Kotak Mahindra Bank Limited (500247) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Kotak Mahindra Bank Q4 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Uday Kotak. Thank you, and over to you, Mr. Kotak.

Good evening, friends. Welcome to the investor and analyst conference call post Kotak Mahindra Bank's results for the year ended March 31. We are truly in uncharted times. And also, as it's said, 24 hours is a long time. And I would first like to say that we have been significantly enthused in the last 24 hours, first with the Prime Minister, Modi's announcement of a very significant stimulus package and reimagining of India, which he did last night at 8 p.m. and which was followed by a conference -- television conference by the Finance Minister, which has just -- which was just a few minutes ago. And I would like to actually comment on some of the points which were made by the Finance Minister, which has significantly positive implications for the financial sector. And she made a list of more than 15, 16 points, but some of them which stand out and have significant benefit for the financial sector. Number one, is a INR 300,000 crore or 3 lakh crores line for corporate -- central government guarantees from -- for MSMEs for new financing. It's a very significant relief and will be a big boost for MSMEs to start and banks to be able to lend an incremental INR 300,000 crores fully guaranteed by the government of India, and this will actually also help in protecting the existing book. Second is redefinition of micro, small and medium enterprises with higher investment and turnover limits, which significantly enables the MSMEs to grow and for the banking industry to be able to redefine MSMEs, including eligibility for priority sector advances. The third important aspect is relief for nonbank financial companies in terms of 2 packages: one is a INR 30,000 crore package, which is effectively guaranteed by the government; and another is a INR 45,000 crore package with a first-loss. Of course, we wait for the greater details. But I do believe these are very, very significant game-changing moves. In addition to that, the reliefs to real estate for the force majeure under RERA and also postponement by 6 months for the period, or construction period and easing on tax payments and tax risk returns are all benefits which will make a significant difference to liquidity and ease the pressure in the COVID era for consumers and businesses. And I would like to say that this is a very meaningful package and consistent with the fact that the Prime Minister Modi thought it important yesterday to make the economy as the main focus for the next steps in COVID era. That brings me, friends, to the whole COVID situation. And here are 3 or 4 points, which stand out in terms of the COVID situation and its implications for us as we run our bank and our business. First, it looks like COVID is here to stay longer than what most people would have liked to see it in end March or early April. It is not going away in a hurry. We do not see a sustainable cure as of now, nor do we see the potential of a vaccine for the next 12 to 15 months. So, COVID will be with us. It will linger on. And we will have to continue and deal with it as a part of life, at least for a while. Number two, while lockdowns may be necessary from a health and a science point of view to protect lives against virus, lockdowns have an exponential cost on the economy. And the other issue about the lockdowns is once you are into the lockdown, getting out of the lockdown is not easy. It is complicated. And therefore, while India has done successfully controlling the impact of the number of deaths through the virus because of the lockdown, there are economic costs. And it is in a calibrated manner that India is getting out of this lockdown situation and moving towards a gradually normalizing economy. We think we are some way away, and there is an economic cost to it. There is a wide variation in expectation of economic cost. The optimistic side, we have seen IMF at 1.9%. And I saw some research reports yesterday, talking about minus 5%. So we have to watch and see. And it also depends on how much support, which comes from the government in terms of fiscal stimulus, which can ease the pain of the lockdown as also the calibrated opening. Therefore, the second point, lockdowns have an economic cost and difficult to get down -- get out of is a reality with which we will continue to deal with as we talk. So in that context, how do we think about the business side? The impact on the real sector, of course, has real cost for the financial sector. And to the extent to which the state supports the real sector, the impact