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

Ladies and gentlemen, good day, and welcome to the IDFC First Q4 FY '24 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chintan N. Shah from ICICI Securities. Thank you, and over to you, sir.

Yes. Thank you, [ Davin ]. Good evening, everyone, and welcome to the Q4 FY '24 Earnings Conference Call for IDFC First Bank. We have with us from the senior management, Mr. V. Vaidyanathan, Managing Director and CEO, along with the senior management team. So without further delay, I would now like to hand over the floor to the management. Thank you, and over to you, sir.

Good evening, everybody. Thank you very much for joining us this evening. This is Vaidyanathan here.

Good evening, everyone. I am Sudhanshu Jain.

Good evening everyone. I am Saptarshi Bapari.

Hello, everyone. Good evening. And between the 3 of us, we'll be able to take you through the key points about our bank. And more importantly, the outlook for the next few years. Now when we look at the picture, we all know that India is well placed to becoming something like a $7 trillion economy by 2031 or 2030. And we know about 66% of India's economy is consumption, of which about 56% is private and 10% is government. Now 60% of the $7 trillion economy will be something like a $4 trillion economy in the consumption. And we feel that we are extremely, extremely well placed to participate in this extra growth. And the second part is, of course, when we are looking at the numbers of India's credit today, it's close to about $2 trillion, and by any estimate, by 10 years, it should be something like $6 trillion. So a good part of India is yet to be built. So even though we may be a new bank and an early-stage bank, the big story for India growth is yet to happen, and the big story for our bank is also yet to happen, because all we've got to participate in the incremental story, and we will still have a big part to play there. So for example, one key change that's going to happen when this credit book for the country grows from, say, INR 2 trillion to INR 6 trillion, the big change compared to the past is this INR 4 extra trillions, which is going to come in the next 10 years, is going to come significantly from retail, is going to come from micro enterprises, medium enterprises, small enterprises, agriculture, rural India. This is one big area waiting to open up over the next 10 years. And therefore, this opens up a very big opportunity for us. Now because something is an opportunity doesn't mean that we will get it. There's no natural -- there has to be a reason why we will be best placed to get that opportunity. So today I'll spend a few minutes with you just sharing with you how we feel about how we are placed for that opportunity. And then, of course, later in the conversation we'll come back and discuss the financial results. I'd point to a picture out over the next 5 years or so, because we have completed exactly 5 years from the time the merger has happened, and therefore, it's a good time to just step back and talk about the next 5 years all over again, or say, 5 to 10 years. Now therefore, why is it that we're well placed? Now one of the biggest things to be able to grow and participate in this new big growth that's coming up on all the vectors we talked about is basically deposits. We really feel that it's not today, not because we've been successful in deposits, we are not building the story around it today. From day 1, that is in December of 2018 or March 2019, we have been maintaining only one line that the bank has to really crack liability, has to crack deposits. If we fall for deposits, frankly, on the asset side, we really have a good machine, which is really tested now for 14 years. We get a good NIM, we get a good margin, we make a return on equity of over 20% in that. So really, assets is not a problem. We'll talk about that in a moment. Let me come back to deposits. On the deposit side, our deposits today is close to about -- total deposits is about INR 2 lakh crores. Out of that, about INR 6,000-odd crores is Certificate of Deposits. So you can say customer deposits is like INR 1,93,000 crores. Now that is like not even 1% of the Indian banking system deposits, which is like INR 212 lakh crores. 1%, we are just 1%, to just put it in context. Now because we are 1%, doesn't mean we're going to grow. What is the reason again. The reason is that we have built a good brand. And a brand attracts deposits. This is one really big achievement our bank has had over the last few years. The brand is seen, let me say, as a really high-quality brand, seen as an institution. And if it's seen as an institution, it automatically has some amount of -- people get a sense of safety, security, comfort about dealing with the brand. Second thing is, as a bank, we have focused upon building really fantastic products. Now our Zero Fee banking is one way of expressing when we say that we mean to give customers, we don't want to touch the customers' pocket for this reason or that. When we charge a lot of fees to customers, then it is always tempting for any bank to say, okay, I'm charging INR 2 for a particular transaction. Let me make it INR 2.5, and the bank books a lot of fee income. We charge 0, so there can be no temptation for product managers. There's no opportunity for product managers to just stretch it by this combination or that combination. This option doesn't exist. So therefore, when we make fee income, we make it a truly clean way. We sell a particular product. We sell, for example, credit cards. We say, okay, put a photograph on the card and pay me a fee of INR 500. Or we sell a wealth management service and specifically charge customers fees for a particular service given. So we are building it the clean way. And then that does give a strong feeling about the brand, because while the customer is sleeping, not watching, we don't touch back accounts by changing some terms here and there and all that. So this is very, very fundamental. And I must share with you the success of a deposit, which all of you know what's a deposit, I don't want to beleaguer this too much, but just want to leave 1 data point with you to drive it home. So our retail deposits was INR 10,400 crores in December of 2018. Now today, that retail deposits alone, just leave everything else, retail deposits alone is INR 1,51,000 crores. That's a growth of INR 1,41,000 crores in retail deposits in 5 years in this bank. And mind you, we were a new bank. Now I look forward more optimistically about our deposit growth for the next 5 years for a reason. If you think of large banks like, let me say, the largest bank in the country, let me say, having maybe INR 40 lakh crores, INR 45 lakh crores of deposits. These banks, or many of the other large banks as well, they have a large deposit base, and they get deposits from 2 means. One is called ETB, existing to bank customers. So here, if you have a large deposit base of, say, INR 40 lakh crores, you credit interest to those customers straightaway of 5% in a year. The same customers bring some more money, and then you're done. You're done with 7%, 8% growth just by existing customers. The second engine to fly on is new-to-bank customers, where you've got to bring customers of outside into a bank. So many of these banks straightaway get benefit of ETB. So there are 2 engines. Our bank has been flying on 1 engine, which means, because we're a new bank, we only got new-to-bank. We do not have an existing base. Now when we will wake up and say, now we already have INR 2 lakh crores, now these INR 2 lakh crores will give us some deposits anyway. So our engine 2 -- so therefore, the reliance on NTB will come down. And therefore, our ETB itself will start giving some deposits to us. So this is one reason why gradually, as we gather momentum, we'll have 2 engines to fly rather than 1. And flying on 1 engine for the past 5 years has been more difficult, that subsequent years are going to be easier. So this is one reason that makes us very confident. Therefore, we have already put out a guidance that we will -- this INR 1.5 lakh crore of retail, which is totally about INR 2 lakh crore of total money -- INR 1,93,000 of total deposits, we have guided that this will be INR 6 lakh crores in 5 years. Let me tell you pretty straight and honest that we don't see a risk to be there at all. We believe it will be achieved. And we don't need to go crazy on interest rates and things like that. Just normal interest rates what we're doing today. Probably, we can even drop it over time. But still this INR 6 lakh crores we feel is very achievable for the reason I described to you. The second thing that's going on is that if you see large institutions, they've been building the capabilities. They've been part of large ecosystem creation, someone has cracked the entire broker market, someone has cracked the entire NRI market, someone has cracked some of these markets for 15, 20, 100 years, or maybe 40 years. In our case, these are still being built. For example, our current account business is still being built. Our ecosystems are coming along. But the good thing is that whether it's supply chain financing, whether it is getting the accounts of the small retailers, merchants, traders, it's all hard work, because you've got to build them brick by brick. But good news is that we are really doing very well on current accounts. Now it's coming along pretty well. It's gathering momentum. We are very confident that current amount business will grow into the next 4, 5 years. And again, once you crack, once you get deeply embedded into an ecosystem, then that machine then fires for itself. So that's about deposits. The second part of the story I want to share with you is the fact that we are now a universal bank. Now this is point number 2. First, I described assets and liabilities to you. Second, I want to tell you universal bank. Now universal bank, there is some extra, let me say, stability of earnings across multiple lines of businesses in a universal bank. In our case now, we're not just a large, so to say, it's not a large retail bank. That's not the way we're thinking about ourselves also. So we have retail, SME, rural, of course. We also have corporate. We've built fantastic solutions on trade now. We've got very good digital solutions cash management. On wealth management, it's just been 5 years, our wealth management business now touched something like INR 16,000 crores, and it was like INR 1,600 crores 5 years