IndusInd Bank Limited (INDUSINDBK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to IndusInd Bank Limited Q3 FY '24 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 Chief Executive Officer, IndusInd Bank. Thank you, and over to you, sir.

Good evening, and thank you for joining the call. Let me start with some macro commentary and then get into bank-specific details. Indian economy delivered a robust quarter 2 real GDP showing 7.6% Y-o-Y growth and RBI raising the financial year '24 growth forecast markedly to 7%. Economic activity sustained momentum in quarter 3, supported by resilient urban demand and gradual turnaround in rural demand. Investment activity continues to be aided by buoyancy in the public sector CapEx. Financial markets and bank system conditions largely remained stable. Bank credit growth remained steady around 16%, while growth in deposits picked up around 12% to 14%, reducing the gap between them. Liquidity in the banking system turned into a net deficient, shrinking with the withdrawal of pandemic era monetary accommodation by the RBI. Looking ahead, private consumption should gain support from gradual improvement in rural demand, strengthening of manufacturing activity and continued buoyancy in services. Government's thrust on infrastructure spending and expected momentum in private CapEx should drive investment activity. Coming to quarter-specific developments. During the quarter, we had some excellent achievements as well as some misses. On the positives, the retail deposit mobilizing is one of the best in several quarters with moderate increase in the cost of deposits. The loan growth was broad-based across retail segments, and the visibility from market campaign was as never seen before. Key profitability metrics like NIMs, PPOP margin, ROA, et cetera, were healthy. On the miss, we saw slippages on the higher side than expected, and we are working towards normalizing in this quarter. Overall, we had many positives in quarter 3 and aim to make it better quarter 4. Robust growth loan -- loan growth momentum. We witnessed another quarter of strong retail growth at 24% Y-o-Y, which drove the overall loan growth of 20% for the bank. Retail saw healthy momentum across vehicles, microfinance and consumer segments. We were selective in corporate loan growth at 15%, focusing on mid and small corporates. Retail deposit accretion gaining pace. We saw one of the sharpest sequential improvement in the share of retail deposits as per LCR of around 1% in 1 quarter. Our retail deposits grew 5% quarter-on-quarter despite the challenging liquidity environment. We are now touching the PC-6 ambition of 45% to 50% retail as per LCR with still a couple of years to go. The increase in cost of deposits was moderated at 9 basis points quarter-on-quarter. Progress on new initiatives. Our digital banking offering, INDIE, is seeing strong traction, aided by increased awareness via marketing campaigns. INDIE now has 4 million downloads and 800,000 customers executing 4 million transactions a month. We continue to scale our liability initiatives of affluent and NRI banking with deposits growing at 20% and 29% Y-o-Y, respectively. Our home loan grew by 37% quarter-on-quarter and now stands at INR 1,377 crores. Asset quality. Our gross and net NPA remained steady at 1.92% and 0.7% (sic) [ 0.57% ], respectively. Gross slippages were at INR 1,765 crores, and net slippages were at INR 1,236 crores. The slippages in vehicle book were impacted by adverse weather conditions towards the end of last quarter since they have already started showing -- since then, they have already started showing improvement. Our restructured book continues to run down at 0.48% compared to 0.54% quarter-on-quarter. Healthy earnings stability. Our net interest margin remained stable at 4.29% sequentially. Our other income grew by 15% Y-o-Y, driven by granular retail business. We continue to invest in human capital, physical and digital infrastructure as well as marketing initiatives, resulting in an OpEx growth of 6%. Our PPOP margin to loans remained steady at 5.2%. Overall, our profit after tax grew by 5% quarter-on-quarter, 17% year-on-year to INR 2,301 crores. Our capital adequacy remains healthy with CET1 at 16.07% and overall CRAR at 17.86%. Now coming to individual businesses. Vehicle finance. Our vehicle finance business continued robust growth momentum with highest-ever disbursements in our history of INR 13,700 crores, growing 7% quarter-on-quarter. The cumulative 9-month financial year '24 disbursement at INR 38,380 crores were up 15% year-on-year. As a result, vehicle growth -- vehicle loan growth remained healthy at 20% Y-o-Y and 5% quarter-on-quarter. Within vehicle categories, cars, utility vehicles, construction equipment saw more than 15% quarter-on-quarter growth in disbursements. Two-wheeler segment also saw healthy growth in disbursements with demand picking up on the back of improving rural sentiments and festive season. Commercial vehicles and 3-wheeler disbursements were slower quarter-on-quarter driven by lower industry volumes. We have, however, maintained our market share across the segments. We have doubled our auto loan book in the last 2 years with market share now close to 4%. This has helped us balancing the vehicle loan book between commercial and passenger segment derisking cyclicality. The gross slippages in vehicle finance were at 0.73% versus 0.93% year-on-year and 0.64% quarter-on-quarter. The slippages moved up sequentially due