IndusInd Bank Limited (INDUSINDBK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to IndusInd Bank Limited Q2 FY '22 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, and thank you for joining this call. I will start with some macro commentary and then go into the bank-specific details. Economic activity is gradually improving with easing of mobility restrictions, rising pace of vaccination crossing 1 billion mark, growing exports, favorable financial and market conditions and increasing government capital expenditure. Consumer and business confidence on future prospect is also improving. Strong performance of the farm sector, pick-up in the manufacturing activity and now even a recovery in the contact-intensive services bodes well for the growth in the bank credit going forward. A decadal low interest rates across major segments is also expected to drive up credit demand, helped by the receding of the pandemic-related disruption, as almost 65% to 70% adult population is likely to be fully vaccinated by year-end. Key risks to the Indian macroeconomic stability and prospects are seen from adverse global developments around commodity price spikes, supply chain disruptions and faster-than-anticipated tightening by major global central banks. With foreign exchange reserves at record levels, improving external balances, inflation within the target bank and the growth picking up, Indian economy can negotiate the global headwinds successfully over the coming year. Now coming back to the bank-specific commentary. We will upload this commentary on our website for ease of reference after the call in case you missed any of comments. We have also refreshed our investor presentation with some new details. I hope you will find them useful. Turning to quarter 2. During the quarter, we focused on strong loan momentum. Our loan growth continues to improve every quarter with quarter 2 growth at 10% year-on-year and 5% quarter-on-quarter. We saw most of our retail product disbursements crossing pre-COVID levels. The corporate book, too, accelerated growth momentum. Overall, corporate grew 7% quarter-on-quarter, while consumer grew 3% quarter-on-quarter. Maintaining deposit traction. Our deposit growth was strong at 21% year-on-year and 3% quarter-on-quarter, driven equally by CASA and term deposits. Retail deposits as per LCR were even stronger by 48% year-on-year. The deposit traction was -- has remained healthy despite the rate cuts on our savings as well as deposit rates last quarter. Our cost of deposits have thus reduced to 4.85% from 4.97% last quarter. Asset quality, we saw collections getting back to normalcy across our portfolios wearing small pockets in micro finance. As the accessibility was impacted during quarter 1, in some states -- and in some states in quarter 2 as well, and given the high-touch nature of vehicle and MFI business, customer moved into NPA and came out as we collected payments. Overall, collections of -- for September were at 98% as against 96% in June. Slippages during the quarter, net of upgrades and recoveries, reduced to 0.57 percentage as against 0.90 last quarter. As a result, our credit costs have fallen by 35% quarter-on-quarter from INR 1,132 crores to INR 752 crores. We have maintained our PCR at 72% and increased our contingent provisioning to INR 3,178 crores or 1.4% of loans. This includes prudent contingent provisioning -- provisions towards the stressed telco and we'll share further details later. With this, I believe, all legacy exposures are taken care of, and balance sheet is well positioned to support growth. Maintaining profitability of the franchise. Our operating profit margin remains healthy at 6% of loans. Our NII grew by 12% year-on-year, ahead of the loan growth. Fee income grew by 18% year-on-year, driven by client fees, particularly in the retail segment. While operating expenses are normalized as activity levels picked up, the cost-to-income ratio is still better than pre-COVID level. This ensures maintaining a healthy operating margin. Scaling up of new initiatives. We continue to scale up our new initiatives of affluent, NRI and Merchant-acquiring business. Approvals deposit base grew 48% year-on-year to INR 35,700 crores, and AUM grew 42% year-on-year to INR 61,800 crores. NRI deposits grew 31% year-on-year to INR 27,500 crores. Our merchant acquisition, through Bharat Financial, added 120,000 merchants during the quarter, taking total onboarded merchants to 320,000 merchants now. Of this, 175,000 customers are borrowers, and loan book originated crossed INR 1,000 crores for the first time. Digital launches. We continue to execute our Digital 2.0 strategy, and quarter 2 saw new launches in terms of Indus Merchant Solutions application, IndusEasyCredit Stack for business and debit card EMI on IndusInd Bank debit card. I'll give you further details subsequently. Capital adequacy. Our capital adequacy remains comfortable and improved to 18.6%, including H1 profits. We have received both approval for receiving Tier 2 bonds of INR 2,800 crores. This will further augment our overall capital adequacy levels. Strengthening the leadership team. We have made key changes in our organization structure over the last few months. The focus has been to strengthen our corporate franchise, along with the assurance functions such as risk, compliance and audit. There have been some lateral hiring along with internal allocations -- reallocations. Overall, I believe the leadership team is now all set to deliver the PC5 ambition. We will talk about the leadership team changes in the specific segments. Now overall coming to individual businesses. Vehicle finance. Our vehicle finance disbursement saw strong come back during the quarter. The disbursement for the quarter are at INR 8,600 crores, grew by 62% year-on-year and 76% quarter-on-quarter. The disbursements were also mean higher than the pre-COVID September 2019 quarter. This makes it the first quarter after COVID outbreak where disbursements have been higher than the pre-COVID level. The bank has caught up on disbursement to pre-COVID levels, whereas the industry volume is still low, indicating continued market share gains across the products. Within the vehicle categories, disbursements picked up significantly for commercial vehicle and card. The practice and construction equipment continued the good run throughout the pandemic period. We have been cautious on the small-commissioned vehicles and two-wheeler growth. The loan book has remained stable, owing to higher run down -- or has remained stable owing to higher run down due to contractual maturity and focused collections as evident from the recovery. The collection momentum has resulted into strong recoveries, and vehicle gross NPAs have reduced quarter-on-quarter across various segments. We saw upgrades and recoveries of INR 555 crores in vehicle finance during the quarter. As highlighted earlier, we saw customers opting for restructuring