465 crores in Q2 of the last year. The last -- on the provisions front, provisions for the quarter are lower at INR 475 crores. This was INR 674 crores in Q2 of last year. And this is significantly lower than INR 1,872 crores of provisions, which we have taken in Q1 of this year. This quarter, we have utilized COVID provision of INR 560 crores. We were holding COVID provisions of INR 725 crores at the beginning of Q2. And after this utilization, we are carrying forward INR 165 crores into the future quarters. As we had indicated earlier that we expect the provisions in H2 to be significantly lower than H1. The profit before tax increased by 72% on a Y-o-Y basis to -- and reached INR 218 crores in Q2. The corresponding number for Q2 last year was INR 126 crores. The profit after tax again has been an increase of 50%, and it was INR 152 crores on the current quarter.

So we'd like to stop here and we'll take questions and -- by the way, the way we have written on the investor presentation, we haven't left nothing for imagination. We've given descriptive commentary out. So -- I mean but still happy to take questions.

[Operator Instructions] We have the first question from the line of Manish Dhariwal from Fiducia Capital.

And this question is [indiscernible] managing bank and the condition that one is in right now. But then I don't understand...

Line is not clear.

Is it better now? Because actually I'm talking on my handset. Is it better? Can you hear me?

Yes, yes.

So see, we've spoken about the way the liability side has been kind of controlled and excellent work. Now I basically want to understand that we are looking at the NIM of 5.76% now which is a very, very fantastic NIM so long as the NPAs don't rise. Now -- but then we're also like focusing on prime home loans where a significant amount of our asset book is now developing. So how -- you -- just request your explanation on how this NIM of 5.76% is happening when the prime home loans cannot be very high. And the corporate book cannot be really high because a good corporate book today cannot happen at a very good NIM. So your view on that would be much appreciated.

So let's take 1 question at a time, so that makes our life easier. So this prime home loans, so to say, segment is a segment that we started recently. It's not yet become a significant part of the book. So it has not yet started impacting the NIM. So we'll wait for its impact to play out as it becomes a more significant portion of the book. And I agree with you on the corporate side, really good top corporates don't want to pay you anything more than maybe 7% or 8%. So 8% is rather rich in today's world. And -- so yes, you don't get much rates, either on the corporate side or on the home loan side. But good thing about home loans is that the operating cost is very low because you get a 20-year loan or a 25-year loan. So therefore, we could still manage to make a decent return.

Okay. So given the focus on the prime loans and all, so what is your understanding of how the NIM is going to pan out going forward?

It's stabilized from here because end of the day, we're also doing -- it's not that we're doing only home loans because, of course, relatively low margin, but we also do our other businesses, which are giving us better yields, on which we have -- strategical word is mastered, but I can say specialized for the last 10 years at a stretch. So we will continue to do those businesses of loan against property and SME financing and wheels financing and two-wheeler financing. We'll keep doing all of that. So blend-blend, we'll continue to hold a good NIM, I'd say, right? But it is stabilized. You can't -- just for clarity, just because it moved from 4% to 5.7% doesn't mean it will keep climbing. It will stabilize, I guess, probably like closer to 6% or something, it should stabilize.

At 6%, I think it will be fantastic. Another thing that I wanted to understand about was that amongst the banks, you have a very good focus on the fintech side of it, like where to support the fintech and get business out of that side. So if you could just give some idea on that, as -- how that side of the business is panning out? And what is the cost implication and what is the revenue building implication there?

Well, we like the business a lot because there are 2 kinds of fintech, as you know. One is, of course, a set of fintechs who are helping you along in the processing journey. For example, some fintech is there to help you scan bank statement and give you a proper information about customer balances, et cetera. So that's one sort of fintech. The other sort of fintech are people who originate for you. We like both of them. So we do have digital partnerships where they originate. And for us, it comes on our books. So in those cases, typically, the operating costs, et cetera, is quite low, and it's a straightforward marginal profitable for the bank.

Okay. Okay. So -- I get that. Now one thing is actually over period of time, obviously, these people will themselves get to write the asset on their books. So how will that kind of -- is it going to be emerging as a big area or big source of growth for the bank, these fintechs? -- these originating fintechs?