to adverse unseasonal weather in December, such as floods in southern side as well as heavy fog in the northern side, impacting collections to some extent. The situation has since then improved, and we have already seen a turnaround of 10% in the quarter 3 slippages getting upgraded in a couple of weeks in January. We expect to see this momentum continuing for the rest of the quarter 4, resulting in normalization of these temporary slippages. The restructured book in vehicle finance reduced to INR 705 crores from INR 910 crores quarter-on-quarter with majority of the reduction due to upgrades and recoveries. Overall, our vehicle portfolio is now diversified across product categories, and we are well positioned for sustainable growth across different product cycles. This could also be evident from this quarter's numbers where despite the sequential softness in MHCV segment, we maintained our robust growth momentum. Bharat Financial Inclusion Limited. BFIL distribution is now running at its potential capacity with outstanding loan book originated at INR 40,544 crores, growing 24% year-on-year. The growth was robust in microfinance as well as merchant acquiring business at 20% and 55% year-on-year, respectively. We have been cautious of growing the book balanced between new customer acquisition without excessively leveraging the customer ticket sizes. Our active loan clients now stand at 9.4 million, reflecting a growth of 17% year-on-year and 4% quarter-on-quarter. Microfinance. Our microfinance business continued momentum with year-on-year growth improving to 20% from 16% last quarter. Our average loan outstanding per customer reduced by 1% quarter-on-quarter, and we were cautious with elections in a few large states last quarter. Our net slippages improved to 0.55% versus 1.24% year-on-year and 57 basis points -- 0.57% quarter-on-quarter. MFI standard net collection efficiency in quarter 3 was at 98.6%, and our early delinquency buckets are better than the industry. Bharat Super Shop, the merchant acquiring business. Our merchant loans stood at INR 4,783 crores with 55% year-on-year growth. The loan book reduced by 2% sequentially with focus on collections and average loan outstanding reducing from 70,000 to 68,000 per customer quarter-on-quarter. The standard net book collections from this client base stood at 99.1%. Bharat Money Store, kirana shop model. We have around 61,000 active Bharat Money Stores providing banking at the doorstep in remote areas. We continuously work towards converting inactive stores to -- into active or close them if not successful over a period. Liability book sourced from these customers serviced through BFIL increased by 56% year-on-year to reach INR 2,541 crores. The customer base of 16.7 million accounts also registered an increase of 24% year-on-year and 6% quarter-on-quarter. Overall, BFIL continued the growth momentum during the quarter, which augers well for the overall bank's profitability. We are well placed to participate in the large rural opportunity with our deep distribution network while transforming from microfinance to micro banking. Global diamond and jewelery business. The business continued to maintain its global leadership position. The growth, however, has been an issue for several quarters due to global macro challenges. The portfolio has degrown by 8% quarter-on-quarter and now contributes to 3% of the overall loan book. The asset quality, nevertheless, remains healthy with no SMA1, SMA2 or restructured accounts. Corporate bank. We continue to grow our corporate bank in a calibrated manner with focus on areas of competitive advantage rather than chasing headline growth numbers. The overall corporate growth was up 15% year-on-year, continues to be led by mid and small corporates growing at 17% year-on-year and 3% quarter-on-quarter. Within this, small corporates grew by 5% quarter-on-quarter, driven by seasonal uplift in the agri portfolio during the quarter. Growth in large corporates was at 2% quarter-on-quarter and 14% year-on-year, in line with our expectations. Specialized verticals outside the diamond business constitute 31% of the corporate book. This includes real estate, financial services, food and agri, education and healthcare. The exposure under specialized verticals is managed well basis sector-specific strategy. The segments continue to show healthy risk-adjusted returns and growth profile. The proportion of A and above rated customers has improved to 77% versus 74% year-on-year, with weighted average rating improving to 2.54 from 2.64 Y-o-Y. The net slippages in corporate book were at INR 155 crores versus INR 158 crores quarter-on-quarter. The slippage was mainly due to one stressed account of INR 140 crores. Overall, 9-months annualized slippages has reduced to 25 basis points versus 45 basis points last year, showing healthy improvement and range-bound credit costs in the corporate book. Overall, we continue to progress on building corporate bank franchise focused on selective areas of competitive advantage with granular risk profile. We remain comfortable with the overall asset quality trends in corporate segment considering the improvement made in risk profile and granularity of the portfolio. Other retail assets. Other retail assets remain the fastest-growing segment within the overall portfolio with 30% year-on-year and 6% quarter-on-quarter growth. Our MSME book under business banking is at INR 15,800 crores, which grew 24% year-on-year and 3% quarter-on-quarter, and