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

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of IDFC FIRST Bank hosted by ICICI Securities. [Operator Instructions] I would now like to hand the conference over to Mr. Kunal Shah from ICICI Securities. Thank you, and over to you Mr. Shah.

Thank you, and good evening everyone present on the call. Today, we have with us, Mr. V. Vaidyanathan, Managing Director and CEO; Mr. Sudhanshu Jain, CFO and Head Corporate Centre; and Mr. Saptarshi Bapari, Head, Investor Relations from IDFC FIRST Bank to discuss their Q3 and 9 months FY '22 earnings. Congratulations for good set of numbers. And over to you, sir.

Thank you. Good evening, everyone. It's really a good pleasure to talk to all of you this evening. I'd like to just say that we had a good quarter and we thank all of you for your goodwill. I like to just take you, give you a quick brief about how the last few years have been and then I'll come to the particular quarter. Now it's been exactly 3 years since the merger. So 3 years is a good round numbers, I thought I'll just tell you quickly 3 years how much distance we've covered. We've tripled the number of bank branches from 206 to 599. We've grown the ATM of 6x or little more than 6x from 112 to 727. The CASA as such has grown from only INR 5,274 crores at the time of merger to INR 47,000 crores, so that's a growth of INR 42,000 crores in 3 years. I think by any standards that's a good number. The CASA ratio increased to 51.6%, we dropped rates a few quarters ago and are still stable at 50% plus, so that gives us a lot of confidence. The core deposits, what we call, the core CASA -- retail CASA and retail term deposit, that's grown by INR 54,000 crores in 3 years. So the short point out of these 5 data points to use that I think now it is beyond doubt that our bank is able to raise very significant amount of retail deposits from the market, from the public and that comes from a good product, good pricing, good brand, very customer-first philosophy, very service-centered philosophy and so on. So I think these -- all of these factors have played a big role and, therefore, now we feel very confident that really if the bank starts growing again at 20%, 25% per annum from here on, which we believe we will, the kind of deposits we will need will be about INR 20,000 crores, INR 25,000 crores a year, but since we've done that, we just feel that we should be able to do that comfortably now. Now the second part of the work we've done over the last 2, 3 years is that we have substantially brought down the infrastructure loan. Infrastructure loans has come down from INR 22,000 crores at the time of merger to just about INR 8,000 crores now, so I think that's a big drop and later in the conversation I'll try to give you a breakup of this INR 8,000 crores also. We've brought down certificate of deposits from INR 22,000 crores to INR 7,000 crores, that's also very comfortable now. So all kind of issues -- the top 10 borrowers concentration was 12.8%, it's only 4.3% now. So basically again we worked on derisking the balance sheet both on the liabilities and asset side, and I think we've done that. Now coming to this particular quarter, let me just say that our wholesale funded assets basically wholesale loans, the funded side, it grew sequentially from INR 20,822 crores last quarter to INR 21,647 crores. So let me just say it's a sequential growth in wholesale loans. We always maintain that while retailers are big mainstay, wholesale too is important to us. And if you find good quality credit, we will do it. And I'm happy to say that it's been 3 years since the merger, the quality on the wholesale loans is simply excellent. We haven't had any significant -- even a single account to talk about, which is of any significance. On the -- including non-funded asset, our wholesale loans is now INR 45,000 crores. Now another datapoint is that during the last 1 year, A and above rated exposure on that side has now grown from 74% to 79%, so broadly that story on the wholesale side is fine. Now I'd like to give you a bit of a breakup as of this quarter end about what the total funds -- off the total funded and non-funded assets, basically of the total funded assets, what is the composition of the book? If you go to composition, basically home loans is 10%, loan against property is 14%, wheels is 8%, consumer loans is 13%, rural finance is 10%, commercial finance, basically business loans, small business working capital, business instalment loans those kinds of stuff, that's 9% and corporate and other loans is about 23%. So you can see that we're now diversified over 10, 12 lines of businesses, no single line of business is more than 15%, so it's rather diversified and even the only thing the 1 that's greater than 15% is corporate, but like I said, we are now feeling broadly comfortable on an incremental basis. The next point is basically, sorry the infra is 7%. Now, next is about disbursal. On disbursal basically a simple one-liner is that disbursal is back to pre-COVID levels and we don't worry about that anymore. Next point is that off the -- the retail book itself, this time we have segregated between 2 parts, what we used to call it retail until the last quarter, we tried a little bit of comparison with the system as such and we find that lot of those small entrepreneur loans and business loans and SME loans, usually the banking system calls it commercial finance and we were calling it retail finance and wholesale we were too blunt about classification. So this time, we have further segregated it, so we call the retail book as retail book and then the business financing are now called commercial finance. So the breakup is that now our retail book is INR 75,500 crores and the commercial book is INR 10,500 crores. So together you can call it like INR 86,000 crores. Now I'd like to -- our restructuring as a percentage of the book was 2.6%. And last point is about asset quality and then I like to stop and then I'd like to just make it open to questions and maybe Sudhanshu can say if you -- maybe if he has few inputs to give. Now, so back to the numbers on asset quality. Now as far as we are concerned, we track