IndusInd Bank Limited (INDUSINDBK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the IndusInd Bank Limited Q3 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.

Good evening, everybody, and thank you for joining this call. I will start with some macro commentary and then go into bank specific details. At the macro level, economic recovery continued to strengthen in quarter 3 financial year '21, after a swift rebound in the previous quarter. Manufacturing PMI continues to remain strong, post reaching to record high in October and services PMI remained in expansion job for the last 2 months. GST collections have been consistently over INR 100,000 crore per month. Collectively, this shows sentiments, activity and profitability improving for the industry. While overall demand continues to show robust growth, urban demand has also picked up recently. Rural economy is expected to continue outperforming urban economy and support the overall economic growth. This augurs well with the bank's overall strategy. Overall GDP is expected to turn marginally positive after 2 negative quarters. Retail inflation showed high signs of easing in December, led by easing prices of some food items. Liquidity continues to be abundant in the system with stable interest rate outlook. With accommodative monetary policy, tapering COVID-19 curve and ongoing immunization program, economic recovery is expected to remain strong in coming months. Now coming back to bank-specific commentary during the quarter. We focus on traction on deposit mobilization. Our deposits grew robustly by 5% quarter-on-quarter and SA saw strong momentum, growing 13% quarter-on-quarter. This growth was driven by retail segment, resulting in a retail as per LCR growth of INR 10,000 crores during the quarter, highest ever run rate achieved. Our cost of deposits fell by 24 basis points during the quarter and year-to-date cumulatively by 71 basis points. We have also reduced our headline fixed deposit rate by 50 basis points in December, and it should start reflecting in COD from current quarter onwards. We continue to maintain excess liquidity of INR 35,000 crore with an overall LCR above 150%. Asset growth. We saw demand coming back from all asset classes, especially our areas of domain expertise, vehicles, microfinance and diamond. We maintained our focus on secured loan growth and overall loan growth was 3% quarter-on-quarter versus 2% last quarter. Vehicles and microfinance has seen disbursements returning to pre-COVID level. Diamond industry saw price falling for the first time in 18 months. On the corporate book, in line with our strategy to granularize our exposure, we reduced exposures of around INR 4,000 crores. Having said that, we did see fresh disbursements to wide array of segments, and we expect growth coming back from supply chain and MSME segments besides with corporate. Strong profitability of the franchise continues to remain. Our NRI grew by 11% year-on-year and 4% quarter-on-quarter. This was despite prudent interest reversals of INR 185 crores on pro forma NPA through net interest income. Our NIM was down 4 basis points quarter-on-quarter to 4.12% due to the interest reversal. We saw a fee income contributor changing steadily from noncore fee to client-based core fee. Core fee saw strong traction around, growing 31% quarter-on-quarter. Our revenue was up 4% Y-o-Y, while costs were down 1% Y-o-Y, driving operating profit growth of 7% Y-o-Y. Our revenue at INR 5,050 crore are, in fact, highest ever we have achieved. This has helped in managing a strong operating margin at 5.7% of loans despite the one-off interest reversal. Scaling up new growth areas. Our investments in affluent, NRI and SME segments have started to pay off. Affluent AUM has grown 20% quarter-on-quarter to INR 48,000 crore, including 11% quarter-on-quarter growth in deposits to INR 29,000 crores and delivered INR 60 crores of fees. NRI liabilities grew by 12% quarter-on-quarter to INR 23,500 crores. We are leveraging Bharat Financial for merchant acquiring and adding 30,000 merchants per month. We will continue to invest in new as well as existing business to funnel our growth. Ensuring asset quality. Our vehicle, microfinance and secured portfolios have performed better than the industry. Unsecured retail saw slightly higher-than-expected slippages. However, this is a small part of the overall book. Corporate book did not show any new stress formation. Overall collection efficiency has moved up from 94.97% in September to 97.1% in December. We have followed conservative provisioning approach and added INR 1,100 crores to COVID provision, taking total COVID provisions to INR 3,261 crores. We have improved our PCR from 77% to 87% on reported GNPA and maintains PCR at 77%, even after including pro forma NPA. We have taken 100% provision on unsecured assets, including microfinance, even though we maintain focus on recovery. We have not sold any stressed accounts during the quarter. We have excess COVID provisions of around INR 1,000 crores or 0.5% of the loans outside the pro forma PCR. Overall, loan-related provisions are 3.3% of the loan book. I will share further details later. Capital adequacy. We continue to have comfortable capital adequacy. Our CRAR, including profit, was stable quarter-on-quarter at 16.9%, even after the 3% loan growth, reflecting efficient capital management. We have also a near-term event in the form of warrants issued to the promoters. As disclosed earlier, the SEBI has granted extension till 18th February due to logistical issues, and the promoters have affirmed their commitment to subscribe to warrant on or before 18th February. This will add approx INR 2,000 crores or 75 basis points to our CET1 capital on conversion. We also discussed the Planning Cycle 5 strategy with the Board. Our key beliefs and themes are included in the investor presentation, and I will talk about that towards the end of my remarks. Before I go into the portfolio-specific commentary, broadly on the pro forma slippages and the restructured book. We have pro forma slippages of INR 2,508 crore or 1.2% of the loan, which were benefited from the honorable Supreme Court order on NPA standstill. Of this, 20% came from vehicles and microfinance each; secured retail contributed 15%; and unsecured retail, 30%; and corporate, balance 15%. As we all know, this is an extraordinary quarter, reflecting COVID