LAP book maintained a steady traction with 10% year-on-year and 3% quarter-on-quarter growth. We have redefined our MSME branches with enhanced capability and up-skilling of the branch staff. With this, we have already started seeing some green shoots in the downstream metrics like branch leads, log-in, et cetera. We will continue to focus on MSME as one of our growth engines with tighter onboarding norms. We have put in place a robust early warning signal framework, which is enabling us with timely triggers to ensure healthy asset quality. Home loan product continues to scale with loan book now at INR 1,377 crores as of December '23, growing at 37% quarter-on-quarter. Share of unsecured loans remains at 5% to 5.5%, and we aim to maintain it range-bound around current levels. Credit card growth was driven by new card acquisition and strong spends. We recorded healthy spends of INR 25,444 crores, growing by 15% quarter-on-quarter. Our spends market share has further improved to 5% as per the latest available RBI data. Overall, we are focused on growing up our consumer assets while improving the balance towards secure mix and scale of our home loans. Now coming to liabilities. We mobilized retail deposits as per LCR of INR 8,200 crores in quarter 3, making it the best quarterly accretion since the beginning of the upward interest rate cycle. This translates into retail as per LCR growth of 20% Y-o-Y and 5% quarter-on-quarter. The share of retail deposits improved from 43.7% to 44.8% during the quarter, again, one of the best achievements in the last several quarters. Retail deposits contributed over 75% of the incremental deposit growth during the quarter. We continue to let go non-retail deposits, example, share certificates -- share of certificates of deposits reduced from 3% to 2.5% quarter-on-quarter. As a result, our overall deposit growth was 13% Y-o-Y and 3% quarter-on-quarter. The deposit growth also came along with moderate increase in the cost of deposits of 9 basis points, in line with the communication earlier. CASA ratio remained stable at 38.5% quarter-on-quarter. We would be one of the few banks seeing an accretion in absolute savings account book. The accretion is driven mainly by continued focus on our customer acquisitions as well as new launches such as Indus Grande in quarter 2 and Indus Solitaire in quarter 3. Indus Solitaire is the first of our community-focused relationship products aimed to leverage our strong position in the gems and jewelry segment. During the quarter, as many of you would have seen, we did a massive marketing campaign associating with the ICC World Cup held in India. We reached over 1.25 million fans in the stadium and over 520 million viewers via television coverage towards the tournament. The initiative was instrumental in improving our visibility as per independent survey by 1.5x. And you could see the benefits continuing in the upcoming couple of cricketing events scheduled later this year. We also added 97 branches during the quarter, taking our branch count to 2,728. We remain on track and committed to add around 1,000 branches during this 3-year period. We continued to scale up our initiatives on affluent and NRI during the quarter. Affluent segment grew 20% year-on-year to INR 50,200 crores during the quarter. Affluent AUM was up 16% year-on-year to INR 77,100 crores. NR deposit grew 29% year-on-year and 6% quarter-on-quarter at INR 42,300 crores. Our market share in the nonresident segment stands at 3.3% as per latest -- last available data where it was 2.9% here. Share of borrowing in total liabilities was at 8%. The borrowings continue to be oriented towards long source of funds -- long-term source of funds. Our liquidity position remained healthy during the quarter with average LCR improving to 122% versus 117% quarter-on-quarter and average surplus liquidity at INR 39,500 crores for the quarter. Overall, we are making steady progress towards deposit retailization journey amidst the challenging liquidity environment. We continue to believe in our physical and segmental strategy. And with constant investments in traditional, digital and new initiatives, we remain comfortable in achieving our deposit growth ambitions. Digital traction. During the quarter, the bank offered -- officially launched INDIE coinciding with the campaign and ran through the Cricket World Cup. INDIE brings a revolutionary way to bank with many industry firsts. Within a short span of launch, bank has acquired more than 0.8 million customers on the platform and close to 4 million installed base. We continue to see momentum on INDIE with 5 accounts being opened every minute, with 1 transaction every second. Engagement is increasing steadily with users, and we are nearing doubling the number of transactions month-on-month and active clients do as much as 35 to 40 transactions per month. Further, it is an earn model, and it is in the philosophy that underpins the digital business and not a burn model and with asset products already integrated in the platform such as line of credit. We plan to keep expanding the product suite on INDIE and migrating of existing clients, desirous of moving to INDIE as a platform will also start soon. We also have seen -- we also have credit cards, wealth management, NRI and MSME proposition unfold on INDIE, each with many industry firsts. On the existing platform, bank continued to see scale-up of user engagement. On IndusMobile, user base increased 23% year-on-year, which is more interesting is that there was an increase of 15% of users who are monthly active on the app. So greater proportion of our users are now active every month on the platform. Merchant app saw a user base nearly double Y-o-Y. And during the quarter, we enabled video KYC led self / remote onboarding ability on the app for MSME clients. The digital business model continued to scale and remote / do-it-yourself led business now contributes significantly to our retail and MSME business. 