our book by many criteria, we check what percentage of our checks when we present for clearing return that's usually a very good indicator because end of the day later you will have to -- those customers throw into delinquent buckets if they bounce. So that is 1 indicator we track how many customers bounce a check as a percentage. We track that over the last 12 months and we can say that it's almost like touched pre-COVID levels. It used to be at 12% earlier, it's now 12.1%. Let me just say it's like touched almost fractionally, but it's almost as good as before. #2, we check off the loans booked the previous month, in the subsequent month, what percentage of customers return their checks, basically it gives us a instant sense about how the quality of incremental booking is as compared to what it was, say, 12 months ago or 18 months ago. So that number is literally at all-time lows and we feel really very good about that. It's like 8% something. Now that is really good by any standards and going by any historical benchmark we had. #3, when we say that of the customers who return their checks, the third analysis we do is about how many of them -- what is the collection percentage on those customers. Even though, collection percentages we track it by bucket X, bucket 1, bucket 2, bucket 3, every bucket we track, and in every single bucket we find that the recur has actually kind of exceeded what it was pre-COVID. So you can take that as a good data point and a good trend. The fourth thing we then check is of the customers who go into delinquent buckets, what is the recovery you get? I mean, assuming you've taken a provision against the customer base, but what about -- provision doesn't mean the customer doesn't owe us the money, so customers still owe us the money. So on that is what we call recovery. We don't call that collection, we call it recovery. So again that is fourth data point we track and numbers are looking pretty good. The fifth thing we track is vintage analysis as to how the portfolio booked 6 months ago behaving vis-a-vis what has booked 12 months ago vis-a-vis 18 months ago versus 24 months ago and so on. So again that data point. So we have done enough analysis on a portfolio and we study day-in day-out. And now we feel very confident to start guiding the credit loss numbers for the next year as well. Assuming of course there is no fourth wave and there's no crazy things happening. So all that is assumed. Now assuming that things are going on as things are going on right now, we believe that, that next year we can now start guiding for credit loss of just 1.5%, and that's a huge statement from our point of view because we feel that we've never had it this low before. I want to just take you back a little in time that when we used to do this business in Capital First, our credit losses is to be more like about 2.6% to 2.7% on a yield of about, say, 15.5% 15.6%, a little more than that. But for this year, that is in '21-'22 we had guided for credit loss of 2.5%, which I'd say it'll be pretty good considering that Wave 2 happened this particular year. And let me say, we're broadly trending on that track. So what was 2.5%, now -- we've been guided for 2% thinking that we'll definitely achieve it, but now feeling a little more confident to get to 1.5%. So all in all, we're feeling pretty good about our asset quality. The other good thing from our point of view is that the wholesale book, we've heard all of you have been quite concerned about our wholesale book issues and, what we call, legacy or whatever. So those accounts -- we've had a few infrastructure accounts, some road accounts, some toll road accounts, Dewan Housing, Reliance Capital. We had many of these issues. I'm happy to say that we now feel that most of those accounts are behind us, maybe 1 or 2 accounts may be there but they are not going to materially move the bank's P&L in any subsequent quarters that we ever have to call out and say, oh my god, [ which has not has happened ], now we're going to post a loss, you won't hear those statements from us again. The other significant event that has happened in our lives is that the core, let me say, the core-core operating profit. What I mean core-core, I mean net of not having any treasury or 1x kind of incomes like core NII plus the core fees minus core OpEx. Now that number for the Bank was literally -- at the time of merger used to be like INR 285-odd crores, pre-merger was maybe INR 90-odd crores for the half year. So that number what is INR 289 crores is now INR 650 crores plus. So therefore we are pretty confident that even though the balance sheet just grew by 17% since the merger, the operating profit has grown by 100%. Now if book grows 17%, profit grows 100%, you know that the incremental dynamics are really very powerful. And that frankly, I'm not surprised because we know that if you do a business at 5.8%, 5.9% NIM, value has to get created, it all comes back to credit loss. So we feel we are strong on credit loss. So once NIMs are strong, credit loss is good, we just believe that profit's only around the corner, it has to rise. So personally, of course, I have been there, seen the cycle before, it starts with the lows and it comes to breakeven and then it starts get into profit. So we've also come to that 2, 3 stages in this bank for the last 3 years, but I'm feeling reasonably good about the whole thing. The last thing is about what happened on the telecom account. In this quarter, we got -- we had INR 2,000 crores funded exposure as all of you knew, so that money has come back this quarter. We had decided to take an additional exposure of INR 500 crores on them. It is part of an overall request made by the company and we felt broadly comfortable considering that they were coming back and government was infusing equity and promoters infusing equity and all the stuff. So that's about what we have to give as an opening talk, and I just hope that helps. So thank you very much friends and thanks for being here today with us and thanks for showing interest in our organization. You've been patient with us for many years like 2, 3 years now. We thank you for that, and I think it's our time to pay back. Thank you.