slippages and won't be appropriate to extrapolate or annualize the slippages. We have made significant provisioning even off of our NPAs with PCR of 77%. We had mentioned expectations on a low single-digit restructuring. Overall restructuring requests have been lower than our expectations. Restructuring implemented as of December 2020 was 0.6%. If we include restructuring invoked and in the process of implementation, then this would be an additional 1.2%, that is total restructuring request of 1.8%. Segment-wise contribution of this 1.8% would be: vehicle, 30%; nonvehicle retail, 13%; and balance from corporate banking. This includes both COVID and MSME restructuring and also cases where restructuring is invoked and yet to be implemented. Quality of restructuring is also comfortable given: one, around 30% is from vehicles, which is well secured and has long credit history; two, corporate book has 2 large resolutions already under work. As mentioned earlier, we are following a conservative provisioning approach well in excess of regulatory requirements. Now coming to individual businesses. Vehicle finance. Disbursements in vehicle are near pre-COVID levels in quarter 3. Overall vehicle loans grew by 3%. Noticeable segments were tractors growing by 13% on the growth of record agri growth. 2-wheelers, cars, utility vehicles and construction equipment each grew around 5% quarter-on-quarter. CV disbursement also showed strong recovery, growing 73% quarter-on-quarter. However, as the collections were equivalent, overall book was stable quarter-on-quarter. The vehicle portfolio has outperformed the market even in the current tough environment. Collections have moved up from 94.3% in September to 96.9% in December. Slippage during the quarter were around 80 basis points, only marginally higher than typical business slippages during -- of around 50 basis points in a quarter. Restructuring was invoked on 1.7% of the portfolio. Restructuring was predominantly from the luxury bus segment. These customers have historically been of excellent credit quality and will be able to get back on fee as the economy opens up further. All these loans are backed by strong collaterals. Losses in case of default will also be range-bound. As the economy continues on the recovery path, the freight demand and the vehicle utilization will go -- have to go up. The much-discussed scrappage policy, if implemented, will also provide a boost to the new vehicle demand. The diesel prices, however, still are firm and putting the pressure on profitability. With bulk of the asset quality issues behind us, we are positioned well to benefit from the recovery in the vehicle industry. Microfinance. We have flagged our concern on Eastern states in January last year, even before the COVID outbreak. We had already tightened our credit filters and ticket sizes. This has helped us in collections better than industry in troubled states as well. Our exposure to Assam is only INR 45 crores. We also reduced exposure to West Bengal from 15% to 13% over the last year, that is 1.3% of the total loan book. Collection efficiency in West Bengal is progressing well from 70% in quarter 2 to 90% in quarter 3 and 93% for Jan till last week. Fresh loan ticket size in West Bengal is at INR 12,600 which is half of Bharat Financial's current -- country average and 1/3 of the industry ticket size in West Bengal. Overall, our conservative business model has helped us with current prices as well. The uniqueness of the portfolio in terms of geographic diversification, rural focus, ticket sizes and exposures much below the industry, weekly collections and professional management with years of experience are key differentiators that we believe will help us outperform the industry going ahead as well. Our incremental pro forma NPA was around 2% of the MFI book, which are fully provided for. Our collection efficiency for Jan is at 96% till last week. Collection efficiency continues to improve as old loans mature and proportions of loan disbursed post lockdown increases. Loan book originated post lockdown contributes to around 56% of the book already and has collection efficiency of above 99%. Overall, we are now cautiously looking at growth again. Growth will be driven more by new customer geography acquisition and less by leveraging existing customers. We have seen traction already on new customer acquisition growing to 4 lakh last month or last quarter from 50,000 in quarter 2. Pre-COVID run rate of almost 1 million per quarter. January number demonstrate improvement in all vectors, that is: new loan, member acquisition and collections. Other retail assets. Our secured retail assets, including loans against property and business banking, have seen stable performances with 1.7% slippage. We expect LAP and business banking to now pivot towards growth as the collection stress is largely behind us. Churn in these accounts is higher than pre-COVID levels, indicating activity with levels of -- and normalizing. Per forma slippages in our unsecured loans was around 9% versus business as usual slippage of 5% and slightly higher than our initial estimate of 7% to 8% due to COVID. The pool contributes 30% of overall slippages. Collection efficiency on early bucket excluding these impacted portfolio is back to pre-COVID levels of around 97% in unsecured loans. Unsecured loans, however, form just 4% of the overall book. We have been cautious on growing unsecured loans for the past several years and have kept it under the 5% cap of the bank. This is a -- there is a strong demand for stressed retail assets in the market. We have not sold any assets during the quarter. Corporate bank. As communicated earlier, we continued our agenda of gradualizing last closures and pushing disbursements into working capital loans for higher-rated customers. We reduced exposures of around INR 4,000 crores during the quarter. We have achieved significant progress on this front. Corporate book outside these repayments saw good growth largely from mid-corporate and specialist segments like supply chain finance and MNC. Corporates fee has become more granular during the year. The investment banking fees are down 60% year-on-year, but improved quarter-on-quarter. We have maintained our top 3 position on debt syndication for the calendar year 2020. As we had upfronted stress recognition in the early part of the year, we have [Technical Difficulty]