56% of our savings accounts are now acquired in remote / do-it-yourself digital manner by customers. 40% of our deposit -- term deposit customers are acquired the same way. 45% of our personal loans and 33% -- and of that 33% is pre-approved, while another 12% is real-time decisioning enabled. 22% of our credit cards are acquired in the same manner or via partnership through open API stack programs. In MSME business, 7% of our current accounts are now remote / do-it-yourself and digital, and more than the 20% of unsecured business loans are acquired the same way. Now coming to the financial performance for the quarter. Net interest income grew by 18% year-on-year and 4% quarter-on-quarter, with net interest margin remaining stable at 4.29% sequentially while improving by 2 basis points versus 4.27% Y-o-Y. The net interest margin was supported by a moderate increase in the cost of deposits of 9 basis points and was offset by the increase in yield of advances by 15 basis points. The repricing on the loan as well as the mix change in favor of retail has helped us improving the yield on advances. Our cost of deposits at 6.44% increased by 9 basis points quarter-on-quarter, in line with our expectations. We have now been in an elevated rate environment for 18 to 20 months now, and we are now in the last phase of deposit repricing, assuming stable rate environment. Our other income grew by 15% year-on-year and 5% quarter-on-quarter. Core client fee, excluding trading income, too, grew by 12% year-on-year. Our non-core fee income was INR 231 crores during the quarter. Our total revenue for the quarter was INR 7,692 crores with 17% year-on-year growth. The OpEx growth of 6% quarter-on-quarter was driven by continued investment in human capital, distribution network and marketing initiatives. The bank employee base grew by 5% quarter-on-quarter. We have also opened 97 branches in quarter 3 versus 25 branches in half 1 financial year '24. The operating profit for the quarter was at INR 4,042 crores, growing 10% year-on-year. On the asset quality and provisioning front. The annualized provision for quarter 3 has come down to 119 basis points versus 156 basis points year-on-year. Annualized 9-month financial year '24 provisions to loan ratio was at 120 basis points versus 169 basis points year-on-year. As explained earlier, net slippage was sequentially impacted by vehicle finance since -- which is still then normalizing. The restructured book reduced during the quarter from 0.4% (sic) [ 0.54% ] to 0.48% with bulk of the reduction due to upgrades and recoveries. The net security receipts have further reduced to 37 basis points from 39 basis points in the previous quarter. The bank made additional provision of INR 165 crores towards the SR book during the quarter. Overall, GNPAs at 1.92% and net NPAs at 0.57% were steady for the quarter. We have maintained a provision coverage ratio of 71%. We used contingent provision during the quarter as we expected reduction in the stress, too, including that of a telco exposure. Our SMA1 and SMA2 book collectively is now only 19 basis points. We have, nevertheless, not changed our view of continuously adding into the buffers ahead of the cyclical impact, if any. Total loan-related provisions are at 2.2% of loans or 114% of gross NPAs. Profit after tax for the quarter was at INR 2,301 crores, growing 5% quarter-on-quarter and 17% year-on-year. Our return ratios saw sequential improvement with return on assets at 1.93% and return on equity at 15.45% for quarter 3. Our CRAR, including profits, remained healthy at 17.86%. This reflects impact on our recent RBI circular on risk weights. And adjusted for that, CRAR improved quarter-on-quarter. Overall, as mentioned at the beginning of the call, we had quite a few positives during the quarter, while some of the improvements which we are focusing on priority for this and the next few quarters. The retail deposit growth has been a bright spot with a CAGR of 20% since the interest rate cycle changed. We are in sight of our PC-6 target of retailization and will aim towards the upper end of 45% to 50% ambition over the next couple of years. The retail growth, too, now is quite diversified and with all the key businesses of vehicle, microfinance and consumer growing upwards of 20% with further boosters from new initiatives. The asset quality, while better than last year, has a potential for further improvement. We are already seeing improvement this quarter so far, and we'll aim to deliver a better quarter 4. The investments in the new initiatives, branding, physical and digital businesses continues as we have preferred investing for future over near-term earnings. The net interest margins have been stable throughout the challenged times, and we expect support once the interest rate cycle turns. The ROA and ROE profile thus have potential for improvement as we see benefit from NIMs, cost to income as well as credit costs coming over the next few quarters. With this, we can open the floor for question and answer.

