IndusInd Bank Limited (INDUSINDBK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the IndusInd Bank Limited Q2 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumant Kathpalia, Managing Director and CEO, IndusInd Bank. Thank you, and over to you, sir.

Dear all, good evening. Thank you for joining the call. I will start with some macro commentary and then get into bank-specific details. At the macro level, economic recovery has resumed in September once the lockdown in last few states were lifted, coupled with expectations of COVID-19 picking up. All recent high-frequency indicators suggest economic activity close to pre-COVID level. Car sales, non-fuel export and power generation have also registered positive growth in September for the first time since the lockdown was imposed. Manufacturing sector is leading this recovery, while services sector activity is still affected by the social distancing norm and cautious opening of consumer services. India has reported above normal monsoon rainfalls this year, and this augurs well for the rural economy. Beyond September, along with the easing of lockdown, demand should also get short-term fill-in from the measures announced by the Finance Minister. The private sector has also participated by initiating prospective and retrospective salary actions. The RBI has maintained status quo on rates and has focused more on transmission of earlier rate cuts. With upcoming festive season, a good monsoon season bundled with government stimulus, a revival in consumption demand is expected. Sustainability of such revival will be key for medium-term growth. The government credit guarantee scheme has provided a great safety net to the SME sector and also indirectly to the financial system. Before I go through the quarter-specific commentary, I want to clarify on recent media speculation on merger with another bank. The bank and promoters have issued categorical denial of such developments. These reports are purely speculative and malicious in nature. The bank is executing on a business philosophy outlined in my first analyst call in quarter 4 and with strong support from the promoters. Now coming back to the bank-specific commentary during the quarter, we focused on: number one, getting the capital in. The capital raise process was completed and entire INR 3,288 crores came in September. This was -- this has improved our CRAR to 16.56% as of quarter 2. CRAR, including H1 profit, would be 16.87%. Second, accelerating deposit traction. We saw 8% quarter-on-quarter growth with retail deposits as per LCR, growing by INR 8,000 crores. This was the highest retail mobilization we have ever done in a quarter. Our cost of deposits have dropped by 15 basis points in quarter 2 and 47 basis points cumulatively in H1 this year. Quarter 2 CASA new to bank acquisition was 2x in value terms, as our acquisition run rates improved to pre-COVID levels of 1 lakh per month. Over 90% of CASA and FD NTP bookings were done via digital channels. With comfortable acquisition run rate and strong bank liquidity levels with LCR at 140%, we will be initiating deposit rates cuts during the quarter 3. Third, maintaining operating profit margin. Our PPOP margins to loan was at 5.7% for the quarter. Our net interest income grew by 13%, which was well ahead of the loan growth benefiting from falling deposit rates. Core fee has jumped 56% quarter-on-quarter, with strong pickup in the retail fees quarter-on-quarter. We have maintained healthy PPOP margins, despite lower trading income quarter-on-quarter. The margins will get further support as the excess liquidity is deployed in growth. Fourth, conservative provisioning approach. We have increased our PCR to 77% from 67% quarter-on-quarter. Total provision as a percentage of GNPA has increased even more from 96% to 132%, as we created additional INR 952 crores of standard COVID provisions which are not counted in PCR. Total provision now stands at 3% of our loans. Our standard and other non-NPA provisions are 2.4x of our net NPA. Bulk of these provisions are on account of conservative stand to lower risk to the balance sheet and earnings for the next financial year. Fifth, ensuring portfolio quality. The quarter has the lowest slippages in the last several quarters, if not years. We had slippages of just 19 basis points during the quarter. Net slippages were negative for the quarter. This is despite higher share of microfinance and segments operating on physical collection model. We expect collections to inch up further by December. Slippages from the corporate book were close to 0, even without the Supreme Court's standstill. Our September collections were 94.7%. We're comfortable on the asset quality and the recovery trends seeing across the portfolio as the prudent provisions made so far. Our portfolio analysis indicate a potential low single-digit restructuring, and these customers are viable and don't appear to be in any severe stress. Our current book -- our current restructure book is just 5 basis points, and we do believe that, for the banking system, this restructure -- these restructuring cycles will have better outcomes than the last one, expanding pockets for asset growth. We have seen sales are growing -- growth coming back with a loan growth of 2% year-on-year, quarter-on-quarter. Segments such as two-wheeler, car, tractor, construction equipment and secure non-vehicle retail are back to normalcy. MHCV and MFI are as anticipated to show cyclical recovery in the second half of the year. Overall growth is thus expected to further broad-based and accelerate in the second half of the year. Retail portfolios are growing ahead of the corporate and it's accretive to our profitability. I will now like to come to the operational performance of key segments of the bank. Vehicle finance. Our overall collection efficiency was 94.3% for September versus high 90s normal collection efficiency. We have uploaded in the investor deck by product a portfolio snapshot by each for all the vehicle finance units. Of this, commercial vehicles, particularly luxury buses, were slightly lower than this. While other segments are almost back to normal levels. Collection efficiency was lower than the average in small commercial vehicles and two-wheelers, which are small part of our book. They constitute about 5% of the book. SCV, which is a small commercial vehicle, are most of the impacted segments from COVID and are slowly getting back on track. In two-wheelers, we had accessibility and collection force availability issue, which are getting sorted this month. Economic activity is improving every month. And if things don't deteriorate further, then the quarter 3 freight availability should be much better compared to quarter 2. We are seeing this trend already in October. Some narrow segments such as luxury bus will be candidate for restructuring. Disbursements have recovered meaningfully in quarter 2, with September disbursements at 80% of pre-COVID levels. We have improved our market share in almost all of the vehicle segments. Overall, vehicle group has grown 5% year-on-year. Growth was faster in tractors, up 33%; two-wheelers, up 20%; utility vehicles, up 13%. Even in commercial vehicles, we are seeing portfolio growing quarter-on-quarter after 2, 3 quarters of ramp down due to weak industry volumes. We expect growth to accelerate in second half of the year, driven by recovery in the commercial vehicle segment. Microfinance. September collections in microfinance are at 91%. Collection recovery in quarter 2 got interrupted in August due to 5 key states reinforcing the lockdown. However, we are now back on track and as most of the countries accessible again. Collections in October have improved to 93%, and we expect this to cross 95% soon. Customers who have not paid loan installments since unlock between May and September is 0.8% of the total book. Collection efficiency and cash disbursements in the last couple of quarters is at 99.9%, indicating no impact on credit behavior of this segment. We are focused on continuous connect with the clients. We are able to conduct center meetings in over 97% of locations. In parallel, we are also doing about 800 hours of calls through our contact center every day. Overall portfolio saw a decline of 5% quarter-on-quarter due to lower disbursement versus historical run rates. Disbursements are, however, picking up and are at 85% of last September. We are cautious on ticket sizes and geographic consideration and disbursing only into groups and clients showing strong repayment record. We are scaling up Bharat Money Stores and now have 21,000 merchants in our network. Our savings and recurring deposit penetration has improved to 36 million and 19 million customers, respectively. Other retail assets, which is 17% of the book. Overall collection efficiency is close to 90%. Of these secured assets like business banking latched up higher efficiency in mid-90s, while unsecured loans are slightly lower. SME is a key focus area of the bank, and we are seeing growth coming back in secured assets. I think this portfolio originated in current times will have good core asset quality going forward, and we are ramping up our acquisition. We continue to be cautious on our secured loans, and these will remain less than 5% in our foreseeable future. Collections are yet to be back to pre-COVID level. And we wait for -- we would wait for normalcy before we press the pedal again. Unsecured return, however, is the small part of the overall book and doesn't turn the needle materially for the bank. Large corporate. We progress on fine-tuning our large corporate book towards higher rated, granular and working capital exposure. Fee income has improved quarter-on-quarter, with bulk of the fees coming from annual fee and negligible contribution from structured products. We reduced our concentration to sell down, and our repayment of all INR 1,900 crores during the quarter beyond the scheduled repayments, resulting in a large corporate book decline quarter-on-quarter. Overall, collection efficiency was close to 100% for September. We are comfortable with exposures to NBFC and HFC. We are seeing stress in 2 real estate projects contributing to INR 500 crores of exposure. We may have to