cost on the financial sector reduces. But there is still going to be a cost. So in that context, what are the few first principles we need to follow in the financial sector ourselves. Number one, strong balance sheet. And it's absolutely clear that at this point of time, the balance sheet has a significant weightage in terms of strategy. Number two, a strong and trusted deposit franchise. And in that context, I'm happy to report that both on the balance sheet with a Tier 1 capital of 17-odd percent and a deposit franchise, where our customer deposits for the year ended March 20 -- for March 2020 grew at 20%, CASA ratio of 56.2% and 86% of our deposits are CASA and term deposits below INR 5 crores. These are all strong positions from the point of view of the balance sheet and the deposit franchise. The next question is, we really divide the world on the balance sheet into pre-COVID, that is what we call as before COVID, which I, in a simple way, call it as pre 31st March and after-COVID, which is post March 31. And in the post-COVID world, we need to be looking at our lending business in a very different manner. Our strategy for lending, therefore, is right now pegged on 3 important aspects: number one is the sector; number two is individual companies with high fixed operating costs, we are a little more cautious in terms of lending to; and number three is businesses or companies with high leverage. And I will add the fourth point now that the state is stepping in, companies, which otherwise we would have found it challenging to lend, but with the support of the state as a guarantor, we would be certainly more willing to consider that and really help in kickstarting the economy while making sure that the safety of our balance sheet is insured. And we will certainly use this opportunity to grow on a state-guaranteed situation. Further, we are also very clearly focused on customer acquisition through the digital route. We are seeing, even today, in the month of May, we are adding about 14,000 new customer accounts every day through our digital acquisition channel. And we see that actually speeding up as we go further. Therefore, without any physical intervention, if we can get to a level of customer acquisition from 14,000 even higher, that would be a part -- completely flexible in terms of what segments of business we lend to and not married to a fashion or a herd, which has been -- which is something which we have always stated as our core. And on the customer franchise, we also see a very significant opportunity to grow our franchise in noncredit risk areas of business, which is the advisory businesses, the securities business, the wealth management business and the asset management business, and we continue to see a robust growth in the brand, the franchise and the positioning of our firm as a consolidated entity. Also, as we go into the future, we see the financial sector as it navigates through this turbulence, like we have seen in the telecom sector, as also probably seen in sectors like airlines as we go forward, we see the financial sector going through a significant consolidation phase as we go forward. And from our point of view, we, at this stage, have 2 ways of looking at this: first is to continue focusing on navigating, driving with care and alertness through the turbulence; at the same time, keeping an eye on the other side of the shore and seeing what opportunities can come to us in the context of this all transformation of the financial sector, which will inevitably take place over the next 12 to 18 months or maybe even earlier. So with that, I just want to say that we, in terms of our focus, continue with a conservative approach but alert to opportunities and not scared of taking opportunities in this period. And in terms of our internal working, it is just quite amazing, how the levels of productivity and efficiency of our firm, especially at the senior levels, has dramatically increased. I've got my full senior team here on this call, and we frequently interact and at times, we are now also working on a plan that in the post-COVID world, how will our business look like? What will be the future requirements? What will be the impact on the cost-to-income ratios? How will digital and technology do vis-à-vis the branch networks? And we are at about 1,600 branches, how do we strategize on that into the future? As also, what are the levers we need to press to significantly transform Kotak as an institution in the time ahead what we popularly call as AC, after COVID. With that, I will now request my colleague, Jaimin Bhatt, to take you through the presentation, and then we can reopen for discussions and questions and answers. Over to you, Jaimin.

