IndusInd Bank Limited ($INDUSINDBK)

Ladies and gentlemen, good day, and welcome to IndusInd Bank Limited Q4 FY '26 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Rajiv Anand, Managing Director and CEO of IndusInd Bank. Thank you, and over to you, Mr. Anand.

Thank you, and good evening, and thank you for joining us today. I'll start with a quick view on the macro environment and then go into bank-specific developments. High frequency indicators suggest that economic momentum remains healthy -- remained healthy through February. That said, heightened uncertainty arising from the ongoing conflict in West Asia has tempered the near-term outlook. Overall, India's macroeconomic fundamentals are considerably stronger than during the previous crisis episodes and compare favorably with global peers, providing greater resilience against external shocks. Against this external backdrop, our focus this quarter was firmly on balance sheet resilience and asset quality repair. We will now move to the key highlights for Q4 FY '26 and then cover business-specific progress and financial performance. During the quarter, we remained focused on growing our core retail segments while continuing to optimize the bulk portfolio. Retail deposit mobilization, which remains a key priority, saw healthy traction with net addition of INR 6,800 crores during the quarter. All incremental deposits during the quarter were retail in nature. As a result, the share of average retail deposits as per LCR improved to 47.9% from 47.5% Q-o-Q. On the asset side, we maintain a selective approach with sequential growth in vehicle finance, SME and other retail segments. We're also gradually scaling up our micro loan disbursements. As we consciously prioritize risk-adjusted returns for the wholesale bank, the average loan book declined 2% Q-on-Q. We saw sequential improvement in slippage as well as recoveries across our retail segments. As a result, net slippages were down 37% Q-on-Q, resulting in lower provisioning during the quarter. Annualized slippages were 1.71% versus 2.65% Q-on-Q. The overall stress book continues to moderate with Q-o-Q declines in net NPA, net security receipts and restructured book, and these trends give us confidence that credit costs are past their peak, subject to macro stability and seasonality. Financial outcome for Q4. Our pre-provision operating profit at INR 2,295 crores remained steady Q-on-Q. Provisions at INR 1,482 crores were down 29% Q-on-Q, driven by lower net slippages. As a result, profit after tax for the quarter was INR 595 crores versus INR 128 crores Q-on-Q. Capital adequacy remains healthy with CET1 ratio at 16.2%, CRAR at 17.48%, providing adequate headroom to support growth. Leadership team. Since the last earnings call, we have onboarded our Head of Retail Banking, Head of Global Markets, Chief Risk Officer and Chief Information Officer. Our leadership transition is now largely completed and the strengthened leadership team brings diverse experience and a strong execution mindset. The Board today has also approved the appointment of Jagdeep Mallareddy and Ganesh Sankaran as Whole-time Executive Directors designate. The Board has also approved the appointment of Nilesh Vikamsey and Ravi Garikipati as independent directors as well. All these appointments are subject to regulatory and shareholder approval. This leadership team reinforces my confidence to execute our strategic priorities and build a resilient and future-ready institution. With this leadership in place, our focus now shifts fully from transition to execution. I will now take you through the highlights of individual businesses. In our vehicle finance business maintained a healthy growth momentum from the previous quarter, along with showing meaningful improvement in asset quality metrics. Vehicle finance loan book stood at INR 99,876 crores, growing 2% Q-on-Q with disbursements for the quarter at INR 12,600 crores. We saw sequential loan growth across most vehicle categories. With our sustained focus on collections and recoveries, annualized gross and net slippages for the quarter were 1.94% and 1%, respectively, have been the lowest in the last several quarters. The full year net slippage were also down at 1.84% versus 2.33% Y-o-Y. Asset quality improvement was seen across all vehicle categories on a Q-on-Q basis as well as on a Y-o-Y basis. Overall, vehicle finance, one of the key pillars of the bank has delivered another year of robust performance. While we are confident of the medium-term growth and profitability outlook for this segment, we remain watchful in the near term given uncertainties around the implications of West Asia conflict. We remain focused on our strategic objective of strengthening our leadership position across vehicle categories and driving market share gains in the coming years. I will now cover micro loans and other rural focused products. In micro loans, asset quality saw a significant improvement in terms of collections from standard customers, fresh slippages and standard overdue books. This validates our belief in the reinforced underwriting models introduced last year. Micro loans gross slippage reduced to INR 504 crores versus INR 1,022 crores Q-on-Q. The 31 to 90 days past due book declined to 0.9 versus 2.4% Q-on-Q. With the confidence on the asset quality, we are now gradually scaling our disbursements. Disbursements for the quarter were at INR 5,400 crores, up 52% Q-on-Q. As a result, the pace of contraction of the loan book moderated with sequential decline reduced to 5% Q-on-Q from elevated double-digit levels over the past few quarters. The decline was largely driven by write-offs during the current quarter. The overall micro loan book now stands at INR 16,782 crores with around 57% of the portfolio covered under the CGFMU credit guarantee, including Q4 disbursements, which are currently under process of being covered. Overall, we remain focused on scaling the micro loan portfolio in a calibrated manner, balancing risk discipline with our priority sector lending requirements. In parallel, we continue to build a diversified rural portfolio across other product segments. With asset quality stabilizing, FY '27 will be a year of calibrated growth rather than book contraction in micro loans. Our merchant loan book now stands at INR 8,042 crores, growing 11% Y-o-Y, spread across 570,000 merchant borrowers. Our affordable housing book at INR 2,839 crores grew 24% Y-o-Y, while KCC and other rural loans at INR 4,385 crores grew 3% Q-on-Q. Together, these