to tide over the COVID 2 lockdown impact. The vehicle finance restructured book increased from INR 3,089 crores to INR 3,969 crores quarter-on-quarter. On this restructuring, around 80% comes from the contact-intensive MSCV and three-wheeler segments. Balance 20% is spread across all of the vehicle categories. The restructured customers had been of acceptable credit risk pre-COVID, and the portfolio's well collateralized, giving us comfort on potential delinquencies. We see freight availability improving every month. And as collections normalize, the reversal will start reflecting in the loan growth from this quarter. Microfinance. Microfinance has shown a strong growth recovery and COVID spread coming under control. We saw loan growth of 26% year-on-year and 9% quarter-on-quarter on a week basis. Collection efficiency for the quarter were at 94.7%. We have seen acceptability improving during the quarter across most of the country, except for -- in Kerala and a few districts of West Bengal. Collection efficiency, excluding Kerala and West Bengal, is close to pre-COVID levels. The gross slippages during the quarter were INR 1,070 crores. As the accessibility and collections improve, we saw customers clearing up the dues, resulting in upgrades and recoveries of INR 610 crores. The slippages thus, net of rate, were INR 460 crores or 1.6% of the loans. We had highlighted in the last analyst call that customers of INR 500 crores of portfolio had invoked restructuring. We saw subsiding implemented for these customers during the quarter, along with the fresh restructuring of INR 407 crores. Thus, the total restructuring as of September 21 was at INR 907 crores. Over 55% of the restructured customers have completed at least 3 loan cycles with us, and over 81% completed 2 loan cycles. These customers have strong payment track record and expect majority of the restructuring pool to show comfortable payment behavior. Looking at the overall collection trends. COVID 2 stress in terms of credit cost and restructured pool is likely to be between 6% to 8% for the year, in my view. The restructured pool is likely -- the expected spread is higher than the first wave due to deeper COVID spread in the rural area and nonavailability of moratorium in the second phase. We are conservatively fully provided on the gross NPA and carrying contingent provisions to absorb the impact. The overdue bucket have also fallen by half during the last quarter, indicating that delinquency should normalize post December quarter. We have also scaled up our non-microfinance initiatives. The merchant acquisition business grew to 320,000 merchants. The loan book crossed INR 1,000 crores for the first time from borrowing customers base of 175,000 merchants. We have also scaled Bharat Money stores from 75,000 to 91,000 during the quarter. This business will add diversified revenue streams to people. Overall, we are seeing credit demand coming back to the rural economy. We have been cautious on new customer growth and acquiring them only from well-performing districts. We remain vigilant on ensuring collection efficiency maintains upward trajectory. Other retail assets. This segment contributes 15% of the overall loan book and includes secure as well as unsecured retail assets. After navigating through a rather subdued quarter 1 due to COVID, asset disbursals resumed growth in quarter 2. Growth in disbursal for business across secured and unsecured loans. LAP and business banking disbursements are back to pre-COVID levels and expect to maintain traction in coming quarters. We had highest ever credit card spend at INR 2,230 crores, which was up 55% year-on-year, which was highest ever monthly new card acquisition crossing 50,000 cards in September 21. Our credit card spends for client in September have grown 52% quarter-on-quarter and 81% year-on-year. We have launched co-branded partners with Vistara during the quarter, which has seen good customer response. Our proposition is well received by affluent customers with an average transaction size of over 2x compared to other cards. The collection from the consumer segment has stayed stable throughout the COVID second wave. Corporate Bank. The corporate bank continues its growth trajectory this quarter as well with quarter-on-quarter growth of 7% and year-on-year growth of 15% with the loan book realignment getting behind us. This growth was driven by demand from NBFC, roads, education and textile segments, particularly from the higher rating profile, shorter duration and granular exposure as per our revised underwriting. Average rating profile of the corporate book improved from 2.63 -- to 2.63 from 2.87 Y-on-Y, which is equivalent to A rating. Slippages from the corporate book at INR 252 crores have remained small in this quarter as well. We have also seen positive movements in a few restructured accounts and expect upgrades to happen at an appropriate time. We had, in past, disclosed to a stress telco of INR 95 crores of fund-based and nonfunded exposure of INR 2,276 crores. As you are aware, the government has announced major relief package improving the viability of the telecom sector. This and other developments have reduced default risk, particularly on the non-fund exposures in my view. We believe our guarantee exposure could come down in light of these developments, and I will update you once the clarity emerges. We have, nevertheless, prudently made contingent provisions to the extent of fund-based exposure. With these provisions, our -- and our inherent strong profitability, I think the last of the legacy exposure is also behind us. We have reorganized our corporate banking franchise. Sanjeev Anand, who was responsible for mid-corporates, will now have the overall corporate banking as 1 unit. We have also strengthened our team by lateral senior level recruitment, including Nirav Shah, who joins us as Head of Institutional and Strategic Client Group. The investment banking as a product unit is now housed under the Deputy CEO, Arun Khurana, who is in charge of all the product units of the bank. Our new Head of Investment Banking is expected to join us next month. The corporate banking team is now well organized, , underwriting framework and is without any legal fee exposure to worry about. I believe this positions us well to participate in the corporate credit growth revival. Gems and jewelry. Our diamond manufacturer financing unit continues to maintain its pristine asset quality with no NPE or SMA-2 or restructured loans. The loan book saw a good growth of 4% quarter-on-quarter as borrower utilized working capital line ahead of the festive season. We expect a stable loan growth and asset quality position in the foreseeable future. Now coming to deposits. Retail liability mobilization remains cornerstone of our PC5 strategy. Deposits grew 21% year-on-year and by 26% year-on-year growth in current and savings account. Retail deposits as per LCR growing 48% year-on-year