IndusInd Bank Limited (INDUSINDBK) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, and welcome to IndusInd Bank analyst conference call. [Operator Instructions] Please note that this conference is being recorded. I now turn the conference over to Mr. Sumant Kathpalia, Managing Director and CEO, IndusInd Bank. Thank you, and over to you, sir.

Good evening. Dear all, thank you for joining the call. We are all living in a tough and unprecedented times. I hope all of you and your family members are doing well and taking necessary health and safety precautions. We have the entire top management team of the bank to answer any of your queries. I want to take this opportunity to talk to you about 4 different things: our approach to COVID-19 disruptions, I think this is something which is affecting all our lives, and I think what will it really affect us; initial thoughts on asset quality of various portfolios; our liquidity and deposit position; and business philosophy or planning cycle 5. We put up a detailed presentation on our website and stock exchanges already, which I hope you have seen and have had a look at. We will largely follow this format today. We can discuss quarter 4 and PC5-related items on quarterly analyst call, which should happen soon in April. Before going into further deliberation, let me highlight that bank has been through external shocks in the past, such as global financial crisis, liquidity crisis, taper tantrum, demonetization and GST implementation. The bank has absorbed these events without any material impact on key metrics, as can be seen in the presentation. While the current situation is unprecedented for one to rely on the past, the history does certainly validate agility of the business model to manage despite these events. Coming back to the current situation. The economic impact of the local outbreak of COVID-19 flu will be dependent upon its impact on demand and supply conditions. Our base-case assumption is that the current lockdown will be relaxed post mid-April to localized lockdowns. Service-oriented economies like ours will bounce back faster. There have been concerted and front-loaded steps by the government and RBI to ensure economy absorbs and recover from the COVID-19 sooner. Our baseline expectation is that the service will normalize in 3 or 4 months, and demand will recover post quarter 1. Meanwhile, we have set our priorities on health and safety of our employees and clients, business continuity, asset quality and liquidity. We invoked BCP to avoid disruption to servicing our clients. We have taken initiatives such as restarting of branches, enabling work from home, tightened IT security, duplicated skill sets at multiple isolated locations, digital connectivity with clients, standard operating procedures in case of contact with COVID-19 affected -- infected, continuous communication with our employees and clients, et cetera. In terms of asset quality implications, it will be critical to see how long and deep COVID spreads. Our base-case assumption of 3-month disruption suggests limited impact on our portfolio, but this is an evolving event and that is the caveat. We have seen such short-term interruptions in the past as well, albeit may not be the scale on the nature of COVID. Proactive and front-loaded steps by the government and the RBI on fiscal, monetary and regulatory forbearance front will certainly smoothen the impact. We'll, however, need to revisit our assumptions if the outbreak is more than what we expect. I will now request some of our business heads to spend 5 minutes on each of their assessment of the situation. I'd now like to invite Partha, who heads our commercial launch -- vehicle business portfolio to give his commentary on the impacts of the business -- to the business. Partha?

Yes, Partha here. On the interruption which has been caused by COVID, we would like to state that our majority -- most part of our business is in commercial vehicles. Commercial vehicle is the lifeline, not only for the economy and also for stoppage like this. The first -- possibly the first industry to bounce back or the first group of persons to get back to normalcy would be the commercial vehicle because it's the lifeline. Whether it is transport -- whether it is supply of essential goods such as vegetables, milk or any other daily consumption or any -- once the economy opens up for industrial consumption as well as consumers, the first industry perhaps to get into action will be commercial vehicles. And the last-mile connectivity -- it starts from the last-mile connectivity to connect the people and it flows to -- in the reverse direction to the organizations as well as the warehouses. And we had also seen in the past where there was a -- whenever there is a disruption caused by natural -- or more so a natural disruption such as floods, such as limited calamities in few pockets, this industry bounces back much faster than what people would imagine. And -- in addition, what we would -- what people used to state is there's almost like a pull the -- catapult raring to go perhaps and that is the scenario as far as commercial vehicle goes.

Partha, you finished?

Yes.

Okay. Biju? Biju heads our diamond business, the gems and jewelry.