restructure or look for alternate resolution for these projects, which are, however, very well collateralized. Mid and small corporate. Churn in the small and mid corporate was over 95% in September, implying business is almost back to normalcy. Collection efficiency was 95% of collection for September. Collection for lower-end segments such as education, services, food processing, auto ancillaries are picking up with a lag. This segment has also seen a liability buildup with self-funding ratio improving to -- from 59% to 71% quarter-on-quarter, indicating a healthy self-funding drive to this client segment. Gems and jewelry. This business continues to maintain its pristine asset quality with no delinquencies in the portfolio till date. Rough diamond businesses have picked up and will reflect in loan utilizations in the coming quarters. Our exposure to domestic jewelry business is small. On potential restructuring, inquiries for restructuring so far have been minimal. However, it is too early and -- the earlier trend, and the trend will be visible in the next 1 to 2 months. We will use restructuring only for viable customers with low expected delinquency. We will, however, make upfront provisions well in excess of the regulatory norms to push it for any downside. Our external portfolio assessment indicate a low single-digit restructuring in segments such as luxury buses, hotels, education institutions, et cetera. We will be very selective in using these in unsecured segments. Offtake from ECLGS, which was just INR 1,600 crores, will gives us a comfort on borrowers' liquidity. Overall, on the asset side, we're getting more confident in most of the segments as we operated. Vehicles finance has performed much better than expectation. Additions to corporate watch-lists are minimal with some positive developments on a few existing accounts. Secured retail is quickly getting back to pre-COVID level. While we are cautious on profits for microfinance and unsecured retail, we have created significant buffers already as prudent measure. The collection trends, along with the overall improvement in the economic activity, gives us a comfort to slowly accelerate our asset growth. We expect vehicle finance, microfinance, pure retail and with corporate to drive a growth in the coming quarters. Now let me come to the liability piece of the balance sheet. Momentum in our deposit gathering accelerated during the quarter, resulting in 8% quarter-on-quarter growth, with CASA growth of 9% quarter-on-quarter. Retail deposits, as defined by LCR, grew by over INR 8,000 crores. Our cost of deposits has reduced by 15 basis points in quarter 2 and by 47 basis points in H1 this year. This is despite offering higher rates for retail customers. Our digital acquisition run rate is 2x while physical acquisitions are 80% of pre-COVID level. This [indiscernible] of further improvement as COVID restrictions play out. 91% of our FDs were digitally sourced. We were the first bank to launch video KYC across deposits and credit cards. We are also the first to get certified as financial information provider on the account aggregator framework. We have been ranked the first on the digital payments and capabilities in quarter 1 and quarter 2 by mainly Government of India. We're scaling up our approval banking segment with pioneer offering. The proposition is now well established and received by our customers. NRV in this segment through mix of upgrade from consumer bank and thereafter up-sell, cross-sell and new acquisition has helped the segment cross INR 40,000 crores, of this 60% is in deposits. NRV growth from set acquisition was around INR 4,000 crores for quarter 2. This segment has also seen good momentum in fee doubling quarter-on-quarter and now running at a monthly run rate of INR 20 crores. We saw momentum picking up in our NRI segment in quarter 2 after a dull quarter 1. Our liability from this segment reached INR 21,000 crores, with around INR 1,300 crores of new acquisition in quarter 2. We continued the investments in building merchant acquisition segment. We are acquiring 30,000 merchants per month. Our focus is in the semi-urban and rural segments, and we believe our deep geographic presence through vehicles and expertise in business owner segment will be key differentiators versus the peer. We have reduced contribution of certificate of deposits to around 5% now versus 10% in June and 15% in March '20. Our borrowings are lower quarter-on-quarter. Our CD ratio is also down to 88% versus 94% last quarter. As a result, we are carrying surplus liquidity of over INR 40,000 crores employed in reverse repo and excess SLR. While we have decent growth in current account in this quarter, we expect this to moderate upgrade due to the implementation of the RBI circular. We have seen strong momentum in our deposits in the last couple of quarters, despite the operation constraints due to COVID. We are resuming our branch expansion and also increasing market visibility through media campaigns. We have tactically raised our retail deposit rates since April. The improved run rate and overall liquidity position gives us a comfort of cutting deposit rates generally from quarter 3. Now coming to the financial performance of the quarter. Quarter 2 witnessed steady operating performance with revenues up 4% year-on-year and operating profits at INR 2,850 crores and was up 9% year-on-year. Our PPOP over loans were healthy at 5.7%, while PPOP margin before treasury income has improved quarter-on-quarter. Net interest income grew 13% year-on-year, despite loan growth of only 2% year-on-year, driven by falling deposit rates. While both CASA fund and yield on loans have moved favorably on quarter-on-quarter, our NIM fell by 12 basis points quarter-on-quarter due to surplus liquidity, providing some optimal returns. We expect this to normalize as asset growth picks up. Our income -- other income grew 2% quarter-on-quarter, driven by strong recovery in core fee of 56% quarter-on-quarter, indicating activity levels are improving continuously. Noncapital consuming fees such as distribution, foreign exchange and trade remittances are close to pre-COVID levels already. Investment banking fees remained subdued due to conservative stand and low-deal activity. We booked lower treasury income in this quarter, which is down -- which was down 41% from quarter 1. Operating costs was low -- were low, but down by 2% year-on-year, but inched up 4% quarter-on-quarter on a low base and variability linked to business recovery. Initiatives on fixed cost reduction in terms of premises, rental negotiation, IT initiatives on digital process in a hub, reallocation of [indiscernible] responsibilities are well underway. Our core cost-to-income before trading gains and improved 200 basis points quarter-on-quarter. We are rolling out annual performance appraisal action for all our employees shorty. Our employees have shown strong commitment to the bank in a tough external environment, and this has been the most positive takeaway for me after taking over as the CEO. Now coming to the provision. Our provisions for the quarter were INR 1,972 crores. Slippages during the quarter were just INR 399 crores. Even if we remove the impact of the NPA standstill of INR 219 crores, slippages would have been INR 618 crores or 30 basis points of loans, significantly lower than the run rate in the last few quarters. Our SMA-2 book as of September 2020 was 10 basis points. We had almost 0 slippages from the corporate book in this quarter. Further, we had a negative net slippage of INR 567 crores, INR 348 crores net of standstill. This was mainly due to: one, NPA recovery in a few corporate accounts; two, write-off on our prod account; and three, some upgrades in the vehicle finance due to past collection -- past due collection. We have created additional COVID-19-related provisions of INR 952 crores during the quarter, taking our total COVID-related provisions to INR 2,155 crores or 1.1% of the loan. We have increased our PCR outside of these provisions from 67% to 77%, and also this was a prominent contributor to the credit cost for the quarter. Our provision coverage ratio, including specific standards and provisions, improved significantly to 132% from 96% quarter-on-quarter due to buildup in standard COVID provisions not counted in PCR. Our GNPA has reduced to 2.21% or excluding standstill benefits at 2.32% versus 2.53% last quarter. And net NPAs fell to 0.52% from 0.86% due to higher PCR ratio. Our approach is to create significant buffer to PCR and standard contingent provision. We will follow similar approach for a quarter or 2 depending on how COVID plays out and quantum of restructuring. A large part of this is to conservatively position ourselves and reduce risk to the earnings flow from next financial year. Our healthy operating profit margin can comfortably absorb these provisions. Our PAT for the quarter was at INR 663 crores. Our capital adequacy improved to 16.56% due to fresh capital raised and lower in risk intensity quarter-on-quarter. Our capital adequacy was higher by 15 basis points quarter-on-quarter, even without the fresh capital. CRAR, including H1 profit, would be 16.87% versus 15.35% last quarter. In conclusion, I think, in H1, our focus was on balance sheet realignment. Having achieved this to a large extent, now focus in H2 will be on scaling up for this. We will continue strong traction on retail deposits with focus on client acquisition. Our affluent NRI, merchant acquisition business rollout is on track to meet the business client target. We are scaling up our digital distribution with over 90% acquisition happening digitally. We are also shortly launching SME and used vehicle finance portal. Focus on collections will continue. And nevertheless, we will make another round of provision to augment existing buffer. We are now ready for asset growth, which will be driven by recovery in vehicles, microfinance and scale-up of secured retail and mid-corporate book. Momentum of fee, specifically -- especially distribution and foreign exchange, should see further traction in H2. We also have decent mark-to-market gains on our investment book. With this, we can now start the question-and-answer session.