[Operator Instructions] We take the first question from the line of Kunal Shah from ICICI Securities.

Yes. Sir just to take it forward, anything in terms of the cost to income because across the board for all the private banks we have seen a significant rise coming in terms of the OpEx both on quarter-on-quarter as well as year-on-year and particularly it's more related to customer acquisition, the retail assets now roll-out investments in digital and all. So -- and we are also focusing on all these aspects. So finally, in terms of cost to income, how should we see and what would be the guidance out there?

It should come down. As you know, we had start-up costs for these branches and ATMs and all that stuff, after all we have to raise that kind of liabilities quickly, so we had to go through that cost structure. Then even our asset products are relatively higher cost of products not the recent one that we started, home loans et cetera, but the other businesses of ours were relatively high cost. So yes, our cost structure is little high, but I think that the cost income from now on should begin to come down for us.

Sure. And secondly in terms of how has been the slippage run rate overall? So we had seen a decline, but both in terms of the retail, in particular corporate, I think that is 1 account, but otherwise on retail how has been the run rate and how would you guide for that, yes?

Maybe I'll take that. So we have seen a overall slippage, net slippage coming down by 25% as compared to the previous quarter and -- on the retail front. And on the overall, as we mentioned, that there was a tool account which slipped into NPA during the current quarter, and that was already part of the identified stressed asset tool. And hence, if we exclude that, that is the split as sum of by 25%.

The next question is from the line of [ Mahrukh Adajania ]

So before you come in Mahrukh, I'd like to give a little more color on the slippage. The key point towards slippage is what happens in SME. On the SME front, we find that SME as a percentage of the previous quarter -- as a percentage of the book, in our core retail book, in our commercial book, in our wholesale book, we find in all 3 of them it has come down to less than pre-COVID levels, so that gives us some indication that future slippages should be lesser. In the rural book of course it has increased compared to pre-COVID, but that's because of JLG book and that has to play itself out.

Yes. Hi. So I just -- sir you just took a clarification from your opening remarks. So now the exposure to the funded exposure to the telecom company would be INR 500 crores, is that correct?

Correct.

Okay. And the non-funded would be?

INR 1,244 crores.

Okay. And how do you view -- what is the proportion of external benchmarking rate-linked loan?

External benchmark-linked loan?

So we don't have that number specifically, which we have called out to the market. But on the corporate front, we have been pricing loans which are linked to MCLR as well as external benchmark linked rates. And on the retail front, again we have been pricing it based repo rate as per the regulatory guidelines.

The next question is from the line of Ishan Agarwal from Erevna Capital.

First of all, many congratulations for such a superlative performance on all fronts and also on the large telecom account ambiguity being resolved. So the questions for the quarter are; firstly, if I see the NII for this quarter, just wanted to clarify that does this interest income include the interest income for this telecom account for the prior periods or this is the core net interest income?

Yes, maybe I'll answer that, Sudhanshu here. So the interest income for the quarter includes income on the telecom account for the prior period and that is what we have also specifically called out when you see NIM disclosure that the normalized NIM for the quarter is 5.90%...

So, what would be the quantum of the prior period income that has been added in the NIM for the -- in the NII?

It would be about INR 100-odd crores, but let me clarify that, even in the previous year in the same quarter, we had received interest on this telecom account on a cash basis as we were accounting it on realization. So it's sort of a comparable from an NII point of view on a year-on-year basis.

No, actually I was making a comparison on a quarter-on-quarter basis because on a quarter-on-quarter basis I have seen a substantial jump in your NII?

[indiscernible] it's not comparable, that's why we're calling it out also. If you notice the way we are calling out our NIM, if you go technically, if you compute the NII and divide that average book you'll find it 6.18%.

Right.

But we are calling it as only 5.9%, if you notice.

Right, right.

We are never claiming our NIM for the quarter 6.18%. We are claiming it...

Right, right. Yes.

Because we are subtracting what does not belong to this quarter, it's a prior period number, we subtracted because we don't want to color the expectations of people nor do we want it to show up as a NIM of this quarter.

It increase on a sequential basis, 14 basis points. If we exclude that income.

Right. Secondly, when you guide for a credit cost of 1.5% for the total average asset book for FY '23. Will it be fair on my side to assume that the retail credit cost would be 1.8% to 1.85% and the blended retail plus wholesale would be 1.5%?

Could be. Hopefully, lesser.

Okay, great. And thirdly, if I look at the RBI data on debit card, even credit cards, our debit cards issued are up 9.22% in Q3 as compared to Q2, which is the highest increase for any universal bank in the country. However, the SA value growth doesn't reflect that, is it right to infer that average SA ticket size is becoming smaller and hence more granular and once this transition of outflow of large ticket size are done with, SA growth will again deflect no volume growth?

That would be correct.

Okay, great. And what was the blended retail yields for this quarter?

You mean for the incremental booking or the stock, I mean.

For the for the retail book for this particular quarter?

We don't have the number off hand, but you can probably get to about 15%.

Yes, so we have not been calling out that number, but you can assume that incremented yield is about 14.5% to 15% on the retail book.

14.5% to 15%, and that I would -- can I assume that, that number would be slightly lower for '23-'24 because our focus is now on home loans?

Yes. I mean that's factored already because we're already doing good home loans.

Right.

You mean the prime home loans. We're already doing home loans.

Right.

Because we are doing more of the prime home loans now. But yes, it does print on news, but we also have other portfolio which is giving us a good yield where we have specialization, say, 10 years so they all mix up. But just to be safe, you can got to even 14.5%, but I think it's a pretty -- leaves for a pretty good margin considering our cost of funds.

And again the interest rates are expected to go up in the system in general, right. So I'm saying so next year it could be that the interest rates go up, right, and both the assets and liabilities sort of gets to reset. So sort of difficult to comment per se in terms of the yields would sort of move on. But this range could -- this would be some, I would say, a range bound, it would be range bound around 14% to 15%.

But even if it came down by a few basis points frankly it doesn't trouble us too much because of the fact that home loans is a good asset to have and also because of the fact that the margins are still pretty strong.

Okay. And regarding the non-funded exposure to the telecom account vendors that bank guarantee debt release, is there a date for that bank guarantee to be released?

We hear from the market and from media and from whatever we hear from the company also that, that could come up release. So we are hopeful.

Okay. Lastly, is the management confident of crossing the 6% mark on NIMs, Sudha?

I mean it should inch up even from here from these numbers, it should inch up, yes. As you know, between 5.9% and 6% it doesn't take too much to get this.