Yes. Thank you, Sumant. We are essentially a diamond manufacturing and exporting business. Our clients import rough diamonds, they manufacture and export it. They also make jewelry and export it. They also make jewelry for the domestic market. And we also finance to retailers in India who are large shareholders. Why we are comfortable with underwriting this business? Because we have been in this business. As you know, this is -- mostly this business has been purchased out of ABN AMRO Bank. And we have been in this business for decades, and it's a very sustainable business across many decades with excellent risk-reward profile, 0 and negligible delinquency, large contribution to shareholders' value. For financial year '19/'20, our RoRWA for the portfolio will be 5.18% with a return on solvency of 55%. The portfolio's average risk weight is 73% based on external ratings. And we also have second way out collateral by way of AIG credit guarantee, equitable mortgages of quality assets and a second way out and cash collateral, all put together, 54%. And with excellent risk-reward profile, we are continuing this business. And if we see what we are going to do to minimize the COVID-19 disruption, we are not dependent on a single market. The entire world at large, including India, is the market for our clients. We are continuously monitoring the portfolio, and we are in active discussion with our clients for reassessing the impact and the working capital requirements. Since all our facilities are on -- are repayable on demand and they are uncommitted, we are all the time waiting to reduce the line in case the turnover goes down, et cetera. So as on 31st March -- the asset quality implications, as on 31st March, 2020, there is negligible COVID impact on gem and jewelry portfolio with our bank, with 0 special mention accounts. For financial year '19/'20, delinquency in the portfolio will be 0. Sound realization of export bills is continuing till date. As of now, we don't have any bill which is more than 30 days past due. And currently, we -- like our MD said, that we have envisaged a 3 months period. And if factoring 3 months lockdown and due to that delay in shipments and realization of already exported goods for payment, we know there could be in course of time in case there would be any delay, that is already factored in by our regulator, and they have given us 3 months' time to extend the realization of receivables and also the banking credits. So therefore, these 3 months, there would be no impact. And beyond 3 months, if this continues, we will -- we assure some markets will open up. Already Hong Kong as a market has opened up. And far east is a major market like U.S., 1 major market currently is not -- is currently a little bit in turmoil is the U.S. So we will give it 2, 3 months' time. And we have seen that during the Lehman crisis, that is that time also the resilience of our portfolio and our clients' skills were tested because they could find out alternate markets to move products. And since it's nonperishable goods with hardly any cost for inventory holding, a 2, 3 months' delay in shipments or any obstruction in the global market will not have a large bearing in our asset quality or anything. We'd -- as of today, I do not expect a single delinquency in the next 3 months or any special mention accounts in the portfolio. Thank you.

Thanks, Biju. I think Ramu -- M.R...

Micro finance.

Micro finance, M.R. Rao?

Thank you, Sumant. See, as you all know, we cater to the bottom-of-the-pyramid segment. And our presence is largely rural, 70% of our borrowers hail from the rural India. And unlike the urban cities, rural India is not so overpopulated. In fact, there is a lot of migration from rural to urban. So therefore, there's not much of overcrowding there. And so far, we have not seen or heard of any COVID-related cases in the rural areas that we are present. Having said that, like Partha and Biju said, we have also gone through the crisis as a business in the past, the 2010 A.P. micro finance crisis, which literally shut down the entire industry, and we came back from like a -- with a good turnaround strategy. And I'll explain what the strategy is because that relates to this current situation also. We have faced the demonetization and came out with a reasonably good repayment rate and minimal losses. We have seen floods almost every year. We have seen droughts almost every year. We are seeing borrowers lose their livelihood sources of income, but we have come out unscathed during most of these situations. But COVID is a health-related issue, and we expect this to go on till April. That's almost 1.5 months shutdown in the country. Now we had a business continuity plan, first when the shutdown was local. Our branches were open, and our loan officers were trying to get in touch with the customers. But they were prevented from -- moving from village to village because of the contagion fear. So we sent back all the loan officers back to their hometown. The branches are shut. But what we have done is we have equipped the loan officers through technology and apps the ability to contact each and every customer. So every day, we are talking to 8 lakhs or 9 lakhs of our borrowers. As of today, at 4 o'clock, we are in touch with 8 lakh borrowers, and by the end of this call, probably we would have talked to another 1 lakh or 2 lakh customers, that's 800,000, 900,000 or even 1 million borrowers. We are constantly checking on their health issues, checking out whether their family is safe, asking them whether their economic activity in the village is as usual or is it dipped. Informally from what we hear, 50% of the economic activity is going on as usual in the rural villages. Because while the lockdown is there, there are no cops in the rural villages to shut down shops. The businesses are going on as usual. There is an impact on their earnings for sure. But the extent of the impact of earnings will only come out when we start meeting them physically. So the virtual center meetings, as we call, continues every day. The loan officers are diligently calling from their respective residences to their set of borrowers and asking hell a lot of questions, so that their database is getting created for us to be ready the moment the lockdown is lifted. If you were to look at our past track record as to how we have come out of the crisis, A.P. crisis, the entire industry got shut down. It took us a long time. We had the biggest loss in the industry of INR 1,500 crores. But from almost -- after writing off the A.P. portfolio, we were the first -- probably one of the first few companies to come to a 95% repayment rate and then bang on to 99.9%. Post Kerala floods, we saw a 98% repayment. Post demonetization, we quickly came back to 96% repayment. So it all depends on how long this COVID -- this lockdown will continue. The sooner the lockdown is lifted, I think we are ready to hit the ground running because of our ability to contact the borrowers using technologies and apps and so on. So we have the data to hit the ground running. And we hope we are sure that we'll come out of this bit bruised, but not beaten down. Thank you, Sumant. I'll hand over the call.

Okay. Thanks. Ramu from Corporate Bank. Ramu is our CRO, and I thought the risk head should actually speak on the Corporate Bank because that's the most debatable question today.