ago. It's like 10x growth in the last 4 years, not 5 years, the last 4 years, it's grown 10x. It's like wealth management is just flying off the roof for us, I mean, off the charts for us. So there is something special about our products. And everything we put, we have something special. We just don't make regular products. And the rest is, the brand takes it over, distribution takes it over, digitization powers it up. So second part, therefore, the universal bank, for example, wealth management. NRA banking, we are developing, making strong inroads; treasury solution; so all in all, universal bank. The third reason why we feel good for ourselves. Again, we say that the big opportunity is there, why should it go to us or why should be able to get it? We are embedding ourselves deeply in this customer-first theory. Now we are not trying to chip a quick buck on this side or that side, all that I told you. And therefore, the product suites, we're putting together all customer friendly. are people are trained to be very friendly to customers; we really take a dim view, people are found to be rude or they write stupid circular mails to customers. If customer writes an email, they write back an email with a holding message, not responding for 2 to 3 days. We kind of look at these practices and we say, look, this is bad. We keep improving every single day. We found that our access was not up to the mark. Then we opened out so many gates for customers to reach us through the Internet, the call center, on the website. Now we show our ways to reach us very prominently. So we're making every way for customers to reach us. We want every way for customers to -- we want to solve customers' issues in the first interaction. So those are things that I mean are customer friendly. Then fourth thing I'd say is that our customer, in terms of positive culture, we're trying to keep a positive work culture in the environment, in the bank and all that. Now the fifth thing I'd say is, probably the last couple of points -- fifth is on the loan side. Now after all, we're raising money. Frankly, for us, to raise money at 6.3% is a dream. When we were running the previous part of the NBFC for us to get money at even 9.5% looked like a deja vu. And suddenly, at 6.5%, we feel like we're swimming in oxygen all the time. It is so fantastic to be able to raise INR 50,000 crore, INR 60,000 crores at 6.3%. We feel just so much in the money, just because the amount of deposits we're able to raise and just feel so, let me say, so easy, or it feels so nice, and makes our job much easier. So third thing coming back to is the deposit. So oftentimes people think of our loan book and say, hey, guys, listen, your NIM is 6.3%. People scratch their head how is it possible to have such low credit cost. This is a common problem that we face when you meet investors in investor calls. They spend 20 minutes on this one subject saying that how is it possible. We have a reason for that. End of day, there is like, 14 years is a long time for an NPA to stay at 2% gross and 1% net in low credit cost. Like it is very long time. We explain this is the cash flow, cash flow, cash flow, because we're a superspecialist in cash flow financing. And I think time solves a lot of questions and one of them is cash flow. But there is one more reason that we are -- we are specialists in rural India. I want to bring this point out to you. Because end of the day, rural India is so unserved. Let me just share with you that we put out our rural financing book in the bank. If you see the slides there, you'll find our rural book is INR 24,000 crores. But really, in the balance book, what we call the rest of the portfolio, there is close to about INR 16,000 crores, which are not categorized in rural, but actually rural, things like they've gone into loan against property or home loans, they've gone into that categorization. But if you classify them back in rural, that's another INR 16,000 crores, meaning that INR 16,000 rural home loan is shown as part of overall home loan. So if you strip them back and put rural, that's like INR 40,000 crores. But if you see the growth of the loan book over the last 5 years, the loan book has grown by INR 90,600 crores in the last 5 years. And INR 90,000 crores of loan book and INR 34,200 crores has grown in rural financing alone, which is 38% of our incremental book built in the last 5 years has gone into rural. Now this has helped us meet 2, let me say -- I don't like to say birds with 1 stone. I don't like to say that one where you can kill birds, but let me think of some other metaphor, it's frankly a bad metaphor. So let me just think of some other -- let me say we solved 2 problems with 1 solution. So what are the 2. So one is, we're able to get good margins, because the rural India products, for example, our products in rural India are JLG, of course; we do micro enterprise loans; we do micro housing loans; we do micro LAP; we do commercial vehicle; we do tractors; we do all that stuff. So -- we do KCC, we do two-wheeler. So we just started recently gold loans. If you think of it, the product suite is large. So the benefit of starting a diversified portfolio in rural India, 2 things. One is, it gives us net interest margin, which is pretty good. It gives us to play in a market that is underserved, underpenetrated massively. You can just do enough and enough business and keep going forever and it's not getting saturated at all. So that's 1 big benefit, we get margins. Number 2 problem we are solving is PSL. Now when we started in March of 2019, we were short on PSL by a big margin. And we had about INR 75,000 crores of IDFC book, we had about INR 25,000 crores of Capital First book, that's about INR 1,04,000 crores. And believe it or not, we had INR 3,500 crores that we had placed in RIDF, which means that we were not able to meet our PSL requirements. And we were placing money in RIDF at some really ridiculous rate of some 3.5%, locked money for 7, 8 years, and all that. Because we built our rural business so strongly, our RIDF outstanding, so we are now able to meet our own requirements and able to sell portfolio to the market. That's a surplus. And therefore, now we are making a bit of a profit by selling PSL certificates. And therefore, our RIDF bonds outstanding has come down from INR 3,500 crores to INR 926 crores. So that's why I told you that 2 big benefits we're getting, not 1, which was I told you the better margin, and second, I told you we're solving PSL problem, which by the way was a big drag on the bank. The third problem we are solving for is also asset quality. Because somehow, for whatever reason, the rural people are that much more conscious, more sensible. They're not exactly supported by lawyers and all that stuff. They just pay the dues. And they're maybe just that much of god fearing or whatever. They're just -- credit performance is fantastic. Our gross NPA is not even 1.5%, net is not even 0.5%. So they are doing very well, and we monitor that closely. So let me say, these are the 3 benefits that we're getting on that front. So the reasons why I told you, therefore, is that we have developed some -- while we said I started the comment being India opportunity is going to be very big. But more important than that, we are well placed because we have unique products on the asset side, which can give good margin at low credit cost. So that's a very, very unique capability our bank has developed. Second, I told you the liability side. The last thing I want to say is that a bank is investing on technology all the time. Frankly, technology investment, a lot of people say, okay, guys, I invested well, I invested well. It's not about investment. It's not about pumping money down technology. People can do stupid things in technology also. You can move a lot of things to cloud and if you move the whole architecture to cloud just as it is without using the tools and technologies and well-integrated cloud, then it's as good as just keeping it on-prem, just scaling it more on infrastructure. Those are not really value adding. We have developed some really fantastic capabilities of bringing our data lake together, single source of truth or golden source of growth. We have migrated all our systems. Our individual business units are no longer going and pinging the individual systems. They are now going into a single source of truth with the data lake. These are fundamental architecture capabilities the bank is building below the hood, which you can't see as an outside investor, but there are really very powerful things happening at the bank on the technology front. And then, of course, you have a strong start-up technology. Of course, you can build the rest of the UI/UX, and then we are focusing on that. So last thing I would say is technology. And of course, finally, to be profitable, it's a very big plus, because, frankly, when we were posting losses for 2019, 2020, if you met depositors, of course, I must say that people were still good to us and gave us a lot of deposits, but it's still a little bit back to the wall when you're raising deposits if the bank is posting losses. So it was hard. Now, 2 years of profit, last year INR 2,400 crores, this year, INR 2,900 crores, when you're talking with that level of profitability, people also feel more comfortable to raise deposits. Our employees feel that much more spring in the feet. And lastly, of course, ESG has become a big deal. We never focused as much on ESG before. In our business, we thought of natural ESG. We were not looking at it with a frame and we didn't study it so closely. But the more we're studying ESG now, we are finding, oh my god, we could have done so much more; the elimination of plastic, making the offices green, elimination of couriers, moving over to email, avoiding double set printing, avoid color printing, the whole things, it's long list of things, but back in this day, we're working on it very seriously. But let me say, it's an initiative over the last 2, 3 years. And it's already beginning to show in our scores on the ESG front. So let me just say that these are important foundation blocks a bank is building. And at least, if you ask me personally, I'm very bullish about our bank for the next 2 years. And for this quarter's numbers, you may have seen it, I'm quite happy to open it up for any discussion. So Sudhanshu had with him a bunch of notes, but I think since it has been 20 minutes since the call started, probably Sudhanshu, we move to Q&A, or you want to...