initiatives position our rural and priority sector portfolio for a more stable, diversified and sustainable growth. We are scaling our consumer banking assets with focus on overall loan book diversification and a gradual rebalancing towards traditional secured retail products. Our home loan book maintained robust momentum with an outstanding of INR 6,510 crores, growing 45% Q-on-Q -- sorry, 45% Y-o-Y and 6% Q-on-Q. We have started investing in multiple subscale secured products, and they are showing encouraging trends. Monthly gold loan disbursements have grown 3x in the last 6 months, and the loan book has now crossed INR 1,000 crores. We should see more momentum continuing as over 500 branches are now enabled for offering gold loans. In contrast, we remain deliberately cautious on the unsecured segments. Personal loan book grew -- personal loan book at INR 10,358 crores degrew 2% Q-on-Q and the credit card loan book at INR 9,751 crores degrew 5% Q-on-Q. Credit card spends for the quarter, however, were at INR 15,259 crores. Consumer spends have grown 4% Y-o-Y despite the drop in cards in force due to conservative underwriting. Overall, consumer banking assets at INR 31,075 crores grew 8% Y-o-Y. Asset quality in this segment has shown improvement with annualized net slippages improved to 4.22% versus 5.42% Q-on-Q. Our efforts of increasing share of internal source customers should support improvement in asset quality metrics over a period of time. SME banking. We are focused on strengthening our position in the SME segment, which represents a large, structurally attractive opportunity. Under the new leadership, we are upgrading processes, risk frameworks and operating structures to more effectively capture the growth opportunity, particularly from a relatively smaller base. The loan book now stands at INR 44,347 crores, growing 1% Q-on-Q. We have also undertaken a detailed assessment of the potential impact of the ongoing West Asia conflict on our SME and relevant wholesale portfolios. At this stage, we do not see any material impact on asset quality. However, we continue to closely monitor developments and maintain active engagement with customers to manage risk. Wholesale Banking. The quarter saw further refinement of the wholesale banking loan book with the portfolio now reflecting a more granular balanced and risk-calibrated franchise. On an average, the mid-market segment saw a marginal sequential uptick, while the continued rationalization of the large corporate portfolio led to 6% Q-on-Q decline in the overall average wholesale banking loan book. The proportion of A and above rated customers and the weighted average rating of the wholesale banking portfolio were at 83% and 2.53%, respectively. On the fee side, our focus remains on efficient sources of income with transaction banking fees contributing 66% of the overall wholesale and SME fee incomes. Asset quality in the wholesale portfolio remains healthy. For FY '26, gross and net slippages were at 0.29% and 0.24%, respectively, remaining stable Y-o-Y. Liabilities. I will now turn to our liability franchise. To begin with, I'd like to welcome Jagdeep Mallareddy, who will be taking over as the Head of Retail Banking. Jagdeep brings over 3 decades of experience across retail banking, lending, credit, operations and risk management. During the quarter, we saw sequential recovery in both average and end-of-period deposits, reversing the declining trend seen over the past 3 quarters. These efforts translated into a revival of retail deposit growth with net addition of INR 6,800 crores. Retail deposit accretion was supported by robust new-to-bank CASA acquisition, leading to improvement in the overall retail CASA mix. The share of average retail deposits as per LCR improved to 47.9% versus 46.6% Y-o-Y and 47% Q-on-Q -- 47.5% Q-on-Q. Cost of deposits for the quarter were at 6.07%, improving marginally by 2 basis points Q-on-Q. The share of CDs in total deposits and borrowings and total liabilities remained steady at 6.2% and 7.9%, respectively. We maintained a healthy liquidity position during the quarter with average LCR at 118%. We have initiated a revamp of operating processes, especially in client-facing journeys. These steps have started yielding results. The average TAT of account activation for assisted digital account opening journeys were reduced by 80% for savings account in the last 6 months. The average TAT for account activation of assisted digital account opening journeys on the current account side were reduced by 63% in the last 6 months. The resultant impact has -- the resultant impact is enhanced customer experience with improved NPS on assisted digital account opening journeys. We progressed on our ambition of unifying our distribution channels to leverage synergy. We now have over 300 vehicle branches co-located or merged with branch banking and aim to take this towards 600 over the next 6 to 9 months. These efforts are reflecting in increasing throughput of retail assets and liabilities along with cost synergies. Deposits sourced from vehicle customers has grown 35% during the year. We believe AI and particularly Gen AI represents a structural shift for banking comparable in scale, if not greater, than core banking transformations of the 2000s and the Internet and mobile banking wave in 2010. At IndusInd, AI is a core strategic priority. We see meaningful potential across customer experience, employee productivity and engagement, credit risk management and financial crime prevention. To institutionalize this focus, we are investing in a dedicated AI center of excellence to drive Gen AI adoption at scale. We have identified 10 high-impact use cases across sales productivity, conversational banking, credit underwriting and collections. Some of these use cases are already live and delivering encouraging outcomes. For instance, our internal knowledge management application Indus Compass, now has over 3,000 daily users processing more than 15,000 employee queries each day across policies and products. In parallel, our enterprise AI chat platform has seen strong traction with close to 3,000 daily active users and 70 interactions per user per day. Equally important, we are investing in building an AI-ready organization. Over 9,000 employees have already completed at least one AI training program, and we expect to scale this significantly during the current financial year as part of our long-term capability building agenda. I will now hand over to Viral to take you through the financial performance.