[Operator Instructions] The first question is from the line of Chintan Joshi from Autonomous.

So could you help us think about the asset quality risks around the upcoming election? If you could elaborate on the experience around the recent state elections or past elections and how we should think about any risks that might come forth in the coming months?

So I think this is a much debated topic that election creates delinquency. It does not. We've seen this in our retail finance as well as in microfinance, that unless and until there is political activism, it never creates delinquencies to that extent. And I think the state government also don't promote, to a large extent, a spate in increasing of delinquencies. As we said, we have a diversified portfolio in these areas, and we do not -- we have no concentration risk to be bothered about that as we go along.

Okay, fine. Okay. And then the second question is, could you help us think about the evolution of lending margins? So if I compare lending yields to reported development, how have they developed in the different products? And given the deposit competition, the funding pressures, do you think lending margins can increase over the coming months or quarters?

So let me -- I think we've always said that our margins, lending margins will be between 4.2% to 4.3%. And it's the mix of the balance sheet which makes us more stable in our lending margins. So if you look at how we managed our lending margins, and we've heard that our lending margins would go down, I think if you look at the last 4 to 6 quarters, we've been very steady between 4.2% and 4.3%. And we continue to believe that we'll remain steady.

That's the overall margin. I was more -- just wanted to get some color on kind of the headline rates that you offer on different products. Do they have room to increase given the deposit competition?

I don't think -- the rates are market-driven. I don't think you can define the rates and you can increase the rates. Corporate rates are all EBLR-linked and the offset margins are already fixed unless and until you see a deterioration in the risk profile of the client. On the fixed rate book, I think it's more competitive-driven. And we don't want to increase rates in microfinance unnecessarily just to increase the rate. So I think as the interest rates are stabilizing in the deposit side and we are seeing the last few quarters -- maybe 1 more quarter of interest of increasing deposit cost, cost of deposit, I think you should not increase the lending rate in the markets right now.

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

So getting on to slippages, so quite a high run rate of 2.2-odd percent. You indicated the vehicle finance. But again, that seems to be somewhere around INR 600-odd crores. So what are the other segments? Maybe we were always targeting INR 1,000, INR 1,200 crores of slippage, and this time, it's even more than INR 1,700-odd crores. So besides vehicle also, it seems there is further stress besides vehicle as well as corporate. And how should we look at it? Yes.

So in the corporate, the slippages of last quarter were INR 214 crores, they were INR 312 crores this quarter, INR 67 crores got upgraded within the quarter itself. It was a miss and it got upgraded, and we had to show as a slippage and then it got upgraded. And INR 135 crores or INR 140 crores came from a normal account, which we had said earlier that there were 2 accounts, one of them got into last quarter; and this quarter, we took another INR 140 crores. So I think that's the end of the corporate slippages. And 80 -- INR 75 crores to INR 80 crores were normal BAU business in the business banking or in the SME business. So that's what it is. On the other retail, I think we saw 2 slippages coming in agri businesses, had a INR 25 crore extra slippage. I think we saw a slippage in the LAP where I think 3 accounts, which were seemingly large accounts, about INR 40 crores slipped into that. And I think the merchant acquiring business had a INR 30 crore extra slippage. So that was the reason for the other retail to go up. MFI remains steady. And CFD, of course, I told you that it was steady. So I think if you look at our business, I am very confident that we should come back to INR 1,200 crores. I think MFI was a -- CFD was a bit of a shocker. We were aware of the corporate. You should see corporate bank going back to about INR 50 crores to INR 75 crores is what we feel. I think other retail will remain steady at about INR 300 crores, INR 350 crores. And I think MFI should go down to another by INR 75 crores to INR 275 crores to INR 300 crores, and CFD should also be very steady going forward. So I think the -- what we gave as a commitment of INR 1,100 crores, INR 1,200 crores should come in the next few quarters.

Okay. But there's a LAP spend in agri, that doesn't seem to be more seasonal. So even in other retail assets, you are saying that run rate will continue.

No, no, no...

Besides the CFD, there doesn't seem to be any one-offs or because LAP, I don't know, maybe in terms of the quality of the portfolio, this might continue. This is just one-off of...

This is one-off. Our LAP is a one-off. We didn't want to negotiate with the customer. The customer was asking for a settlement. We have the properties. We didn't want to do a settlement at that point of time. We could have avoided the flow, but we did not want to do that. And so we -- I don't think this will come. I think even the corporate is a one-off, which we knew that it will come, and you'll see the corporate going down dramatically.

Okay. And lastly, in terms of contingency. So again, last quarter, we clearly said that we will not utilize contingency and, in fact, start creating contingency from 4Q. That still doesn't seem to be happening. We have further utilized INR 220-odd crores. So if we start creating contingency, how confident we are in terms of the guidance of 1.1% to 1.3% credit cost, given it's still running quite high?

No, you're right. I think, Kunal, this is one of the misses which we've had this quarter. We wanted to build the contingency, but there is some positive news also. The positive news is that we had created for one big account a contingency provision. And we believe that we are going to get paid, hopefully, by February 8. So that provision may get released as a consequence, and we will not use it. And we will keep it aside. And I think we will add to the contingency more as and when we think that is since required. We will not defer away from adding to contingency. And we continue to believe that even if we add INR 200 crores, INR 300 crores to contingency, we will still come between 110 to 130 basis points in our credit cost for the year.