Yes. We can directly jump into the Q&A.

Or you want to make some brief comments?

Yes. So maybe I'll just touch upon some key numbers. As you would have noted that now our balance sheet is almost touching INR 3 lakh crores. It expanded by 23.4% on a Y-o-Y basis. That growth is largely driven by a strong deposit franchise and a growth coming in from there. You would have noted even individually, the deposit book has also crossed INR 2 lakh crores, and so has the lending book. Customer deposit continues to be strong. You would have noted that it has grown by 42% on a Y-o-Y basis. Another area where we feel that we have done reasonably well is on the CASA front. If you see that we have been able to maintain the CASA ratio at about 46.5%. Even average CASA deposits for half has grown by 28% on a Y-o-Y basis. We continue to expand our footprint. We are now at 944 branches. We have almost opened about 135 branches during the current year. If you see, on the high cost legacy borrowings, we continue to repay those. That has come down sharply, almost by about INR 6,000 crores in the current year. There's a runoff, which is scheduled for about INR 7,000 crores, which will happen into the next year as well. The incremental credit-to-deposit ratio has been 76% for us. So that's largely driven by a strong deposit, which has been coming in. The cost of funds for the quarter has been stable. If you would see, about 6.43%, largely stable over the last 2 quarters. While the cost of deposits has slightly inched up by 7 basis points during the quarter, but some benefit came in because of the runoff of the high cost legacy borrowings. On the funded assets, the growth was strong at about 25% on a Y-o-Y basis. We have a very diversified business in a product segment. We have given quite a lot of details in the investor presentation. Maybe that can be referred too. The infrastructure book, which is a rundown book, now is sub 1.5% of the total funded assets and the book is only now about INR 2,800 crores. Credit cards, again, that's a relatively new business. We have already issued about 2.5 million credit cards and the book is now at INR 5,500 crores. The card spends have been quite strong for us. It has increased by 58% on a Y-o-Y basis. Quickly touching upon asset quality, you would have seen that our gross NPA is now less than 2%. In fact, it's improved by 16 basis points during the current quarter, and the net NPA is also now down to 0.6%, with a sequential improvement of about 8 basis points. If we exclude the infrastructure book, which is the rundown book, in fact the GNPA is more like 1.55% and net NPA is only 0.42%. We are maintaining a healthy PCR of 73% on the book if we exclude the rundown infra book. Similarly, on retail, the GNPA is now down to 1.38% and the net NPA is only 0.44%. The standard restructured book is now only 0.31% of the funded assets. Point to note here is that 95% of the book is secured in nature, and we are holding about 20% provision on this book. The SMA 1 and the SMA 2 book, so the retail book is stable around 0.85%. And on the corporate side, this number is actually quite minimal. Gross slippages for the quarter were lower at INR 1,347 crores compared to INR 1,421 crores in the previous quarter. This is almost a reduction of about 39 basis points. Similarly, net slippages were down to INR 724 crores as compared to INR 866 crores for the previous quarter. And here also, the reduction is about 16 basis points. Moving on quickly to profitability. The profit for the year is up by about 21% at INR 2,957 crores. In fact, we had slightly higher treasury gains in FY '23 as compared to this year. And if we exclude that from both the years, then the growth in profit is actually 28%. Profit for the quarter was marginally up at INR 724 crores as against INR 716 crores in the previous quarter. Core operating profit was very strong. It grew by 31% and happy to report that it has now crossed INR 6,000 crores. The net interest income has grown by 30% on a Y-o-Y basis. The net interest margin on an AUM has improved by 31 basis points during the year. Fee income also had a tremendous growth that increased by about 40% on a Y-o-Y basis. And a large part of this was retail net, which you would have seen from the presentation that almost 93% is retail. Operating expenses increased by 33% on a Y-o-Y basis. The increase was, I would say, across employee expenses due to business volumes, due to branch expansions, increasing some tax expenses, and so on. Credit cost as a percentage of funded assets was at 1.32% for FY '24. We saw some normalization during the course of the year. And this was around 1.5% for Q4 FY '24. Moving on to the last section, which is capital adequacy. The capital adequacy stands at 16.11% for us with CET-1 ratio at 13.36%. During the year, because RBI had increased certain risk weights, we had an impact of about 100 basis points on the overall CapEx and about 82 basis points in CET-1. LCR was strong at 118% at March end, and we continue to maintain healthy levels around LCR. With this, I have covered broad numbers for the quarter and for the year, and we can move to the Q&A.

We have good 30 minutes, friends, for Q&A, so please make yourself comfortable. And feel free to ask us really anything you feel like at this stage.

[Operator Instructions] We have the first question from the line of Pritesh Bumb from DAM Capital.

Congrats on a very, very steady quarter. Two questions from my side. One is, as you mentioned about the deposit franchise being more now sustainable and can run on a 2-engine side. So will it be possible to outline that if the cost -- we should not incur the costs we were incurring earlier given that the branch banking was a major cost center earlier. Can we see that inflection point from now on that the OpEx ratios will start moving down?

Yes, yes, of course. You should expect that from us.

So any targets, because our guidance does not include, in next 5 years, any cost side type of guidance, but anything you can outline for next 2, 3 years?