Thank you, Uday. Let me take you through the stand-alone numbers first. For the full year FY '20, the bank closed with a post-tax profit of INR 5,947 crores, which is 22% higher than the same period last year. We end this quarter with a net interest margin of 4.72%, which is compared to 4.46% we had the same period last year. Our capital adequacy continuing to be very healthy. We have a total capital adequacy of 17.9% and its Tier 1 at 17.3%. Our net interest income this quarter grew 17% on a year-on-year basis. Thanks to the cost of funds coming down, we also had the NIM expansion, as I talked about. The other income again grew decently from -- to INR 1,489 crores for this quarter, which is about 17% higher than the same period last year. At our operating profit level, which we grew to INR 2,324 crores for this quarter and over INR 10,000 crores for the year, we had a decent growth when it came to the operating profit level -- INR 2,725 crores, which was significantly higher than what we did last year, about 19% higher. When it comes to provisions, we have taken a provision hit of INR 1,047 crores in this quarter, which includes a COVID-related provision of INR 650 crores, which I will take in a minute. As I talked about, the deposits level, we have continued to see deposits growing well. Our CASA deposit at the end of March is at 56.2%. In addition, our sweep deposits continues to be healthy at 6.6%. Our average deposits on SA grew by 21% average this year versus last year. We have a component of a wholesale floating rate savings account deposits, which is part of this average, which is part of the savings accounts. If I take that away, the actual savings account non-wholesale floating rate grew by 34% on a year-on-year basis. We also saw in this period, our savings account overall deposits cross the 1 lakh crore mark. And we talked about the lockdown period during this month and whatnot. In the current month of May, we are actually opening a total of about on an average 14,000 accounts per day, which pretty much compares well with the 44 lakh accounts, which we opened in the whole of last year. Our deposits overall grew by 16%, but that's also because we actually defocused on the certificates of deposits, which are the wholesale variety. We grew them down by 55% on a year-on-year basis. Our CASA plus TD is below INR 5 crores, now comprising 86% of our overall deposits. Our savings account costs now coming to 5.23% because of the cuts which we did in the previous quarter. We've had some more reductions of our savings accounts rates, which have happened in April, not factored into this number. On our advances, we ended the period with total advances of just short of INR 220,000 crores, about a 7% rise on a year-on-year basis. Our corporate book at about 84,800, grew by about 6% on a year-on-year basis. We had decent growth in the Tractor Finance division, which grew about 18% on a year-on-year basis. Home loans again grew to -- and we closed the period at INR 46,800 crores, a 15% growth on a year-on-year basis. CV/CEs, we had a negative growth for the year, small number, but we degrew from 19,700 to 19,250. On the consumer bank side, one component is the consumer bank working capital, which is a small business working capital financed by the consumer bank, which is secured, which ended the period with INR 19,800 crores. On the other hand, the personal loans, business loans and the consumer durable loans, we ended with INR 9,750 crores, a sequential negative growth for this quarter. Similarly, credit cards, we ended with INR 4,700 crores, again a sequential negative for this quarter. On the asset quality, we closed this period with a GNPA of 2.25%. We increased the coverage ratios, and we did -- we moved to 69% coverage as against 64.4% one quarter ago, resulting in a net NPA now at 0.71%. Slippages this quarter at INR 491 crores. Of course, this got the benefit of the RBI circular on standstill, which if you had taken that, that the slippages would have been higher by about another INR 660-odd crores. Our SMA2 amounting to a low of INR 96 crores, which is 0.04% of our total advances. What we have done on the COVID provisioning at INR 650 crores is effectively taken all overdue amounts as of February 29, 2020, when the moratorium period began. And for those accounts, which had availed of moratorium, we considered all of that and at account level, they have provided 10%. If I look at up -- and we consider people who have taken moratorium right up to April 30, 2020. If I take that population of people who have opted for moratorium up to April 30, 2020, about 26% of our borrowers at account level have gone in for that moratorium. Now if you look at the INR 650 crores of COVID provision which we have taken, plus if we take the standard provision and some specific provisions -- and some other provisions, which are like unhedged foreign currencies and specific sector provisions, the -- that total actually covers up our entire net nonperforming assets. So together with specific provisions today, we have provision numbers, which cover our entire gross nonperforming assets, and we are therefore starting the financial year with a reasonably clean number. Our specific sector provisions again, our NBFC numbers remained at 4% of our total exposure. Our commercial real estate at 2.2% and LRD at 1.6%. As you are aware, we have sought approval from the shareholders to do an equity raise of up to 65 million shares, for which we've sought shareholder approval and the ballot should be ending end of this month at 25th of May. At the consolidated level, we ended the full year with a post-tax profit of INR 8,593 crores, which compared with INR 7,200 crores last year is about a 19% rise on a year-on-year basis. At the consolidated level again, capital adequacy is pretty healthy, up 19.8% overall capital adequacy and 19.2% at Tier 1. NIM at 4.73% for the consolidated entity. Apart from the bank, we had contributions coming in from the life insurance entity, the shareholder profit post-tax for the quarter at a INR 165 crores, Kotak Securities at INR 163 crores, Kotak Prime at INR 161 crores, the Kotak Investments at INR 77 crores, the mutual fund and the trustee company at INR 88 crores. Our total net worth at the group level now at INR 67,000 crores, giving us a book value per share of INR 348 per share. Our advances at the group level had a slow growth as subsidiaries, which get into auto loans had a negative growth for the year. And so also the other subsidiary, which is more into loans against shares and commercial real estate. So at the non-bank level, we had a negative growth on the advances. Kotak Life, we declared our embedded value last year. At the end of this year, we had an Indian embedded value of INR 8,388 crores, with a VNB margin of 28.8%. Bank assurance continues to be at 44% of our total channel mix and persistency ratios continuing to be high on the insurance segment. The life insurance company, again, having the solvency ratio, which is pretty healthy at 2.9% -- 2.9x. Seeing the gross written premium growth in the year at 26.6%. On our capital market subsidiaries, we were involved in transactions during the quarter, notably of SBI cards and the D-Mart issuance as well as the buyback of [indiscernible]. Our securities company on the cash market segment drops a market share of 9.1% in the Indian market. Our assets under management spread across the group at INR 225,000 crores across the groups, including the offshore entities. The domestic mutual fund, we had a profit post-tax of INR 88 crores between the mutual fund asset management company and the trustee company. Our average assets under management overall was INR 186,000 crores for this quarter. The 2 NBFCs, as I said, both of them have had a degrowth on their advances number compared to the previous year, but both continuing to be pretty healthy on their capital adequacy, Kotak Prime at 24.3% and investments at 29.4%. In both these NBFCs, again, we have taken COVID provisions on similar principles, at -- in Kotak Prime INR 50 crores and Kotak Investments INR 14 crores. I'll hand over to Shanti for giving a flavor of the digital world before we take the questions, please.