Okay. Okay. Any particular period when we would start creating? So it's in, like you said, as and when required.

I don't want to give any guidance because I tell you, I missed my guidance this quarter on this. So I don't know. So I think just -- I'm just waiting for the gross flows to come back. And I think gross flows is a big indicator that I want to see INR 1,100 crores to INR 1,200 crores. But that's a miss on our side, and I think I acknowledge it. But I also think that this is very temporary, and it will get back this quarter. You will see the improvement this quarter.

The next question is from the line of Piran Engineer from CLSA.

Congrats on the quarter. Just going beyond asset quality, can you talk a bit about vehicle finance demand? I believe it was a bit weak during the festival season, but what are the trends looking like post the festive season?

So while I'll answer the main question, I think I'll have Sriram address this issue. But let me first address, I think if you look at our book, we derisked ourselves by going in for diversification as a strategy. So we are not dependent on the MHCV or any one part category of vehicles to go or book now. And if you look at the book split, you will see a very diversified book. In fact, we almost doubled our auto loan book, car loan book over a period of last 2 years. So I think a well-diversified book and not dependent on one single category of vehicle will help us achieve a 20% year-on-year growth. However, on the vehicle side, on the -- how the market is and how the market is behaving, I think I have Sriram addressed this issue. Sriram?

MHCV is not looking very strong. Like MHCV business is looking very, very dull this quarter. But we are looking at the used commercial vehicle to balance it out, and we are increasing our market share in auto loans. And used car is some of the area we are focusing on. These are the 3 areas like wherein we think we should be able to make up the same numbers as the last quarter. Nearly INR 14,000 crores is what we are expecting. And our main growth will come from auto loans and used commercial vehicles. Industry as such, like as the election is coming, there should be a bit of a deltas in both MHCV, LCV. And the tractor has been going slow for the last 2, 3 quarters. So everything is looking very dull, but we should be able to make up with the auto loan and the used commercial vehicles.

Okay. Secondly, just on microfinance NPL. And I know this quarter, we had the floods in Tamil Nadu. But in general, our NPLs have been quite stubbornly high at 4%, 4.5%. So really, what are the remedial actions you are taking there to getting back to earlier levels of 2%?

Yes, it's related to the gross flows. But if you look at the net flow on the MFI business, you will see that the net flow on the MFI business is only INR 189 crores in -- INR 189 crores versus INR 182 crores last quarter. So I think there is an upgrade process, which is -- which happens in the MFI business. I think the gross flow is a bit higher, and we don't give top-up loans to stop the gross flow from coming in. We don't believe in giving top-up or any extra loans. And I think one of the reasons why I've said that our gross flows will be higher, but our credit cost will be between 2.5% to 3% in the microfinance business. I don't think a microfinance business can run at 100, 120 basis points credit cost.

Okay. And just the last question, on World Cup spend, can you just quantify it? And you also mentioned you will be continuing cricket sponsorship this year. So...

So we have -- as part of the deal, we've got the T20 World Cup as well as the Under-19 World Cup. I can't talk about the cost because it's a confidential matter on the agreement. It's very confidential. But I can assure you that the benefit the bank is deriving out of this project and sponsorship is much higher than the cost which we are incurring.

Okay. Because we are now last couple of quarters running at 47%, 48% cost to income. So is that a fair number to continue with over the next 2, 3 quarters until at least these World Cups are done?

I think the good way to look at it is to see that 45% to 46% in quarter 1 going down to 45% in quarter 3, and then we should stabilize. The bank should stabilize in year 3 at 41% to 43%.

The next question is from the line of Abhishek Murarka from HSBC.

Sumant, I think my question...

Abhishek, sorry, but your audio is not coming clear.

Hello? Am I audible?

Yes.

Sumant, so my question is on the...

Abhishek, sorry, but we are losing your audio.

Okay. Let me join back the queue then.

The next question is from the line of Param from Nomura.

So my first question is on, Sumant, we've seen an improvement in LCR for the bank in this quarter. Obviously, we've been doing well on retail deposits. But on this, between LCR and LDR, we are at about an 89% LDR. Is there any thought process on bringing that down or any nudge from the regulator in that aspect?

Not at all. I think if you look at our LDR CD ratio, we are in line with the banking industry. In fact, some people are at 95%, 96%. We've always said that we will be between 86% to 90%, and we've maintained our stance at that level. So we've not got anything from the regulator on this, a nudge from the regulator on this one. I think -- so please, I think the bank is highly liquid, and I think we've been able to manage its CD ratio between 86% to 90%, and we'll never [ burst ] the 90%.