Thank you, Sumant. If you look at us, we do in our investor presentations, it gives how the diversified the corporate book is and the concentration. So I'm just going to use that as a base. We do not have any industry concentrations higher than 5% as that presentation -- if you look at the presentation. The largest we have is lease rental discounting. In lease rental discounting, most of our -- we don't do mall lease rental discounting. So to that extent, the shutdown of malls and others should not impact us. We have hardly anything in our portfolio. It's mainly office spaces. There may be some delays, but we don't expect any major issues there because it's spread out across the country, across various tenants and various buildings and the buildings have value. So offices will be used. So we'll review that portfolio closely as things come back normal. On the real estate side, we also -- on the developer part, yes, the building activity has stopped. It will have to get recommissioned as the lockdown gets lifted, people -- the labor have to come back, work has to start. So there will be delays. But in all of our DCC or the [ dull ] completion date, there is enough cushion given under the RERA guidelines, so these projects should get completed. We'll have to see the impact on the portfolio. There's no -- we don't expect an impact, but on price and others, we'll see how the market plays out and sentiment plays out. Gems and jewelry, I think Biju has already addressed. On the NBFC part of the portfolio, we had 18 months ago taken a conscious decision to stay within the very well-rated NBFCs. We have kept the portfolio on a limited level within HFCs and well-rated NBFCs. So we do not expect that to be a major challenge there. We have some gold loan portfolios which is gold loan NBFCs. They are well collateralized, so we don't expect issues. Even some of them, like they are closed today, if we operate from branches in Kerala and others, but they will open, and we don't expect any collateral shortfalls or anything out there. So we continue to monitor that portfolio and nothing majorly which has come up at this point in time. The rest of the portfolio concentrations are much smaller. There is some in power generation. There is a dip no doubt in the consumption of power, but that may be temporary till the lockdown is lifted. But many of them are NTPC guaranteed or SECI guaranteed kind of projects. We don't do thermal. Mostly, it is in renewable, which has got good sponsors. And we don't have DISCOM dependence, so we should be okay. The recent -- if you look at the other sectors, specifically, hotels is one area where hotels and service industry, where impact could be material. Our portfolio, we do not carry too many hotel projects, they are spread across the country. We have seen them -- obviously, they are shut at this point of time unless they are used for quarantine such as the others. It will take some time for them to build up. But we have good asset cover. We have debt service reserve accounts in place. We have term loans out there. And we also now have the benefit of the RBI giving a 3-month moratorium on the term loan paying, which should help. So we will work with these borrowers as things pick up and find the best ways to give them enough room to be able to get their business back and to meet our cash flows. But we are well collateralized, it's not unsecured, it's all very well secured. If you -- similarly, if you look at the service part of it, we don't have too much in the spaces like restaurants and other lending, so that's not a major issue that we see. On the solar sector, we had 1 project where panels had to come in from China. That has a undertaking from the promoter who is a very strong promoter. They have given us a cost overrun undertaking, and they have assured us that they will take care of it for any delays that come in. So that's the only project which we have that it is not yet commissioned. It's an -- the panels have not reached. Otherwise, other projects are under -- either under construction, which may get a bit delayed, but the government is giving an extension as far as recently the minister -- they've given a extension for all projects because of the force majeure kind of situation that prevails. So we are closely monitoring the projects. Our teams will be -- we have -- our early warning signals are being looked at very closely by the credit team along with the business team. Over the next 2 weeks anyway when we continue to be in lockdown post the financial year-end, we'll be spending a lot of time to break up the portfolio into parts, put special coverage on them by the business and the credit teams to manage and to be early into helping the clients to recover as well as to ensure that asset quality doesn't deteriorate in a significant manner. And we expect RBI will be -- if the lockdown continues, RBI will also come up with more directives on forbearance and others to help the economy. We are currently look at the -- what came out on Friday, the RBI guidelines, we have gone through them closely. We're looking at portfolio-by-portfolio on where to extend this to our borrowers. We have taken certain decisions. We're going to our Board to get it sanctioned and then extending it. There are certain things we are waiting for clarification from the Reserve Bank of India on the freezing of the days past due from 29th February. There's a lot of debate in the market about whether it's to be held because one of the things that says, in the RBI circular, you cannot deteriorate the clients' credit quality or report in the CRILC as a special mention account. So we're waiting for clarification. We're hoping that we'll get an FAQ by tomorrow from the RBI, and we will then track it accordingly and ensure that we support our clients during this period because it's a unique circumstance, and we do not want to -- we want to be very customer supportive rather than pull the plug on ears of our customers at this time.

Thank you, Ramu.

See, Sumant, I just wanted to add a couple of things. Partha here. Can I?

Yes, yes, sure, please, Partha.

See I was -- I mean I've been meeting the investors fairly regularly for the past 10 years. And I had the understanding that mostly investors know our product fairly well and our capability fairly well. But since -- that's the reason I had not given the breakup of various vehicle categories where we are in. But for the benefit of those persons who had logged in fairly new, I would rather state that we are the leaders in commercial vehicles, construction equipments, we are also into small commercial vehicles where we have a leadership position. We also do cars, we also do -- we are -- we have a leadership position also in 2-wheelers. In every one of the categories, I would -- we would state that in commercial vehicles, we deal with the customers where 70% of our business is from repeat customers. Most of the customers by themselves have been in this particular business for over 2 decades, and we have been running this business for over 3 decades, okay? In this particular categories of customers, customers themselves have had faced certain issues, not a national issue like this. We have never seen the national issue like this, but the customers have seen several issues of natural disasters in the past. And they had wriggled their way out of this particular circumstances fairly well. And we have been in line with the customer as far as this particular area is concerned. And we are confident that over a period of 30 years in commercial vehicle, our gross NPA has moved -- in the past decade has moved -- have been close to about 1% and our credit costs have been hovering around 70 basis points. Even for the current year despite the industry slowing down because of BS-IV issues and overcapacity as well as in March, the COVID situation, we should have certain amount of enhancement in our credit costs, but not a very material one. We'll be closing our year close to about 80 basis points. And here again, we would state that over a period of time, we have made a huge amount of digital presence -- digital improvement with dealing with the clients, as I just said. Even during this particular scenario, we are very confident that we have got several methods to be in one-on-one touch with the customer, and we should be able to maintain the portfolio. As far as the cars and other products are concerned, cars, we have got a specialist car [ position ], mostly in relation to self-employed persons. Most of them are small traders and other persons who have been -- who have been there for over a decade kind of situation in a particular place. Therefore, our portfolio strength has been much better than even salaried employees in this particular situation. Of course, there could be a minor setback in terms of where there is a lack of earnings, but these customers have got enough and more of big pocket to handle car installments and all fairly well. And 2-wheelers and all, the 2-wheelers are generally to livelihood -- given as livelihood loans to carpenters, plumbers and so many other persons. As soon as the economy kickstarts, there should be a need -- they would be needing these vehicles much more than any other thing, and they will be in a position to service the accounts without any issues is my submission on every one of the categories of assets and I'll be more than happy to answer any questions which may come up.