Thanks, Rajiv, and good evening, everyone. Similar to the last few quarters, my commentary will focus primarily on sequential trends. I will begin with the balance sheet first and then talk about the profit and loss account. So average advances dropped 2% sequentially from Q3, driven mainly by decline in wholesale banking advances and the micro loan book. Average deposits inched up 1%, supported by healthy retail deposit mobilization. Average CD ratio was at 82% versus 84.4% quarter-on-quarter. Share of average borrowings in total liabilities, that remained steady around 8%. Moving on to the P&L. Net interest income for Q4 stood at INR 4,371 crores. Net interest margin was at 3.39% compared to the normalized NIM of 3.35% quarter-on-quarter. The improvement was driven by a reduction in the cost of funds, reflecting lower borrowing and deposit costs. Noninterest income at INR 1,714 crores remained broadly stable quarter-on-quarter. Our operating expenses of INR 3,790 crores was stable quarter-on-quarter, adjusted for the one-off impact of INR 230 crores in previous quarter relating to the change in labor code. So as a result, the operating profit at INR 2,295 crores remained steady quarter-on-quarter despite the lower loan book. PPOP to average loans ratio was at 2.93% versus 2.84% quarter-on-quarter. The provisions and contingencies figure for the quarter was at INR 1,482 crores, down 29% quarter-on-quarter, driven by a reduction in net slippages. We had write-off on loans amounting to INR 1,868 crores during the quarter. So in terms of asset quality, GNPA and NNPA were at 3.43% and 1%, respectively, and the PCR maintained around 71%. Slippages have improved across segments. Segment-wise NPA movement details are available on Slide 24 of our presentation. The SMA-1 and SMA-2 book at 17 basis points was stable quarter-on-quarter. Net security receipts, that declined to 8 basis points versus 9 basis points quarter-on-quarter and restructured advances declined to 6 basis points versus 7 basis points quarter-on-quarter. The profit on tax for the quarter was at INR 594 crores versus INR 128 crores quarter-on-quarter. On capital adequacy, we continue to have a healthy capital adequacy and liquidity position. CET1 at 16.2% and CRAR at 17.48% and LCR at 118%. With that, let me now hand over back to Rajiv for his closing comments.