[Operator Instructions] The first question is from the line of Abhishek Murarka from IIFL.

Can you hear me?

Yes, go ahead. We can hear you.

Yes. Sure. So 2 questions. One on NIM, if you can give some outlook on two points. One, on the surplus liquidity of INR 40,000 crores, how long do you intend to carry it and at -- in what manner you run it down by when? And second, on the deposit rate. So if I go back to maybe January or December, the spread by SBI would have been at 100 basis points. And over the last 6, 7 months, obviously 140, 150 basis points.

Abhishek, I'm not able to hear you clearly. I don't know why your voice is a little bit -- unclear. Can you speak a little bit closer to the phone? I'm not able to -- sorry, Abhishek, I'm not able to hear you.

Abhishek, request you to use the handset if you are on a hands-free device?

Yes, yes, I'm on the handset. Is it better now?

Yes.

Much better.

Sure. Sorry about that. So the -- sir, two questions. One on NIM. And regards to that, one on the liquidity that you're carrying of roughly INR 40,000 crores. In what time period would do we sort of running it down? Also, on your term deposit rate, relative to, let's say, SBI, for instance, you were -- in January or December, you would have been at 100 basis points. Today, you're at around 140, 150 basis points. So in what time frame would you look to sort of reduce that spread and to, let's say, what extent? So that was the first question on NIM. Second, would your ECLGS, if I got the amount correctly, it was INR 1,600 crores, is it?

Yes. Abhishek, yes.

Sure. Sure. So that was the second one. First one, if you could.

So let me answer the NIM question, Abhishek. You're absolutely right, except carrying of cash and -- is affecting our NIM, and it has a 10 basis point impact on our NIMs because if you look our average increase of INR 20,000 crore on a INR 340,000 crore book, you will have that impact on the book. You're -- I think the issue which you have to see is 2 points, one is, will be -- we will continue to source retail liabilities, and we'll continue to expand our retail liabilities, and we'll not stop the liability growth. So this is something which we are hellbent on and we are going to continue to do that. On the other side, I made a statement that our asset growth is coming back. And in this quarter, you will see a larger asset growth than what you have seen up till now. And I think, specifically, in the retail segment, in the -- in our vehicle finance, in our microfinance and in our secured retail segment, you will see that growth coming back. And as a consequence, I think some part of this will get utilized. Having said that, we are cautious about our term deposit rates, and we have -- I just made a commentary that in quarter 3, you will see us reducing the rate and we should get back in the gap which you were talking about. And in quarter 3, you will see the reduction in the rates. And we are cautious about it, and we are going to do that in quarter 3.