Okay. Thanks, Partha. I'll take over the business banking, LAP and the credit card piece. I think on business banking, the client which we deal with is an SME or an MSME client which -- who has a turnover of INR 250 crores. [ Class ], this is a thrust area of the government of India being the MSME segment. We have negligible capital market exposure in this. It's a very granular portfolio, diversified by industry and geography. Ticket size is about INR 2.5 crores. Cash flow-based lending, collateralized typically to self-occupied marketable assets. I think if you look at our portfolio, less than 8% of our portfolio is in impacted sectors like retail, tours and travel. I think our proven track record, earlier shocks of GST and demonetization did not affect the portfolio. In fact, we slowed down the growth of the portfolio over the last 18 months because we were seeing some balance sheet issues in the MSME segment, and we did not grow the portfolio. Actually, the growth of the portfolio has been 10% CAGR over the last 2 years. If you look at -- we believe that I think for the next 3 months, the government thing has helped us. In my opinion, I think we'll continue to do the business. I don't think -- in fact, we are creating a separate line of credit to -- for emergency lines to select borrowers if it's required and as per -- and moratorium by RBI should help us. So this portfolio, I don't think will have an issue. I think loan against property is 5% of our portfolio. It's small business owners, lower than the BBG client. I think it's a program-based lending, INR 60 lakh to INR 70 lakh ticket size. I think our portfolio LTV is 50%. I think less than 5% of the portfolio is in sectors like retail, tour and travel and entertainment sectors, which are affected by COVID right now. Portfolio is very granular, very well secured, and I think very well distributed. We're not seeing any stress on the portfolio as of now. And the 3-month moratorium, again, will help this portfolio. On the cards and personal loans, I think why we are comfortable because we give the product to only those clients who have maximum holding of 1 account at that point of time. We don't give loans to multiple account holders or cardholders at that point of time. That's number one. I think we do an analysis of disposable income. Regular portfolio churn is done to find out if there is any client which is going into delinquency and what are the proactive measures which we need to do on the client. I think this is a touch business. I think we may have elevation of delinquency. Some sorts of delinquency may get elevated because of the COVID-19 issue. We have to -- the next 3 months is fine, but I think the March collection itself -- February, the EMIs on March collection may get a little bit impacted. So I think the sense is that the portfolio will resume normalcy soon after the moratorium period. But there may be a slight elevated delinquency, not more than 30 to 40 basis points. So it's not going to be 100 basis points, but it's going to be 30 to 40 basis points. Okay. While -- before I go into the liquidity part, and we can take questions, I just want to reiterate 2 points on the portfolio. I think I want to reiterate a strong profitability, which can absorb meaningful of -- which can absorb meaningful worsening of asset quality. That's number one. I think we have maintained solid capital adequacy, and the Board has a high threshold of CET1 capital. We also -- I want to also assure you guys that we will have a provision coverage to fix this quarter of 60% and above and absorbing some weak accounts to clear our balance sheet this quarter. Now I'll move to the liquidity position of the balance sheet. That's the second point which we wanted to discuss. I think we are also on top of managing liquidity amid heightened rumormongering and speculation in the market. We did see outflows from government fixed and savings deposits, especially one state government. Corporates also saw a smaller outflow, and some of that may be a linkage to stock prices, but I can state that is not reflected of our business. Retail deposits have been slightly lower, but we are relatively stable as we speak with flows gradually returning. For last 3 days, our inflows have been higher than the outflows. We have faced similar situation post taper tantrum in 2013 and like then, we have now done a short-term toggle between deposits to borrowings. We have also done BRDS/IBPC sell down during the quarter to avoid stretching the balance sheet. We are using these circumstances to reduce reliance on bulk deposits. Incidentally, CRISIL has, as of Saturday, reconfirmed our rating of our deposits and borrowings. I will now request Arun, who heads our global market, to give further insights on our liquidity management.