I don't know what is big because big is a relative segment. But yes, I mean, end of the day, see, the origination through partnerships, et cetera, is part of growth. And definitely, it will be important. See, because India is so underserved, underpenetrated and all that, we all know the numbers. So we don't have to reach everybody ourselves. So if it comes through the ecosystem and partners originating, we like to partner with them, and we do it. So -- I mean what I'm trying to say is that it will be important, of course, for us in the times to come. Important.

Yes. Why I'm asking this is that because like while our target is to look like, say, 20%, 25% growth, we are still at about 10% Y-o-Y. So that's where this question is coming from -- the asset growth.

No, no, nothing wrong with the question. I appreciate the question. See, the 10% is -- 10% you are not seeing because the wholesale book has degrown, like I told you, not by choice, but it's just happening to degrow a bit. So it's a blend-blend seeing 10%. But if the retail asset is going pretty well, I mean, we don't see any problem growing. I mean we never suggest 30%. But certainly, 25% growth year-on-year for a long period of time, honestly, I don't see a problem at all. Whether it comes through partnerships or our models that we've honed for a long time, or a mix of them all, we'll keep playing all the cards.

Right. That sounds good. My last question is that, are there any further plans on capital dilution in terms of further new shares issuance?

Not now. Not now. We're still running capital equity upward of 15%. So we're not even -- we're not talking that language yet.

Okay. So maybe like in FY '23?

We'll have to see as it emerges.

We have next question from the line of Ishan Agarwal from Erevna Capital.

And just a request if we could get the presentation at least 45 minutes before the call to study and analyze the information.

I know it's our mistake this time because we were racing against time. The Board meeting ended. And then we had a press release to issue [indiscernible] to load and this meeting to take. So -- like we were just pressed for time. So maybe next time -- we'll do a better job next time.

So a couple of questions. Firstly, what is the current blended yield on the retail loan book that we have? And given that our focus going forward will be growing the home loan portfolio faster than the overall retail book, where do we see yields for the retail book settling, maybe, say, in FY '23, '24?

Yes. See, the -- I think all of that blends back into the net interest margin, actually. So that we've kind of guided that they should settle down like 6-odd percent.

Okay. So actually, I had a question regarding our guidance, too. So at the time of the merger, when the guidance for NIM was given, that is in December 2018, the bank was netting off the BC commission from the interest income. Now since we are grossing it, ideally, our NIM guidance should have been up in our presentation.

That's correct. But we anyway have upgraded the guidance. But for the -- since you asked a very good question, let me just -- for the benefit of other views, let me just explain to them what you asked. It may not strike them. See, basically, the expenses that was being booked in our subsidiary company -- expenses that were being booked in the subsidiary company were -- are now being grossed up. So it's coming up in the NIM line as well as in the OpEx line. So that's the point the gentleman who asked me just now just asked. So as a result of it, the impact was about 50-odd basis points -- the impact was about 40 basis points. So therefore, in other words, NIM went up by 40 basis points for this factor alone. And the OpEx also went up to that extent. So that's the point you were making. Now the quick answer for this is that because this is how even our auditors felt it was more appropriate representation and hence it is done. Now...

Sir, kindly stay connected. We seem to have lost the line of the management. Ladies and gentlemen, please stay connected. We seem to have lost the line of the management. We'll reconnect. We'll come back in the call, sir. You may please proceed.

Yes. Let me just continue. So basically, because of that 1 impact, our NIM went up by about 40 basis points, and our OpEx also went up correspondingly. So it's a P&L neutral item. Now to answer your question about guidance, yes, of course, when we guided, we guided for a NIM of 5% to 5.5%. Now we are guiding for 5.5% to 6%. So you can see these are automatically adjusted.

Okay. Okay. And the bank's core operating other income has really surprised me positively. I mean -- I'm wondering whether there is any one-off component or the entire thing can be assumed to be granular in nature.

Yes, broadly granular, yes. No -- I mean they're not -- we're building a core -- a business that is strong on the core. So -- if you see, when the loan book grows, automatically the income grows and our cost of funds is only dipping now, but book is growing. So naturally, the income is going to grow.

And when we -- okay.

We are trying to build -- just to get the philosophical point out of the way, the way we are trying to build the bank is that everything we do should be sustainable, meaning that we wake up quarter 2, quarter 3, quarter 4, 1 year, 2 years, 3 years, we are trying to build something which will only increase 1 way. And that can come only when we do core -- core -- good quality core businesses.