Perfect. That's very clear. My second question is on the -- so on this credit card portfolio, so if I look at the data, so it's about -- it's almost doubled over the last 2 years. So are we seeing -- what are we seeing in terms of trends in write-offs here? Are we seeing any increase or anything to be worried about?

Well, not really. I think the credit card business will run at 250 to 300 basis points of credit cost and because we have an overall earning of about 28% to 30% in credit card, including the fees. So we are very comfortable with the way we run and manage our business. Of course, there is a little bit of elevation in the flows, which is happening, but it does get moderated at 90 DPD to some extent. And if you see our data and compare it with the TransUnion, I think we are in line with the competition in the TransUnion database. And I think we are plus/minus 10% at all points of time in the credit cost as far as the industry is concerned.

Okay. Okay. One more question, if I can squeeze in. You mentioned the next slippages in microfinance and vehicle finance about, I think, 0.5% and 0.7%. So these are not annualized numbers, right? These are...

No, no, these are quarterly numbers, quarterly, quarterly.

Okay. Okay, got it. So these are the bulk of the net slippages in the consumer finance business, excluding this, it's marginal?

I think the consumer finance business saw slippages in the microfinance side and in the vehicle side and some in the other retail side, specifically in the merchant acquiring side, we saw some slippages.

Next question is from the line of Nitin Aggarwal from Motilal Oswal.

One question on the liability franchise. Like just wanted your thoughts as to how do you really see the sensitivity of deposit inflow to the premium deposit rates that the bank offer? Like how much of correlation is there? And hypothetically, so to increase the premium of it, do you expect the inflows to improve significantly?

See, it's very difficult to say. So there are some mix-sized banks or smaller banks, which have given a higher deposit rate and have increased their deposit base. So I think there is some sensitivity which clients put all to higher deposit rates to get that. But it happens in the very high end of the business, which is about INR 10 crores and above. In my opinion, I think it is better to continue to push client acquisitions and do it. Of course, you play it in certain specific segments to get the deposit rate because I think NRI segment, for example, you offer a little bit more in the U.S. dollar deposit, but you get the savings account at a very attractive rate and then you hedge the whole thing, the cost of deposit is exactly the same. So there is some sensitivity at the higher end, in the top end to the rate. But I don't think that's the only way to run the deposit franchise because it becomes -- because these are the type of guys, unless you lock them, they will also take the money out at any point of time.

Okay. And so the bank has been benefiting like every quarter from the improvement in lending yields and asset mix is getting better with rising mix of retail. So do you plan to like flow back these gains into the building of the deposit franchise? Or will you let it pass on to the margins in the coming years?

I'm not able to understand the question.

So the question is like the benefit from the lending yield improvement, which has been continuously happening at the bank and the asset mix is getting better with the rising mix of retail, will you let that pass down -- the benefit be passed down to the deposit premium and increase that or compete there? Or will you let the benefits flow down to the margins?

So the way to look at it is, are we competitive -- enough competitive in the liability market? And are we compromising on the granularization journey? We will not compromise on the granularization journey irrespective of the margins. So let me be very candid about it. And I think we want to increase our granularization journey, and we will never, never go -- and we want to be competitive, which we mean that we will be always 50 to -- 45 to 50 to 75 basis points higher than the industry in our deposit rates. And that's what we've been doing. Will you see a margin uptick from here? I said that we are at 4.2% to 4.3%, and we will continue to remain at that level for some time until the time we achieve a certain amount of granularization, which we can then say that we can increase our margins. And I think that should happen when the interest rate reduction cycle happens, and that will be from the second half of next year, not before that.

Next fiscal year, you mean, right?

Yes.

Next question is from the line of Jai from ICICI Securities.

Two data keeping question, and then one question is, if you can tell the net security receipts for the bank or the gross in the provisions thereof?

Yes. So net security receipt is 37 basis points. The gross number is INR 2,378 crores, and net is INR 1,211 crores.

The net is how much, sir?

1-2-1-1, INR 1,211 crores.

Sure. Second question, sir, on cost to income, right, so earlier, we were operating in a very tight range. And in the last 2 quarters, I think it has increased a little bit. So assuming the margins remain flat or flattish and the growth remains more or less there, how should one look at cost-to-income from a long-term perspective?

So I think in the long-term perspective, we said that next year, we should be between 45% and 46% and going down to 41% to 43% in the next 2 years because we believe that the operating leverage of all our investments will come through at that point of time.

And this is even you would keep moving towards retail, right? Because that is ideally...

Yes. But we will never have a book of more than 55% to 57% retail at any point of time.

Next question is from the line of Manish Shukla from Axis Capital.

NBFC is one of our large segments. Any change in strategy there after the risk-weight assets changes done by RBI guidelines underscore?