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

Yes, Hi sir. Just couple of data points to start with, what would be your gross slippage number recovery and write-off for this quarter and subsequently last quarter as well?

That's what I said Sudhanshu was calling out.

Yes. So I had mentioned that the net slippage was about...

Sudhanshu, I needed gross number, that's why, you mentioned about net slippage, which will have recovery and write-offs in place as well, I just wanted a gross slippage for the quarter?

Okay. So the gross slippage includes that 1 toll account which sort of came in during the quarter, which was about INR 248 crores. Excluding that the gross slippage was about INR 1,200-odd crores.

INR 1,200 crores. And any predominant segment from which this -- because consumer finance is seeing around INR 1,200-odd crores, any predominant segment that we are seeing this number coming from?

No, we find that it was basically JLG that among -- we have noticed that among all our portfolios, it's almost like I said [ round down ] numbers earlier in the opening remarks that [ thinker ] almost heading back to the pre-COVID. I think JLG is only one that still have more amount of SME by an order of magnitude.

Perfect. Just second part in terms of telecom clarification there, so you said INR 500 crores of fund base and non-fund base of around INR 1,234 crores. What is the outstanding provision that we're carrying on that as of now?

On what?

On telecom exposure, what is the provision that we are still carrying on?

We have no provision and we have release that provision.

Entire provision has been released, perfect. And then lastly on this credit card, so while it's too early to gauge a trend, but what would be your revolver percentage with that? And while we are reporting a loss in that particular aspect, in that particular book, it's largely to do with OpEx or anything to read into your credit losses into that segment?

No, nothing with credit losses. In fact, the credit is dealing very well there. Anyways largely to cross-sell to existing customers and all that. It's basically start-up cost because the credit card by nature of the business is such that it's got a huge amount of technology expense and system expenses and set-up costs for call centers and you name it, it got all those expenses that come with it, reward points and all that. So basically that's how the credit card business work. So at this point of time, this is largely the book is not yet built up to scale, but the OpEx is still -- that's how any business starts I guess you start with expense and income comes later. So our book is I think about INR 1,600 crores now.

Yes.

And I think once that book scales up, we have no doubt in our mind, we'll make lots of profits there.

And just to add -- sorry, in terms of spend, we are seeing a very healthy increase in spends on credit cards and in fact this quarter because of also festive -- because it was a festive season, we have seen a very healthy increase and spends were up almost 50% as compared to the previous quarter.

And Prakhar, let me tell you, if you're not using your card -- our card you're missing something.

Okay.

I don't want to know the name of your card you have in your pocket, but chances are that your APR is 42%, your default charges are probably 48%, probably you build lots of fees here and there and maybe you are also given a fee waiver subject to spending X or Y, ours a very simple straightforward card. We don't take money from your pocket this way or that way. It's really free for life. If you spend you spend. You get a good amount of reward points, if you go over the limit we probably call you and tell you don't go over the limit, we'll have to bill you fees. It's a very honest, nice, good quality card you should have in your pocket, so please own one.

I'll try that, sir. Just 1 last clarification, in terms of consumer loans, what all is included in that INR 1,600 crores of portfolio, what are -- sorry, INR 16,000 crores of portfolio what all is included in this?

Yes. I see you are reverting a question on credit cards, so nevertheless. So on the consumer, it is largely personal loans to salaried people, even digital loans, consumer durables and those kind of products.

Perfect. That answers it. And I'll try the credit card for sure.

Thank you for that. Appreciate it.

The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

Congratulations on excellent performance. And sir I can already see you're doing cross-sell even during an analyst call which is brilliant.

Of course.

My questions were 2. One is in the growth of the liability side, the deposits, if you see quarter-on-quarter retail deposits were flat. And when you say borrowings and legacy borrowings going off, are you going to replace them with CDs, or how is this traction going to happen is the first question? The second question was what it is...

Hold, just ask 1 question at a time, it'll be easy for us. So let me just answer that one. So, yes, basically see after we dropped the rates, there were a number of customers we had simply moved money to us because we're paying 7% or 6%. So they just found it an easy way of managing their liquidity and so on. So lot of those customers who are just as, let me say, some of those customers who withdrew their money, they got easily filled up by the new customers who came in even at the current rates. So that's the norm that has been playing out for last 2 or 3 quarters, in any case, we never wanted more deposit for last 2, 3 quarters because of the fact that we are already running LCR 170%, there was a huge amount of negative drag. So really the -- and also the refinance lines are available at cheaper rates even cheaper than fixed deposit rates. So, therefore we were happy to manage the liquidity like that. So now that like I said in the opening remarks, if the book starts growing, we'll start growing these deposits again. It's not a problem, if I had told you the numbers earlier, we feel it's a lever we present we take.

Okay. And would that be because you've already invested in the branches and you just need to kick in the operating leverage, would that be a fair thing to say?

Absolutely. Because there is a -- believe me or not, we have a really good brand. We may not be in the league of those big 4s, but we are, let me just say, closed in terms of the respect the brand enjoys among our customers. And really I'm not doing a double sales pitch on you. So Vivek, what I'll just tell you that because we don't -- because of fee structures are really very fair and there are lots of fee structures which are -- which we are not charging like non-home bank charges, IMPS charges, then free -- and SMS banking charges and digital banking charges, there are a lot of those things that we don't, so people who bank with us are -- very few of them leave us. So we hope that so therefore we believe that customers who are with us will stay, new customers keep coming then get large market. So that's how we think about it. To say that think about that the brand structures there, deposit can come when we wanted, no problem.