Participants, please stay connected while we reconnect the management's line. Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Sir, you may go ahead.

Thank you, and thank you for your patience. I'll continue with my commentary. We were talking about the corporate bank, and we'll just continue our commentary. As we had progressed, upfronted our stress recognition in the early part of the year, we will not see any addition to the stressing. We saw business as usual slippages of around INR 380 crores during the quarter from already identified segment -- accounts. Restructuring invoked in the corporate bank is around INR 2,200 crores. As highlighted earlier, borrowings are predominantly from the most affected sectors such as travel, retail, hospitality, et cetera. It includes couple of largest names, one in construction, and one in retail. This is -- there is resolution already in the works on these 2 accounts and restructured books will further fall as the resolution is implemented. Exposures outside these are very, very granular. Our real estate book has shown good resilience. RE developers had been under stress since the IL&FS default and subsequent liquidity crunch. We have come out fairly well due to careful project selection and [Technical Difficulty] project platform. We have not restructured any real estate project. We have highlighted this earlier, a couple of projects which were under award, as mentioned in quarter 2 call. One of this was taken over by a strong developer and now is out of stress now. We are exploring multiple resolution approaches on the second project and have a 2x collateral cover. All the other projects are progressing well. Gems and jewelry. The book continues to behave like a gem. We have no restructuring of slippages during the quarter. Entire diamond supply chain has behaved gradually both on pricing and inventory management during the crisis. Global diamond demand has seen good recovery in quarter 3, along with decent profit margins. We're seeing supply chains rebuilding their reserves and this augurs well for the industry. Overall, on the asset side, we have seen broad basing on growth across multiple segments. The growth is driven by areas of domain expertise and secured assets. Disbursements action is accelerating every quarter and should pick up as the overall economy continues to bounce back. Now coming to liability. We saw robust growth in deposits of 5% growth quarter-on-quarter, driven by 13% quarter-on-quarter growth in savings accounts. In line with our approach, growth was largely driven by retail customers with 14% quarter-on-quarter growth in retail deposits as per LCR. With strong deposit flows ahead of loan growth, our CD ratio fell further to 87% from 88% quarter-on-quarter. Our cost of deposit reduced further by 24 basis points during the quarter and 71 basis points cumulatively during the year. We have lowered our headline fixed deposit rates in December, and that should start reflecting from this quarter onwards. Deposit mobilization and retail fees to physical branches have improved during the quarter as the operational constraints are easing every month. We have also resumed branch expansion and aim to open another 500 branches in the next 2 years. We further scaled up our approval business with deposits growing 11% quarter-on-quarter to INR 29,000 crore, and AUM growth of 20% quarter-on-quarter to INR 48,000 crores. We are investing in creating dedicated channels for premium acquisitions, service delivery and virtual engagement to provide one of the best client experiences. We also launched metallic credit cards with host of benefits for certain transaction value. We are seeing good interest already from this client base. We are already working on a digitized client journey for an integrated wealth platform to be launched soon. Our NRI business grew to INR 23,500 crores, up 12% quarter-on-quarter. We have launched seamless digital NR account opening and onboarding processes. We're leveraging our affluent offering coupled with convenient banking features like Video Branch to penetrate this market. We continue to scale up our merchant acquiring business through BFIL, adding 55,000 merchants during the quarter. This is currently being offered in 70 locations and will scale up to hundreds of locations in quarter 4. Digital transactions continues to see an uptrend. While channels were already digital, with around 90% digital transactions, products are also getting digitized. Digital fulfillment of SA was 95%, FD at 85% and wealth at 91% for the quarter. Mobile transactions in December was 2x of pre-COVID levels and 40% higher than in September. Borrowings have been selective, keeping in mind, longer tenure and attractive rates. We have maintained our overall LCR above 150%, and our quarter 3 surplus cash balances over INR 35,000 crore. Overall, on the deposit side, we're getting stronger every quarter, and we have built enough cushion in the CD ratio. We will calibrate our rate cut strategy both for fixed as well as savings deposits going ahead. Focus will be more on improving the quality by building sticky granular customer base while maintaining the acquisition run rate. Now coming to the financial performance for the quarter. Quarter 3 witnessed steady operating performance with NII up 11% year-on-year and operating profit at INR 2,965 crore, and was up by 7% year-on-year. We conservatively reversed interest income on pro forma NPAs to the tune of INR 185 crores. Adjusted for this, NII and POP growth would have been 17% and 14% year-on-year, respectively. Our PPOP over loans was healthy at 5.7%, while PPOP margin before treasury income has improved quarter-on-quarter. Net interest margin was down 4 basis points to 4.12%, primarily due to interest reversals. Our cost of deposits and cost of funds fell by 24 basis points and 20 basis points, respectively, quarter-on-quarter. Other income grew by 6% quarter-on-quarter due to momentum in core fee of 31% quarter-on-quarter, driven largely by retail fee. Non-core fee are getting replaced by client fee every quarter. Noncapital consuming fee such as distribution, foreign exchange and trade and remittances are close to pre-COVID levels already. Operating costs were down 1% year-on-year, but inch up by 5% quarter-on-quarter as the business normalizes. Our core cost-to-income before trading gains has improved 300 basis points quarter-on-quarter. We announced bank-wide appraisal actions during the quarter including entering annual increments and performance bonuses for all eligible employees. Now coming to provisions. Our provisions for the quarter was INR 1,854 crore. We have negligible slippages for this quarter. Exposures which received Supreme Court standstill order was INR 2,508 crore. Our SMA-2 book as of September 2020 was 39 basis points. We have created additional COVID-19-related provisions of INR 1,100 crores during the quarter, taking our total COVID-related provisions to INR 3,261 crores or 1.6% of the loan. We have fully provided for unsecured retail and microfinance loan conservatively, while the recovery focus will be paramount. We have increased our PCR from 77% to 87% on reported NPA and maintained at 77% even on pro forma NPA. We have around INR 1,000 crores or 0.5% of loans and surplus COVID provisions not counted in the PCR. Our gross NPA has reduced to 1.74% from 2.21% or excluding standstill benefit are at 2.93% versus 2.32% last quarter, and pro forma net NPA of 0.70% from 0.52%. Overall loan-related provisions are at 3.3% of loans or 111% of the pro forma gross NPAs. I think we are comfortable in provision, looking at the stress book and the cushion we carry outside the proforma PCR. Our effort will be to remain conservative and build provisions ahead of the curve based on the loan deposit probability. Our healthy operating profit margins can comfortably absorb these provisions. Our PAT continues to show a strong upward momentum growing at 25% quarter-on-quarter despite we being cautious on provisions in these uncertain times. Profit for the quarter was at INR 830 crores. We have maintained healthy CRAR of 16.9%, including profit for the 9 months. I will now spend a few minutes on our PC5 strategy. We have postposed presenting the PC5 strategy for a couple of quarters given the uncertain macro environment. With economic revival evident all around, we believe it to be an appropriate time to present our strategy for the next 2 years till March '23. The strategy for PC5 is to scale with sustainability. While we have outlined those areas for the bank, we have also identified constraints within which we want to operate and to grow sustainably. Most of these themes reflect my earlier communication on our business build out philosophy. Key priorities for PC5 are: surge in retail deposits. We will continue to invest -- we will continue investment in distribution and leverage maturity of existing network. New business such as affluent, NRI, Gift City will be scaled up. We are investing in digital sourcing through partnership and build a new subbrand for millenniums. Rural deposits will be driven by the BFIL integration and doorstep banking approach. Second, sharpening of corporate bank. Focus on building more granular, shorter duration analysis-driven portfolio. Growth will be through building specialization in segments such as supply chain finance, MNC, et cetera. Portfolio monitoring unit mandated for improving RORWA for the business. Third, holistic rural banking approach. We have one of the largest distribution in rural India and scaling up unique Bharat Money Store model for providing doorstep banking. Micro finance will continue to be mainstay of our rural strategy and initiatives into SME and government mandate will leverage this franchise. Universal banking model will provide efficiencies of scale and synergy, along with improved underwriting quality of this segment. Scaling up areas of domain expertise. We have domain expertise in vehicle finance, microfinance and gems and jewels. These segments have strong risk-adjusted results across the cycle. All these businesses are coming off a down cycle, and we maintain or improve our market share as the segment picks up. Adding growth boosters. We are investing in affluent banking, NRI banking, SME and digital initiatives. We are already on track on this. We have scaled up milestones. We will also scale up PC-4 new initiatives like tractor finance and affordable housing. While we implement these initiatives and business as usual -- and as business as usual scale up, growth will be unpinned by digitization and sustainability. With focus on customer centricity and human-centered design, bank is set to launch a number of digital initiatives across the life cycle for individual and SME segment. We are creating ecosystems and marketplace relevant for the bank's strength, such as retail finance and business owner segment. Digital will also be leveraged for better risk and portfolio management through early warning signals and automation of processes. Sustainability is embedded into our business model, and we had already disclosed our ESG targets. We will further this agenda in PC5 as well. We have also laid out constraint which we want to conservatively operate into. We had laid out boundaries in terms of CD ratio, provision coverage, capital adequacy, liquidity profile, et cetera. These will be paramount and won't be sacrificed for growth. While we have lost 1 year of this planning cycle due to COVID, we have nevertheless spent this time on building foundation for the growth to follow. We have added a few slides in our quarter 3 presentation, outlining broad themes, and we can dig deeper into in any of these during the question-answer if you have any questions. With this, we can now start the Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Kunal Shah from ICICI Securities.