See, by end of this year, we expect the cost-to-income ratio to be roughly flattish for the next 2 quarters. And Q3 and Q4, we see meaningful reduction. So like Q4, clearly we feel will be in a strong wicket. The reason is actually simple to understand that, as all of you know, our credit card business will start moving to profitability by Q3, Q4, so we're bang on plan. If you remember, we had always said that by '25-ish, end-ish, we'll start moving, and by '26, we'll make money. So that crucial inflection point is coming towards Q4 of this year. So for example, the credit card business, our cost-to-income ratio in FY '22 was 240%; in FY '23, it's 164%; in FY '24, it is 116%, a big drop. And by FY '25, we expected almost sub-100%, below 100%. So this is one reason why we expect the Q4 to look very good. Similarly, our cost-to-income ratio on retail, rural, and SME business is running at 55% now for 2 years at a stretch. So it could marginally come down, but it's stable at 55%, should come down, of course, in due course. Our wholesale banking is running stable at like 33%. So therefore, the only drag was liabilities. So therefore, just to conclude that point, we feel that with scale, our cost-to-income ratio should start trending down, but materially, let me say in Q3, Q4.

Sure, sir. Second question was on basically a lot of discussions around tech and how things are happening in the industry. Just a small question was that you have some of the products where you have leadership in, example, FASTag, you have significant UPI volumes. How are we geared up to handle these kind of volumes? Because this seems to be a niggling issue in the industry.

Actually, let me just say that we've been -- nobody can ever be too sure, first of all, okay? This is an area we always watch for, and frankly, we can never be complacent. Let me say, we can never be too secure. Because we are conscious of the risks of the tech or not being, in a sense, tech can play a role, we have been implementing, let me say, the latest technologies. Many of you call us a high cost bank and you call us names, but I can just say that it's well spent. That I can assure you. So we have invested in the best CRM system, in the best ticketing system, in the latest versions of the middleware. Our applications are, let me say, the best of what India has to offer, because some of these things are their industry standards. So applications are applications. We have built a really good engineering team. We do performance testing literally all the time of our engineering teams. We are building fantastic, I hope -- I don't know if you, Pritesh, yourself have used it or maybe anybody else who can speak on this forum, and over 200, 300 people are here. I can almost tell you that any one of you who would have experienced the bank, experienced us, not just known our brand name, experienced us, I would say that you would say really good things about our app. Our app is really becoming fantastic at best. I'm scared to use the word fantastic for ourselves, but let me just say good, let me just say that probably. Our app is really good. And its response time is really very good. Our uptime is fantastic, really, in almost all lines of business. So let me just say, we've invested wisely in technology. And as I said earlier, it's not about the money we spend, it's about how we use them. So we really spend a lot of time, right, at my level, my 1 down level. We try not to take any chances. And if we find any issues, then we take it very seriously. If anyone else flags an issue to us, we really jump up and down to figure out how to solve it in the quickest possible time. Our Board is very engaged. Our Board also is, even at my level, I understand technology, my subordinates understand technology, my 2-down understands technology, our Board has a specialist of understanding technology. We all put an effort after that.

The next question comes from the line of [ Gao Jaizwam with Shontau ].

Just wanted to understand on the deposit front. I mean, we have been doing a fantastic job in terms of ongoing everyone's deposits, but when I look at the deposit per branch, that has shown a pretty good growth of 14% in the fourth quarter, which is similar to that 12%, 13% in the fourth quarter of last year. So I just want to understand how should we think about branch-level deposit growth going forward? When do you think we will actually outgrow the industry deposit growth business, 13%, 14%. So on a branch level, when do you think we will see ahead of industry deposit growth?

If you think in terms of vintage, we've just been 5 years. I reminded you earlier that our deposits in 2018 was INR 10,000 crores. So think of it like a starting. So in that sense, we are new, okay? We're not like -- but our deposit per branch is only running at INR 200 crores, just for information, Gao, INR 200 crores per branch today. So there is something very strong about the way we have built the capabilities of our employees. Of course, a lot of it has got to do with the digital, some has got to do with the culture. We are like crazy about customer service. We really get pretty -- we take that -- so I think good culture, service, tech, all that is coming along. So I'd say that now in terms of -- we don't want to only depend on branches, because we feel that's not efficient. In tech, you invest once. You can multiply it many more. You can give far better returns than investing in branches. So our incremental going in thesis in the next 5 years is that we don't need as many branches. We just don't need as many branches. We feel that our current tech is firing very well. So as many branches meaning that if we -- in other words, to grow to our current deposit base of, say, INR 2 lakh crores, we needed, say, 950 branches. It doesn't mean, to take the business to, say, INR 4 lakh crores, we need 1,800 branches, and to take to INR 6 lakh crores, we need 2,700 branches, it's not like that. It's not [ linear ] anymore. For example, when we take our book from, say, currently INR 2 lakh crores to INR 6 lakh crores, we don't expect to add -- not more than about maybe 500 to 600, maybe 700 branches more or 600 more, but it's not 2,700 more. So the incremental throughput per branch for the bank is very good. I mean, what we're saying is that deposits grow proportionately more than the number of branches we will add. That we are very clear about.

That's good to hear and very clear. Do you mind, FY '25 -- sorry, your next 5-year guidance, do you mind sharing with us what kind of assumptions are we assuming in terms of per branch deposit growth? Because I guess that affects our cost assumption as well, right? So want to understand a bit more on that.

See, to be very specific, we have said that currently we have 900. We said we will get to 1,800 branches. That is 2x, that is 900 more for INR 4 lakh crores of deposits. Today, we have INR 2 lakh crores. We're going to say, we're going to add INR 4 lakh crores of deposits by adding just INR 900 crores (sic) [ 900 branches ] more. So which means that our branch productivity is going to double on our incremental branches. That's briefly the way we're thinking about it. Frankly, internally, we are feeling very confident about this. In our senior management, if you were to fly on the wall, if you just walk across any branch and talk to -- I really invite you, please, any of the 200 -- many of you to the branch. Please walk across any of our branch, talk to any of our branch heads and staff, befriend somebody whomever you want to know and talk to them how the bank is doing. They will tell you how the bank is doing. The feeling is very, very nice within the bank.

And last one is on the credit cost. How should we think about the credit cost going forward? Obviously, we are kind of normalizing back slowly, right, from a very depressed level, similar to the industry. So do you think this process continues smoothly in the next year? Or how should we think about this?

See credit cost is a direct benchmark of what happens. The input parameters that flow into -- that become a credit cost, like how the responses are, collection efficiency, et cetera, that lead to it. Now we are finding very stable performance on our books. We feel that our credit cost for the next year could be -- currently it's about 1.3%. As it normalizes, we expect it to go 1.65% or so next year. But it's likely to be more front-ended for a reason I'll describe late if we have time. But we feel Q3, Q4 credit costs, we expect to be quite low. And think of it almost like a flat line all through the next year. But don't think of it like 1.65% next year.

Got it. For the fourth quarter what is the credit cost per your calculations is...

Couldn't get the question, sorry.

Sorry, for the fourth quarter, what's the credit cost per your calculation? Per your definition, what's the fourth quarter credit cost? So the full year is 1.3%. I'm just wondering for the fourth quarter what was it.