So at least this -- the drag due to liquidity and higher TD rates, both of those should reduce, let's say, quarter-on-quarter from now on.

Yes, it will take 2 quarters for the full effect to come in. You must understand this. It doesn't happen that even if I do it the rollover -- the new rates will come in, but the rollover will stay. So it takes about 1 or 2 quarters for the full effect to come in. And the asset growth, even if it happens this quarter, the ANR effect will come in the quarter 4, not in the quarter 3 so much. So I think the NIM for -- the NIM while we have always said it will be between the range -- will be in the range now. I think the real effect of the NIM will start coming in the quarter 4. And we are -- and I think we continue to maintain that our NIMs will be in range now and will be the numbers between 4.15 to 4.25.

Sure. And just squeezing in 1 more question here. On provision outlook, I couldn't catch the last part that you said. But broadly, now that your expectation of restructuring is also relatively low and you're comfortable with asset quality, growth is coming back. So incrementally, how much do you think -- what kind of run rate of provisions or additional provisions do you expect to make, let's say, in the next 6 months?

So Abhishek, the reason why I said what I said is for 2 reasons. One is, we want to be very conservative as we get into the next year because we are going to see asset growth, and I don't know how the COVID will play out. And I think we want to be conservative. Second, I am doing a loan probability default type of a provisioning now and excess provision holding on unsecured, on microfinance and certain other products because I think what it does is it flattens your curve over a periods of time. And I want to flatten the curve over a period of time rather than having these -- so for example, our microfinance business is affected by such natural disaster, for example, is affected by political situation. I'd rather keep a buffer in my book and provide for it and keep it rather than the cost will not come, but I may keep it to take care of any significant thing. [indiscernible] with you that I think anybody who says that we finalize restructured assets already, I think is incorrect. The IPA has to come into play in the restructured asset. While I didn't know what I want to restructure. I don't know what the other party needs to restructure and the IPA will have a play. While the inquiries are very, very low right now, but I think -- that's why I said it's a low single digit. I can provide 10%, but I don't want to provide 10%. I want to be adequately provided in this restructured book. And that -- whatever has to come to the COVID, I've already provided. Whatever I want to provide in the restructure, I just want to keep a bit buffer and get on this line. That's it.

The next question is from the line of Kunal Shah from ICICI Securities.

So firstly, in terms of what you highlighted, the contingency buffer that we are creating. Sir, last time the stance was maybe, again, this -- we were expecting around about INR 1,300-odd crores and we created INR 1,200 crores. So what is leading to this increase to almost INR 2,100 crores, maybe the incremental buffer which are there. So as you highlighted, would it be more towards MFI unsecured, that is what we have created in entirely towards compared to the last quarter?

So you're absolutely right. I think we had provided when we talked about it, we had provided 3% for the microfinance business. I think the microfinance business may -- I'm not sure whether it will come, but I have provided a little bit because the collection efficiency was 91%, and as of today, although it's 93%. I've just been conservative in providing. Second, like I said to you before, I want to keep a loan probability default as an ongoing provision in the book. And that is how prudent consumer portfolios work. And I'm just keeping up a provision. Third, I want to operate with a higher PCR level going forward. And I think you've seen the impact of keeping a 45% PCR. And I think we want to be benchmarked to the market. And I think the market will continue to be about 70% for the next 12 to 18 months also. And I don't think anybody will drop the PCR below 70%. And I want to maintain a higher PCR and I'm creating the provision rather than continuously impacting my profit going forward.

Okay. Sir, if I heard you correctly, were there 8% customers who have not paid even a single EMI in the MFI?

No, no, no. 80 basis points are in microfinance, 80 basis points.

So that's 99.2, which is there in the presentation.

Yes, 0.8%.

Okay. But still, we would have created a buffer out there, maybe even though we are receiving. So that's how we need to read.

Yes, I have created a buffer. I've been -- I have -- my production cost on microfinance will not be more than 3% to 4%. But I have created that provision already. I wanted to create that provision. I don't know, I will not come with that number, but I created that provision.

Okay. And this would be through write-offs? Or how would that be? So in deductions, what we are seeing, what is leading to these reductions out there, maybe particularly on the corporate as well and on the retail side? On corporate, is it recovery? And on retail, would it be more of write-offs?

Kunal, it's just provision. It's not write-off in terms of what Sumant has mentioned. But in terms of the current quarter, we had upgrades in terms of the deduction because we had net negative slippages this quarter. So we had upgrades in our vehicle finance business because past dues of customers were collected. And on the corporate side, we had 3 accounts. Notably, these accounts, which we had discussed maybe a year ago, where we had some share sales and we had some recoveries as a consequence of that. And then there is a third component, I think all of you would be aware. There was this fraud, which happened last year. And we had provided for it over a 4-quarter period as per the RBI circular. And now we've gotten written-off INR 281 crores at constituted tax growth. So these are -- that's worth 100% because 100% providing now is 100% written-offs. So these are 3 key components of the deduction, which has resulted in negative slippages this quarter -- net slippages.

Sure. And if you can shed the numbers in terms of SMA-1 and SMA-2? SMA, I think is shared, yes.

SMA-2 is 10 basis points. And overall SMA-1 and 2 is 33 basis points.

33. Okay. So one last question. In terms of this 3-year planning cycle, which is to be there, now maybe -- when do we actually see coming out with this 3-year strategy? And what would be the key focus areas? Definitely, COVID would have delayed a bit. And maybe under your leadership as to what are the key areas which we would look at and when we expect it to be unveiled?

So if the economy opens up and we see good economic indicators, I think quarter 3 results, you will see the PC5 strategy. And we will -- and if we can invite the investor community, we will invite the investor community. Otherwise, you will see it in quarter 4, depending on how the COVID plays out. That is the only thing which I'm leaving behind. I think we are seeing the COVID playing out. And we are waiting. For me to articulate a strategy that I will grow in this way. And I can't mobilize the resources, example, branch expansion. We have delayed our branch expansion already. And because the worker force was not allowed to work in very -- in certain areas, I mean, it's becoming very difficult. We have 58 branches under construction, and we are not able to complete it for the last 6 months. And so we want to -- so I think we're just waiting for some things to open up. And I think now the sales have started opening up. So quarter 3 results, you will see the PC5 strategy.