Okay, sir. The second thing was a remark that we made on the JLG book which you said is still running very high. Have you seen any sequential improvements in that book given the fact that the Omicron wave lockdown seems to have been -- it seems to be slowing down?

Yes, yes. Despite Omicron, we are seeing month-on-month for the last I think 3 months or so, our, what we call, the SME 0 to 89 buckets. We are finding that even with JLG that number is coming down. So we are not like very [ bearish ] on JLG, we of course numbers are much higher than the rest of the business, slippage is more than other businesses, all that is true. But we feel it'll be okay and it's not like crisis.

The next question is from the line of the Subrat Dwibedy from SBI Life Insurance.

So I know that you don't disclose how much is the BBB or below BBB numbers in the wholesale account, but if there is any color on that it will help?

We can share it, it's not a big deal. As we speak, we'll fill out the numbers.

And maybe if I can just start on that one. So on the wholesale book, as Mr. Vaidyanathan said earlier that the book is very pristine as the new book which is getting sourced and that's also getting reflected our improvement in the rating mix. On an external rating basis, more than 75% of the book is rated A and above?

79% actually.

Actually 79% is rated A and above and based on internal rating, about 80% of the portfolio is rated A and above if we exclude the infrastructure book?

So we'll give you 1 more number since you asked for it. As Sudhanshu was speaking, I got hold a bit. So A and above it's a 79% and BBB and below is 21%, if that helps you.

Okay. And this includes wholesale and in infra book?

That's correct.

Yes.

The next question is from the line of [ Yogesh Singhvi ] from SKY Investment.

Actually I have no question, just a sincere feedback. So numbers are all good, so there is no question on that and already you have answered the question. So sir actually I just wanted to give a feedback, since very last few quarters, I am seeing that you are publishing numbers on the weekend sir. Sir any particular reason about that because normally banks or other companies they declare results in the market hours.

Think about that, we just felt safer with regard to confidentiality and so on and so forth saying that look these are, because the market closes at...

Again why I'm saying sir because normally bad results are published on the weekend and good results are published in the market hours. So that is 1 big -- because our results are so good in many quarters, but we are publishing on the weekend.

Okay, we'll think a little further...

This is a pinch of feedback from the shareholder side.

And even the 2 largest private banks have disclosed on weekend only. However, we still take note of the suggestion.

We'll think a little bigger about that. Sometimes we feel that is a little safer in terms of confidentiality because on the last few hours or before the results are announced, lot of information flows back and forth between the key managements who have access to that information. So if that is done on -- after Friday after books are closed, after markets are closed, it just feels a little safer. So that actually is the thing that goes on back of our mind, but anyway we'll think a little deep about that maybe.

The next question is from the line of [ MSJ Ashish Krishna from MSJ Capital ].

Sir, thank you so much for the opportunity and for the great set of numbers that you posted. My question is on the reverse merger with IDFC Limited, is there anything that you can share currently and on when the timeline would be for the completion of the reverse merger?

Hard to say. I think whatever is there in public domain is already there. So I don't like to add too much to it.

The next question is from the line of Aditya Singhania from Enam Holding.

Congratulations on great results Mr. Vaidyanathan. I just wanted to get a breakup of the provision line item and see income if possible, it could really help if you get that in the presentation itself or else if you can share that on the call that would be useful?

Yes. So in terms of provisions as we have...

No fee income.

He has asked both.

Yes. Both actually.

Okay.

So in terms of provision as we have mentioned in the presentation that provision for the quarter was INR 392 odd crores. During the quarter, certain items to note is that we have released provision of INR 487 crores on Vodafone, but at the same time, if you see that we have improved our PCR some 52% to 57%, and for that, we had made certain additional provisions. We have also called out that we have made provisions of about INR 250 crores on legacy infrastructure and corporate accounts. And further into the presentation, if you see that PCR on the corporate book is now close to about 82%, 83%. Even on the infrastructure account, where if we exclude that 1 large tool account, which has slipped into NPA in Q1, if we exclude that because we expect no material economic loss there, at the same time, we are calling out for these exclusions, then the provision cover on the infrastructure book is again 85%. So the most point, which we want to say is that the provision cover is quite healthy on the corporate and the infra book barring that 1 large tool account, which is at about 19%-odd. And if we include technical write-offs and exclude this large tool account, PCR covered is actually 75% so that's broadly on provision.

Because [ Sudhanshu ] provision number usually seen gross of technical write-off because it has a direct bearing on provision. So that if you take gross of technical write-off that number moves up from [ 57 to 67 ].

Yes, [ 67,000 crores ].

No, I got the information in the presentation. What I was looking for is the breakup of the provision line item into loan loss provisions and then investment-related provision, standard accounts and any other items if possible.

Certainly, so all are pertaining to, I would say, loan loss provisions are there during the quarter. And in terms of investment provision, as we have said, that we have released provision on the bonds, right, of Vodafone, which were in the form of instruments so that has given release in terms of investment provision.

So basically, think of it, just to summarize, you might ask listen you released Vodafone, now where is the money? So let me ask you -- answer that question, so supposing you say that Vodafone release INR 487 crores. So we thought that it's a good thing for us to use this opportunity to increase the provision coverage ratio and strengthen the balance sheet. So we increase the PCR from [ 53 to 57 ], that is net of technical write-off, actually the gross would be 10% higher. So we use that increasing provision coverage and then we also provided for fresh movement of wholesale accounts to NPA, like the new tool account of INR 248 crores that moved in and so on. So that consumed about the INR 250 crores, about INR 250 crores was therefore PCR increase. So that's where that is there. So the money is there, we hope that as and when those clients payback and, by the way on both the toll accounts we eventually expect to get the money back and that money comes back it'll come back to the P&L. As of now, the current status is more fortified, stronger, better PCR and all that.