So your question was, what was it for the quarter? It was 1.5% for the quarter. And next year, we're guiding for 1.65%. Actually, we feel internally more like 1.6%, but think of it like 1.65%. So 1.5% for the quarter. I want to just flag once again, what we feel very, at least, good about us within this is that it's not that our yield of the book is high or NIM is high. The fact that we're able to do that with low credit cost is a very unique capability. We really believe that. But to your question on guidance, I have told you now.

The next question is from the line of Deepak Vora from Premier Capital.

And first of all, congratulations on the results. My question is largely on the cost-to-income ratio, again. Although we have come down from the levels 5 years ago, but I feel that we are still at a much higher level than the guidance shared during the merger, which was around 55%. Also, if you see the financial year '24 versus '23, on an annual basis, the cost-to-income has actually gone up rather than scaling down. And in the last year, we have made a significant investment for the BCCI sponsorship. So I just wanted to get a better understanding of what drove the higher levels for financial year '24?

Yes. So if you see, yes, cost-to-income has been -- we agree that it has been stable during the current year. It has not improved that significantly. But if you see in the previous year to that, we had an improvement of about 500 basis points. As Vaidya said that we expect cost to income to meaningfully come down starting H2 because of legacy liabilities sort of coming off, because of credit card moving towards profitability, and many other factors. So we know this is a one key deliverable for us. And we expect to better on this front as we move along.

We want to flag one more point to you. Everything we are building in the bank, I understand many of you are concerned about the cost at the bank, that's right. The thing is that trend line is good. Of course, this year, we didn't do a good job in the sense it just flattened out, interest rates went up, and that kind of chewed a little into the margin. Otherwise, we could have done better. But still having said that, let me just say that everything we're building in the bank, we're thinking long, and this is super important to note. For example, there was no pressure for us to have launched credit cards. Well, we could have lived without credit cards and life would have been okay. But then we would have paid a price when we woke up in 2025, '26, '27, '28, when we'd have started to launch a credit card business, we'd have to come back and be defensive, or the numbers would be going the other way round when it's supposed to be improving. So we just launched so many lines of businesses, whether it is gold loan, whether it was Kisan Credit card, we launched the prime home loans, because also, by the way, a drag on the bank at this point of time is not making any money. Because that's the way the long-term nature of these products are, for example, to book a home loan, you book all the DSA payouts and cost evaluation, everything upfront today. The money will come and it comes over the life of the contract. But we are not holding back. We are building what we have to build, because otherwise the future will be difficult for us. So prime home loans we started. Credit cards I gave the example. Then education loans we've started. We got commercial vehicles, you want to meet PSL requirements. So they are all negative products today. They are not making any money. In fact, they are negative. We started cash management business. A lot of technology built that goes into it. We started trade finance solutions. We started lot of build for that. ForEx solutions we've built, being negative drag on that. Gold loans we've started. Negative drag on that. Losing money as of today, but it will not lose money forever, but just to build up stage, we have INR 1,000 crores. So KCC, I told you, farmer loans, tractor loans, wealth management, FASTag, ForEx card, you can name the list of products we're launching one after the other inside the bank. They all lose money initially, because everything needs to scale up time. So that's why we are confident that once they all start gaining momentum and they come out through the "J" curve, then you wake up in '26, '27, '28, '29, they'll all be throwing back cash.

The next question is from the line of Prakhar Sharma from Jefferies.

Congratulations on the performance. I just wanted to ask you on a couple of things. One, could you give some sense of the loan growth expectation, let's say, how you're building up for the next year? And as the operating efficiencies start to play out, maybe current costs start to normalize at a slightly higher level, in a 3-year view, what should we think of ROA, ROE terms?

Prakhar, maybe I'll answer that question. So loan growth has been 25% in this quarter. If you see, in fact, on a quarter-on-quarter, the growth is 6%. And within that also, in certain segments, we have slowed down, like consumer loans have slightly come off, even digital loans has not grown in that proportion. So we feel that loan growth would be more around 22% to 23% into the next year. Moving on to the credit cost. As Vaidya guided, we should range around 1.65%, and certainly, our endeavor on ROA would be to touch more closer to, I would say, 1.45%, 1.5% in the next 2 to 3 years.

And Prakhar, by the way, thank you for your research report on us. It's so detailed and in-depth. Wow, it's a great job. So thanks so much. Not because you said good things about our share price, but just the quality of the report is something that super impressed with, Prakhar.

The next question is from the line of Nitin Aggarwal from Motilal Oswal.

Congratulations on a strong performance. And really, the deposit progression is nothing less than outstanding, sir. So hearty congratulations on that. I have 2 questions, sir. Like first is on the LAP portfolio growth. So after a gap of 4, 5 quarters, we have seen a double-digit growth in the LAP portfolio. So how are we looking at this? Has there has been an improvement in the credit environment? And this used to be one of the main businesses and now seeing this traction this quarter. So anything more to read into this? And second is on the liquidity coverage ratio, because while the deposit growth has been very strong, but still there has been a slight drop in the LCR on a sequential basis. So what has really caused that?

Let's take one by one. See LAP, frankly, whether it's LAP or any other business, it's just in our hands. We can book as much as we want. We are a small player. We have fantastic tech capabilities on being able to originate loans with good asset quality. So, well, if we need to do more, we don't have to relax any credit norm, we just have to just open some more locations and we're in. So really, currently, LAP is growing 20%, but we are moderating more with the amount of capital. The amount we want to grow, keeping the amount of capital in mind. We should be thinking of raising capital now, so we want to make our capital run longer. So we are more conscious about how much we want to grow the balance sheet in a given year. And that's why we guide for this 22-odd percent, which Sudhanshu said. So the short point is therefore that we don't have any problem. We don't have to worry about growth from our side. It's in our hands in that sense with quality, not to worry. Now LCR, frankly, it's marginal. I don't think there's any specific -- if we keep growing the way we're growing deposits, We are very clear the next year deposits also will grow, we will keep our LCR certainly no higher than 80%.

No, no. LCR...

Not LCR, I mean this CD ratio. My bad. But CD ratio next year for example?

Yes, it should be around 75% to 80%.

So we are so confident, Nitin, that on a deposit story, that next year also -- I mean, by the way, it's been 5 years going, our incremental CD ratio is really very good. And we believe even next year we can keep it under 80%. And on LCR, maybe you can...

Yes. So Nitin, on LCR, we would continue to maintain around 115% levels. So we feel quite comfortable. We don't see it as a challenge.

115%, 120%, some of that zone will always be there.

Yes. So some liquidity got deployed during the current quarter, but we feel quite comfortable.

The next question is from the line of Rohan Mandora from Equirus Securities.

Sir, just continuing from a previous question on LCR. Sir, in the previous 4 quarters if you look at, LCR has been more than 120%, but in this quarter, for 4Q, on average, we are giving 114%. So is there some reclassification of deposits that's happened? That is what I wanted to understand. That is one. Second, sir, thanks for elaborate discussion on the rural business that we are building. So if you could just help us understand what would be the rural ROE that we are making right now. And second, if you look at the last 5 years, it has been good from a monsoon perspective. So in case the macro turns adverse in that, are we building in some safeguard buffers on that portfolio? Or what would be your thought process around that?