Thank you, Jaimin. Digital was a way of life even before COVID, and it is more so during the COVID era. Whether it is customer acquisitions, they talked about the fact that we are opening savings accounts on a daily basis. We have extended our 811 account opening platform to all channels, corporate salary, branches and other channels. Whether it is account customer acquisition, transactions, deposits, we have seen a significant increase in customer throughput and transactions through digital and mobile remains the preferred way for customers to transact with us. We've done a few interesting things like Google Assistant integration. We're the first bank to do that, and customers can actually ask for their balances via the Google Assistant. We have continued to work on our open-banking platform, including API integration with corporate and service partners. We added 91 new partners, and we've seen a 16x transaction growth over FY '19. Our focus continues to be on building digital journeys for across our products and services to enable customers in this less contact or no contact world to comfortably do banking from the comfort of their homes or even offices going forward. Not just the bank, even the subsidiaries, whether it's the brokering and the securities firm, which has seen a significant jump in average daily volume trading through the mobile, our life insurance and our general insurance have all focused on digital journeys and are acquiring a significant part of their business through digital. Thank you, Jaimin, and we can go forward.

I think we can now open up for Q&A.

[Operator Instructions] We have the first question from the line of Mahrukh Adajania from Elara Capital.

Sir, my first question is on today's package that today's package of INR 3 trillion for the SMEs or the MSMEs is with outstanding of INR 25 crores. So do you lend to SMEs in that bucket? Or your ticket size of SMEs would be a higher outstanding?

No, no, no. We lend all the way from the bottom up -- at much lower levels and with below INR 25 crores. Therefore, if you look at our asset book, which has been presented by Jaimin, if you look at the different segments, if you look at -- within the corporate bank, there is a business banking segment, which is the SME segment. We lend there then we lend in the commercial vehicles and the construction equipment division, again to SMEs, then there is the agricultural division, then there is a consumer bank working capital division. There's a business loans division. So all these are in our MSME bucket. And many of them will be beneficiaries of this. Therefore, we see this as a very significant move. And therefore, we cover the whole spectrum of micro, small, medium, corporate and large corporates, the entire range in the business segment across our different segments.

Sir, and is it at all possible to give some quantification as in what proportion of the SME book would be?

So we have given that. If you look at the table, if you look at the corporate and business banking, Manian, what is the size of the SME within the business banking division -- the SME division? Manian?

Hello, hello, Yes. Yes, Uday. About INR 21,000 crores out of that is business banking.

So out of corporate and business banking, which is at [ INR 84,855 crores, ] SME division is INR 21,000 crores. Then commercial vehicles and construction equipment would have some parts, which is SME, which is INR 19,000 crores in total division. Agricultural division, which is INR 21,000 crores, will have some part which will be in SME. And consumer bank working capital secured is almost entirely micro and small, the INR 19,000 crores, which you are seeing there. Therefore, I would say it's a very reasonable percentage of our total book.

Got it. And most of our large proportion would be in the INR 25 crore and below outstanding, right?

Yes, we have a large portion of that. A large portion out of the SME piece, say, for example, in corporate and business banking, the SME division is INR 21,000 crores. A reasonable portion of that would be below the INR 25 crore mark, not all, but a reasonable portion.

Yes, that's very helpful. And my other question is on your outlook on loan growth. As in that you've been rightly cautious all this while because the macro has been very volatile. Now given that most other bank -- or a lot of NBFCs and a few banks would have capital constraints, would you still be very cautious because of COVID? Or would you like to take market share?