Thanks, Sumant. I think Sumant has broadly covered all accounts. So if you see here in our presentation also that's uploaded into the website, so yes, we have lost some deposits. But as we said, that we do tend to toggle between deposits and borrowings. Deposits were coming at a stretch in terms that when state governments did pull out bulk money, obviously, you cannot get it back immediately. Having said that, yes, there were some safe PSUs on the wholesale side also, which sort of did not roll over their deposits. So to say that we had maturities of deposits which did not get rolled over rather than any or significant premature withdrawal. Premature withdrawals were minimal. There was some but nothing of significant nature. Having said that, we have started receiving interest back after the RBI statement. The markets have opened up to a large extent, but I think because of COVID and the BCP plans in place, it may take some time to come. How we sort of manage our position of the drop by around 10-odd percent in deposits? Yes, as mentioned, refinance as well as FX borrowings, as you are aware, we've got a pretty refinanceable portfolio emanating from both vehicle finance and micro finance and MSME, and that is something that gives us longer duration financing. So we've done around 3-year refinancing at very attractive fees or above cost at that point in time. FX borrowing has been a very liquid source for us right from, say, 15th of March until now, raised significant monies for duration between 6 to 12 months on an average around 7 months, at again, pretty attractive rates considering where the markets are. On the other hand, the other money market instruments in the form of deposits have also started moving in. We've got around 15% to 20% of the deposit that we lost coming in back in the form of DDs and term borrowings as well as deposits. And the balance is through the excess SLR stock that we hold, which is nothing but gap management, both in terms of overnight money or through TREPs as we call it here. I think an important point is on LCR. LCRs, we have maintained at over 110%. On an average, it's around 112%. We have not dipped into MSL -- MSF facilities. As you are all aware, going forward from Saturday onwards, there was a reduction in CRR. That will give us a softer cushion as well going forward in terms of cash being available. There's an increased MSF cut by 1% as well. Having said that, we've not yet dipped into it, and we don't intend to dip into it. LTRO market has opened up. So we did have a NSLR portfolio, which has been repo'ed as well. And with CRISIL sort of reaffirming our ratings on deposits as well as long-term bonds, we expect that by the 7th of April, the mutual fund market will open up and will give us more areas to work on enhancing our deposit base as well. Having said that, there's always been a retailization push for deposits, but this period of COVID has gotten a bit of a stretch, but that has also been picking up as Sumant had alluded to earlier. We have seen a net inflow of retail deposits. And we will continue to monitor the situation and see how to grow. I don't think we'll hesitate in curtailing our asset growth depending on how the balance sheet really grows up. So we are cognizant of the fact. And I think at this point in time liquidity seems comfortable to us.

Thanks, Arun. I think before we get into the question/answer, I just want to touch the theme of PC5. I think we've been talking to you, and we've been getting you the themes which we are going to drive on PC5, but I think they're greatly -- now putting greater emphasis and creating -- for creating a sustainable organization. And I think that's our emphasis as of now. And there are 7 factors, 7 points which we want to focus on. Increasing granularity of liabilities. That's something I think we've learned the hard way. I think we need to granularize the liability with such a large balance sheet. Our focus is to retailize, and we will retailize the liabilities more and more. All the segments -- parts of segments of the organization, that is, corporate, retail or government, I think all of them are focusing on retailization right now, and that's something which we will focus on. Sharpening corporate RoRWA by portfolio management. So we've created a new group of portfolio management, an independent group now. And I think our sharper focus on RoRWA of the corporate bank will be a very critical important measure for us. Strengthening risk management and reducing concentrations. I think we like retail. I'm a guy who is brought in, in retail. I like granular loans. I like granular businesses. I think large chunky exposures are on their way out from this bank. And I don't think we will do large chunky exposures anymore. Keep high capital thresholds. Our Board has always believed in it. I think we've always been upwards of 11%. We want to cross the threshold of 15%, and we want to maintain a 15% threshold. So whatever happens, we will maintain a 15% threshold on our capital adequacy. Continuous increased provision ratio, and I'm committed to 60% this quarter. In fact, if possible, we'll cross the 60%-plus this quarter. And at the end of Planning Cycle 5, we said that we want to be 70% on provision coverage ratio. It's something which we have bought into, and I think we will continuously raise the provision coverage ratio. Moderate loan growth to follow traction on granularization of assets and liabilities. Liabilities will lead the way to assets, not assets will lead. And I think what you will see is more and more our dependency on liabilities before we grow the asset business. So you will see us moderating our asset growth. I think while we've been growing at 20%, 22%, don't be surprised if we flatten out for 1 or 2 quarters and then grew at about 8% to 10% or 12%, but more granular and much more liability-led. Continuity of top management with small tweaks in accountability. So I think the management team is intact. I think from a sustainability point of view, I think there will be some tweaks. You'll get to know when we announce the results. But I think the continuity of the management team is critical right now, and I think fully committed and behind the lead, as we change the course of direction and bring the new version of IndusInd, which is called IndusInd 2.0. Now I can open the floor for questions.

If I can...

Yes, Sanjeev -- Sanjay, sorry.

So I'd just like to add a couple of points. So I think, firstly, on all the discussions we have sort of presented, I just want to be clear that whilst we've given your sense on asset quality based on the previous disruptions we have seen, whether it's tantrums or GST or demonetization or any of these sort of events that have happened, COVID does seem to be slightly uncharted territory. So the caveat really is that we have just made an assumption based on our past experience of short-term disruption. So I think that's the caveat there. The second, of course, is from a client perspective, our message to borrowers is, of course, to be able to -- is to pay if they are able to pay. And clearly, the forbearance that has been provided by RBI, it's not a waiver and it's only a deferment. I think one part, which is very sort of critical and has been highlighted in the presentation that we have put on the website and on the exchanges is the fact that our pre-provision profits, if you look at the last 5 years, has averaged over 5% to loans. So even if there is an increase in our credit cost or provisions, there is a very large sort of margin of safety emanating from that track record. And over and above that, I think the Tier 1 ratio stands above around 15%. So I think that is a sort of a cushion that the bank is sitting on. Lastly, I think, whilst there may be some questions around the promoter when we open it up for questions, what I'd really like to say is that we are very confident that the promoter is solidly standing behind the bank in one form or the other. I think that will play out. I can also confirm that they have applied to the Reserve Bank of India for an increase in their stake to 26%. How it will play out? I'm happy to answer questions. Unfortunately, some of them are not related to the bank. It's directed to the promoters. But as I said, I think they are solidly behind the bank. Shall we open?