and 6% quarter-on-quarter. We have reduced our deposit rates across savings and term deposits last quarter, and the deposit momentum was maintained despite these rate cuts. Our cost of deposits at 4.85% saw a reduction of 12 basis points during the quarter and 120 basis points cumulatively in the 6 quarters I took over. Our reliance on certificate of deposits continues to remain low and has fallen quarter-on-quarter from 3% of deposits to 2.5%. Our affluence business has continued strong performance. Our deposits from this segment grew 48% year-on-year to INR 3,700 crores. Our NRI business grew 31% year-on-year to INR 27,500 crores. NRI segment saw strong CASA growth of 62% year-on-year, while term deposits grew 24%. We have also received the agency of bank authorization from the RBI. As agency banker, IndusInd gets the privilege of doing collections and payments on behalf of the government of India and state government. We have already signed MOU with Central Board of direct taxes and indirect taxes, which has strengthened our foothold in the government business and increased stickiness of our retail and corporate customers. We have maintained an overall average LCR at 148% and were earning surplus cash balances in excess of investments of over INR 59,000 crores. As we saw loan growth acceleration in the later part of the headquarter, the average surplus liquidity is expected to come down from current quarter onwards. As a result, our reliance on borrowing is coming down every quarter and moving towards long-term sources. We have shared details in the presentation with almost all the borrowing from long-term sources. Digital traction. We continued execution of our Digital 2.0 strategy and quarter 2 saw new initiatives getting launched. During the quarter, we launched Indus Merchant Solutions app, at IndusEasyCredit stack for business owners and debit card EMI on IndusInd Bank debit cards. These are in addition to the EasyCredit for individual launched in the last quarter. Indus Merchant Solution provides small merchants and retailers a unified stack to bring all the payments, lending and banking needs under a single umbrella. IndusInd Credit -- Easy Credit stack for business owner provides easy access to small ticket unsecured business loans as well as secured overdraft up to INR 2 crores in a completely digital manner. Debit card EMI is a convenient consumer financing solution at point of sale for our customers. All these initiatives are cloud native, micro service driven API based apps making us ready for platform banking and open banking and will give us the need to scalability and agility. The digital adoption and volume continue to see growth. Digital transaction contributed 91% of our total consumer -- customer transactions. Close to 4 million sales happened digitally during the quarter across retail products, showing a 50% growth on a sequential basis. The mobile app user base increased by 36% year-on-year, and mobile transactions are up 2.3x Y-o-Y. Bank refreshed this mobile app with cleaner interface and response time improvement, continue to get positive feedback from the users. All new IndusInd mobile app is now rated 4.3 on the Playstore and among top 3 rated banking apps now. Overall, we remain on track on digital, along with the new initiatives on individual and vehicle finance segments planned for launch in a few months. Now coming to the financial performance for the quarter. Quarter 2 witnessed acceleration in growth momentum with NII up by 12% year-on-year at INR 3,658 crores and operating profit at INR 3,219 crores, was up by 13% year-on-year. our PPOP over loans was maintained at 6% in a tough operating environment. Our NIM for the quarter was stable at 4.07%. Our yields on advances came down by 9 basis points due to the mix in favor of corporate and shift towards higher rated borrowers. The cost of deposits also fell 12 basis points quarter-on-quarter, maintaining the stability of margins. Other income grew by 18% year-on-year. Client fees rebounded after a weak quarter 1 due to COVID. The client fees grew 24% quarter-on-quarter and 42% year-on-year, driven by strong retail fee recovery. Share of retail fee has improved from 48% to 59% quarter-on-quarter. Income from trading was at INR 332 crores for the quarter. Our cost to income inched up slightly to 41.4% as the business momentum picked up during the quarter. Overall, we are still below pre-COVID cost to income levels of around 43%. Now coming to the provisions and some asset quality indicators. We continue to follow conservative provisioning approach. Our provision for the quarter were at INR 1,703 crores. With strong collections and recoveries, the specific credit cost provisions for the quarter reduced to INR 752 crores from INR 1,132 crores quarter-on-quarter, down by 35%. We currently added INR 978 crores of provision towards contingent buffer, taking our surplus provisions to INR 3,178 crores or 1.4% of loans. Our GNPA has come down to 2.77% from 2.88% quarter-on-quarter, and net NPA was down to 0.80%, employing a comfortable provision coverage ratio of 72%. Total loan-related provisions are at 3.9% of loans or 138% of gross NPAs. Our SMA-1 and SMA-2 book is stable at 30 basis points and 49 basis points, respectively. Our net profit momentum continues despite the conservative provisions. Profits for the quarter were at INR 1,147 crores, growing at 13% quarter-on-quarter and 73% year-on-year. Our CRAR, including profits improved to 18.06% from 17.89%. CRAR will further -- be further augmented with [ planned ] Tier 2 issues during the quarter. Overall, I think we are trending towards the PC5 ambition. The strong disbursements in the retail segment, coupled with reinvigorated corporate franchise, provides us comfort on the continued loan growth and NII acceleration. The deposit side has been chugging along nicely with growth in retail liabilities to 41% of deposits along with reduction in cost of deposits. We have been able to maintain a strong PPOP margins at 6% of loans in one of the toughest operating environment. We have built strong coverage on spread exposure, including all legacy accounts. Our restructured book has been performing well and has adequate contingent provisions. Our bottoms-up conservative simulation of credit costs from restructured pool is up 20% in vehicles; 10% in corporate and secured retail; and 50% in unsecured retail, including microfinance. Lease [ doubled ] even after making 100% for telco funded exposures. The return on assets has improved to 1.29%, and return on equity has moved into double digit for this quarter at 10.29%, and should have been in mid-teens and not for the contingent provisions. As risks from COVID and legacy exposures are diminishing every quarter, we are very well poised to show underlying growth and profitability of the organization. We have committed to our PC5 growth ambition. With this, we can now start the question-and-answer session.