The next question is from the line of Suresh Ganapathy from Macquarie.

Sumant, I just wanted to know how do you define collection efficiency. So this is by value and not by volume, right?

Yes. By value. Total collections due over the total build amount or the total due. Total collected over total due is the collection efficiency. Very simple formula.

Okay. So you have not included any arrears from the previous month into the September number, right? So there can be a guy who would have taken moratorium in July, August [indiscernible]...

Please understand. Those areas will not be outstanding. Please understand because we would have got capitalized and the tenure was not extended. It will not be outstanding. So the only thing which matters and the 90 DPD will get classified only a guy -- who moves into it, and I've just explained that earlier or -- also, I think don't confuse because this moratorium and all has no meaning now. What matters is what is your portfolio performance going forward and quarter 3 is when everything will get classified as NPA or not NPA.

Yes. Correct. So clear. So this collection efficiency in the overall book, I'm not talking about early retail, retail corporate as in everything put together is 94.7% for the month of September?

Yes. As we have uploaded to you -- we have uploaded to you data on our 2 big indicators, which are livelihood financing. The way we presented last quarter data on microfinance, we've also presented for vehicle finance. So these were portfolios where -- which were under doubt, and we've given you exactly by product what's the collection efficiency is.

Okay. So the overall book is 94.7%, okay. So that's clear. And last question is, I mean, there is a conscious...

There is only one thing, which I will leave you, this is as of September 30. As we talk, this is increasing. And as we talk, we are already 95.6%, 97% -- 96%. So it continues. For example, in credit cards, you will continuously see an increase because it's cycle to cycle. So when you would have reported a September 30 data on a -- it would have been cycle of a cycle, whereas the number of days is cycle to cycle. And 30 days are not par for the cycle. So please understand when I say that.

No. But for credit cards, Sumant, you can just include the minimum due amount of INR 6,000 and then say I have collected the money, whereas the total outstanding could be INR 50,000, right? So while reporting the collection. Yes.

It is nothing of that thought. We -- the revolve rate -- has the revolve rate, we would gauge in September, is the question, which will answer your question. So if you're changing the revolve rate, my yield would have been higher on the credit card business to 34%, 35%. I'm down. I'm exactly the same what is I was in January, February.

Okay. Clear. And my last question is, of course, you have done a very good job about granularizing the liability base, focusing more on retail deposits. Is it possible to share the -- share of top 20 depositor concentration by the end of September compared to what it was as of March 31, 2020?

I don't think we share it on a quarterly basis, but it's going down. I can commit to you that month that it is down from March 31. And like I said, we see ourselves in the range of 16% to 18%, which is what we should be.

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

Two questions. One is like on the tie-up in life insurance space that we have done, so what will be your distribution strategy now? And now that [indiscernible] to a large life insurance space, how do we see the bancassurance income panning out over the coming years?

So bancassurance is a very critical component of our [ team ]. And we believe it also adds stickiness to our client portfolio. We are seeing the insurance business coming back to pre-COVID levels. And I think this is a business where we see scale up happening. And I think with 2 prominent partners now in the phase like ICICI Pru as well as Tata AIA, both are -- both have very, very differentiated product. One is very good on the term product and the other is on very good on ULIP. You will see excellent scale-up of this office business, and we want to continue to grow. I can't give you percentages. And -- but what I said is distribution fee, it will continue to rise and consumer contribution to the overall fee in the near future should be around 55% of our fees. So today, it's 48%. This will get to 55%. Most of this fee will come from distribution products as well as from the trade and FX in the consumer bank. So I think consumer bank does not have so much of loan origination. It focuses more on distribution and the time to [indiscernible] as a key component.

Okay. And so Sumant, when you talked about the [indiscernible] possibly have because of the RBI rights and guidelines, what sort of like...

Nitin can you please speak up? We can't hear you so clearly.

Okay. So is it a little better now?

Yes, a little louder, please.

I was asking on the current accounts. You mentioned there could be some decline in the current accounts because of the revised guidelines. Any color as to what can be the impact of this? And can we see some decline in the corporate loan book also?

There will be pluses and minuses. I think to give an assessment right now maybe incorrect because it's under discussion with IBA. And all the current account regulations are being discussed. There are very -- there's no clarity on how a dividend should be treated, how an escrow account should be treated. So these are not [ current accounts ], these are special purpose accounts. So I think let the clarity come in. Yet, if everything comes into place, you know that there will be -- balance can only come to the CCOD account and it has to credit to CCOD account. So there can be an impact as a consequence of that. We have to just wait for the clarification to come in. And I think there are some pluses, there are some minuses. We have to see. One of the reasons why we believe merchant acquiring business is so critical for us is and where we are capturing a very [indiscernible] territory is because we believe that the growth in the current account business from these type of businesses will be very, very high. And I think in a year or 2 time, we'll be talking a very different current account book, which will be more granular and much more retail oriented as a consequence of these initiatives.

Okay. And the other thing is under the [indiscernible] recently [indiscernible].

I'm not able to hear you. I'm just not able to hear you. Your voice is not clear. I'm sorry.

I'm so sorry. Shall I come back? If it's completely not audible, I can come back in the queue.

No. Now, you're audible. Sometimes, you're audible. Sometimes, you're are not.

Okay. Okay. So I was asking, like, recently, RBI [indiscernible] supervision [ that's set ] for FY '19. So if you can share some color and what steps are you taking what to avoid such solutions.

So I've already issued a clarification. I think this relates to a financial '19 inspection for a few procedural and interpretational issues. And we have already corrected the processes. And in fact, we had confirmed that to RBI. This does not relate to asset quality related and no divergence. So it's just related to interpretational issue, and we've corrected and gone with the RBI view on that interpretational issue. That's what it is. And that I can give you an assurance, bank is fully compliant. I think governance and compliance is the more stringent and in top of my mind, and we don't want to compromise on any governance and compliance-related issue.

The next question is from the line of from Adarsh Parasrampuria from CLSA.