Right. Okay. So another question that I have is regarding our term deposits. So in every presentation in the past, we have given as an extra information that retail grew by this much and wholesale degrew by this much and hence, our TD was flat. But this time, I think that information was missing. So can we just know what was the growth in the retail term deposits year-on-year?

No, no. We are not -- if you go and compare the slides, there is no information that's available in the previous slide. It's not available this time. So you've got to really check the fact. So everything -- basically the same format, we just plugged the new numbers. So I want to correct you on that. Secondly, with regards to term deposits, the exact numbers, we'll share with you.

Yes. So term deposits have grown on a year-on-year basis. The increase is about INR 5,000-odd crores. The team is just checking, but it should be broadly around that. So that continues to grow. And even if you see the CASA number, that's grown by 53% on a Y-o-Y basis.

One second, as I spoke, I referred that particular page. You can see Page 41, it's all there. May I know your name who speaks? I'm sorry, I didn't catch your name.

Ishan Agarwal.

So Ishan, it's there. The information you're asking is there on Page 41. So that's why I said that nothing has been omitted.

Sorry. Sorry, actually, the thing was -- the time was pretty less. So I didn't see the presentation. I'm sorry about that.

No, no, that's our mistake. So yes, the term deposits have been -- if you take a Y-o-Y number, it's been flat, it's like minus 4%. But the reason why this is happening is that, as I told you, even at the current deposit rates, we are finding that our liquidity is like rather high, like high meaning quite high. So therefore, we are dropping rates. So I don't know if any of you heard the AGM speech also and even our public commentary on this issue that we are going to stall the growth of deposits for a while because this is just too much cash and it's a significant drag for us. So even next quarter, don't expect to see any growth in deposits because if deposits keep coming like this, then it's all going to drag us down on profitability.

Sir, last question from my front.

So for 1 or 2 quarters, expect that our growth -- that our deposits will stay where they are, it's planned that way. And we want to use up this cash and disbursals and then we'll start growing again. And frankly, we can grow deposits anytime we want, that we're very confident of.

Right. So last question from my side, sir. Anything that we've heard from the management of the telecom company or any communication from the DoT regarding the bank guarantee?

Nothing that is not publicly known.

We have next question from the line of [indiscernible] from Point72.

Am I audible?

Yes, you are. You can please go ahead.

Just a couple of questions. Firstly, just a data keeping question. On the -- would you mind providing us with the gross slippages this quarter and also the write-off number?

Sorry. Can you repeat the question?

Do you mind providing us with the gross slippages this quarter and also the write-off number for this quarter?

Gross slippages.

Yes. So gross slippage for the quarter was about INR 1,600-odd crores and this was 40% lower than Q1 the previous quarter. And on a net slippage basis, the slippage was INR 900 crores, which was about 50% lower than Q1. Write-offs during the quarter were -- was about INR 1,000 crores and that also was about 50% lower than the previous quarter.

So we will give a little more color than what Sudhanshu left you with -- what Sudhanshu said. Let me give you 2 data points that will help you understand our SMA book better. Now our -- when you say slippage, obviously, it comes into SMA. Now it depends on the stage of the bucket. Now in the -- our total SMA 0 plus 1 plus 2 as of 31st March 2021 was INR 5,016 crores. Our SMA of 0 plus 1 plus 2 as of 30th June was INR 12,398 crores. You could see clearly that when the wave 2 happened, that is in April, May, June '21, then basically, there was no moratorium, but there was -- field collection didn't happen. So INR 5,016 crores grew to INR 12,398 crores. But we are rather happy among ourselves that this INR 12,398 crores as of 30th September has come back sharply or dropped sharply to INR 7,956 crores. So that's a steep reduction. And our own projection -- internal projection for December is that it is going to come down sharply again. So we feel that this is the basis under which we are beginning to guide that our gross will become 2% and net will become 1% and quite close to become 2%. And let me give you 1 more color to all of you, even if unsolicited, but let me share some information with you. Now let me break up this SMA 0 plus 1 plus 2 between urban and rural. In rural, it's where we saw the biggest impact. In rural, as of 31st March, SMA booked 0 plus 1 plus 2 was INR 528 crores. As of 30th June, it increased to INR 6,258 crores, just like -- almost like en masse movement of the MFI book happened between 31st March to 30th June. Now as of September, that number has come down to INR 3,690 crores. So basically, the point is that the big impact was seen in the rural business. Now let me tell you the urban business. In the urban business, as of 31st March, our SMA book, SMA that is 0 plus 1 plus 2, was INR 4,488 crores. As of 30th September, it's already come down to INR 4,267 crore. So our short summary why I shared the numbers with you was to just tell you that when wave 2 happened, the whole impact or let me say, the big impact was on the rural side, urban book is like -- has come back to pre-wave 2 levels already, in fact, better than pre-wave 2 levels. I just had that color helped you understand what happened in our book actually.