[Operator Instructions] The first question is from the line of Nitin Aggarwal from Motilal Oswal Securities.

So the first question is, like, on the contingent provisions that we have, like, disposed of this quarter. So is it, like, some formula based or purely discretionary? And how will the drawdown approach be from this reserve that we are building?

So first of all, I think this is very pass-through basis and, of course, formula based. So 100% of Vodafone, the telco provision has been provided on a funded exposure. That is what we committed, and we have done that already. So that's number one. Number two, I think we've looked at our flow-throughs and the collection efficiency of the restructured book. So one is the regulated guidelines of what you need to do on the -- we have taken excess provision basis, our excess loads to be comfortable and taking a very conservative approach on what the flows will be, and this is that we've taken a provision. In addition to that, we've kept a buffer of about INR 300 crores to INR 400 crores, which can help us and make sure that if there's any other flow. We will continue to see this pace. And if we see that there is an acceleration or a deterioration, we will provide. Even if there's an acquisition, we'll maintain this provision because it will come in handy at some point of time.

Right. But as of now, shall we take it that we don't need to provide anything more here? Or will we continue to make these provisions?

Actually, really speaking, we don't need to provide. But being a prudent banker, I think we may provide for it if we see there is a need for it, but I don't think we need to provide anything extra. What we may do is for the nonfunded exposure of Voda, we may provide some amount extra and keep it aside.

Okay. Sure. And secondly, on the restructured book, like how much of this is paying currently and how much is under moratorium? And what sort of slippages are, like, rebuilding from this pool?

So let me answer this question in 2 ways. And I think the way our researcher book has been performing very, very well and has adequate contingent provisions. If I see the book, overall, 90% of the book is paying the installment. There, we are seeing a little bit and you have to go by segment to see that. I think on the corporate side, in fact, you will see some accounts moving out, actually. And a large part of the account, 80% of that restructured book, moving out because I think almost a lot of this has got settled for us. On what you call the commercial vehicle side of the book, there are 2 things which you need to absorb. All these were nice. Most of these clients were very good clients of the bank, majority of these clients. And I think they've asked for a deferment or a smaller EMI payments because of the pandemic, and they were scared of the COVID 3 at that point of time. I think they are regular in their payment. And I do not believe the flows of this book will be more than -- we have taken at 20%, but not more than 10%. It is absolutely performing well for us as of now. On the unsecured side, which is the micro finance side, I think these are cycle 2 and cycle 3. On a conservative basis on unsecured, we have taken up 50% flow-through. Actually, the collections on the micro finance has not started because they just happened. On the unsecured side, I think we are seeing a 50% to 60% collection efficiency on the unsecured side. On the secured, we are seeing a 90% collection efficiency on the secured retail side of the book -- non-vehicle side of the book. So I think that is how our provisions are, and that is how we are seeing the book perform.