Okay. Mahrukh, divided into 2 parts. One is what I call as the BC period, which is before COVID period, okay? At that stage, we were seeing an economic slowdown on the card. We were cautious on unsecured consumer. For example, if you look at on credit cards, personal loans and business loans, we had given our caution even in the earlier earnings calls and which we repeated in the last call. And we actually walked the talk on that for our conservatism on that was something which was pre-COVID. And of course, in the post-COVID world, our view is the pain on the unsecured consumer in the balance sheets of banks would have a reasonable proportion. But having said that, how do we feel in the post-COVID world? In the post-COVID world, we are in the middle of 3 clear streams, which we have to think about as we think about the risk return metrics. Number one is the very short end and I'm going across risk and duration. So at the very short end, the spreads are negative because any surplus liquidity, RBI is taking at 3.75%. So that is not a great carry, but it's a protection. Therefore, the move is, you first move up the duration curve. As you move up the duration curve on risk-free, that is sovereign, you start getting some returns. Therefore, a 3-year G-sec will give you a return of 470, 480. Then the next decision you take is you want to move to quasi-sovereign, okay? So if you go to quasi-sovereign for a 3-year loan, you get 570, 580. Then you move to high-end corporate, the high-end corporates today for a 3-year loan are give or take, around 7-odd percent. So then you take a decision, what is the level of risk you want to take on the credit side? What is the level of risk you want to take on the duration side? And what is the trade-off between spread, duration and risk as you take your calls across different segments. Of course, on the consumer segment, at this point of time, for the month of April, there was virtually no lending in the banking industry -- new lending in the banking industry, very small amounts of lending, which has happened in the banking industry. So we have to see how the consumer segment opens up as we go forward. But I just wanted to say that if the government has given a guarantee on the INR 3 lakh crores, we are -- we have the advantage of significant liquidity and our cost of funds is very, very attractive. You are aware that we have dropped our savings deposit rates even in April going forward. And despite that, we are continuing to get a very high savings deposit and deposit flow into our bank. Therefore with low-cost of funds, high capital, where we feel credit risk makes sense and effectively, we get the money back, that's the bottom line, we will lend, but we will lend when we have that comfort. Therefore, if there was no sovereign guarantee for some of the weaker MSMEs, we would be more cautious. But if the sovereign is stepping in, we will step up. That's the bottom line.

Got it. And just 1 last question. What would be your deposit outflow -- inflow in April, May, like roughly -- rough accretion to deposits?

Mahrukh, normally every year, say, for example, if you take a savings account or a current account, every year in April, it is normally a negative. But this year, particularly in savings, we are finding a surprising positive in terms of growth. And our savings growth in April has been extremely positive year-on-year as well, okay?

The next question is from the line of Manish Karwa from Axis Capital.

Congratulations. Just on the savings deposit piece, would it be fair to assume that our savings cost this year would be about 80 to 90 basis points lower on an average compared to last year?

Manish, I'll have Jaimin answer that. But let me just -- I remember in many earlier calls, you have always been pushing for us to be dropping rates.

Yes.

Now you have seen we have dropped rates. At the same time, we have kept the customer franchise. And if you look at our savings deposit positioning, we are now from a peak of 6%, we are now at 4.5% above 1 lakh. And below 1 lakh, 3.75%. Our major competitors are at 3.25% up to 50 lakh and 3.75% above 50 lakh. So even now, we have a competitive advantage despite a really significant reduction. And even at these rates, we are getting money in. Now in terms of the benefit to cost of funds, I will ask Jaimin what he would like to talk about. But yes, we have made 2 drops on 1st of April and 20th of April, which will flow through the current year. But over to Jaimin.

Yes, Manish. Look, we have actually done the drop during the last year itself, and we've started seeing that benefit. We continue to be still giving a rate which is higher than most of the larger private sector banks. Even today, after the drops in April, we are offering 3.75% and 4.5%. So that's a rate which is still higher. But yes, we have dropped the savings accounts rate and which has resulted in our cost dropping down. We ended this quarter at 5.23%, which was -- for the full year, it is still a higher number. But as we see the drop which we have done in the month of April, which is a sharper drop, we will see that benefit flowing into the current year. But, of course, it'll depend upon how much of the savings cost flows through. And what we've also seen is, despite the drop in the rates in the previous periods, we did not see deposits moving out. So we've been able to maintain the deposits and rate improvement should actually flow through in the current year.

And to add to Jaimin's point, Manish, and this is important, we consider the customer franchise as a key part of our decision. We are not going to give away our customer franchise and the savings deposit growth strategy which we have had, while obviously being conscious of the commercials of what we are doing. Therefore, it's a very careful balance we are doing between those and ensuring that the franchise of sustainable and low-cost deposits and the competitive advantage we have, we keep on driving home, while reducing the cost of funds for the bank.