Yes. Congratulations for a good set of numbers. On Planning Cycles 5, earlier, we used to have para-banking as well as one of the strategy. I think there is nothing highlighted about it. So what would be the roadmap in terms of the para-banking businesses, if you can say over the medium term? That was the first question, yes.

Kunal, we remain committed to para-banking. The issue is the guidelines are unclear, and there is a paper which is being discussed and response is being discussed by the RBI right now. And in my view, putting it into the PC5 will not be an appropriate path right now because the clarity has to emerge, and we've been talking for it for the last 3 years. If we get an opportunity, we may not shy away from buying a stake and say how it graduates. We continue to remain interested in non-life, AMC, brokerages. So these are 3 areas which continue to excite us.

Okay. Sure. And secondly, in terms of this entire current account discipline, is it having any kind of an impact? And is there anything to read through in terms of some sequential decline in the CA deposit proportion?

Yes. So our CA deposits did go down by INR 2,000-odd crores during the quarter. One is about 50% to 60% of that, 55% to be precise, was lost when there was a dividend mandate. And you know that dividend mandate money just goes out. So I think that was a September end phenomenon where the mandate came in and it disappeared. Having said that, I think the balance amount, I think, is part of the CA rationalization process and while we are doing, I think this is the -- I think it's the type of a loss which we've seen. And we always said that we will see INR 600 crores to INR 800 crores of loss with some loss which will happen, and that's because of the accounts moving into the CC/OD limit. Because that's the new that if you need to have a current -- if we have clients as a CC/OD, you have to move these funds into CC/OD limit. Kunal?