A question on the corporate booking fees. I just wanted to understand because obviously when you look into investment banking and the processing fee, the intensity or the revenues haven't picked up in the second quarter as well. First quarter is completely understandable. And from a cost of funding perspective, how do you now position your self-funding on the balance sheet side of business as well? In terms of loan growth, do you see like a couple of the other consolidation or because you want to do this and then [indiscernible] and any cost of fund is not good enough today but will then [indiscernible] your assets. So if you can just give me your outlook, that will be excellent.

First of all, I think that perception is correct that we don't have a AA [ rate ] in the full year book. I think [indiscernible] -- where I don't want to give you any number, but if you see most of our disbursements, which have happened in the [indiscernible], this quarter has happened on A-rated book and above and we are competitive on the interest rate. You cannot be competitive on the interest rates in the corporate bank. Why we have not grown the corporate book is because we are rebalancing the book. And I've said that before in my call, and I'm saying that again, it will continue to be balanced in the book and that is what rebalancing or existing book and that's what has on the corporate side. Having said that, I think, there are few things that are different about us. And I think -- which I think the market knows about it, but must repeat it again and again. One is our livelihood financing book. It's a very healthy book, which is 48% to 49% of my book now, 42% of my book, and it comes at a yield of about 15.5%. And this book is very, very accretive to the bank and very, very [ profitable ]. It gives me the liberty to continue to reprice and give pricing to my corporate side. But I continuously feel that your book should be valid towards corporate and retail, 40% corporate and 60% retail. And I continuously believe that maybe 60% to 38% or 40%, 60% is the ideal mix, which we continue to believe. Number two, if you look at our liability franchise, why the cost per deposit maybe higher and I think our cost of funds is higher as a consequence. Our cost of fund is very, very attractive because livelihood financing creates refinance for me at a very attractive way. And I get refinancing from [indiscernible] or international developmental associations and body at very attractive rates, which is anywhere money between 1 year to 7 years. And 20% of my borrowings, which is about 10% of my liability book of my overall liability comes from this type of a scenario. And I think please understand I continuously get that benefit. So I think we have a very, very healthy thing. Yes, we will have some stress on the NIMs as a consequence of growing the AA and AAA -- AA -- A-rated and order book, but I think that's the cause. And I think that's why I said our NIMs will be ranged out. And there -- we have done all our simulations with pay. If we have that ratio, then our NIMs are range-bound, we can accommodate those type of scenarios. Please understand. Going forward, our -- if we do what we are doing, our provisions will also get normalized over a period of time. And your ROAs and ROEs will be very, very at a different level as a consequence. And I think our ability to absorb NIM as well as absorb any lesser pricing will be very different in my opinion. And of course, the cost of deposit will go down, we are dropping our rate. So we must schedule this as we are dropping our rate, and we'll get back to the levels which we were in. Adarsh, have I answered your question?

Yes, yes. Yes, Sumant. I just had one follow-up was on the impact of corporate move because corporate loan processing and more importantly, the investment banking fee rate, which is completely dried in the second quarter. So what is the outlook on that part of the revenue that we had, say, pre-COVID? It was like a good INR 300 crores, INR 400 crores run rate number, that's like dried up. So I just wanted to understand where should this go.

There are 2 reasons. One is lower yield activity in H1. And I think we were very cautious about the deal activity. And also have been very selective in segments that we operate in. I think the fee will increase. But to come back to the normal level of what it was towards, I think will be difficult. And that's why we said that our core fee in corporate rate will only be 22% of our fees. We've always said that 22% to 23%. I don't think the fee of corporate banks should be around 2.6% of the asset book of the corporate. We don't believe in that. We believe the consumer bank fee and the global market as well as the corporate bank should be a right mix of fees, and we are moving to that direction.

The next question is from the line of Ankit Ladhani from UBS Securities.

Sumant, this is Vishal here. So first question is on the overdue book. I think there was some discussion on SMA-1. So SMA-1, I'm not sure that include retail, et cetera. So if you were to see at the bank level, what would be the 30-day overdue, including retail, et cetera, as of September and as of October since October has also ended, any sense from that, please?

I have given you a number, no. And I've said my collection efficiency is 94.7%. So that means 5.3% are more [ going to be exported ] or whatever bucket. So please understand there is nothing else, which I can tell you. That is a book which is there, and I've given you my SMA-1 and SMA-2 book also, which is on the corporate side. In consumer side of the book, that cannot be a 60 or a 90 DPD right now because all of that would have shown is because you could -- whatever was 60 or 30 would have grown in the moratorium time also because we did not stop the DPD for accounts which are already delinquent. And I would have taken the write-off on that.

So in October, also the numbers will be same? Or it will be improving or deteriorating?

I think October -- what was due in September, September collection was this, October, the collections have started, and we will get to know the number. I think the number would almost be the same. I think there has been an improvement. And we believe that we are already at 95.5% to 96% already in collection. That's all I'm trying to say. There is only an improvement in that number.

Perfect. Perfect. And another question actually on the changes since you have actually taken over. So what are the changes you would have made? I'm sure this question has been asked multiple times. Just to know what actually is happening on the corporate and the risk side in terms of customer and process.

So on the -- so let me -- first of all, I think we are very focused on the rated -- rating of the book, and that's why we're churning the exposure, number one. Number two, we have created a portfolio management team under Sanjay Malik, which activates this between risk and business and evaluate any proposal which goes to the risk and make sure that it is within the framework and orchestrate the strategy of the corporate based on how the business is being orchestrated. I think that's number two. And I think -- number three, I think, our exposure on high-risk segments like real estate and others are being reduced, and we are not doing any further increase of our exposure. We may be churning the exposure, but not increasing our exposure [indiscernible]. And they will only come down because there's no -- as the portfolio increases on our business. Fourth, I think a working capital component in a term loan book has become a very, very, very critical portion of our book. So I think, in nutshell, more granular, more secure and shorter duration are the 3 changes which are happening in the corporate bank of the book. I don't think we had an issue on the risk side of the book. In fact, to say that there were any changes, I think the filters are the same. I think the direction of the bank was to do term loans and they get term loan. Now we are focusing on the working capital side. And Ram, do you want to add anything on this?