That's very helpful. Next one is on the OpEx front. So I understand we are investing for growth right now. But it would be very helpful, sir, if you can give us some guidance on the second half. So we got about INR 23.6 billion OpEx this quarter. How should we think about the run rate for the second half?

Can you repeat the question? We couldn't hear you very clearly.

Sorry, am I audible now?

Let's try.

Yes. So I just want to get some guidance on the second half OpEx run rate because this quarter, we did about INR 23 billion, INR 24 billion, quite a sharp increase, but I understand that we are investing right now. Hopefully, you can share some guidance on the second half OpEx?

Yes. Our OpEx, I'd imagine that will -- I guess, quarter-on-quarter will go up a bit, but maybe not at the same pace. And this quarter, OpEx went up compared to the Q1 because the economy -- in Q1, as you know, there was very less economic activity, there was no disbursals. So dispersal-related fees, et cetera, need not be paid. Suddenly, this quarter, disbursals came back so strong, so we had to incur the cost -- origination costs. Similarly, in collections, in first quarter, very little collections. So few collections, so the billings was lesser. This quarter, collections came back strongly and that's why you saw the SMA numbers -- I told you our SMA has come down so sharply. So we had to pay for collections. So let me just say that basically economic activity revived, business improved. So the expenses came with related to that.

[indiscernible] Sorry, go ahead.

No. And when we look ahead, therefore, we feel that -- with, of course, the increased business -- ours is such a business where there is a certain amount of costs that are incurred with the origination itself because to the extent it is sourced, the direct marketing associates, et cetera, you simply pay. Similarly, to the extent collection agencies collect it, you pay. So to that extent, there is some variability involved in it, but things should stabilize from here because I've just started doing more of digital and all that.

Right. Got it. That's very clear. And last one for me is on the COVID buffer write-backs. I'm a little bit surprised that we -- if I'm not wrong, we wrote back INR 560 crores this quarter. That's more than, I think, INR 250 crores we built in the last quarter. And little bit surprised because none of the other peers seems to be writing back provisions or not at least at this extent. And I guess there might be some waste over there. So I just wanted to get your rationale and also thinking about the provision write-back part.

There is -- actually on -- as far as collections are concerned, there are certain benchmarks we use for us to understand what the next quarter's provisions will be. And they are basically 3. One is how do our -- how many of our customers are bouncing their checks, that is check bounce. When we say check, we mean check, mandate everything. Number two, we check of those bounces, how many of them are being to be -- we are able to collect on them within the same month. We call it collection efficiency. Third, we check that of the accounts that we have provided for in the past, how much are we able to, let me say, recover, we call it recovery? Somehow we're finding in all of these 3 fronts, things are getting better than -- even better than pre-COVID. Note what I'm saying, I hope you noted that, better than pre-COVID, not that COVID has affected our life, I'm telling you better. So therefore, when we do our own modeling internally and project what our numbers for Q3 and Q4 will be, we can already see that our requirement for provisions for Q4 -- Q3 is going to be sharply lesser than Q2 and provisions for Q4 is going to be like sharply lesser than Q3. So when we see those projections like that, we just felt there's no need for this COVID provisions to keep and that's why I took it back. I hope it turned to be -- I mean I believe we'll be right, but you wait for Q3 results and wait for Q4 results, you'll see for ourselves. We are quite confident about that.

Got it. Just if I may squeeze in last one. On the Idea provision -- provision on the Idea account, are we writing that back? I think we got 15% coverage, right? Are we writing that back in the second half as well?