So the total gross provision for loans is about INR 875 crores this quarter. There is nothing else in terms of other types of provisions. That's why I just wanted to clarify.

Largely the retail took -- it's the normal provision that comes from the retail book, and like I told you, Vodafone account, I'm calling the name out because everybody knows the name anyway. So that release we will used it for, let me say, for wholesale accounts that slipped this quarter and for including the PCR. So that's a very simplest way we can reconcile it for you. So and, like I said before, those 2 wholesale accounts, infrastructure accounts, we are actually hoping to get the money back. So today or tomorrow, hopefully that money comes back and then hopefully it comes back to the P&L sometime late.

So I just wanted to clarify this in the context of the guidance you gave on credit costs, was that for the current year or for the next year?

Next year.

1.5%.

1.5% next year.

Okay, got it. Thank you. And just a breakup on the fee income if possible?

So as we've mentioned that our fee is quite granular, so the total fee for the quarter was INR 744 crores, out of which 82% was retail fees and about 35% of the fees was linked to loans which were disbursed during the quarter and the rest is fees linked to your cash management related -- linked to your third-party products and so on.

Okay.

Then also toll business, some fees we also did from credit cards, so it's a quite a granular fee stream, which we have.

Most of your peers actually give us quite a detailed breakup of fee. So it would really help, if you could give a breakup of both fees and provisions on a quarterly basis, it would just help unnecessarily there are questions being asked on the call as well.

Note. Thank you for that. We'll give more granular date on the fee income from next time onwards.

The next question is from the line of [ Rohit Jain from Tara Capital ].

Sorry, I missed a bit of the call, so if this question has already been asked please excuse. But just wanted to know the improvement in NIM, was it driven by lowering of funding costs or was it driven by increase in the lending yields?

No, we discussed before you came on the line, but this included a certain amount that came because of prior period of the telecom account. I mean the telecom account paid back interest this quarter, but we were accounting for it on a cash basis. So portion of the money actually pertains to prior quarters, we report our NIM net of those prior period money.

So sir even net of that, ideally it's 5.8%, which has improved sequentially, right?

Yes 5.9%. Yes that 5.9% is all [ reals ], there is no one-time.

That's what I wanted to know that, that sequential improvement even if 1 considers that 5.9%, what is that driven by, is it driven by lowering of funding costs or is it driven by an improvement in lending yields?

It's 10 basis points, hard to pick this or that, but let just say that...

No. I'll tell you why I'm asking that question because a lot of the growth has been driven by increase in your mortgage lending. And this as you know is pretty much a very competitive segment of the market. So one would have intuitively thought that, that would have an adverse impact on the NIM, but the NIM has actually gone up. So that's what I'm trying to square in my mind as to what has driven the sequential improvement in the net interest margins?

No, no your question is fair. I'm not dismissing it. I was trying to say that 10 bps was not an amount that we applied so much too. But our way of thinking about is that the -- it's not just home loan we also have so many other businesses give us pretty strong [ yields ]. And as long as the mix keeps improving 10 basis points [indiscernible] would increase. There's still improvement in mix happening all the time. You want to say something.

So I think you are looking for some numbers. So I'm saying in terms of yield, that yield have been broadly stable if we compare it to the previous quarter, it came down on a blended basis by about 10 basis points whereas the cost of funds came down by 20 basis points during the quarter.

Okay, perfect. And the second was structural question that I had and I think I've asked this before also on earlier calls is, your bank is operating at a very high NIM of 5.9% and in my history of tracking different banks, even the ones that have the best cost of funding, the NIMs generally have stabilized around the 4%, 4.5% where you are in the sweet spot of risk versus returns. So is there not a risk that I mean right now as I said earlier, we are in a great retail credit cycle and all of that is good, but how sustainable is a bank operating at NBFC like NIM of 5.96%?

Okay. Now we think about it. First of all, our business model is becoming more and more like a mainstream bank as far as the incremental book disbursals are concerned, like if we're doing new car loans or doing home loans and all that. So -- but still to your question about the margin, now think of any of the mainstream banks in the country today and remove the wholesale book from their books, so what do you think the NIM would be? Would be much higher, right?

No. So my whole question is that there is a merit to having a diversified book. So I know I mean right now you're running at retail-only book, but that is what I'm coming to then is that a sustainable business model?

Hold it. Before I try explain it to you, I think you jumped a little ahead of that. So I just think, think of a bank, which has relatively lower share of a wholesale funded credit. As you know, wholesale funded credit of top corporates got really fine prices. So we think that our book would have more of the -- currently home loans is growing at 44% per annum, last quarter was 47% growth, this quarter is 44% growth. So our home loan book, the prime home loan book is a really big opportunity. And as I hope all of you will agree that there is no limit to how much that business can grow. So as that business begins to grow, as our new car loans begin to grow, I think there could be some sort of a tapering off on these numbers. But as things stand right now, the fact that the guiding for credit loss of 1.5% next year, it must tell you that we are feeling pretty good about the asset quality. And let me tell you...

I'm not talking about the next 1 year, it's more of a medium-term question. So you said that there would be some tapering off.

Hold it.