Thank you, Viral. To summarize, our performance this quarter reflects the progress we have made in strengthening the granularity of balance sheet, improving asset quality and driving a more stable retail-led growth. With strong leadership, comfortable liquidity and capital adequacy, we believe the bank is well positioned to deliver sustainable value over the medium to long term. With near-term growth remain -- while near-term growth remains calibrated, the trends on asset quality, retail deposits and operating leverage gives us confidence in progressively improving returns over the medium term. With this, we are now open for Q&A. Thank you, and over to all of you.

[Operator Instructions] The first question is from the line of Rikin Shah from IIFL Capital.

I had 3 questions. The first one is there was a reduction in the banking outlet footprint by about 230 sequentially. So what's happening there? And while Rajiv, you did mention that we should now think about growth picking up versus contraction in the past few quarters. But overall, for FY '27, what kind of loan growth should one expect? So that's the first one. The second question is, if you could share the absolute quantum of AFS reserves as of March '26 and also clarify if there was any impact from RBI's FX NOP rule? And if the impact was there, was it reflected in the 4Q results already? And the final question is on asset quality. So of course, the slippages have come down, but we clearly had more room to bring down the net NPA ratio further. But instead, we have seen the provision coverage marginally going down sequentially. So when do you expect to reach your earlier guidance of 50 basis points of net NPA ratio? Is it going to be a lot more gradual or we can take some accelerated write-offs and reach there, which you were earlier guiding to?

So let me take the first -- let me see if I can remember the questions. First is on business correspondent, those 200-odd outlets, it's just a function of optimizing, rationalizing some of these centers. As a result of this, we have basically sort of reduced 200 of those locations because they had become unviable as per the work that we have done. The second question?

Credit growth.

Yes. Credit growth -- the second question was around growth. What I have been talking about over the last couple of quarters is that '26, '27 should see us grow broadly in line with market. And that's really what we are working towards. And I think the foundations now are in place for us to be able to do that. The other couple of questions, I would like to request Viral to...

Yes. I can cover the other 2. The AFS reserve was negative INR 50 crores. I just want to highlight that our AFS book is not that large. It's quite small in the context of the overall investment portfolio. So it's a small number, negative INR 50 crores on AFS. The second question you had was on the net NPA. Now I just want to highlight of the entire quantum, first of all, you're seeing a sequential decline, right? It's gone down from INR 3,300 crores to INR 3,169 crores. Important to highlight 50% -- more than 50% of that is from the vehicles business. Less than 25% is now from the microfinance business. So in terms of residual risk, right, the CFD, the vehicles portfolio, you will not see that much of credit loss resulting from that net NPA. It is important to understand the constituents of that net NPA as we think about residual risk sitting there. But it would be a gradual reduction. You're not going to see an immediate write-off there. We want to be consistent. We've been sharing that over the last few quarters that we would want to be consistent on our policies on write-off [indiscernible] definitely not impacted us too much. The only thing we've seen is the FX volatility impacting our other assets and liability [indiscernible].

The impact of the RBI requirements were not material. I mean it was in tens of crores.

Next question is from the line of Kunal Shah from Citigroup.

So post this guidance of almost system average credit growth, in terms of ROA, how should we look at the step-up getting into FY '27 and FY '28, looking at where do we see margins settling down, we saw some improvement on the core NIM. And when we look at it in terms of fee income, so fee income, particularly on the retail side was slightly weaker. I understand it's because of the cards looking at the breakup of the proportion. But 1.2% fee, how should we see it scaling it up and maybe towards like 1.5-odd percent how much of time it would take. So particularly on the ROA led by whether it would be more led by NIM and fee or it would be more like a cyclical credit cost, which can aid the ROE improvement.

So let me answer that. So let's take the current ROA base we are at 45 basis. So our journey to 1. We are looking at that coming in equal contribution, both from the credit losses and from operating profit. So that's the first split of how we get there. Within operating profits, some improvement on NIM, much more on fees and much more on expense. So that's how I would bridge it because the expense base, we are looking at controlling that. And as the asset size starts growing, that's where we will see some optimization. So broadly, that's really how we are looking at the concept to get back to the 1% ROA.

Okay. So more it will be fee income. And what will actually drive that? Because this quarter, it's been like better growth in terms of disbursements across the products, but still not reflecting in terms of the overall fee. So is it like once we resolve the card, it gets to that level or there will be more contribution. If you look at the breakup on retail and wholesale also, it appears to be pretty sticky out there, yes.