Okay. Yes, sure. But sir, besides that, any other impact in terms of CA discipline are we saying? Is it beneficial? Have we gauged in terms of the overall impact for our bank?

Right now, we don't see any other impact. In fact, on acquisitions, when we do our acquisition, we have to check for the CRILC database for every account opening and the process for new account holding has now been changed because they want us to check for the CRILC database before we open account, any current account.

The next question is from the line of Nilanjan Karfa from Nomura.

So in Q2, we basically said our total SMA-1 plus 2 was about 33 basis points, right? So post these kind of slippages that we have witnessed, how do you look at the overall book? Are we done? Or there's still balance amount which can come next quarter and maybe the following 2 quarters? How do you look at that?

On the corporate side, whatever had to be involved for restructuring has been invoked. You cannot invoke any further. The approvals are pending, and that's why I said that we have 60 basis points of restructuring and 120 basis points, which is pending approval. So please understand on the corporate side, that has happened and it's grown. I've also told you that whatever were accounts which were showing stress, we had already taken the provision earlier on in quarter 4 of last year and quarter 1 of this year. That's why we had an elevated corporate provisioning at that point. If you see last 2 quarters, the flows had moderated a lot in the corporate, actually were negligible. And I think you should continue to see such type of flows going forward. And there is -- in the pro forma also, there is not anyway, there is nothing which is there in the pro forma on the corporate side.

Right, right. And on the...

I am getting more and more confident about our corporate book. And I think it's something which we were very proud of, and I think we created -- we had some problems, and I think we've come back very, very strongly. And the way we are moving and we're getting more granular, I think we should see a very good corporate cycle in this deck.

Right, Sumant. I mean that's probably reflecting in the kind of sequential growth we have seen in the mid- and small corporate. But would you have color where we are growing? I mean, which segments are we growing in?

So I think in the corporate, I think we are growing in the supply chain finance vertical. We are growing in the logistics area of the unit. And we are growing in the working capital, specifically in the MNC side because of the supply chain which we are dominating. And gems and jewelry segment, if you see our gems and jewelry, I think that has shown a fantastic growth, and it continues to be our prestige portfolio, the most prestige portfolio which we have in the bank.

Sure. And the final question. The Slide 27, where you have put the NPAs for consumer finance? Are those pro forma numbers or pre-SE? I mean and if it's pre-SE, could we have the pro forma numbers?

Pro forma -- the gross NPAs are reported in the -- and I think what will come in now is only another 20, 30 basis points, which will come in because of the MSME in the quarter 4.

Nilanjan, the numbers reported in our presentation are as reported GNPA. They don't include pro forma. The split of pro forma slippage, Sumant spoke about in his opening remarks, between retail, vehicle and other portfolios.

Yes, and the pro forma numbers are given on Page -- Slide 2 and again referred to in Slide 26.

The next question is from the line of Abhishek Murarka from IIFL Capital.

Congratulations for the quarter. And actually, my questions has been answered.

The next question is from the line of Aakriti Kakkar from Goldman Sachs.

Sumant and team, this is Rahul here. Congratulations. I have 2 or 3 questions. And number one, in terms of recoveries in your corporate portfolio, while you've recognized lot of stress, do you recover any lumpy recovery that might come through over the next couple of quarters?

Okay. We've already got INR 210 crores of recovery last quarter, and that is reflected in our books of account. I think the IL&FS recovery is something which we continue to wait for. But there are recoveries, which are pending. There are 3 or 4 recoveries, which we are working on. And I think these are all lumpy accounts where we had a problem. And I see these recoveries happening between quarter 4 and quarter 1. I cannot comment on IL&FS. I've always said that it will come in quarter 4 but it continues to get delayed. The whole order has been passed, but it continues to get delayed.

So this quarter 4 and quarter 1 is ex of IL&FS? You're expecting some recoveries to flow through?

Absolutely.

And this would also, I guess, include one housing finance account, which is almost resolved. Would that be a fair understanding?

So we had a bond on the Dewan Housing. And I think we have already in this part -- in this...

We have no possession.

We have no possession on the Dewan Housing. We've already sold it.

Yes.

Okay, okay. Got it. The other question is, have you bought any portfolios, particularly in the retail unsecured in the third quarter what is called inorganic growth?

Neither have we sold, neither have we bought.

Got it, got it. And the final question is, is it possible to get the retail overdue buckets, let's say, 30 to 60, 60 to 90, what would the status be as of December?

We try to give as much disclosure. And if you see, in one of the slides, we had given collection efficiency on a domain presentation and also for each product. I think to discuss this, we can give another slide which gives some number to give you. We wanted to bring transparency also on the restructuring and every point of it. So we'll see whatever we can do, we will see what we can do.

No. I appreciate that. I think great set of disclosures there. But just in terms of qualitative sense, if you can just help us understand how the overdue book would be looking like as of December versus, let's say, March of last year?