Yes. So you should open the floor for questions now.

[Operator Instructions] The first question is from the line of [ Hardik ] from SBI Mutual Funds.

Just one question. Have you done any kind of a stress test to kind of assess the impact of this disruption? Because already we are going through kind of a slowdown and this is -- this will further add breaks to the recovery of the economy. So especially on the SME and CV side, any kind of stress test that has been done?

So no, specifically from the lockdown, which was on 24th which was announced, we will run those tests now. Earlier, we had looked at how our portfolios have performed and what were issues, but we'll now run a more detailed stress test because it was only a recent development for 2 weeks. We are going to be planning to run it, which is in a longer period, which should take us a couple of weeks to run based on the numbers. We have the end of the financial year tomorrow. We'll run those stress tests in the next 1 or 2 weeks.

Sure. And secondly, sir, any trends or in the DPDs that you observed just prior to the lockdown, anything where there is increase, especially in the CV side?

Partha, do you want to answer that?

Yes. Actually, what really happened was in the DPD beyond 60 days and above, we have the best track record in terms of managing the DPD amongst the peer banks. Amongst -- we are one of the better ones in the industry. And also, we compare very, very favorably with the peer banks. And for the past couple of months, we have -- not even a couple of months, past quarter itself, starting from January, we had seen across-the-board improvement in January, February and March in all buckets. Therefore, had it not been for the disruptions during the last week of March, our -- we would have -- our results would have seen an across-the-board improvement in all buckets in all segments. And second -- this is also -- arose out of a couple of things. See, the commercial vehicle has been going through stagnation for over 1 year. And the capacity of -- the excess capacity, which has been caused by axle load norms has also been absorbed in the market. Everyone was feeling this kind of stress for over 6 to 8 months' time. And the excess capacity, both in terms of -- has been absorbed in the market. The market also saw that input costs, that is, the customer has been favoring a reduced cost of vehicle, reduced cost of diesel and reduced competition because of capacity-related issues. All this augured well for the last quarter. Last quarter we really saw a certain amount of uptick in this particular area. And right now coming to the next few -- next couple of quarters, it will also be, in addition, that demand-related and also COVID-related. There will also be supply-related issues in terms of excess capacity being added because BS-VI is not likely to come for the -- in respect of commercial vehicles for the next 6 months' time. Therefore, that will augur fairly well for the existing capacity of the customer.

The next question is from the line of Manish Ostwal from Nirmal Bang.

Sir, from the March 17 press meet to today's presentation, there was a further dip of 8% on the deposits. So is it just purely government deposits that they took out from the bank or it's the premature held deposits also?

So we've been saying I think -- if you look at our deposits, I think we've had -- we've approximately lost about 10% to 11% of our deposits. Out of that, 70% or 80% -- 75% of our deposits have been on the government side, yes, and the balance has been on the corporate side. Retail has been more or less stable for us. Retail, not fully to us.

Yes, just to add there, these are not -- these are not any premature payments. That is almost 0, very, very, very small. These are just repayments.

Okay. What is the absolute liquidity sitting on the balance sheet as of date?

What is the liquidity sitting on the balance sheet?

Yes.

Yes, so I think we're comfortable. As I said, LCR is over 110%, 112%, and we are not dipping into MSF at all. So we've not dipped into MSF. So liquidity seems comfortable at this point in time.

And lastly sir, in microfinance business, what is the trend after March 22, 2020? What has been the recovery in microfinance business? Can you comment on that?

Sorry, I didn't get the question. Can you repeat it?

Sure. In micro finance business after March 22, what is the disbursement recovery trend? What was the recovery, 85%, 90%, what kind of recovery you have seen in the microfinance business?

So 23rd was the day the bandh was called. There were lockdowns all over the place. We could only conduct a few center meetings because we realized that we were not being allowed into the villages. The disbursements also have been very minimal because there has been no center meetings taking place. And after March 23rd, when the nationwide lockdown happened, that is when we moved our people back to their respective hometowns and continuing to be in touch with the customers. As far as the future how will the repayments be, the government's package to the rural and especially the poor, the supply of rice, pulses, the Jan Dhan Account, the DBT, I think it'll go a long way in helping us come back on marking faster than the rest of the businesses.

I mean are we looking some -- building some faith post resumption because we have taken -- base case resumption of -- is around 3 months' resumption to our microfinance business? What kind of 8 months assumption you have, once you register yourself, because we know you'll grow 4% to 5% base case for the existing?

No. So our recovery rates post major floods and crisis have been -- and demonetization is between 96% and 98%. I'm just talking about the crisis. In the run of the mill business as usual scenario, we are at 99%. So we don't know how long this will last. But given our control on processes and our use of technology and our ability to connect with the customers directly and, more importantly, our experience in managing crisis right from 2010, I think this will give us a head start. Today, as of now, with the country in a total lockdown, it is difficult to predict any credit cost in the absence of not knowing however long the lockdown will continue. While we expect the lockdown to get over on April 15, we don't know. So -- but what I can assure you is, the day the lockdown is lifted, all our 14,000 field staff will hit the ground running all over the country.