Yes. So as I mentioned to Nitin that, of course, we were maintaining slightly higher LCR into the previous quarter. This quarter, we have come down to about 114% on an average. One is, we did not want it to play the rate game. It's quite intensive, as you know, right, in the last quarter. So we feel that even into the future quarters, we should be able to maintain LCR comfortably around 115%. So it's more, I would say, a quarter phenomenon, where some normalization has happened, but we feel quite comfortable on that.

Like we answered to the previous speaker, Nitin, this is like business as usual. There is like lots of liquidity. In fact, if you do a smell check in the market, and I really request you to do that, you find out, will you ever find a bank, ever, in any corporate, fighting for deposits, in a large corporate. And there are a lot of these names that go around during year-end. Somebody wanted to pay INR 500 crores, INR 800 crores, INR 1000 crores. We just genuinely say thank you to them. We're saying that look, we're just not there in this. We just don't need it. And that's because our retail flow is so strong, from the branches and everywhere, so strong we just don't need it. So I assure you, please check, nobody will ever tell you that our bank is out in the market for the bulk deposits. It is not there. So coming back to the point. So therefore we feel good. Now on the rural front...

Sir, just a follow-up on that. Because investment has also gone up by almost 19% Q-on-Q, so that should have typically prompted an uptick in LCR. Liquidity has actually increased. So that's where there was some confusion.

No, no, but we clarified that. That currently, it's lot of liquidity. Think up to 1%, 2% here or there. Let me just say, [indiscernible] even more, okay? Now if you come back to the rural question, now well, the rural economy -- it's not about rural economy, urban economy, I think people just kind of give stamps and tags like these. We don't like this kind of classification. There's not one homogenous rural market or homogenous urban market. [Foreign Language]. So thing is that within rural market, there are just so many markets. For example, if you're giving a home loan or loan against property or you're doing good cash flow assist models, then they all have their -- then they perform well, and you have to treat them over cycles. And we have seen -- 14 years. Let me tell you what is 14 years, so that you get to appreciate it better. Every loan every month is a cohort to track over a life cycle. 14 years means, just think about it, that's the number of cycles we'd have gone through, not the 14 single cycles. Every year, that 14 years is a cycle. So we've been through just so many cycles. We understand this economy very, very deeply, whether it is rural housing or rural home loan or urban home loan or urban rural market or micro enterprise loans. Our JLG business was happening even before the merger happened. Merger happened in 2018, but my predecessor, Dr. Rajiv Lall, thankfully had acquired a JLG company called I think Grama Vidiyal, and that turned out to be a phenomenal company for us. And I often thank him heart to heart, thank god, he gave me good franchise there. So we've been tracking this very, very closely. So the main thing is systems and domain knowledge. Systems are systems. There's no suspense about systems, but good system plus domain knowledge. Don't worry. I mean, if there's anything to call out, we'll call it out also. We will be totally honest, transparent. As you know, we've been with us for many years. Hopefully, many of you are. We've never hidden problems. If there's an odd issue somewhere here or there, just point it out. Nothing as of now.

The next question is from the line of Kunal Shah from Citigroup.

Yes. So this entire breakup in terms of the cost to income, if you can highlight in terms of the proportion, how much would be getting into the credit cards and the liability of the total cost of INR 16,000-odd crores. Just trying to see in terms of how much of leverage can it bring about in terms of the overall cost to income as and when it normalizes.

I don't know the number off hand. Kunal, we're not calling out that number, but when they're talking about credit cards, we certainly see the trajectory improving there. And on liabilities also, while we saw some uptick during the year, because we have put up more branches and so on, but we expect to sort of improve on these numbers. Our incomes from insurance, selling of third-parties are improving. We have still some ground to cover there. So I feel that with the combination of better cross-sell, distribution of asset products from branches, insurance products and so on, we should continue to get an uptick on the fee income, as well as our costs should normalize on the liability front into the next year.

And Kunal, let me add one more point to you and to everyone hearing this call. See we talked of a long-term picture, like by 8 years, we said, look, India will grow like that, and we believe we will do well in that for the reasons I described earlier. But let me just give you a short-term view, like a 1-year view, so that you know what to expect from us. Now what our view is that the next couple of quarters, we should expect -- maybe next quarter, we should expect flattish kind of performance from us on an earnings front or somewhere in that zone, and maybe Q2 should see some improvement, but Q3 should see good improvement and Q4 should see strong improvement. So it's going to be very back-ended this year. And I'll describe that reason also to you, and if you understand the reason, then you will feel comfortable. So that's why I mean to give you a short-term guidance. Now it goes like this, that in the first quarter, of course, we'll get salary increments and all that stuff, which, of course, happens to everybody. Then second thing is that -- but it does cause a temporary slight touch down to the numbers. The second thing, but more important, I called out last time, and I'll say it again to you about FLDG. So we are a good player in the digital market, and there are certain partners with which we do business. Now we were earlier in a model whereby when we did a digital loan, the full income, maybe 17%, 18% came to us, and the full credit cost came to us, because there was no FLDG. Now recently, FLDG is permitted. Now what did we do? It is a good setting in the interest of a bank in the longer run to move to a model where the partner absorbs the credit cost. But well, it works both ways, so the partner wants the income to deal. So what we are doing is that this quarter onwards, and that happened as far as the quarter that will come up in the next 2 quarters, you will see a payout to the partner. So therefore, our OpEx will go up in Q1. But what will happen is that when Q3, Q4 -- these are by the way short-term loans, just 6-month loans kind of stuff. So when Q3, Q4, when the credit costs will come on those loans, that credit cost will be incurred by the partner, not by us. Therefore, you will see that there will be -- so the credit cost in Q3, Q4 will be quite low and benign. And you will suddenly see our PAT shooting up in that time or going up in that time. It's probably a better word. And Q1, you will see our cost, because we're going to pay the partner, it's going up. So there's one reason this FLDG. Second thing, liabilities. We'll be paying off some INR 7,000 odd-crores of liability for 9% in Q1, Q2. So by the time Q4 comes, you will see that, that benefit will come to us, credit card support Sudhanshu said and all that. So you should expect a moderate performance from us next quarter, I mean, on profitability front, and then a take-off during the throughput. So please factor this in your mind. And many people have put out research report on us, and we'll hope not to disappoint you on the overall number. I saw Prakhar's report recently. We'll try not to disappoint you. And we'll be somewhere there, hopefully. So that's on this front, on how the FLDG and the story sort of plays out. The other thing is that, like I told you, we are not binding ourselves toward exactly what the markets are expecting, et cetera, I'm just making it very plain to you. We are building for the long run. If something is important, we will invest. We will just go and just do it like we've been doing. And it's important to be disciplined. We don't waste 1 penny, but we are building for the long run. We'll build what we have to build. But I can only tell you, the long-term results of our approach will be very, very good, because we've come on a very good platform.

Sure. This is very helpful. And secondly in terms of the core PPOP. So you clearly articulated the trajectory over the next 4 quarters. But looking at maybe what you are targeting, 1.4-odd percent ROA with almost like, say, 1.5% credit cost. So ideally, when we look at the PPOP from 2.25%, 2.3%-odd, what are the levers which can take it up further from here on? Will it be more of cost to income, or maybe still there is some -- obviously, some borrowing repayments will help in terms of the loan trajectory, but besides that any other levers available? because the income is also upwards of 2-odd percent, margins are also at this level. So will it be largely cost to income?