It is -- overdue book has come down dramatically. And I think these questions are raised because if you go to the CIBIL or the Credit Bureau's database, and you will see all the efficiencies are at 15% or 20% delinquency. Let me tell you, I think those collections are overdue and does not mean that they will continue to be delinquent. Clients may have one installment or 2 installments delinquent. They keep on paying one installment and continue to be in that one installment bucket or an X bucket over a period of time. So please, my response to all of you is why do you look at data? Please do not look at data that way. We are disclosing the data. And as it is by law, we have to do a daily recognition of NPAs and it's all an automated process without a touch of hand. So if you look at, for example, if you go to the commercial vehicle portfolio, you will see 10% delinquency. Actually, that delinquency is because the client continues to pay one installment and remains in the 30-day bucket or an X bucket. So you will say, oh, the overdue was like that. But really, that overdue is advantageous to the bank because he continues to pay late fee, and he continues to maintain his portfolio at X bucket or 30-day bucket.

Got it. Fair. Just one last question, if I may squeeze in. On the corporate side, so you've stuck on to your initial commentary about shedding off some book. But are we done with that exercise? By when -- or maybe do you plan to start growing that portfolio at some stage? Because you said it's in a very good shape. So should you assume that it kind of bottomed out in terms of rationalizing that portfolio?

Give us another quarter or so, I think we are bottoming out, and then you will start seeing the growth. And I think from that -- next year onwards, you are going to see growth in the corporate bank. And I think you will start seeing that growth. I think it's very important that some large exposures are felt and we are doing that.

The next question is from the line of Ashish Sharma from ENAM Asset Management.

Congratulation on good set of numbers, sir. Sir, just on the question on net interest margin...

Excuse me, this is the operator. Mr. Sharma, may we request you to use your handset, please. You're not clearly audible.

Okay. Am I audible now, sir?

Yes, better.

Yes. Very well, Ashish.

Yes, yes. So the question would be on net interest margin outlook. So now you've already mentioned that we will be cutting down our deposit rate. So I mean, the outlook would be for FY '22. Where do we see the net interest margin range? And a second subset question would be on the yields part for both corporate book and consumer finance book. Do you see that we've already seen the reset in yields? And from here on, we don't expect much of a sort of a decline in yields, both in corporate book and consumer finance? That will be my first question, sir.

Ashish, you have to look at it in a different way. I think we've always said, irrespective of whether we get an advantage or not, we will remain in NIMs between -- range-bound between 4.15% to 4.25%. That's been our commentary throughout, number one. Number two, the reason for that commentary is that we continue to invest in our corporate franchise, and we continue to want to do working capital loans. And they come at a very attractive rate. We believe that, that's an entry into the compliant wallet for deeper fee revenue wallet of transaction banking products as well as FX products. So I think we can increase our NIM, but I think it is very important to continue to maintain it range-bound and continue to create a balanced portfolio in our bank. Our premise is that a balanced portfolio is the best way to create the business. And I think we will continue to be range-bound in our margin. On yield, like I said, if you look at our domain specialization businesses, I think our yields are now range-bound and continue to be range-bound. The yields were affected in the consumer bank, not because of this. I think, yes, there was a flight in the commercial vehicles but it was affected because of the net -- the interest reversal, which we had to do on the book because of the NPA recognition. And that is almost 30 basis points, which got affected -- 20 basis points, sorry.

Okay. Sir, the reason I was asking that the cost of deposits for IndusInd Bank is quite high vis-à-vis the other large private sector banks. So this doesn't sort of impact your ability to -- I mean, you can still lend profitability -- profitably to the corporates and be relevant in terms of pricing?

Let me tell you, whether we were high or low, corporates won't take money from me, and we have an independent unit. Corporates won't -- the risk assessment is out of question. There is no interference. And we won't -- the corporates won't take money from me because I'm offering a better rate. They will take because I'm competitive in the market. And I think, please understand that I may sacrifice -- that's why I'm saying I may sacrifice margins to get corporate bank because it gives me an entry into better corporates that have better wallet. Having said that, the mix change which is happening, so if you look at now, we are at 58-42. If you look at the start of the year or last year, we were always corporate 52 and consumer 48. So I think that mix change is also affecting the business. And as we do the mix change and remain between 55% to 60% retail and corporate, I think we are well within our way to -- on our way to maintain the margin of 4.15% to 4.25%.

That's perfect. And just lastly, on credit cost for FY '22. Now we've already provided quite a high amount of provisioning. Any outlook you can give on the credit cost for FY '22? What's the normalized number we should look at? That will be all, sir.

I want to just lay down that we will continue to be conservative as a bank. We will continue to provide ahead of the curve. And I think you will see us providing some more in quarter 4 and making sure that we fortifies our balance sheet as we move forward. And if we do that, I think it's anybody's guess how next year will work. If the COVID plays out, I think we should see normalization happening in the bank.

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

Sumant, congrats on good set of numbers. Question is on the microfinance business. You did touch up on collections, and you did give us details regarding the slippage. It seems it's like 2%, which is pretty low vis-a-vis trends that we've seen for some of this year's rather expected stress. And you do have exposures, while it's low in Assam, but still meaningful in Bengal. So if you can talk about what is helping us, that will be great. That 2% stress in MFI in this environment is very good. So if you can talk about it?