So yes, basically, we look at the environment. Basically, we look at concentration. We look at size of exposure. There are surely some lessons learned from -- that we have originated or where we have come from. Some of this relates to some promoters having issues on share back wages, which we have now derisked basically. We really don't have a large -- we really don't have a much in loan regain shares as a product. Our capital market exposures against our original limit is not in 40%, 50% utilized against mainly from brokers or routine investments that are there in our book, not for any lowering rate shares. So there are clearly changes that we've made to the strategy, on the underwriting strategy, as well as on the kind of books we originate. We have prescreening that my colleagues put in place so that we have a clear understanding of what kind of exposure we take. And looking at the rating profile, internal ratings, have been strengthened as well as accelerating [indiscernible] mapped to it. So these are changes -- certain fine-tuning, which is being done. But clearly, it's more to reduce the concentration exposures, both at group level as well as at individual level, and more clients and more granular thing and more working capital. And now any of the current account and others, we are better to be in the working capital cycle. We have to add flows to account, and that's what we are focusing on. So clearly, we're putting a lot of effort. In fact, there's much more. We have digitized the early warning system. Now we're using a very good technology there. We're using more like the MoneyGram company recommendations on identifying fraud and others who -- in fact, there are technologies available. A lot of investing in growing the system to also keep up with what's happening. There's a lot of information. We're just trying to make sure that we get enough red flag well ahead of time and be able to react.

The next question is from the line of from Jayant Kharote from Crédit Suisse.

[indiscernible]

Can't hear you. I'm sorry.

Is this better?

Yes. Now it's better.

Yes.

Mr. Jayant Kharote, we can't hear you. There seems to be issue with the [indiscernible]. Your voice is breaking. Mr. Jayant Kharote we can't year you. We request you to call us back.

Okay. I will join back in the queue.

The next question is from the line of Anand Dama from Emkay Global.

Sir, one is that you, during your statement, said that we would continue that growth in the second half coming in from the CD segment. So what is the reason? Basically, if you look at the CD sales still remains subdued? So how are we expecting a growth from that segment? And apart from that, what are the other segments where we looking at [indiscernible]?

When I talked about the segment, I talked about the vehicle finance segment. And I said 2 things. One is, if you look at the non-CD segment, which is made up of 5 products. The 5 products are scooter loans, car loans, tractor, what you call, construction equipment and affordable housing, I think the growth is coming back, and we are seeing growth back on all those 5 segments, and they're back to pre-COVID level, number one. Number two, CV cannot be seen as CV at one go. I think CV has 2 to 3 segments. I think the small commercial vehicle segment has been affected. The LCV segment is growing and it's back to pre-COVID level. And I think we are gaining market share there, and we want to continue to gain market share in that business. And we also believe that the MHCV in September has shown recovery. And I think in the third and the fourth quarter, there will be some recovery, which will happen. And I think if the COVID plays out and there is no second wave, we believe that, that recovery will happen on the MHCV side. So that's where we are very confident on the vehicle segment. And I think this is -- we have a market share in that. We want -- we have a dominance in that. And we -- and we want to continue to create our market share in that business because we are very comfortable. Having said that, I think also the quality of the portfolio gives us that confidence that we should go ahead and do the business and expand a bit.

But the CD segment, basically, the vehicle financing segment, is still seeing a lot of stress, particularly CD segments and [indiscernible] two-wheeler segment.

I'm not able to hear you, I'm sorry.

Hello?

Can you speak a little louder, Mr. Anand?

I am not able to hear you, Anand.

Yes. So I was saying that CD segment is still seeing stress. The utilization level is pretty slow even now. And I mean given that, how do we expect that this segment will get revised? Are we really looking at the new CD segment or the new CD segment for growth?

We have a balanced book. We don't do -- we do near new. We don't do like that 8-year-old and all that. [indiscernible] vis-a-vis are not capable of doing that business. We have a separate niche in itself, and we don't have that capability to do. I think our -- about 18% to 20% of the book is on used vehicles, and we continue to believe that, that should be the mix of between the new and the used vehicle. I think, like I said to you before, LCV is shaping up. And I think the LCV growth is happening at a faster pace, and we're gaining market share there. That's number one. I think on the MHCV side, I think we -- while I agree with you that it's still at a lower level, but I think it will pick up. And quarter 3 end and in quarter 4, you will see a major growth in that segment, and that is our view on that segment right now after having talked to the manufacturer.

Okay. Okay, sure. Secondly, on the restructuring pool. So you said that the restructuring pool will be in the single digit. Can we expect that to be somewhere about 3% to 4% because that is the kind of guidance which we are picking up from a lot of NBFCs and some banks as well? And if -- the credit cost guidance that we had revised upwards recently about 350 to 400 basis points. What is your view on that now? Most likely you have seen [indiscernible]...

If you -- I've -- what I've told you, Anand, is very clear. It's going to be low single-digit number. And we have taken -- it will be a low single-digit number. And I think we want to continue to maintain that. If I give you guidance and that changes by 10 basis points, I will be held accountable. I think right now -- why I'm not giving you a guidance right now, we have to see how the[ ICA ] plays out. And I'm not sure how the [ ICA ] plays out and all corporates have to go through that [ ICA ] agreement. And we have to see how it plays out. We have not seen so many inquiries right now, but I think we have to keep an open stance to it. But I don't see that causing a low single-digit number.

Okay. And the third thing was about your collection efficiency, which you said around 92.5% or so. So when you see collection efficiency, it is only for the month of October, right? But whatever is not collected in the month of September is...

No. No. I've just told you of the month of September, 94.7%. The collection efficiency in the month of October, while the October month is still going down. And you know most times are very critical. In collection, it's between 95.5% to 96%.

Okay. So whenever collection efficiencies you talked about in the month of October also, so whatever was not collected in the month of September had get billed in the month of October? Or that just goes off the book, you don't raise the demand against that?

You know what we will be able to tell you, see, what you are asking is a very different way of what -- please understand what I'm saying. The demand is rate for both. When the collection guy goes, he goes and collect both installments. What flows into 30 to 60, this is your raw rate basis on the portfolio. So the raw rate on X bucket on 30, on 60 are different resolution rates. And that's called raw rate basis. And those are raw rates into different buckets, and we track those bucket very carefully. As a consequence, we provide provision and we have created our plan as to how we see our credit cost going forward. And that is where we kept the credit cost.

Okay. Sure. So you -- basically, you bill it for October month as well and that is how you're reporting it [indiscernible] for the month of October?