The next question is from the line of Sandeep Bapat from Hillhouse Capital.

So just in terms of the borrowing market, given that it has been tight in India and globally, what's the situation right now? And given the tightness, however, we are able to sort of replace deposits with borrowings? Maybe just some commentary on that would be nice.

Yes. Sure. As I said, our borrowings consisted of 3 different formats. So one is refinance. So we did avail refinance from a development financial institution in India. As you are aware, our large part of our portfolio is refinanceable from the development financial institutions. So we did adhere to that, and that was longer term in nature. So that was a 3-year borrowing and -- which came in at an attractive rate because -- the portfolio that fits in for the developmental agenda of the country. Number two is FX borrowings. So we had contracted these, and between, say, in the last 10, 12 days, we did drop on those lines with banks. These are typically 6 to 12 months with an average duration of around 7 months. So these 2 contributed around 50-odd percent of the entire percent of deposits. The next was the repo of non-SLR portfolio. We did have a non-SLR portfolio. And that we successfully managed to do a repo against that. So that itself is also term in nature. So we've got money against that as well. We're also going to the money market instruments like CDs. We did around -- in the last couple of days, we've done around 7-odd percent of our deposits, which had got replaced by CDs. So you will see that coming back into the deposit number as well. We also have excess PSL portfolio of -- excess PSL portfolio emanating from microfinance, MSME and vehicle finance, which we normally every quarter do apportion through BRDS and IBPC. We did successfully manage to do that as well in the last couple of days, which contributed around 5-odd percent to 7-odd percent of the total deposit that went off. Having said that, we have excess SLR to the tune of around close to over $1 billion, which can be used in order to bridge any gaps that may emanate from small gaps that may arise due to the ALM requirements of the bank treasury.

Understood. Just a follow-up on that. If the market remains tight for, say, the next month or so, how do we manage the liquidity?

Yes. Going forward, in April, specifically, as you're asking about a month or so, we do not have too many clogged up maturities. Yes, we do understand that we may not receive monies in terms of payments that would come in from the businesses that we operate in. Having taken that into account, I think we should be comfortable given that there has been a cut in CRR, which will give us excess cash and the availability of excess SLR to tide over any gaps that may arise.

Understood. And just, sorry, one more question. On the government deposits, is the outflow continuing? Or that was 1 or 2 state governments and that has kind of stabilized now?

That was 1 or 2 state governments, and I think it's stabilizing now.

The next question is from the line of Gautam Jain from GCJ Financial Advisors.

Sumant, congratulations for the new post.

Thank you.

This is regarding you said where, ahead -- we will not do large chunky exposures to the corporates. And you also said we will provide more to take our PCR to 60% and we absorb as balance sheet some slippages, whatever. So what we expect, there will be a much recognition in Q4 or it would be only PCR hike, which will have more provisions in the period?

So I think you should look at it from both ways. I think we will take some additional NPAs in the quarter. And I think our credit costs will be 200 or 210 basis points. I think it will go beyond 210 -- up to 210 basis points. I think you should also remember that our PCR will increase beyond 60%. And both these things will be taken care of this quarter. And you should not look at us on quarter-to-quarter. I think you should look at us from a year-to-year perspective. And I think that's something which I want to say. Quarter-to-quarter is not a reflection of the business. So we are correcting -- course-correcting our business by taking additional PCR because I think that's what we committed to the market. And I think a lot of accounts have been taken into NPA.

So how much would be the recognition? Can you quantify?

I've just told you the number, that it will be profitable. It's just 200 to 210 basis points. I just told you the number, and I said that our PCR will be upwards of 60%.

The next question is from the line of Jai Mundhra from B&K Securities.

Can you please elaborate a bit more when we say that management team would be largely intact...

Mr. Mundhra, I'm sorry, there's a lot of disturbance on your line.

Sir, can you please elaborate when we say management team would be largely intact, but there could be some tweaks?

Some tweaks are -- some major tweaks are just to consolidate certain geo profiles or add more controls and governances into certain businesses. So it's not that we are -- or splitting certain businesses in such a way that you get focused in certain major segments of the business. So I think it's not changing the management team. I think you are consolidating businesses where they belong, number one. Number two, I think you're adding more controls and governances as far as some certain businesses are concerned. Number three, I think you're splitting certain businesses where you need to get more focus and drive granularity of liabilities or increasing corporate RoRWA.

Sure, sir. And second, sir, if I can ask what would be your FOIR, fixed obligation on -- particularly for SME segment and maybe for CV if it is relevant?

Check in a moment.

We'll have to check and come back to you.

But even a ballpark number would be okay, sir, like 40, 50, 60...

One second, I just want to just highlight that our credit -- it's not credit cost, total provisions include -- that means including all is 200 to 210 basis points. It's not credit cost the way we understood credit cost. I mean it's across all provisions. Yes. Okay. Sorry. Yes, come again.

Sir, I wanted to know if you have a number -- I mean, if this FOIR, which is fixed obligation to income, particularly for SME business and maybe for CV business.

So there are different programs running with different income. So I will just -- don't want to shoot off a number here. I will just get back to you with this detail.