It is 15% or 25% depending on the receipt with the nonfund or without -- or only funded. So it's depending on how we calculate that. But yes, at this point of time, you've seen the public news, you heard about the fact that they are bringing in funds. You've heard about Vodafone bringing in funds. You've heard about the fact that government is supportive and government doesn't want to make this country a duopoly country. So you heard all the right -- I mean we are encouraged with what we heard. So as of now, we believe that -- I mean let me just say that we believe that our provisions are appropriate. Now we got to finally wait and see when -- on the due rates and we'll deal with it -- like I said, we've dealt with so many things. We'll deal with it also.

We have next question from the line of Manav Vijay from Deep Financial.

Yes. Am I audible?

Yes, you are.

Okay. Perfect. So -- sir, I have 3 questions actually. The first is actually on the loan book growth. Second is on actually cost to income and third is on CASA. So the first, on loan book growth, sir, you have been guiding for last few quarters that you will try and grow your retail book by around INR 3,000 crores to INR 4,000 crores every quarter and that much kind of a degrowth we will have on the wholesale book side. Now in this quarter, you are saying that you are getting comfortable as far as the wholesale side is concerned with the size of the book that you have, and you will try and basically increase that book as well. Now retail book will continue to grow 20% to 25%, maybe the pace at which it was growing. So now -- now does that mean that on the overall book, the growth could be slightly higher, maybe, let's say, 20% to 25% at the overall book instead of just at the retail book?

See, the wholesale is not a strategy to degrow because, like I said, we're getting comfortable with the kind of book size we have like INR 31,000-odd crores. But it's kind of stabilized. We don't claim that -- we're not saying that we'll grow it from here in any aggressive manner. That's -- I want to make that clear. Because -- we are happy with the quality of the book we have on the wholesale side because whatever -- all the problems that had to be accounted for has been accounted for in the last 4, 5 years. So therefore, we expect this to stabilize from here. So I don't say that we'll grow it from here because in the wholesale book to even keep it flat at this point of time. You see the Indian economic wholesale rate of book is not exactly growing either. It's kind of flat only. And there is intense competition in this business from the large banks, like crazy. So for our bank to even keep flat will probably be an achievement. So we intend to grow it from here. The rest remains retail, retail like 240%, 25%. And by the way, it doesn't mean that the book will necessarily not -- will be flat because remember, there's an infrastructure book of INR 10,000 crores that we have no intention to grow, so that will wind down. So the noninfrastructure book of INR 21,000 crores, well, it's a hard climb for it to even sustain itself at 30% in the sense that to replace the infrastructure book.

Sure. That means...

All I meant to say is that we don't want to run it down. We want to -- given a choice, we'd like to keep it flat. Rest, we'll have to see how the market behaves.

Okay. My second question is actually on the cost-to-income side. So now for FY '20, you had close to 74% cost to income. FY '21, again, you were almost at similar number. You have done slightly better as far as this H1 is concerned. Now considering the way you are now, I mean growing your retail book aggressively. Your cost of funds are coming down. Is it possible for you to guide us for FY '23 and for '24, what kind of cost to income is possible?