Sure. And a couple of more questions. One is like, while we have added few senior management team members, are we also seeing any churn within the top management or in the mid-level management, given the rising competitive scenario in the overall banking and financial space?

So there is stress specifically in the technology side or in the digital side of the place, where do we see -- we see stress at certain areas. We are not seeing the stress in our corporate banking, in our retail banking or in our vehicle finance unit at all. Of course -- so that's what -- I must give you this confidence that the bank has adequate succession planning in place. And we make sure that when we create an organizational structure, the second person in charge or multiple backups are created here to make sure that the continuity of the business remains.

And lastly, if you can offer any comments on the bid that we have submitted for Citi's consumer business? Like how are we looking to pursue growth in the consumer assets?

I have never accepted the fact that we've submitted a bit. That's number one. Number two, I've always said that, which at the -- this is speculative, the news appearing in media, and we continue to evaluate businesses which are accretive to our stakeholders, which is our customers, to our investors as well to our shareholders and to our employees.

The next question is from the line of Gaurav Singhal -- my apology. Samuel [ Biseh ] from JM Financial.

Just a quick question. This is on the micro finance piece. What is the nature of restructuring offered here? Is it like a moratorium, say, for how many months? Any new details there?

So I think you could have offered an extension up to 1 year to 2 years in the in the business, and that's what we've offered. I don't think there is a moratorium, which has been offered. I think there may be some cases where we have offered a moratorium of interest-only payment, which have been offered for 6 months to the customer.

If you -- so the month -- so the weekly or monthly outgo, whatever it is, it goes down when we don't offer morat, but just extend the term, right?

Yes, just extend the term.

And secondly, on the corporate book, we've seen a reasonable amount of growth sequentially. Any comments on pricing there?

Yes, pricing is very competitive in the corporate world. But please understand I'm sitting on excess liquidity, and I was putting it in the reverse repo at 3.4%. So please understand there is an opportunity to do short-term lending, working capital loans in the corporate side at 4.5% to 5%. That's number one. Number two, we've got very good AAA-rated and AA-rated paper in the good public sector enterprise where we've done these businesses, and we all felt very comfortable doing that businesses at that point of time. Also, we found good exposures coming in NBFCs, textile business, and we got some exposures in that, and we did some very good loans in that business.

Okay. Okay. And just a breakup in -- of the restructured book between corporate, commercial and retail. If you could -- I could probably take it offline also, but if you can give, it would be helpful.

So let me give you the restructured book. I think our restructured book as of September '21 is INR 7,982 crores, up from INR 5,657 crores. I think our vehicle finance unit is INR 3,969 crores, which is 49.7% of the overall book. Secured retail is INR 763 crores, which is 9.6% of the book. Unsecured retail is INR 365 crores, which is 4.6% of the book -- of the overall restructuring. MFI is about INR 907 crores, which is 11.4% of the total restructuring. And corporate is INR 1,978 crore, which is 24.8% of the restructuring.

The next question is from the line of Gaurav Singhal from DK Partners.

You mentioned earlier in the call, I think I missed that number. What was the fund-based exposure you had to the telecom operator which you took as provision?

It's about INR 990 crores in that period.

INR 990, INR 990 crores?

Yes.

Got it Okay, sir. That's the majority of your contingent to your...

Yes.

Okay. And in this press release that Vodafone had released around the time of this government package, they had mentioned that there was a lot of relief on the nonfund-based side. I was just reading it. There were 80% reduction in BG requirement for license fee. I think there's no BG requirement now for these AGR dues. So how much is BG -- is the nonfund exposure today? How much will be released based on these new rules?

So I think -- Gaurav, I think we still await the final -- fine print from the DOT and Birla. In my opinion, I think we have a INR 2,320 crores of BG -- INR 2,276 crores of BG. And I think what we've been informed is I think it will move down substantially. And that's what we are waiting for. And I -- that's why we're waiting for the final details and the final print before we reduce that exposure.

Got it. Got it. But if that number is close to that 80% number, which was in the prior...

I cannot comment until I see the final details, and we have to see the document, and we await that final details.

Congrats on the good results.

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

Yes. Congratulations for a good set of numbers. Firstly, in terms of OpEx across most of the peer banks, we have seen huge investments in OpEx this particular quarter and wherein there was a jump on a quarter-on-quarter, year-on-year. Are they still managed well? So how should we look at it? In fact, we are done with most of the investments over past few quarters and are prepared for the growth now without incurring too much of the OpEx? Or we would see a flow-through coming in the coming quarters for the higher investments we might need?