So there is -- no, your comment on fees is fair. But I think that is the -- that really is the opportunity for us to go after multiple lines of fee businesses. Your point on cards is fair, but also there's been a lot of work that's happening in terms of optimizing some of the fees that we are charging our customers in some cases, somewhat lower than industry levels, some increase, decrease in locker fees, for example. We are -- there is -- from a productivity perspective, we can do more on sale of insurance and mutual funds and other such investment products. There is work that is happening on the transaction banking side to be able to now start adding new lines of business like the capital markets fees. And finally, we have a new Head of Sales in treasury as well to be able to significantly increase franchise fees on the FX side as well. So there are multiple levers, all are work in progress. And slowly but steadily, we should see better fee income as we go forward.

Next question is from the line of Abhishek from HSBC.

A congratulations for the quarter, and we can see the course correction happening. I think just in terms of your comment on loan growth, you said broadly in line with market and foundations are in place to achieve this. What is your internal assessment of market growth? And within this, how do you see the mix of wholesale, retail, SME moving? Because you're rationalizing one part, not really growing some parts and then really growing some parts. So how do we see the overall mix changing? That's question number one. Question number two is in terms of your ROA target. I guess we are still sticking to the 1% exit in FY '27. But I think the visibility of that is much, much better now. So how about the medium-term aspirational target, right? So where do you wish to eventually reach, if you can talk about that? And the third one, I'll just slip in on asset quality. Just in terms of MFI, how much more normalization is there to go in terms of slippage because on an absolute basis, also, it's a relatively high number. And disbursements wise, we are still lower than Q1 '26 and we are definitely capacitized to do much higher disbursement. So how do we see the trend going forward? So those are the 3 questions.

So Abhishek, thank you for your kind words. Question one was where do we see industry growth? I think the industry growth for this year should be -- everything one needs to caveat with subject to how the West Asia crisis plays out. But I think notwithstanding that caveat, I think we should see 13%, 14% growth. I think broadly speaking, we are, give or take, 60:40 on retail to wholesale. One of the things I've mentioned is that within wholesale, we should -- we are dialing up on the more granular businesses, mid-corporate, SME, et cetera, and taking some money out of the very large corporates. And so therefore, while the overall number may remain more or less the same, but I think the proportionalities internally within that will change. I also mentioned the fact that on the retail side, we have already started to see growth on the more traditional retail asset businesses, home loans, gold loans, et cetera. And I think that is something that we will continue to build on as we go forward. If you remember, the conversation that we had, the conversation I have with all of you really was to be able to convert IndusInd Bank into a much more universal bank with a predictable profit franchise. And that's really what we are really working on at this point in time. And like you rightly said, I think some of that work is slowly but steadily beginning to show up in the numbers as well.

Where could it settle at -- or the 14%, 15% SME, where could it get to? I mean just some broad contours would help.

Sorry, on the SME side itself, is that what you're saying?

Yes, just a mix. So let's say, retail is at 50%, SME 14% and 15% and wholesale 35%. That's the broad mix. Wholesale remains where it is on an absolute basis is what I guess you try to indicate and what...

I had actually added some part of -- I mean, SME is a bit complicated, because some of it is sitting in retail, some of it is sitting in wholesale. But broadly speaking, that we will take money away from the very large corporates and put that into the mid-market and the SME franchise is the point that I was making. So therefore, while the overall numbers of SME plus wholesale will remain around 50%, but the composition within that will change somewhat.

Next question is from the line of Chintan from Autonomous.

Can I just get a little bit of detail around kind of how much can large corporate shrink further? And a couple of detailed questions on kind of your average CASA balances growth in the quarter, how much was that? You gave the average deposit growth at 1%. I'm also after the average CASA growth, if you can give that? And also any one-offs to flag in the NII line this quarter? Or can we take this as a very clean NII line? And my final question is on provisions. You said that, say, half of the journey from 45 bps to 1% ROA comes from provisions. that kind of suggests that provisions will be below -- it will be something like 90 basis points of assets. Is that a fair post [indiscernible] for you?

Sorry, we were on mute.

So let me first answer the point on average CASA growth. So quarter-on-quarter, we've not really grown CASA. It was 30.2% in Q3, 29.8% in Q4. But again, important to understand the constituents, right? The retail book that's really been growing. We've seen some degrowth on the wholesale book. So the mix is important to highlight. On provisions, the other important thing to understand is also the growth in the loan book, right? So far this year, the denominator has been fairly static, in fact has been coming down. Slippages have improved, and therefore, the numerator is going to be fairly controlled over the next 3 to 4 quarters. The denominator is really going to start going up. And therefore, we will see that showing up in the effective credit cost on loans and assets going down. So that's really the math on that on corporate loan.