Yes, just give us your ID, and we'll get back to you on this number.

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

A question again on the deposit part. In case there are incremental withdrawals on deposits, what kind of an -- what kind of deposits can we absorb in terms of withdrawals incrementally as one of the peer banks had seen material withdrawals. So what is the capability -- liquidity that we are having?

Yes. So when we prepare liquidity plan, we have different scenarios which we take into account to prepare liquidity plan and where we assume withdrawal of deposits in certain percentages. So I'll have Arun talk about it.

Yes. No, Sumant is absolutely right. So I think as per whatever plans that we've had and so far whatever we have said has sort of reached out, which I've already explained pretty -- I think pretty much on this call. Having said that, your question being that in case there's going to be a big massive withdrawal again from another, say, 10%, 12% going out, then yes, there are plans in place as well to rectify that, which could -- as Sumant said earlier, could be through certain BRDS/IBPC or asset sales as well, including refinance portfolios. As I said, refinance is a very large portfolio we have. And we have not really utilized all the limits available to us from the institutions that do refinancing. So having said that, I think, I mean, I do not envisage that scenario, but yes, do we have a plan for that scenario? Absolutely, we do.

Sure, sir. And in terms of taking refinance on the refinanceable portfolio, is there any cap on the percentage of FX that can be sold or the entire amount is refinanceable?

No, no, no. So refinance has limits on the bank. So refinance institutional -- institutions like any other house would place limits on the bank plus I have a Board directive, which is approved by -- based on our network criteria as to the number -- amount of borrowings I can do. So we have really lot of room to go before even I come close to that number of borrowings. Refinance is quantified as a borrowings number.

Yes. And just to sort of -- just to add to that, 40% of the bank is -- more than 40% is priority sector. So all of those are eligible for refinance.

Sure, sir. And secondly, like you indicated that we have done an internal assessment on the portfolio with respect to the COVID impact. So on the current thing, we assume that after 3 months when the moratorium is lifted, are there any percentage of assets where we see the riskiness increasing? Any color on that if you could highlight?

So what we -- the RBI has given us this thing about -- moved the moratorium -- given a 3-month extension on the tenor repayment, which we will offer our borrowers, but we are encouraging good borrowers to pay us if they are able so that we can -- don't have to defer it or push it. So we'll follow that rule from the next couple of days, we'll start doing that. Wherever there's going to be interest accumulation, we'll talk to the clients to do it. So as of today, we will ensure that we keep engaging the customer to collect the money. We don't want to back end. So smaller portfolios should not be an issue because if you give an extension of 3 months, it should help them to be able to -- because their tenor it gets extended. The interest and others will also get amortized over that period of time. So only in working capital, our interest will accumulate. In our large corporate and others, we expect to continue to collect it on a monthly basis because there's no reason for double it -- or corporate or others to stop paying interest. So we will continue to collect. So we plan to manage the portfolio depending upon the type of clients. So the business banking client will have a different approach. The large corporates will have an approach to continue to collect. So each team will work on it so that we minimize any of those concentrations just so that suddenly we'll have the entire portfolio run into trouble.

Sure, sir. So that will be -- as the take away note will happen on an easy assessment without corporates have timing or to be on time is what we expect. And if that does not happen, then there could be an increase in the riskiness in the portfolio.

Not riskiness. It will be that -- Because the tenor gets extended and collaterals are there, we'll get -- this should not increase the riskiness of the portfolio because for a client you cannot say you'll get 3 months extension in the tenor. Only for the working capital interest is where we have to follow up closely and collect it on June 1. So it's 3 months of interest effectivity, so which will put extra efforts in the next 2 months to get the clients and to collect the money. And you're also allowed, where this COVID impacted, to look at the margins and to reassess the working capital requirements. So we will do that also to help clients mitigate this circumstance because there will be a disruption between a quarter to 2 quarters and then things should come back to normal.

Yes. Because I was trying to understand because the incomes would be impacted in this period for many of the businesses. So they may not have a top line which will be growing up for the year to service the interest and the fixed expenses. So from that perspective, I was trying to understand.

Yes. So working capital clients, then you will be able to look at the margins. That's what the Reserve Bank has said that if you look at the -- for example, with a service sector company, you'll have to give them more credit, which our Reserve Bank says, if you can justify, they don't have an issue, which is what we will do. It will not be across the board that we will change the margins and give more working capital depending upon the nature of the business. If it's a term loan, anyway the 3-month extension will help them because the cash flow is safe for them to continue their business.

We'll be able to take one last question. We take the last question from the line of from Sarvesh Srivastava from Viking Global.

I guess my one question was more on the retail deposits. Can you give an indication as to what the year-over-year change is in retail deposits as of March 30?

As of March 30, I think -- let me just come back. I think there will be a growth in the retail deposits in a quarter -- year-on-year, every quarter we were showing the growth. So I think they will -- let me just come back to you...

Close to 20%. It will be close to 20%.

It will be about close to 18% to 20% growth on the retail deposits.

We'll come back to you with the exact number, but that's the ballpark, Sarvesh.

We'll take that as the last question. I would now like to hand the conference back to Mr. Sumant Kathpalia for a couple of closing comments.

So thank you for participating in the call. I think good interacting with you. You can contact Sanjay. And if you have any further questions, I'll see you in quarter 4, I think, hopefully, some of you face-to-face. Thank you, and God bless.

Thank you very much. With that, we conclude today's conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.