So I think we've always said that our unsecured business, specifically on credit card and personal loans, will not be -- it's an internal guideline, which we called will not be...

Lending to NBFC. And a change of...

More than 5% to 5.5%. And in NBFC, we've always been lower than the industry. It's at 5%, 5.5% when the industry is at 8% of the loan book. So we've always been very cautious about our lending to NBFCs, and we've never had an issue. And our A-rated paper, our NBFCs, 90% of them are A-rated paper and above.

95%.

Okay. Essentially, what I'm trying to understand is compared to how you were doing the business until end of October and how you do it today, is there anything...

I think, yes, so we are cautious about the risk weights. And I think the pricing has increased a little bit. But it doesn't mean that we'll stop our business. So why would you not lend to a Sundaram or will you not lend to an X, Y, Z company, which is important. You will lend to the right candidate, sir.

Sure. And there has been some impact on capital at 16% CET1 is still comfortable. But just wanted to get your thoughts around how you're thinking about capital and where you would like the minimum thresholds to be.

So we said that we will raise capital before we touch 14% CET1. And I think we said that last 3 quarters ago that it will take about -- we are comfortable for 6 to 8 quarters. So I think in the mid of next financial year is when you will start seeing that we will assess whether we need it. We are not in a hurry. Our risk-weight assets are falling, and I think we should be able to manage within the risk-weight assets. Our internal accruals are enough to manage our growth right now.

Next question is from the line of Saurabh Kumar from JPMorgan.

Just 2 questions. One is, what will be the 30-plus overdue book in the microfinance business? That's first. And second, on your balance sheet, we have this trend that your loans are growing 20%, assets are only growing 10%. How long do you think this trend sustains? Do you think this normalizes when your asset growth starts mirroring loan growth or the other way?

So first, let me answer. I think MFI are 30 to 90 DPD, 1.6% -- 1.7%, 30 to 90 DPD. And Gobind, do you want to answer, asset growth and loan growth, when does it normalize? Does it normalize? Or...

No. [indiscernible] so the convergence, I'm saying the asset growth is 20% -- sorry, asset growth is 10%, advances is 20%.

Yes, Gobind is our CFO. He'll answer that question. Liability -- asset growth versus the loan growth.

Yes. So it's like we have a mix of investment, loans and other assets. So it's kind of a mix depending on the liquidity, we have to maintain the investment book, SLR requirement and depending on the loan growth opportunities.

Yes. So to answer your question, loan growth will be higher than our investments growth, if that's what your question is, because those are the 2 major contributors of your asset side of the balance sheet.

So will it converge ever? He's asking this question.

Not necessarily.

It will not necessarily converge.

Next question is from the line of Shubhranshu Mishra from PhillipCapital.

So sir, my first question is around the vehicle finance book. I just wanted to understand how many people we deploy here in terms of sales, credit and collections, specifically for vehicle finance? What would be a ballpark ROA for those books on a steady-state basis? The second question is on Slide 37, we give out the sourcing of credit cards and other products. Specifically about credit cards, sir, just wanted to understand what is the actual cost of acquisition when we do a remote digital versus an assisted digital, the actual cost of acquisition per card?

So if you look at the remote digital, which is DIY, the cost of a credit card where a customer do it or does it directly, there is no cost associated with the cost of acquisition. It's about INR 150 to INR 200, whatever you spend on the advertising, and that's what it is. However, if you look -- do a partnership-based model on the card, which is also directly remote digital, you have a cost of INR 2,800 for the card -- INR 2,500 for the card. And if you look at a DSA or a DSA-based physical model, you will have a cost of INR 3,000 for the card.

Understood. That was helpful. And on the vehicle finance part?

So on the vehicle finance, I think while we don't give ROAs by segment, I think the number of people employed in the headcount -- 11,000 people are deployed in the -- within our subsidiary company as well as in the bank to do the business.

11,000 each.

Understood. Sir, and we expect to maintain the same level of disbursements going forward in FY '25 as well, at the same run rate?

So I think what we said is for the next quarter, we said that we will do INR 14,000 crores of disbursements. And let's see that -- how the next year goes. We said that we want to grow the vehicle book by 20%. To maintain it, I think the disbursement may have to increase by 5% to 10%.

Next question is from the line of Rakesh Kumar from B&K Securities.

[indiscernible] on the...

Rakesh, we are not able to hear you. Can you please come in a better reception area? Ladies and gentlemen, we'll take that as our last question. I will now hand the conference over to Mr. Sumant Kathpalia for closing comments.

Thank you for attending the call. If there are any questions which are unanswered or you have specific queries, you can contact Indrajit and me at any point of time, and we will be able to assist or guide you towards any clarification which you may require. Thank you once again.

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.