We've not put out a public number about how much it will come down to, but definitely, you can take it that this will come down. As to what extent it will come down, I don't think we put out a number, but maybe we'll try to. So the thing is that if you just do 1 favor and go to Page 20 of the experience we've had on this front, even in Capital First, when the business is being set up, a lot of people misunderstand this thing of cost to income. They look at our cost to income [indiscernible], other banks running at, whatever, maybe 40% or 50%. And they say, "Oh my God, you got too high of cost to income." But they're all missing the point. We are a new bank. We're not just a new bank. We're a new bank with starting up loan book of INR 75,000 crores of IDFC and some INR 25,000 crores of Capital First. New bank, INR 1 lakh crore of loan book, no CASA. What does the bank do? And that too with very low NIMs. So -- and you know the NIM premerger was 1.56%. So -- and even if we adjust back for that 40 basis points [indiscernible] probably 1.9%. Fine. What do you do with 1.9%? Have such a large loan book and no CASA and no retail liabilities. So what does the CEO then do? Then you go ahead and put the expenses, put the branches, put the network and do whatever you have to do. So that comes with an OpEx. Now therefore, our OpEx cost to income today, in the early stage of a bank, infrastructure bank converting to wholesale cannot be compared with some bank that has been there for 25 years and already amortized all its OpEx. So this is the key point to note. Therefore, what is the guidance? Guidance as follows. I want to take you back in time, just to remind you, not for anything else. So those of you who are investing in Capital First. Please, at that time in 2009, '10, cost to income was 128%. Then when we started building retail, for 4 years, it was 80%. It didn't come down, kept going up actually. It went to 72% to 74% to 78% to 80% for 4 years. Then when the scale started building up from there on, 80% came down to 71% in 2014, 59% in 2015, 51% in 2016, 51% in 2017 and 48% in 2019. So the point I'm trying to say is that there's no shortcuts in life. This is the way it is. And initially, when the bank is built up cost to income is high, but I'm reasonable -- not reasonable -- I'm very sure that now onwards and the scale will build, cost to income will come down. So you will see our bank touching 50% kind of cost to income in due course. There's no doubt about that. It's just the way the model is.

So sir, I appreciate your point completely. And I'm sure that, yes, you will hit 50%. Just that I would say the way you have built the bank in the last couple of years, so as far as the liability side of bank is concerned, you have -- so you have taken care of that absolutely well. Now as far as the asset side is concerned, you have taken very well as far as the wholesale book is concerned. Retail is actually now starting to actually fire up. So what I'm basically trying to understand is as far as the operating jaws are concerned, so when can we expect them to open? Maybe '23, '24, '25?

No, no, no, no. Next, you will see the operating jaw expand in '22, '23 itself. We don't -- by the way, you don't have to wait that long. So basically think of it that this year, in '21 '22, think of it that you'll probably be here where we are. Like if you take out the treasury income and think of the core, core income and core, core OpEx without any -- these kind of incomes like treasury and all which disturb the equation. If you look at the core to core, it'd probably be 80% right now. And maybe for the next 1 or 2 quarters will probably be here. I mean I can't give you more happier expectations on that because I really -- it won't happen. And that's the way the model is built. I'm not disappointed either. But when you wake up in '22, '23, which is not very far from now, just 6 months from now. So when you say '22, '23, we expect the jaw to open positively, definitely, we feel the cost to income will come down. Then '23-'24 and '24-'25, basically next 3 years, you can see that our cost to income will come down. You can see that our ROA will expand. You can see that ROE will expand. It is just going to happen. It doesn't matter what happens to that 1 telecom account. We'll deal with it by the law of the land. So it doesn't matter. This is the key thing. So basically, the grunt work, let me say, has been done over the last 3 years. It's been established now is the time to scale up and cost to income to come down. You will see it happen. You just have to -- I mean many of your investors have been patient with us for 2, 3 years. Now you watch the game for the next 3 years.

Perfect. My next question would actually be on CASA. So the kind of job that you have done on CASA is actually really commendable, 41%. I think you are second highest after I believe Kotak. And now you have reduced rates because the liquidity that you have, you're finding it difficult to deploy. Now -- so let's say, whatever that we see changes in your balance sheet, whatever advances the growth that you were having. So you were basically trying to just keep the borrowings stable and you were growing the advances side when, let's say, whatever your deposit growth was happening. So now for next, maybe, I don't know, let's say, 1 year or so, with, let's say, CASA being stable at this 51%, 50% kind of a number, do you think that you have enough cash because of the LCR plus extra deposits to grow the advances book without, let's say, again, increasing rates on CASA to attract higher deposits?

Yes. So I'll take that question. So again, as you rightly said, it would be a function of liquidity and currently, we are sitting on ample actually, LCR as at 174%. And if you see the numbers, we have consciously also slowed down the deposit growth, right? We brought down the rate plus recently, a month back, we also brought down rates on the FD front. Having said that, right, as sort of growth sort of comes back in H2, which we are very confident of, right, we would want that some of this liquidity, which we are carrying excess, normalizes. And the regulatory requirement for LCR is 100%. But internally, we will definitely keep a good cushion over that. But certainly, 174% is a very high level at present, right? It also has a drag on our NII. So we will continue to sort of accordingly pace our deposit growth and -- to meet our asset requirements. If you see our balance sheet numbers, we have also -- the borrowings have also increased by INR 2,000 crores over the last couple of quarters. That is because we have raised alternate money in the form of refinance where the rates were very attractive and it also gave us a long-term money. So we'll balance it between deposits and borrowings, and we will pace it according to our asset needs. And to your question about whether we'll increase interest rates, I mean we have no plans to at this point of time, but we never want to take fixed position on these things. We'll see -- suppose 3 quarters from now, our growth is strong and we need deposits, who knows what we'll do.