Two things, Adarsh, and let me just repeat what I said. I think we had seen ahead of the curve, and that is Bharat Financial's management team. Let me be candid. Ahead of the -- that there is problem which are brewing in the eastern part of India. And we had never gotten away from a commentary. In every meeting, we had set eastern part of India as a problem in the microfinance space. We started reducing our exposure. So Assam, we have INR 45 crores only. And I think we had already provided for that long time. In the West Bengal, we have 13% of our book, and the ticket size was reduced to INR 12,600. And it's an affordability issue which comes in as a consequence of that. Please understand our ticket sizes are not INR 60,000 or INR 50,000. We reduced the ticket sizes well in advance to make sure that our book is -- has the ability to pay remains in the business. And I think that is the reason why we are seeing what we are seeing. And third, I think you have to understand, West Bengal is not fully like that. There are districts in West Bengal which is a problem. You have to understand where to play and where not -- where to exit. And we exited those districts very early in the game. So please understand, you can't look at one state as full one state. You have to go to the district level and see where the businesses are, and we have branches and we exited those branches. Having said that, I think we have taken INR 471 crores of NPAs in this quarter -- of pro forma NPAs in this quarter. I expect another INR 100 crores of NPA in the next quarter or above INR 100 crores, INR 120 crores of NPA in the next quarter. That's the number which we get -- it will be -- it will not exceed 3% in our estimate right now. I'm giving you a guidance of that number.

Got it. That's helpful. And second question, Sumant, is on ECLGS. If you can talk about what you have given in terms of sanction and disbursements? And how much of use of ECLGS, and this is a question, not just to you, but across the system, helps you in reducing spreads, and that will actually get stress tested maybe only next year, right?

So you're absolutely right. We were very cautious. We had sanctioned only INR 4,400 crores and disbursed INR 2,900 crores. We only wanted to give this to viable businesses. And we were very, very cautious about whom to give and whom not to give. Having said that, if we create our provision coverage well and we have enough buffer, I do not see a risk of these businesses coming back. And I think the viability, the way the credit assessment and the check was done for the viability of the business, I think is an important determinant as to how the ECLS (sic) [ ECLGS ] would work out. And I think we are very, very comfortable and I think we have to wait a lot. It's easier said than done. That means we have -- if you take it as 20%, we have a INR 10,000 crore portfolio, which is on ESLGS. And we have to continue to watch that portfolio. And we're watching that portfolio, and we are not seeing any adverse reactions right now, which is outside our BAU.

Sumant, would it be possible for you to share broadly where this ECLGS would be sitting, which portfolios? I understand it'll be business banking but is it there in CDs and other portfolios?

Yes. So -- this is Ram here. So we have on the retail side, which is about INR 800-odd crores. So that must be sitting within some of the CD portfolio and some of the other customers retail side. INR 2,100 crores of that is in MSME, in business banking and some of the small and medium enterprises. Large corporates, obviously, there was none requested there. So our ECLGS too also, the pickup has been very slow, though it was recommended, and there was an initial one, we haven't seen much yet uptake on that because of the implementation of the securitization, et cetera. So as we move to the sanction, we have not disbursed fully. So INR 800 crores would be in the retail side, INR 2,100 crores would be in the MSME and BBG.

The next question is from the line of Manish Shukla from Citigroup.

For PC5, is it fair to assume that our retail growth will continue to offset wholesale growth?

Yes, you can assume it. And I've also said that we will continue to maintain a mix of 55% to 62% between retail and wholesale. So retail being 55% to 62%, and wholesale being 45% to -- 38% to 45%. So I can't give specific. I'm giving you range-bound because it'll continue to change quarter-on-quarter.

Sure. That is good enough. So what implications, if any, does it have for your cost-to-income or cost to asset trajectory going forward?

So we continue to believe that our PPOP margins will continue to be maintained greater than 5%. And I've said that before. We continue to believe that our ROE -- ROA will be range-bound between 1.4% to 1.7%.

1.4% to 1.7%. Okay. So that was -- I mean, I was trying to arrive at that number. So pre IL&FS, we used to be about 1.8% kind of a ballpark ROA. You see getting that by the end of PC5?

I don't want to comment on it. I think I've given you the range-bound. And I think you can compute it basis the mix which we are changing and the types of portfolios which we have. And if we are conservative on our provisioning, and we have enough buffer result, we would have -- it's a different business altogether. Because I think take the first this year, balance the next year and the next year, I think that is our strategy.

Sure. Fair enough. And in your opening comments, you had given segment-wise breakup for pro forma slippages and restructuring. If you don't mind, can any please repeat it?

Yes, yes. Sure. One second. Okay. So we had a pro forma slippage of INR 2,508 crores or 1.2% of the loan which on the -- because of the NPA standstill. Of this, 20% came from vehicles and microfinance each. Secured retail contributed 15%, unsecured retail, 30%; and corporate, balance 15%.

Sure. And restructuring, please?

Yes. I think on the restructuring, which is including approved and invoked, I will give both the numbers because I want to give you both. It's not about giving one. Vehicles is 30%, non-vehicle retail is 13% and balance for corporate banking. There is no restructuring on the microfinance segment.

The next question is from the line of Saurabh from JPMorgan.

Sir, I just had 2 questions. One is on your Slide 24. So fair to say that the standard asset buffer is 108 basis points right now?

One second. Let me just see it. This is -- standard asset provision is as per the RBI regulatory that you have to create a standard asset provision. So this is as per the RBI regulation that you have to -- as of total book, you have to continue to create a provision.

No, no, sir, I was asking standard assets plus the provisions not taken for pro forma NPL. So that number I just wanted to confirm. That will be 108 basis points, right, standard plus all the floating, except for our NPL -- pro forma NPLs.

Yes, it's about INR 2,200 crores. So what is outside our PCR, there is a standard provision of INR 1,015 crores. There's other provisions of INR 150 crores, and there's about INR 1,000 crores on the excess COVID provisions, which are not sitting in the PCR.