I think your question -- can I ask Ganesh to take the question on large corporate degrowth?

I think your question was how much we are anticipating large corporate further degrowth. I think I don't want to put a number on how much we are expecting. I think the way to think about it is we'll be dialing up our mid-market, our commercial bank, large corporate. In the very top end of the large corporate, which is particularly the conglomerates, we may see some degrowth. I think that is how we would like to look at it. I think it's early days. But I think directionally, we are guiding that we will look at better growth or higher growth or more than proportionate growth in the middle market.

So to answer your question, we expect the overall book to grow.

Okay. But that's what large corporates have done minus 25% year-on-year. Is there another 10% to go, 20% to go or smaller numbers?

No, we are more or less done there.

Does that help mix on your margin.

No, we are more or less done there. As far as the degrowth, the point that you are making, that we are more or less done.

Understood. Okay. And NIM was clean, right? That was my final one. NIM was clean in the quarter.

NIM was clean. No one-timers in this quarter.

Next question is from the line of Piran Engineer from CLSA India.

Congratulations on the quarter. Just going back to the credit cost question. So apart from MFI, what would be the driver of credit cost improvement from current levels? And MFI also probably should just be maybe INR 200 crores, INR 300 crores more, right?

So again, if you look at the slippages data for this quarter, the reduction is happening across our portfolio. It's not only the microfinance, which has dropped. We've seen a drop both in consumer as well as vehicle financing. And therefore, the improvement will be across sectors, not just micro finance. You are right about your point that the absolute on microfinance is a much smaller number, but the improvement really will come across the 3 large segments that I talked about, microfin, consumer and vehicle finance.

But Viral, in vehicles, your net slippage ratio is like 1%, if I heard you correctly in the opening comments. Why is -- I mean, historically, what this number look like for IndusInd Bank? I would expect 1% to be a pretty good number and a lot of improvement seems unlikely, just speaking as an analyst.

Yes. Again, denominator, right, important to understand that. The asset book continues growing, the slippages are dropping, and that's how you then have to translate that into credit cost, right? That's the point I'm trying to make.

At the moment, the asset books are -- growth is relatively muted. And so therefore, to some degree, all these percentages are a bit skewed. So I think 2 things are happening is the point Viral is making. One is anyway, slippages have reduced. And add to that, as growth begins to come, these numbers will start to look better.

Understood. Understood. Okay. Second was on just your deposit and funding cost sort of movement. Now your cost of deposits has fallen only 2% Q-o-Q and cost of funds has fallen 12 bps Q-o-Q.

That's again an effect of the balance sheet, right? If you look at total balance sheet, that's grown and therefore, that cost of funds average has dropped more than what you see on the cost of deposit.

Okay. So you're taking equity also in this in the denominator?

That's correct.

Got it. And just -- sorry, just on the deposit cost thing, 2 bps Q-o-Q when our CASA was largely stable. Does this mean that our TD repricing is almost over now? Because last quarter, we reported a much better decline.

I think that's fair to say that the repricing that journey is pretty much done.

It's pretty much over. So now -- got it.

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

Sir, one question on your growth. So now we are aspiring for system level growth, and we see that large corporate may not be -- may remain in consolidation mode. That would mean that effectively retail plus SME may have to be more than like 17%, 18% plus. At the same time, you see macro, which may have some implication on SME growth and maybe vehicle growth. Along with that, so far, deposits, while they have been stable retail deposit, but there's not material growth there. So would you be comfortable in growing -- considering these constraints on SME/vehicle along with dialing up deposit to achieve towards the systemic level growth? That is the question.

See, across the system, we have a little under 2% market share. So therefore, we do believe that this franchise is certainly worth more than the 1.7-odd percent market share that we have. And so therefore, given the team that we have, given the process systems controls that we are now putting in place, I do believe that we will be able to at least start to grow in the vicinity of where the market is. To the point that you are making that if the macroeconomic environment as you envisage begins to play out, please remember that market level growth will also come down. And so therefore, to that extent, I mean, if that begins to play out, we will also calibrate growth as appropriate.

Right. And your liability side reset has already happened, right? So your -- whatever you -- bulk deposit is more or less steady, but there is no liability reset that is still pending, right? So your -- I mean, that liability side reset is already over?