So Kunal, let me answer these questions 2 ways. One is, have we stopped our investment cycle? The answer is no. We will continue to invest in branches till we reach 2,500 branches. And we will continue to invest in technology. The major investment, which is going to come is in the individual proposition, which I think we've still not launched and it's going to come. And I think you will see some investments coming in. I've always said -- having said that, I've always said that we will be in the range of 41% to 43% cost-to-income ratio. And that is where, I think, a good universal bank should be in, and we've maintained that throughout, and that is where we are. We may fluctuate at some point at 40%, somewhere like 42%, but between 41% and 43% is what our range is on the, call it, cost-to-income ratio.

Sure. And in this MFI, there is significant expansion in the branches out there or -- so this is more to do in terms of -- so at one place, we had seen almost like INR 1,000-odd crores kind of a slippage, INR 900-odd crores kind of a restructuring. You highlighted that 2 states, particularly Kerala and West Bengal is giving the pain. So is it like a major proportion of slippage has flown from there and other states, we are seeing a lot of comfort, and that's the reason we have seen a lot of investments? Or there's, like, almost 280-odd branches which have been added on the BFIL side.

No, no, no. Don't look at it this way. I think what has added on the BFIL business correspondent size is the merchant acquiring branches. So we have got into a business where we created INR 1,000 we -- see, as we talk today, we sit on a INR 1,200 crores of merchant-acquiring business, which we have created afresh, and it's a separate independent branch and a vertical, which is working on this business. So this is a business which is run at an efficiency of about 42% and is at a yield of 23.6%. We are very, very confident of this business. And this is a new line of business, which we are growing under the Bharat Financial umbrella, which we are doing. Having said that, I think on Kerala as well as West Bengal, I think we will add resources, these added collection resources took so that the old branch managers who are more experienced and all move towards the collection because the collection efficiency in these states are hovering around 65% to 70%, depending on the states which you talked about. And I think it is very important. And 48% to 50% of our flows have come from this unit -- from these 2 states.

Flow for slippages?

Yes. Absolutely.

Sure. And lastly, in terms of the overall credit costs, so we have been guiding earlier as well, maybe first half is high, but that is on account of contingency. So are we now equally confident that we could settle in that range? Or with the improvement in the environment and looking at the way the trajectory is, are we more comfortable in terms of credit costs coming further down as most of the legacy cesspool is provided for?

So I think -- Kunal, I feel 3 things will happen. One is you're absolutely right. I think the flows have normalized. And I believe that nonvehicle finance, vehicle finance will continue to see a moderation in the flows, which will happen, and you will see a dramatic reduction in the flow as we move along. Number two, our corporate book has never been so good before. I think all the legacy issues are behind us and our corporate book. And if you look at the SMA-2 or the SMA-1, you will find -- get the comfort from the book as to how the book is performing. I think on the micro finance side, I've said that our flows will be fixed -- our delinquency cost, cost of credit will be around 6% to 8%, and that will have growth which is built in. I've already taken 70% of those growth. There may be 30% flows which are balanced left, and we will take those growth as and when come up. Most of it will get covered. But yet, having said that, our guidance of 160 to 190 basis points remain. And I continue to say an additional 50 basis points or 60 basis points on account of how of the telco provisions will be there, nothing else. We will continue to maintain that guidance. And I continue to believe we will be in that. I am not taking into account the recoveries, which will also start coming in now.

This is helpful, yes. Okay. And all the best.

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

So couple of questions. One, a detailed question. If you can give the breakup of slippage in those same buckets, vehicles, secure, retail unsecured MF and corporate. I'm sorry if you have repeated it earlier.

Oh, no, no problem. I'll give you the number. I think I'll give you what is the gross slippage and what is the net slippage after considering only recovery, which is cash recoveries as well as upgrades. So I think CFD was INR 590 crores of gross slippage and net slippage is INR 35 crores only. So there was a huge recovery, which happened on the vehicle finance unit. Secured retail is INR 432 crores and INR 273 crores of net gross slippages. Unsecured retail is INR 314 crores of gross and INR 249 crores of net slippage. MFI was INR 1,070 crores of gross slippage and INR 460 crores of gross net slippages, and corporate was INR 252 crores and INR 175 crores. Overall, our slippages were INR 2,658 and have net after taking recoveries into account was INR 1,192.

Right. Great. Second question on the vehicle side. I mean, given that I think 90% plus of our CV book are typically SRTOs, right?

Yes.

Any comment around the operator profitability? How are you seeing the cash flows? Have they been able to pass on the increases on the freight? Any sort of comment on that, sir?

Yes. First of all, I think you're absolutely right when you said that the diesel prices did affect with -- did affect the profitability because the diesel price did increase by 35%. Also, the freight took time to catch up. And I think there was a supply-demand -- supply issue at that point of time. And I -- but having said that, I think that things are improving. And that is why the restructuring of that book is so high when see the restructuring because people wanted a lower EMI to play rather than the full EMI. But I have Partha, who will answer this question in a little bit more detail to you. Yes.