Sorry, let me add…

One more thing. We think about it. We think of a Muthoot or Mannapuram, okay, even if it's gold loan, we'll talk about that later, but then you could or think of the very large Indian NBFC, which is there in this market right now. It could be lending at 16%. It could be having a NIM of 11%, that they go on and on and on for 10 years, maybe in the other case other the gold company, maybe 20 years, 30 years, 50 years. So basically it is a specialization that companies have developed in their respect spaces. So it will be purely theoretical to say that, okay higher NIM could higher credit loss, it's basically a specialization that we have built. So that's why, I like to think about that. And actually if you think of many of the lines of businesses we do, our credit losses really very, very low and even at 1.5%, I hope you'll agree it's pretty low.

No, I understand that, but I really struggled to understand if you let me compare, let's say, yourself become Muthoot, I mean, I know it is [ just easy for example ], it's not exactly the right comparison because that's a mono-line business, where growth is determined by whatever factor it is and as you also said you're becoming more and more on mainstream bank, and I guess that's a way forward as well. So, I mean, what is that area that you're specializing in that is very different from some of the other mainstream banks if your aspiration is to be more like a mainstream bank?

No, it is a mainstream bank, because after all we are doing corporate banking and we like it, because like I told you 3 years have gone by, we've not had a single blow up on wholesale credit of a single loan given after merger. So we like that business will grow that also. We like mortgages, we'll grow that. We like new car loans, we'll grow that. We like the loan against property, we'll grow that. We do like loan against property, we'll grow that. So you see the point is that you get all of these businesses are fantastic businesses, they've all been in India for 30, 40, 50 years. So and forget even private sector bank like ours or other big boys, big players, think of even a state-owned banks even smaller state-owned banks like an IOB or a UCO they don't seem to have any problem in credit in any of these sectors. I mean not had 1 for the last 30, 40 years. So therefore -- because India has -- we should not forget that in India the whole ecosystem has very much become supportive for good credit because of [indiscernible] because of data, because of analytics, because of cash flow evaluation, because of a number of factors, I mean we won't have time to go through all that now. But the point is that the ecosystem, the guardrails in the country have become very, very strong. So we should not get purely theoretical about this. We should be more about having really good controls. And let me just say that we run this for 10 years in our -- even in our previous Avatar, 10 years is not like a joke. It's not like 1 year or 2 flash in the pan. And for 10 years, we've never had a credit loss problem dealing with all these segments. So let me leave it at that, I think this debate can go on for a while, so let me just leave it at that, maybe if you have a concern, maybe you can also introspect and we will introspect about that.

The next question is from the line of [ Trimukh ] from B&K Securities.

I have a few questions. One, is sir, as I see your credit card spend share, you have already -- you are closer to 1% of the system credit history, while you have just recently launched. I just wanted to check what would be your aspirational level for over the next 2 to 3 years in this as a market share?

We haven't put out any specific number like that, we'll go with the flow, we don't want to start at the end in mind on this. We got to do it very carefully, build a good brand, build a good experience for customers and build good credit quality and all that. And then, whatever it comes, we'll go with the flow.

Understood. And sir on your deposits, if you can share some more details maybe what is the share of top 20 depositors or maybe what is the average ticket size in SA and TD. And is this like 100% stores from branches or do you also source DSA channels for deposit floating or any other non-branch sources?

So -- yes. So on deposits, we largely do sourcing through our own employees and also open accounts digitally where it's a DIY process, a customer comes in and opens an account. And so it's not through DSA to answer specifically on that. And in terms of CASA, so that as we mentioned that has grown by 18% on a Y-o-Y basis and in fact average CASA grew by 29% and in that the proportion of CA has increased at a faster pace at about 65% on a Y-o-Y basis, of course for us CA related to CASA is currently a smaller percentage just about 15% of the total CASA and we see ample opportunity of much of the faster growth sort of continuing into in that segment. Does that comment on your question?

No, sir it does in part, but any comment on the ticket sizes here may be on SA or TD?

Yes, because we higher ticket size, let me say, we are a slightly upper middle income-ish -- middle upper income-ish customer profile so to say. So that probably gives you a color maybe about [ INR 1 lakh, INR 1.5 lakh ] or maybe it [ INR 80,000 to INR 1 lakh ] when people open accounts with us, a little more than that.

Sure, understood. And any color on the retail within TD, what could be the bulk TD and retail TD, or if it is there. And so I think we have already given that side. So okay, so that is good. Yes, so I think it is there right in your presentation, retail deposit and wholesale deposit including CD.

Yes. Deposit numbers are mentioned on Slide 50 of the presentation. And in terms of TD book, we have given that CASA plus TD less than INR 5 crores. That book is as granular in the total deposit base and that ratio stands at greater than 85%.

Sure, understood. And if I had missed your initial comments whereas you said that the telco exposure was fully repaid, the bond exposure and you have created a newly, I mean, recent exposure of INR 500 crores. You also mentioned something that, I mean, that the color of that exposure as in why do you need to not have any provisions there. So can you just repeat that. I mean, why do you want to continue the provisions, I mean, despite having some exposure there?

See as part of this process of the company expected the banking system to come forward and [ that isn't ] because I think every company would have lines of credit going with the banking system. So their representation was, listen, end of the day government is putting certain stake in our company and they have and the promoters are putting in equity, and we'll be a good up and running proper good quality going concern. So we are a large group and as they are a large group with so many businesses across. So it's not -- we didn't think it appropriate that we wanted to pull the plug completely on them, after all we want to respect that institution. And we felt that in its earlier avatar, of course, we wouldn't take any credit. But in the new avatar with the government equity, promoter equity all that coming through and all that we felt comfortable participating the process. And then once giving the stress facility we felt we really don't need to take any more provisions on that.