Largely, let's say, cost to income, but also, see, frankly, when people look at cost to income, they often miss a point that cost to income is a derivative item. It's not an input item.

Yes, so cost to assets, yes, broadly, to look at cost to assets.

Yes, yes, that's where we look at it. I think these are all -- the way to look at it is that, are the incremental unit economics strong? If you look at how our PPOP has grown over the last 5 years, you see our loan book has grown at a compounded rate of 13% over the last 5 years, 13%. So for a normal bank, what should your PPOP be going by? You take any bank. Typically, the PPOP grows at a rate of -- usually, the PPOP grows at the rate of book, but what is unique about our bank, our PPOP has been growing at -- sorry, our loan book is growing by 13%, but PPOP is growing to 40%. How is the magic possible? It's possible because only incremental book is more profitable in the past.

Yes, it's more retail, yes. Retail driving it overall.

It's profitable. It must be throwing more money to the P&L. Otherwise, how would our book grow by -- even this year, the latest quarter that went by, the latest year that went by, even in the period when interest rates went up, everything happened, our PPOP has grown up by 31%. Loan book grew by 25%. How did this magic happen? Just think about it. 25% was the loan book growth this year, operating profit was 31%. So this kind of a story is clearly telling you, I'm telling about the latest quarter. So this is something that's telling you that the fundamentals of bank are really very strong. We have to be patient, not get in a hurry and not become a please-all-people, stick to discipline and build this book patiently over the next 2, 3 years. And this is how this magic happens. If you're stable about it, 1 or 2 years, you'll find the ROA will probably be stable, 1.1, probably still be 1.1 next year, because it still is a form we'll build it. But when you play the same stroke over and over again, and this joy of the fact that PPOP grows 30% and the book grows 25% or 22% or 23%. When that jaw continues to open, you do that year after year into ' 25, into '26, into '27, into '28, suddenly, you'll say, wow, this bank now is just fantastic. I mean, the numbers look very good. But I am really requesting all of you to be calm about this and patient about this, because we are building to a plan, we're sharing our plan, and you can read the incremental economics, you can talk to our people, you can do all your research. I'm quite confident that this will smell right to you.

The next question is from the line of [ Vikram Subramanian ] from Marshall Wace.

I just wanted to check on the growth rate interest. So you had mentioned 22% to 23% advances growth with incremental LDR of somewhere close to 80%. So should we assume 28% to 30% deposit growth for FY '25? And do you think that is internally achievable? Just some comments on that, please?

Yes, yes, easily achievable.

[indiscernible] grow deposits wise slightly above 30% and achieve those numbers.

See, one key thing, Vikram, to note, and it's a good question, by the way, is that our bank is doing 2 jobs today. Okay? This is very important to note. We are funding our own growth and we're repaying -- so that's one item. And second is also paying the legacy liabilities, which is, I mean, the bonds and all that. So Sudhanshu, cumulatively of the bonds over the last 5 years, how much have we paid off?

INR 29,000 crores.

So INR 29,000 crores we paid off. How did we get INR 29,000-plus crores loan book? So we are having to look 2 jobs today. So after end of this year, in '25, we would not have to -- most of the legacy liabilities would be paid off. So when you wake up in '25, '26, at that time we'll only need to fund our growth. We don't even need the deposit growth going at this pace. So this is a very important point, actually. So therefore, the pressure on the bank to raise deposits also comes down. Let me say, certainly, over '27-'28, '28-'29, we have only 1 job, just to fund growth. We don't have to pay up any past dues. So in fact, bank will breathe easy. Maybe, god knows, depending on the environment at that time, we may even bring down rates. We give it a good probability that we will do that, and that's how we'll play it. And that could actually add to the margins at that point of time or profitability and all that. So...

Sure. That was clear and good to know. Just another question. Sorry to harp on this liquidity coverage ratio. I guess a couple of other participants asked as well. Just not able to reconcile this almost 7 percentage point fall in LCR despite deposits increasing 9, 10 percentage Q-o-Q. And liquidity on the balance sheet has also increased. So are there any changes in the buckets? I'm not able to understand that.

Why don't we just -- 2, 3 people have asked this question. Why don't we just come back to you on this. But Sudhanshu has answered it couple of times, I have answered it couple of times. So maybe we are not able to add to this one, but if anything you want to add Sudhanshu?

No, no. As I said, see, 115% itself is a very strong number. And there would be some short-term -- because LCR is generally repayments within 1 month, right? So there were some borrowings which sort of came up for repayment. As I said, we did not want to play the rate game. We could have mobilized some more funding to sort of keep the LCRs at higher levels, but we chose to maintain LCRs at around 115%. And we feel that we'll be comfortably able to maintain it even going forward. So RBI requirement is 100%. So I'm saying we also have to optimize our liquidity. So I feel that if you're maintaining around 115%, that should be broadly okay. And believe me that our deposits are granular. If you go and see the LCR disclosures, deposits from retail customers, from small businesses, those ratios are quite steady. While the overall customer deposits have grown by 41%, these segments have also grown, I would say, at least at that or slightly better. So you should not get too much worried on the LCR front.

And I'd say one more thing. To go back to the previous question either you asked or one prior participant. Do you think that -- why is it growing deposit at 40%? I told you, we are having growth rate as well as the past liabilities. So we have right now about maybe INR 12,000 crore, INR 13,000 crores of the legacy liabilities. Also, there are some more liabilities like bonds, et cetera. which were not legacy, legacy, but we borrowed after the merger happened, that's like close to INR 15,000 crores, okay? So because it was available at a very low rate during COVID, so we took it. Now during the next couple of years, we plan to even pay that off by deposits, not the borrowing. So therefore, you will see us grow deposits strongly over the next 2 years. And for paying off both legacy borrowings -- I mean, borrowings by the way, I mean, the bonds and loans. So we'll pay that off with deposits. Next year also we'll do that, both the legacy as well as this one. So we'll pay off everything, and then we'll pay deposit funded bank. So this is the reason why, for the next couple of years, you'll see us raising it. After that, like I said earlier, that we'll slow down the growth of deposits. And then life will be relatively easy. By the time engine 1 will also be firing, engine 2 will be firing because existing stock of the deposits may be something like INR 4 lakh crores. Of the INR 4 lakh crores, we will probably about INR 40,000 crores just like that from existing -- maybe if not INR 40,000 crore, maybe INR 30,000 crores will become in existing stock itself. So you should see us maybe dropping rates, like I said earlier.

The next question is from the line of Sonal Minhas from Prescient Capital Investment Advisors LLP.

Sir, again, great set of numbers on the deposit side. I think that's been our like the standout trend for the last 4, 5 years. And thanks for including disclosures on the NPA side as well segment wise. I just had an observation on the same, Slide number 42. Our slippages have been in the range of 2.75% on annualized base, which is 3%. And the NPAs, as we see, are between 1.5% to 2%. So I just wanted to understand, subjectively, which segments are we slipping more? Are we putting some speed breaker among these segments, specifically mentioned in Slide #42. Anything subject to your commentary on that would be helpful.

I don't have the specific slide on hand right now, the one you said, but let me just take your question generically. See the...

Yes, my question is where are we slipping more? I think that's where...