Yes. Of late, diesel price increases a certain amount of concern. Definitely, people are reasonably stressed to pay their installments. But so far, there has not been a major issue in terms of payment of installments, which we have been getting quite regularly. The portfolio has been showing with a considerable amount of improvement ever since the last quarter. And it is likely that the portfolio will improve, whether the business would improve or not, would hinge on the diesel price as well as the freight economics on freight trades. So close to about 40% of commercial vehicles our infrastructure segment, which is a People segment, which is used for Mining as well as [indiscernible] segment. The economics has been extremely good. Therefore, the -- I would say that there's absolutely no impact, 0 impact are extremely good -- the thing for about 40% vehicles, 20% to 25% are contractually covered. The balance, about 20%, 25% struggles, but they keep paying.

Right, right. Would you believe, Partha, that by December, I mean if things don't December -- don't improve by December, then things will look tough?

Yes. Fundamentally, what I would state is fuel price increase, I'm not very sure about this. Government, I think, will have to take some action or other -- okay, it is very, very unlikely that it will be bought in the GST regime. But they would absorb a certain amount of taxation element raising of the diesel price. Once it comes below 100 sentimentally, I think there will be a certain amount of buoyancy and that as of today, what really has happened is the excess capacity in the market has already been more or less absorbed. There has been a growing requirement in terms of addition to the capacity. But in addition to the capacity has been put on a certain amount of core storage because of operational cost increase. That should not affect the existing vehicles, but it will have an impact in terms of commercial vehicle sales and possibly our financing in this area.

Yes, yes. I understand Partha. Very helpful. And a small last question, Sumant. Is it possible to get a sense of that INR 2,300 roughly of non-funded to Voda, specifically? How much is tied to the PGs, yes -- sorry, the spectrum?

Half, 50%. 50% to the spectrum and 50% to the ARPU. But our latest discussions showed that the spectrum, of course, the government has said, even the ARPU in 1 months’ time, there is something coming, and we are waiting for the final details. That's why I'm not commenting on it. We have to wait for the final details.

The next question is from the line of Rahil Shah from HSBC.

Hello?

Go ahead, Rahil. You are audible.

Can you share the overdue loans in the NSI book? So you mentioned in the opening remarks that it has reduced by half.

So if you look at the MFI collection efficiency, as said, it's 94.6%. If you look at the 30-plus book, it's about INR 2,000 crores. That's what it is. INR 2,200 crores to be precise.

Including NPAs. Including NPAs.

Including NPAs. Sorry. Including NPAs also.

Okay. And also like more qualitative understanding, so within this book, how many customers would be like completely non-paying?

This, I don't have any final details. We can have Shalabh. You can have a one-on-one with Shalabh, who runs the MFI business, and you can have all with him. I don't have the final details or number of clients.

Sure. And yes, and just 1 more data-keeping question. So what would be the size of 3-wheeler book? Would it be around INR 3,000 crores?

Yes, you're absolutely right.

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

Sumant and team, this is Rahul here. Just on -- 1 or 2 clarification on the MFI point. So what you said, gross slippage is about INR 1,070 crores and the net were INR 460 crores. So the differential of INR 600 is on account of what exactly?

So there were recoveries which happened as a consequence of the clients. and we contacted a client, there were accessibility issues on 3 or 4 states. I think we were able to access Orissa in certain districts where we got the recoveries. And there were certain states where we were at 92%, 93%, we got it 95%. So we got some recoveries as a consequence of that.

And write-offs were significant in this portfolio or manageable?

Oh, not...

Not so much, okay.

I'll give you the number? Oh, I'll give you the number exact. We actually did a write-off on the MFI of 0 last quarter. No write-off.

Interesting. Got it. And how do you see this MFI book panning out now across portfolio, and particularly even for West Bengal and Kerala?

I -- when I tell you my number, 6% to 8%, I mean, I've assumed that there will be -- we will remain maybe improved by 10%, but we will remain static at that, and I have taken that call that we may have to take a hit and provide for it. And that's where I said that there may be an additional flows, which may be coming. That's why I said 6% to 8% of the book. And there may be an additional restructuring, which may happen off of INR 200 crores to INR 300 crores. Having said that, I must say we carry enough provisions to take care of that. And that is why we are building an additional provision. It's not that I require it. I just that I've -- and that is where I have said this is my flow, and this is how the provisions will happen. I do expect -- though I do expect, Rahul, that in October, November, December, where we are seeing buoyancy all over, I believe a lot of these issues may be behind us, and we may be talking a different language when we talked in the month of November. It is a very good pickup in the micro finance state it in collections now.

Interesting. And the troubled states also like Bengal, Kerala where you talked about?

So Kerala is now becoming accessible, though the flood did play a little bit of a barrier. In West Bengal, I think the issues were different, and I think those issues are getting addressed. This was all really accessibility issues.

Okay. Okay. Got it. The other point was on Vodafone again. You talked about that of the INR 2,276 crores of BG, you've earmarked the entire contingent provisions of 100% towards this. And NFB also, you would expect to make something which you said is INR 990 crores.