We have next question from the line of V.P. Rajesh from Banyan Capital.

Congratulations on a good set of numbers. Most of my questions have been answered. But just 1 question regarding the letter that you received from IDFC Limited. I was just wondering if there was any Board discussion on that and what are we thinking in terms of the reverse merger with the IDFC Limited, if at all?

See, we -- I can only tell you what's already public. So rest what is not public, I can -- then we'll inform the exchanges and we'll inform you. As of now, the only facts are that they have written to us saying that please let us know how you think about it. And because we are, we meaning IDFC Limited, have said that we are planning to exit our positions in the companies we have, and we look forward to talking to you. So that's their position. We've discussed this at our Board naturally because it's come to our bank and it had to be discussed at the Board. And we'll be responding to them. And whatever we come out -- whatever we respond to them, we'll make it public.

We have next question from the line of Sagar Shah from SK Analytics.

This is Sagar Shah. First of all, congratulations, sir, for excellent set of numbers.

Thank you, Sagar.

Yes. I just had 1 question, actually. Regarding our -- as you said about our corporate loan book, about you -- in the future, you ought to maintain the corporate loan book as and where it is right now around maybe 30% as you have guided earlier.

We wish to.

Okay. So basically, I just wanted to know that in the corporate loan book, which areas are you exactly targeting actually? Because in the past, we have had severe [ burns ] regarding our loan book actually and the -- you can say the previous lending of IDFC has had something like [indiscernible]. So for the future, which measures have you taken or maybe what underwriting skills have you -- maybe are you planning to take for better corporate loan book quality?

We understand your concern, and I think it's a legitimate concern you have. Even your comment about the erstwhile management, whatever they booked, it's not that they did anything bad. I mean just that the -- maybe the economy went south and the infrastructure cycle went bad, maybe it's not -- I don't think they did -- I don't think they did anything intentionally. But coming back to the point, we have actually instituted many controls in being able to handle the corporate book, whatever we have booked post merger. We have put many -- like I'll tell you some examples if that gives you color. We say that any entity that comes, we say that the smell should feel good because there are so many entities where -- when numbers may be good, but people just don't say right things about them and you touch around. So we actually tell every relationship manager that you've got to attach your own personal assessment of what you think of the group on the basis of what you touched and smelled about in the market. Number two, we say that every RMS to sign off when you make a recommendation so that your name is on the file forever and that you recommend this case on the base of your strength. Number three, we look at cash flow, and then we want to convince ourselves that the cash flow is good. Number four, we look at leverage ratio. Number 5, we say that -- we ask us also this question that if this person would raise equity, will this person be a sort of person who will get equity in the marketplace if they were to raise and if they wanted to get the necessary funds or equity or even debt for that matter? Do we -- do you think other people will lend to the person if we were to -- if they were to go out in the market? Then, of course, we check about security and so on. So basically, whether it is financials, the leverage, cash flow, smell, references, we do all the checks and finally, we have kept a pretty low threshold to go to the credit committee because we feel that more eyes are better than 1. So -- and we feel we don't take it emotionally if some members of the credit company feels I'm not comfortable, I'm going to drop it. Okay, drop it. I mean, basically, we feel -- unless we feel strongly about a proposal. So what I'm trying to say is that we just put a set of things about the way we think about this. We actually made a grid around it, and we got to necessarily fill up every part of the grid to feel comfortable. So we've done all that. And frankly, it's paid out very well, and we thought it's too pretty early in the game around 2000 -- very early in 2019. And I'm happy to say, like we've done over 120 accounts, not a single one of any material size has grown up between 3 years higher.

So basically, in your experience over the last 3 years, have you -- are you targeting any sector or have you something like shortlisted some few sectors which are actually of your interest to lend in the future?