From a pricing perspective, yes. But I think obviously, proportionalities are something that you need to consider as well, meaning that we have some way to go to catch up with peers in terms of the ratios of the current account relative, the overall ratio of retail plus SBC as compared to peers, et cetera. And so therefore, while there may not be necessarily a great deal from a repricing perspective, we do hope that as proportionalities improve towards more retail, we may be able to get some benefits on overall cost of deposits as we go forward.

Next question is from the line of Param Subramanian from Investec India.

Congratulations on the improvement in profitability in the quarter. Again, I just wanted to check on the 60 basis point guidance for net NPA. When do we plan to achieve that again?

I think -- so I think we mentioned that in the previous quarter as well, that's a target. We don't have a due date kind of saying, okay, we will get there by this date. That's the journey we want to get to. But yes, it's a journey. It's not going to happen like immediate next few quarters.

Okay. Fair enough. Okay. Secondly, on deposit growth, right? So this year, we have not grown deposits because we've not been growing the balance sheet. Retail deposits is also minus 2%. And since we didn't have to grow, we took the opportunity to cut our rates. But going into next year, do you think you'll have to say, raise rates again to garner retail deposits because if you plan to grow mid-teens, retail deposits are still growing at, say, minus 2% Y-o-Y, yes.

We'll see. I think if you look at our deposit rates compared to our larger peers, we are already paying a somewhat premium to the big 3 or 4 banks. So we'll see how this plays out.

Rajiv, I wanted to understand how -- what exactly changes for retail deposit growth to pick up?

So there are multiple things, somewhat some internal, some external, meaning that we've made some organizational changes, structural changes, changes in incentive plans, changes in gold [indiscernible], et cetera, for our branch banking folk. We have integrated the CFD piece, as I spoke about in my opening commentary. And there is a clear mandate from them to be able to grow their deposits. There is a mandate even to -- in our microfinance businesses to be able to get more than what we are getting today. As we grow our retail asset businesses as well, I do believe that, that will trigger a virtuous cycle of more cross-sell, more engaged customers and therefore, better balances. We are also working on improving our digital capabilities, which is -- I think it is fair to say that we have a little bit of way to go as compared to peers. And I do believe that in an environment where flow of funds is so quick and so efficient and so frictionless having strong digital capabilities is an absolute imperative. So therefore, we are improving our digital capabilities as well as we go forward. So there's a whole -- I mean, I also spoke about the fact that at a very basic level, current account opening -- current and savings account opening itself, we have made a transformational shift in terms of customer experience. We are also working on repositioning the brand, which we will hopefully do sometime in July, August of next year. So there's a whole bunch of things that are happening, which gives me a great deal of confidence that both from an input and output perspective, we should be able to do much better going forward.

Got it. Just one last question. So there is a Y-o-Y sharp increase on other assets in the balance sheet. Is that RIDF and if so, if you could...

Yes, it's a combination. So you're right. Partially, yes, INR 3,000 crores was RIDF. The remaining is really grossing up of the balance sheet with the FX volatility. So revaluation of FX contracts where we are hedged from a risk perspective, but you have 2 contracts which grossed up the balance sheet. So that's really explaining the [indiscernible] movement.

Okay. Okay. Got it. And if you could broadly talk about your PSL, say, how you are positioned because the MFI book is sharply down as of the end of the year.

So we have met all our PSL requirements, including subcategories for the year '25, '26. If that was the question.

Sorry, it's not that you will have higher RIDF installments next is what I wanted to say.

So this year's PSL, we met. So we're not going to have RIDF. Having said so, the RIDF target for shortfall of the past year, that's not fully done yet. So we still have another INR 2,000 crores RIDF left in terms of the demand. It's not come through yet, but that's it. But as far as PSL goes for this financial year, having met the targets, we will not have incremental target on RIDF coming in next year.

[Operator Instructions] Next question is from the line of Jayant Kharote from Axis Capital.

Sir, first question is on the LCR. If you can help us what would be the release under the new norms for LCR for you? And a follow-up to that would be what is your internal comfort level on LCR? Or is there a Board approved floor of LCR, which you would like to maintain?

So LCR, I think at 118%, that's a stable level. I don't think we're going to see much delta there, very marginal there. The range, we would operate between 115% to 120%. That's pretty much the range we'll be working within. And that's really our internal tracking.

Any release from the new norms?

No, nothing significant coming in.