Yes, of course. And you don't confuse DPDs and -- collections are 2 different things. On DPD, once it crosses 90, you have a provision and collection can happen after 90 DPD also. But please understand the provisions had to happen on 90 DPD.

No. So our confusion was basically because there was some management who were talking about your collection actions reaching 97%, 98%, but we are not sure whether they are including the collections which were not corrected in the month of September and they've included in the month of October or not. So there were different views which are coming out. So that's reasonable.

We are talking net numbers.

Yes. We are talking net numbers. And what Sumant mentioned about 95.5% to 96%, which we will establish at the end of this month, is the net number. So if there is that 5% or 5.3% of September, which was yet to be collected, the gross number will be higher. I hope that is clear.

Yes, sir. That's -- thanks a lot.

Vehicle financing incidentally on a gross basis is over 100%.

We take the last question from the line of M.B. Mahesh from Kotak.

Just a few questions from my side. The first one is the provisions [indiscernible] reported in the presentation. [indiscernible] all of these provisions are outside the...

You're are not very clear. Can you -- sorry, can you come closer to your...

Mahesh, the call -- your voice is not clear. Again.

Sorry, can you hear now?

Yes. Yes.

The provisions that you have reported in the presentation [indiscernible] outside the calculation of net [indiscernible], right? The internal process [indiscernible].

Mahesh, we could not hear you. But INR 952 crores...

Is outside.

Is outside the PCR. So we are sitting on -- this quarter, we provided INR 952 crores, which is not part in parcel of our PCR.

And these provisions of [ 2 6 4 6 ] related to nonperforming loans, what exactly [indiscernible].

NPA provisions.

Those are NPA provisions.

Those are specific provisions.

But if I look at the last quarter, this number was [ 2 5 6 6 ]. Quarterly, it is [ 2 6 4 6 ]. But the overall provision, which is sitting in the [indiscernible] in the 2 quarters is much higher.

Mahesh, we are not able to hear you. But if I can infer from your question is that, while we have made higher provisions, there are also write-offs, which reduced the provision. So the net addition that you see in the specific provision is after the write-offs you have taken in the quarter.

I have referred to one write-off also.

Sure. Sure. Okay. Perfect. The second question pertains to your telecom exposure. You've seen a reduction this quarter. Could you give some color on it?

Telecom exposure.

Yes. So on the telecom exposure, we have -- as we have disclosed in the past, we had Vodafone, which is our largest exposure, where we have about a little less than INR 1,000 crores of budget exposure. They did not have no moratorium or anything. They've been servicing their [ dues ]. Other is performance and bank guarantee [ EBIT ratio ], which is about INR 2,400 crores. There has not been any instance of any location or later [indiscernible], so that's just stable. The Supreme Court order, we believe that things are more stable at Vodafone than what was and is stated by the Supreme Court decision. Yes, there is pending clarity required. They have already paid as per their own calculations what is due, more than what is due as of March. Anyway, we have to wait for the [ jury ] clarification on that. That is what Bharti Airtel has also indicated. Otherwise, [ they're paid ]. We did show yesterday that results which came out showed that they are getting a bit more subscriber base addition in the 4G base. They are also getting additions in our CapEx that they're doing. So we believe that there's fund rate also that they're attempting. So things are okay for now. We closely monitor the accounts, and we'll see how things pan out there. Other than that, we have exposure to the other 2 players like Bharti Airtel. We have some exposure to Jio and Tata, which are all reasonably good companies in the sense they're deep pockets, no concerns there. We will continue to look to reduce exposure in the sector as and when the opportunities arises, but not really [indiscernible].

That's perfect. My last question, if I look at [indiscernible].

We cannot hear you again, Mahesh. Please, please...

[indiscernible] in your notes to account, that is a INR 17,600 crores of [indiscernible] and for INR [ 419 ] crores as at the asset classification benefits were extended. Can you just explain what -- how do you define these 2 numbers?

He is talking about the INR 17,000 crores in the published number, which pertains to the SMA, moratorium of any overdue. He just wants to know that.

So the way we look at it was the book, which was -- Mahesh, it is that book on which moratorium was granted. And as of September 30, if it is [ high for the cost ] any overdue on -- in SMA bucket even 1 day DPD, we have declared that book.

For example, the interest dividend line of credit [indiscernible] to be counted.

Yes.

It's not just the flow, but it's just -- that's the way it has been expected.

And this number pertains to March 31 or it pertains to March 1? Or does it pertains to September 30?

Basically, the disclosure is on February 29. What was the book that you had, on which year the extent of the moratoria, and what is the outstanding as on date today. So you [ note the ] capitalization. For example, in many of our portfolios, the debit date is on September 30. It would [ have been not ] serviced, [ we have got ] serviced in October. But on that particular day, we have to take into account that it is not that it's a flow number. It's a number that we...

We just have to take the...

Just take the [indiscernible].

No. I think half of this number comes from vehicle finance, which is less than 15-day and get selected in 15 days, and that's the way we operate. And that is the number that comes in [indiscernible] and get collected. But you have to report it. And even if the collection happens on that...

[indiscernible].

There is a difference between a DPD and a collection. And that is how it happens. So this is the way you report it. RBI -- this is the RBI definition.

But is the [indiscernible]. When I look at the annual report, it shows INR [ 27,700 ] crores. But when I look at this disclosure, it shows [ 17 ] [indiscernible].

It's come down, Mahesh.

It's come down. Some clients may have avail at the time [indiscernible]. Now they're serviced on time after [indiscernible] .

Coming down [indiscernible].

[indiscernible] The disclosure is quite different. Some banks has gone up because depending on which changes the results are published and where we are recognized on that. Very different trends [indiscernible].

We will take that as the last question. I would now like to hand the conference back to the management team for any closing comments.

So thank you for participating in the call. I just wanted to apologize for the delayed start of the call. We were having a press conference and earlier to that, a Board meeting, and that was extended by 30 minutes. So my apologies. I want you also to wish you a happy Dussehra and a festival season ahead. I think the festival season is starting. And let's hope, as the new year dawns, I think the COVID and the pandemic is behind us, and we can look forward to a better next year. And all of us are back in business and doing what we are supposed to do. So thank you. And any queries, and we are always available. Each one of you has access to us, and we will contact you also and have these calls done. Thank you for any individual explanation.

Thank you very much. On behalf of IndusInd Bank Limited, we hereby conclude this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.