It's more about what we don't want to do because we do -- corporate sector is a pretty wide area. We like -- yes. I mean it's very hard to pick a finger and say that we want to do only 3 or 4 because we're not exactly the only lender in the market to be so choosey. So we are in the market.

Writing down the infrastructure loan books. So obviously...

Exactly because [indiscernible] the infrastructure, for example, yes, it's a no, no -- or you say that, listen, if there's some particular industry itself has a pretty gloomy future, then you say no to that. So basically -- it's more the exception. Otherwise, we're okay. We do -- even if an NBFC came to us and we feel comfortable with an NBFC, we'll do it. I mean we're happy to do it. So it's basically our comfort based on those criteria, and these are pretty written down criteria. It's not purely to anybody's judgment.

We take the last question from the line of Shashank Sharma from Axis Capital.

I had a couple of bookkeeping questions. First, on the toll account. So is the ongoing -- I mean, apart from the 3, 4-month delay that has already happened and has caused it to slip, are the monthly collections today 100% on that account, the forthcoming collections?

So I'll answer that question. Sudhanshu here. So definitely, collections are improving as sort of the economic activity is picking up. But having said that, it's still not back to sort of pre-COVID levels for that entity. Even into this quarter, however, we continue to see repayments. Like if you see the numbers, the principal outstanding has come down further by INR 16 crores during the current quarter and where it slipped into NPA into the last quarter. So we feel that we have a provision of 15% on this account. We don't foresee any economic loss in this account, and we are hopeful that sort of as the toll collections pick up further, this account condition should improve and...

Sure, sir.

And before you go to the next question, let me just say that our guidance on this bit about having 2.5% credit loss of the average book for the year, what we said last quarter or so, that completely stays. So even after wave 2, it stays. So we don't have a problem with that. But only important thing to note is -- so that we want to be clear we guide you correctly, is that, that number is not a normal business operations including COVID. It doesn't take care of that 1 telecom account where our net -- our funded exposure is INR 2,000 crores, and our provisions are about like INR 480 crores. So if that account were not to pay, then all bets -- then we -- that's an extra, let me say, impact on us. But that's not part of the story line of 2.5%.

So hopefully, next time when we're on the call, that problem would be solved for us, because I think the repayments are scheduled in that manner. So let's see on that. I have 1 more question.

For India's sake, because if it doesn't pay, then there is a law of the land. So -- but for India's sake, we hope it doesn't go there.

Right, right. Sir, 1 question. If you can give the breakup of the write-off that has been taken in the H1. Asset-wise -- the asset class wise, if you can throw some light there, that would be great.

So as I mentioned earlier that write-off during the quarter was about INR 1,000-odd crores and this was 50% lower than the previous quarter.

Sir, asset mix, can we get something as in the rural book -- in percentage terms, if you don't want to give absolute numbers, or on a broad basis, so we understand LAP and housing would be limited. But apart from that, some color there would be great.

No. So we haven't called out that number, but...

What number?

No issues. One last question. Apart from this 2.9% restructuring...

By the way, 1 comment on the write-off that I earlier mentioned to you that every month now -- every quarter now, we're getting recovery from the past. So what was provided is the provision is a formula. [indiscernible] 90 DPD, 120, 150, 180, 360 whatever, and then we take certain provisions. But that doesn't mean client doesn't owe you the money. So we are getting recovery against the past dues. So that is one of -- so I still want to let you know that that's one good thing in retail that even if the customer is behind schedule, we can hope to get many of them to pay back. So back to you.

Perfect. Sir, one last question from my side. Apart from this 2.9% restructuring, is there any additional restructuring under erstwhile MSME schemes, et cetera, that we have?

That's part of this number.

Thank you. And frankly, all of you were very engaged and asked really good insightful questions. So we want to thank you for being here with us today and asking us whatever you did.

Thank you very much, sir. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Kunal Shah for closing comments. Over to you, sir.

Yes. Thanks, Vaidyanathan sir, for patiently answering all the questions and laying out the strategy as well as the guidance in terms of how we would have been moving. And wishing everyone happy Diwali in advance, yes. Thanks.

Happy Diwali to all of you.

Thank you, Kunal, and thank you, everyone.

Thank you. Yes.

Thank you very much, sir. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.