Okay. Sir, second question is on the merchant loan book. We do see a very healthy uptick over there, almost 10% Q-o-Q after almost 4 quarters. Is this strategic? And would we see something similar over the next 4 quarters in this book?

This is a book that we are very passionate about. I think it's a business that can be scaled quite significantly from here. We are investing in both people, technology within this space. And I think in this franchise, we can do a lot more. So I don't want to comment on whether the rate of growth will be the same, but it is a business that we certainly want to grow not just over the next 3 to 4 quarters, but over the medium term.

Do you see this becoming a sizable part of the loan book over the next 2 to 3 years?

Let me answer that question slightly differently. I mean I think today, if you look at the our microfinance business, I mean, it's broadly speaking, 75:25 microfinance to BSS, which is our Bharat Superstore Business. The plan really is to convert this into a more rural business where microfinance then effectively becomes 50, not because it's going to degrow, but because we're going to add new products within that franchise to be able to grow that franchise and to be able to serve the community there through multiple micro LAP, for example, is an example of another product that we will add there. But fundamentally, I mean, the rural business is something that we want to grow, not just on the microfinance or BSS side, but with more products.

If I could just squeeze one last question regarding the LCR. If we are, let's say, not able to match the loan growth with the retail deposit number, are we open to tapping into CD and higher cost? Or I mean is growth the primary aim over here?

I think we -- given the fact that we have -- we have not grown for a year, I think it becomes very clear to me and to my Board that we need to start getting back into growth mode. Now if the industry grows at 12% or 13% and we grow 11% or 12%, I will not be deeply disappointed. But I think fundamentally, we need to get back into growth mode.

Next question is from the line of Pritesh Bumb from DAM Capital Advisors.

So the risk-weighted assets were sharply down by about 300 basis points. Anything to read into that? And with 16.2% CET, will we still looking to raise any capital?

So on the RWA question, 2 factors playing there. One is the drop in the loan book, right, that directly translates on credit RWA. Second, we've also run optimization on the book. So things like quantum of rating portfolio, the market risk calculation, et cetera. We've seen some uptick from that as well. So that's really helping us maintain and lower the absolute RWAs.

To the second question, was we have accreted capital in this quarter. And so therefore, our capital position has become stronger than where it was in the previous quarter. This level of capital is more than enough for us to be able to support growth at least over the next 1 year. So yes, there is no plan to raise capital anytime soon.

And lastly, Rajiv, you mentioned about the macro environment, in West Asia crisis. Our portfolio is generally very aligned to the macro environment, right? So any early assessment on from a book perspective where we are linked to the oil and gas value chain and asset quality related to vehicle finance and SME, any assessment there?

So we have -- as you can see, this whole theater is evolving literally on a day-to-day basis, but we've already done 2 iterations where we looked at the entire portfolio across all our businesses. At this point in time, we are not seeing any significant hotspots or across the entire portfolio. But I do believe that as -- if this crisis continues and the physical ability to move oil and gas is constrained as it is today for a longer period of time, it is, I think, inevitable that maybe, I don't know, 2 quarters from now, we will see some impact on portfolios. But like I said, I mean, it's a wait-and-watch mode at the moment.

Next question is from the line of Ankit Bihani from Nomura.

I just wanted to ask our employee cost has declined sequentially even if I exclude the new labor code impact, if you could highlight something on that? And the other question was on the deposit growth front, how do you see system deposit growth panning from here on? And could that be a constraint on loan growth going ahead? Because as of March end, we are running at a 16% Y-o-Y loan growth. Where do you see it settling in FY '27?

I think comp is also -- it's a factor of the churning that we've seen through the course of the year. I don't think it's been a substantial movement quarter-on-quarter. It's actually flattish. But yes, it's been flat to lower, yes. And you're right. The one-off was the labor law impact last quarter.

So simple answer to your question is will deposit growth be a constraint to credit growth? Absolutely. I mean I think that, in a sense, is a basic tenant of banking that we will be able to grow only to the extent that we are able to raise deposits given all the various constraints around LCR, LDR, et cetera, is concerned. But having said that, I think it does look like we will see slightly lower levels of credit growth in the current year, especially given the macroeconomic environment that is currently playing out. But like I said, it's a wait-and-watch mode. Things are changing literally on a day-to-day basis.

Ladies and gentlemen, we will take that as the last question. I'll now hand the conference over to Mr. Rajiv Anand for closing comments.

Thank you for your interest in IndusInd Bank. I appreciate the time that you have spent with us. Thank you once again.

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