Understood. And lastly on 2 data keeping questions if you have the ECLGS outstanding for your bank as of third quarter and have you seen any slippages from that book?

So, the ECLGS outstanding book is about INR 1,500-odd crores and we have not seen any significant credit deterioration there.

Sure. And the last question, sir, on your stock of provisions, so I see your specific provisions is somewhere around INR 2,500 crores. A, is it safe to, I mean, this -- the provisions that you carry on your stressed but not NPA watchlist kind of a thing INR 800 crores, that is over and above that right or what is the stock of non-PCR provisions as on December?

I think the number is there INR 1,080 crores or something like that. That book has actually really come down INR 1,083 crores, [ INR 1,083 crores ] on which we have a provision of INR 877 crores, which is up...

I'm so sorry to interrupt. May I please request you to rejoin the queue for your follow-up as we have people waiting for turn.

Yes.

Thank you.

Yes. Short answer is that out of INR 1,083 crores of [ identified stress ] account provisions of INR 877 crores, PCR is 81%. Okay, let's move.

We take the last question from the line of Anand Bhavnani from White Oak Capital.

Quick couple of questions. One is clarification on the credit quality, INR 487 crores of provisions for the telecom account which were reversed, how much of it was in the current quarter?

This quarter, everything.

Okay. So adjusted for that, then if I were to understand our P&L provisions would have been around INR 879 crores, INR 391 crores plus INR 487 crores, right?

No, We need not -- there is nothing pressing for us to really take the PCR from 53% to 57%. So this was an amount that kind of came to us in this quarter. So we actually thought that why not strengthen the balance sheet to take it. So you can't really assume that if this had not come then probably PCR would have been lesser, but the bank would have still be quite profitable.

So let's then -- trying to understand better, let's then assume had it not gone and you had kept the PCR the same, what would have been the credit card, because I want to do like-to-like comparison have a sense of how the cost is evolving. So 2 things have happened, both not happened, what could have been the credit costs?

No, it's not so easy to do the quick contractual on [indiscernible] like this because even the wholesale account that we've taken provisions, on the wholesale account some proactive provisions we have taken that INR 250 crores, we talked about. So theoretically, they could also have a contractual. So let me just say that the simple way of explaining it, this is what I told you earlier that INR 250 crores is for corporate accounts that we have taken this quarter rest we've increased the PCR from 53 to 57, and you got to just go this number at this stage.

Okay, I'll just repeat should that INR 250 crores is for some corporate additional provisioning and PCR increased from 53 to 57, these 2 and what was the last, sir.

That's it.

These 2. Okay, Hi, these 2 and took additional provisions and release came from the telecom [indiscernible]?

Roughly you can think like [ INR 487 ] came and that kind of got used up in this. Like I said, that we wanted to strengthen the balance sheet, we wanted to, let me put it very simply, that we want to use the opportunity to strengthen the balance sheet, and we did. So tomorrow, for example, we have provided for the that particular infrastructure account where which the INR 248 crores account that were taken significant provisions, let me say that some quarters go by and the money comes back, it comes back and this money can still come back to the P&L, but as of today, you feel safer, we feel safer, everybody feel safer that look there is no much more hits yet to come. You see 1 of the big issues that people have always had with our bank for the last 3 years has been look how much more to come. I mean people have almost short of using the word said listen fox, how long can you this legacy wholesale account go on story go on. So, yes, I mean we use the opportunity we took it out and we believe that no major legacy account issue is pending in front of us.

Sure. That's very helpful sir. And if couple of data keeping questions; one is, micro finance book, if you can give me the PAR 30 as of December and as of September so that I can get a sense of how the maintenance book has evolved?

I don't think I have a number off-hand, but as I told you that, that had relatively more delinquency than the rest of the book by an order of magnitude more delinquent. But like another member asked earlier, participant saying that how is the trend looking like, that trend is also improving every month for the last 3 months, but still short answer is, it is more delinquent.

Noted. And restructured book, what would be the absolute amount of restructured book of Tier 1, 2, MSME restructuring absolute amount as of 31st December?

2.6% of the book we said.

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

No, before Kunal comes on the line. So first of all, I want to just make a closing comment. So I'd like to just say that thank you every one of you, who've been with us for the last 3 years and tracking us so closely. We've been through a lot merger issues, legacy issues that wholesale account and process account, COVID, we've been through a lot. But the good thing is that I must safely say that the balance sheet is now pretty strong, not very strong very, very strong. The key thing is that, I think 1 conversation got lost in the whole story is the operating profit. I think that operating of profit reaching this sort of order of magnitude is a very big event. And if you now start taking normalized credit loss, which comes in the normal book of INR 120,000 crores, that we can begin to say that operating profit is higher than a normalized credit loss and [ by that logic barring ] some really unfortunate circumstances which I hope not, our bank should not have to -- have to post a loss again hopefully. So that's what I'd say and therefore I call it a very inflection moment and really we've covered a lot of ground. So let me just say that people who believe that the story set for a significant change either you will believe us today or you believe us 2 quarters or believe us 4 quarters from now, but believe you will, because that's how I think the game is changing now. So thanks so much for [indiscernible] for the next 2, 3 quarters and you'll get more convinced. Thank you.

Yes. Thanks a lot, sir, for such a -- I think patiently answering all the questions and also giving the insights around the business strategy as well as the future. And all the best. And thank you all the participants for being there on the call. Have a nice weekend. Thank you.

Thank you very much. On behalf of ICICI Securities that concludes this conference. Thank you all for joining. You may now disconnect your lines.