No, no, that's fine. So see, there are some businesses -- see, first of all, the blend, blend of our slippage on a net basis seems to be about 2%, on a net basis. We always have gross, we always have recoveries, we always have a net. So that's like 2%-odd...

Yes, 1.8%.

1.8% right now, but we are quite comfortable with 2% also. And since you know you provide for about 70%, so 70% of that 1.8% becomes -- 2% becomes like 1.4-ish. We guide for 1.6%. So you think about it like that. But usually, obviously, needless to say, your home loans have probably slipped the least, because they just make sure that the cash flow assessment and customer profiles, obviously, are of a higher income profile. The more you go down the pyramid in the customer income profile, like your 2-wheeler financing, or let me say, consumable durables, et cetera, you'll have higher slippages, higher credit cost. But we think of it in a very disciplined manner. We just don't want to run any 1 business that really outstrips the whole book. We're not so greedy about income to post, et cetera, all that stuff. So we want to be disciplined. We have a particular mix we play to. That mix has been very stable for long periods of time. And as a combination, combination we are quite confident that this number went up for gross NPA 1.38%, net NPA 0.44%. Think of it, we'll maintain it. And if at an odd month it goes up, nothing ever stays stable forever, 1.38% can become 1.40%, can become 1.45%, god knows, but it's never going to become 2% or 2.5%. We will not give you those kind of shocks. It won't happen. I mean, it will be like in that zone. It's not going to come down also forever, because it's come down sharply. But think of it like stabilizing from here on those points.

And just to add, as you would have seen, the slippages have slightly come off, but in terms of credit cost, there is also a function of recovery, right? So while you may not have slippages with sort of increase, but we are seeing that we had slightly higher recoveries in last couple of years, including the current year, which came from a COVID book, right?

COVID book meaning the book that got charged up during COVID. It does not mean the provision taken for COVID, which are reversing. That's not that. That's the book that we charged up from the COVID policy. We were getting recovery from that, not now.

So as some of this is tapering, you are seeing some normalization of credit cost.

Yes, understand that. And sir, just a request, you've been brilliant in your disclosures and your deck as well. Typically, like good banks, like I've seen in their decks day, they have a good opening, closing schedule of NPAs, where you add that slippages, where you have technical write-offs, you have provisions, all of that in a single slide. I understand you've started, I think, reporting the gross slippages as a footnote. If there is a schedule of the NPA at the opening, closing level, which is like, I think, pretty standard for good banks, if you include that in the deck, that will be great. That's just a small thing from my side?

No, no, we'll definitely do that. But on slippage, things are pretty good. So for example, just one point I want to explain to you, for example. So if you see one of our slides, we have disclosed, for 24 months in a row, we have given our collection percentage. Now you see the number of 99.5% there. Now frankly, that number is a very important number, because if you keep 99.5%, you only are going to have 0.5% slipover to the 0 to 30, 31 to 60, and the next bucket, next bucket. So that 99.5% is very important. But if you see the 99.5%, it is a composition of many products, which is coming as composite 1 item. You could go to two-wheeler financing it. You'll see the 99%. If you see for consumables, you'll probably see the 99-point something. If you see that the home loan probably will be 99.7%. But the composite comes to 99.5%. So the products which are running 99% and not 99.5%, they will have a credit cost of maybe 3%, while home loan will have credit cost of probably 0.1% or something. So the blend, blend is what eventually becomes the credit cost, and that we told you 1.65%. We're quite comfortable with it. Don't worry about it. Except I'm saying this now, so that you all can expect it from us properly. I wanted to be aware and comfortable with it that Q1, Q2, because of the way the flow plays out, because I don't know if you remember or not, a couple of quarters ago, we pointed out that we moved over to 90-day NPA recognition, we were earlier 91 days, because of some technicality. And therefore, the cycle works out in such a way that in Q1, Q2, and also because of the FLDG matter I talked about, you will see a relatively higher credit cost, nothing like out of the ordinary, but just to tell you relative. And Q3, Q4, you will actually see it flattening out. So by Q3, Q4, what will happen, income also will grow up because of the book would have grown. The credit card liability sort of happened. Q3, Q4 credit costs will come down. So that's why we are pointing out the fact that expect moderate performance from us on a PAT front next couple of quarters. Q3, Q4, expect better from us. And let me also point out to you that the core fundamentals, meaning the liability growth, deposit growth, NPA, asset quality, all that at the core, those input parameters, that will be very strong every quarter from now for 4 quarters. So it's been a long time. Can we close the meeting guys?

Sure, sir.

Or anybody else? I mean..

Sir, we have one question from the line of Mr. Jai Mundhra from ICICI Securities.

We will close, sir, after this question. It's not a question, actually just a small clarification. You also, I think, clarified in part, but I think for the benefit of all, if you can suggest that this quarter we had a credit cost of 1.5%. Now we are saying that for the next 2 quarters, it may go a little up, maybe 1.65% for the full year FY '25. But in the second half FY '25, it should decline, right? So mathematically, it looks like that first half FY '25 could have slightly higher slippages. Of course, a part of this could be normalization. But is that understanding right that the credit cost may go up, but then it will come down in the second half? Just a small clarification.

Yes, yes. See thing is -- no, no, first of all, it's not like any slippage issues, nothing like that. First of all, just be aware that -- just want to take you back a little in time. If you notice, any bank has to disclose gross NPA, net NPA. We take it 5 steps back. We are showing the credit underwriting norms. Then we're showing collection check bounce, then we are showing full trend of 24 months of collection percentage, then we're showing our SME, then we are showing -- basically, we're showing the full feed that is coming into the NPA. Then we are showing product-wise NPA. So you can see the full chain transparently end to end at our bank. You just don't have to see the NPA. That's number one. Now in this flow, therefore, to your question, so Q1 and Q2, the reason I told you, right, the technicality of the 90, 91 days, et cetera. And also, Chennai, there were floods. So on the JLG portfolio, the flow was relatively higher, but that's already started normalizing. But to some extent, you will see a little say a portion of that coming through in Q1. But these are like normal cycles that happen. And odd flood can happen somewhere, where they can pay later. So some of these could be the -- not could, these are the reasons that you will find some technicality. So therefore, by Q3, Q4, anyway, like we said, if the fundamentals are strong and growth are strong, meaning the collection percentage continues to be like this, in Q3, Q4, nothing will happen, meaning the Q3, Q4, you will see some normalization. And you will see FLDG being absorbed by partners, by the FLDG partner. So therefore, Q3, Q4 will look good. And Q3, Q4 will not look like horrible, anything like that, just be a little more elevated, but nothing that will disturb you so much, anything like that.

Understood, sir. Sir, that is very, very helpful. We will close this call. If you have any closing remarks to make, please.

Thank you, everyone, for coming on a Saturday. The call went for almost 1.5 hour. Thank you for being patient, and have a great weekend.

Thank you very much. And this is full 5 years. The merger happened in December of '18. So March 31, 2019, was the first, let me say, financial closing, so it is exactly 5 years. You've been very patient with us. I must say, very, very patient. I don't know, we've enjoyed a lot of your goodwill. And even when numbers are like really bad, not just the bad loans, our operating profits were very bad initially, for the first 2 years, you supported us even then. We thank you for that. And we feel that next 2, 3 years, 4 years, if you stay steady, we will live up to your goodwill and trust. Thanks, everybody. Bye.

Thank you.

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