I have made a provision, Rahul, raw on the fund-based exposure of INR 990 crores. And this account was standard and not -- this account is absolutely standard. There is no sort of overdue on this account. On the nonfunded exposure, there is a document, which is going to come out, the final detail, and we will act accordingly. In my opinion, a lot of these guarantees will follow up, but I don't want to commit that right now, unless until I see the final details myself.

Got it. Got it. So contingent upon that, we'll take a call as to we need to earmark more provisions or not. And this would not be part of your INR 160 to INR 190 guidance that you're giving out.

No, no, no. We have said -- otherwise, I'll be lower on provisions. I said, if I take if the Vodafone provisions to 50% to 60% of the original provision, then is where I require 50 to 60 basis points extra.

Okay. Okay. In addition to INR 160 over INR 190 range you have talked about.

Yes.

Got it. Just final question in term of business momentum. I think frankly, I mean, the bank seems to have now come out of the woods and seems to be on a stronger footing. But ROEs are, of course, trending around 1.2%, though significant improvement from the time you took over. What kind of strategy you and your senior team are sort of working on over the next 12, 24 months? Where do you see this ROA could go to? Of course, provisions would fall, but do you see any improvement in PPOP ROEs to also come through from the current levels and also on the loan growth side. So can you give us some sense, qualitative or quantitative over the next 12, 24 months where you want to see the bank to be?

So Rahul, we have disclosed our PC5 strategy very, very transparently. I continue to believe that we are going to grow 16% to 18% CAGR on our loan growth. Unfortunately, this year, we've only grown by about 10% up till now. So I think what you will see by the in the next 18 months, we will ramp up our loan growth, and we will grow faster than the market on our domain specialization and in corporate bank, we will be ahead of the market by 200 basis points, 150 to 200 basis. That's something. There are new lines of businesses which are acting as accelerator to our business momentum. Those are merchant acquiring business. mortgage business, which will act as accelerator to our businesses and the nonvehicle asset business, which has been a very low-lying business, and we will accelerate those businesses. So I think these will accelerate the growth of this business as we move along. We also have a very clear strategy on getting into digital in the SME stack and creating a very good value proposition on the SME stack on the business. So I don't see a risk to our 16% to 18% CAGR growth on the PC fund. Having said that, we've always said that we have a PPOP margin of 6%. And I think we've always said 5%, but I don't see any reason why we will fall below 5.5% at any point of time. And have we not fallen for the last 5 quarters below 6%, I can assure you this one. Having said that, if you do all our calculations, we've always said our normal credit cost should be around INR 120 billion to INR 150 billion instead of 150 basis points. You do your calculations, and you will see our will ROE never be less than 1.5% to 1.8%. In fact, you may see us starting that ROE in quarter 4 itself.

Okay. Okay. And lastly, on the OpEx side, technology spend or customer acquisition costs. I mean, we've seen most of your peer groups have reported a sharp increase in OpEx side. Yours seem to be a bit more contained, but going forward, how do you see the spending likely to play out for your bank?

So I generally feel, and I've answered this question before, we will be in the range of 41% to 43%. And I think that's the fluctuation which we will have on a mature -- see, please understand my microfinance business runs at an efficiency of 23%. My -- our vehicle finance unit runs at an efficiency of 34%. Our diamond business runs at an efficiency of 6% or 7%. Look at the value which I get as I'm scaling up the business. Our consumer bank runs at an efficiency of 58%. And the more they get, the more they are bringing value, their, actually, efficiency is only improving as we talk. And our corporate banks are running at an efficiency of 30%, 35%. And you will see this and our global market runs at an efficiency of 5% to 6%. I think we have very efficient businesses as a business of what we created and our focus on fees as well as on asset growth has really helped us bridge that. And I think as we add new businesses into our units, the merchant-acquiring business, I think we are not talking much about it, but it will be a INR 5,000 crores to INR 7,000 crores business by the end of year 2, and it is at a yield of 23.6%. And it's credit guaranteed, and you will have a risk cost, which will not be more than 80 to 100 basis points on this business. It is an ROE 8% or 9% business which we have created. Our affluent business, it's actually a new business and giving me INR 100 crores fee per quarter. So I got the excavators in place. So while my cost will increase, I believe it will be range bound between 41% to 43% efficiency because the revenues will grow faster as I grow my business because I have very good accretive businesses where I have domain specialization, which will give me the value.

Got it. Interesting. And wish you good luck and your team.

I now hand the conference over to Mr. Sumant Kathpalia for closing comments.

So thank you. Thank you for your time and patience. I just want to tell you that I think finally, you're seeing us out of the woods. And I think the growth story is back. The old industry story is back. And what you had invested for and what you have waited for all this while, I think that took maybe a quarter or 2 extra, but you will see this growth coming back in a very strong way. So thanks a lot and for any questions which you may have, you can contact me or [ IndusInd ]. Thanks a lot, and God bless.

Thank you very much. On behalf of IndusInd Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.