Okay. And sir, do we have a target of where you want to take it?

I think wait for the quarter 4. I've told you that we will be conservative, and that's the clue point which I want to give you. You will not see us rushing into profitability. I think we like profitability, but I think we like to create a very balanced balance sheet and a secure balance sheet.

Okay, okay. And sir, just one question on restructuring. So on the real estate part, were any DCCO extensions given or no?

No, sir.

There was no restructuring. [ Madhav ], there was any DCCO extension?

No, no. There was DCCO extension in real estate, yes, in a few projects because of the COVID part, there was the margin extension. So under RERA, they were allowed to extent. So we have also matched that extension. But the projects are all up and running. So I think there must be about -- it's in single digits, right, these extension, not material for the overall portfolio. But this is being carefully assessed. It has not been one blanket, based on the RERA and the collection [Technical Difficulty] in residential unit.

Okay. Single-digit of the residential portfolio?

Yes.

Yes, yes. We are talking about 4, 5 projects here. And they are all doing fine.

Ladies and gentlemen, we take the last question from the line of Anand Dama from Emkay Global.

Sir, there was this social security code related provisioning that actually banks have done in this quarter. Have we also done similar kind of dispensing in this quarter or not yet?

I couldn't understand the question. Please repeat the question.

Yes. So there was this social security code, which had come somewhere in, I think, October, and there were some provisioning that they had done in the staff expenses in this quarter. So have we also done something similar in this quarter or not?

So we have -- we have assessed it. And by quarter 4, we will take a provision. We have not taken any provisions on that count right now. But the number will be very, very small for us, but we are assessing it. It may be incorrect for me to comment on it right now because I think we are going through a CA office also. Our chartered accountant is verifying our numbers before we make the number public.

Okay. Okay. And so you can't put a figure to that?

I'm not able to understand you.

It's not going to be very significant.

Not very significant, but I don't want to -- please wait for our disclosure on this.

Okay. Sure. Sir, secondly, can you also provide the details of restructuring under the DCCO or the MSME restructuring scheme, which is the old scheme?

So I think -- this is Ram here. The MSME part is already in the numbers that Sumant has already spoken about. That includes both for COVID and the MSME part. On the DCCO extension, we just mentioned in a earlier response, in single digits for a few projects, 4 to 5 projects, our DCCO extension with residential real estate [Technical Difficulty]. And these projects are pretty large projects. Sorry?

So what's the amount under the DCCO extension?

I don't have the amount off hand. I will pass it on to Indrajit and he will discuss with you.

Okay. Sure. And sir, can you -- I mean, can you provide an outlook on the vehicle financing segment altogether in terms of growth and how the asset quality will shape up going forward, and more so in the CV space?

So we have a partner with us. I just want to give you a broad -- I think this is one of our dominance, and we believe very strongly in this business. I think it has been 30 years of business and ups and downs on this. The way the growth has come back in the last quarter, and we see this quarter, I think, is something which we are very proud of, except for certain segments and subsegments in the medium and heavy commercial vehicle, where I think the buses segment has been affected. I think the growth is coming back in all our vehicle finance subsegments and portfolios. The collection efficiency of this portfolio has been at around 96.5% or...

96.9%.

96.5%.

96.9%.

96.9%. And we continue to believe that we will continue to improve as we go further into this portfolio. I have Partha to talk about it because he's run the business for a long time. Yes, Partha?

Yes, Anand. See, commercial vehicle as well as all vehicles have been improving quarter-to-quarter. This quarter, we had more or less, in disbursable terms, we have caught up with the last year. I would say that last year, the disbursement during quarter 3 was about -- close to about INR 9,000 crores, now it is about -- close to about INR 8,000 crores. And barring commercial vehicle, most of other vehicle categories, we have matched the disbursement figures for the last year. As regards the portfolio as well as the portfolio status is concerned, the vehicle utilization has been improving month after month. There has been some sort of an issue in terms of viability, primarily because of increased diesel price. If they -- should that also get corrected on the viability as well as the freight rate, we should see no issues in terms of the portfolio health going forward. That is the only caveat which we have. Otherwise, we believe that the portfolio should behave more or less the same way as it has been behaving for quite long. This is as far as the portfolio is concerned. And I would think that the demand going forward -- so there is still certain amount of overcapacity in the market. Demand, I think, will get connected in a couple of quarters. I would say that next year commercial vehicle will see a significant growth because of low base for the current year as well as correction which is expected to take place in the next year.

Sir, is it possible for you to give the pro forma NPA and restructuring for CV portfolio, specifically?

We've just given it to you. And I think we have -- I'll give you the CFV portfolio, the slippage is INR 502 crore, out of the INR 2,508 crore. And the restructuring is INR 1,023 crore on the restructuring base out of the total restructuring which we have done of 1.8%.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Kathpalia for closing comments.

So I think, thank you for your participation. I just want to tell you that the bank has become much more stable, much more resilient to any shock as we have over the last 3 to 4 quarters. We continue to remain conservative. And we will continue to be transparent and provide any information which is required to gain the confidence of the market. Thank you, and Indrajit and Sanjay are available for any further clarifications which you may require. We tried to give all the clarifications in this document, in my speech. But is there any further clarifications, we are willing to provide any time. Thank you so much.

Thank you very much, sir. Ladies and gentlemen, on behalf of IndusInd Bank Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.