And since the funding costs are now at par with probably the best of the banks, I mean, that's the largest private sector bank now, does it also mean that we become a lot more aggressive on the best of the corporate lending, which up till now, we have not done much. Is there a change of thought process on the lending side as well?

No, no, there is clearly a recognition that where opportunity is, we will lend. But we have to make sure that when we are driving the car, we don't get colored by the rearview mirror. We need to make sure that the best of corporate in the BC era, which is before COVID era, remain the best of the corporates in the AC era, that is after COVID era. We believe that, that is true. We will be more aggressive and we are more aggressive in those cases. But no getting blind sighted that in the past, these corporates were good, therefore, they will remain to be good because the impact on different sectors is different. Therefore, a good corporate, for example, in, say, the movie industry, will it remain a good corporate going forward? Or theaters, or airlines or hotels? So you have to look at a good corporate with looking in the front. And we have to be very careful, we don't look at a good corporate on the review mirror.

Sure. And this -- does it also mean that for at least some time, we work with reasonably higher margins because not everything can get passed on because risk perceptions have also gone up in our industry.

No, we will work on sensible business models where we hold the customer, and we are in the business of ensuring higher pre-operating profits because the fact of the matter is risk costs are going to be high. That's the nature of the COVID world, isn't it?

Yes. And for the last one...

It's a higher risk cost.

And Jaimin, I just wanted 1 data point. This 26% is by value, right, moratorium?

That's right. That's right.

And does it include -- this is on consolidated basis or only on the stand-alone bank?

Stand-alone bank, actually in the other entities, it's not large. This is stand-alone bank.

So the prime and investments would be a smaller number than 26%?

That's correct. That's right.

Having said that, I must add 1 other point, that this is moratorium given to customers by value as of 30th April. Customers are continuing to ask and take moratorium even in the month of May.

So you think, Uday, that this 26% can actually go up to somewhere around 30%, 35% by end of May?

I'll tell you on 1st of June. No, I'm -- some of that, we are finding because of extension of the lock-in period. Customers will be coming back. So let's say it gets extended next week again, you will find a pressure of people coming in.

The next question is from the line of Harshit Toshniwal for PMT Invest.

I had a few questions on the life insurance arm. So we saw our margin decline over FY '19 to '20 and this is despite we took a big amount of group business and even the non-par mix remaining constant. If you can throw some light on that particular segment?

Yes. I'll give it over to Gaurang, but you must keep in mind that in the non-par segment as yields drop, your margins come down. But I'll hand it over to Gaurang.

Correct. So I think there are factors which have contributed to VNB margin, which is one is as mentioned, by interest rate changes. So whenever interest rate comes down, and you are holding a non-par book, then probably it hurts you in terms of your overall VNB margin. The second one is relating to the expense increase. There is a higher agency proportion we had this year compared to what we had last year. So bank assurance came down by around 4%. So your channel mix also contributes. There's also some impact on the product mix. And there is also an additional -- the cost which came because of the IRDA changes in terms of the surrender values and all that. So all 4 factors combined probably led to the margin drop. But still, let me tell you at 28.8%, still it is the highest margin in the industry.

Yes. Yes. One more follow-up, sir. So you talked of return guarantees, but if you can share the mix within the non-par? And two, what is our hedging strategy in these -- those kind of products because -- both -- shouldn't it be more viable that when we hedge this product, we can do that in a much larger proportion?

I think we have probably used all the possible options which are available. In terms of partially paid bonds, we have done recurring deposits. We have taken FRA, which is the future rate agreement. And what we have done is we have invested all of the non-par funds also for a long term. So if I look at currently, in terms of present value terms, I think we would be completely hedged in terms of what liability we hold on these accounts.

The next question is from the line of Rahul from Goldman Sachs.

I've got a bunch of questions. The first one is just wanted to know the proportion of the portfolio where the standstill was offered, and we had to make 10% provisioning. So what would that number be on the loan book?

Jaimin, you want to go?

Yes. Rahul, you're talking about what's the standstill offered and what would have otherwise turned into NPA as of 31st of March. As I mentioned earlier, that number is INR 650 crores.

Correct. But there would have been SMA0 and SMA1 accounts also where the standstill would have been offered. So...

That's why if we go back to the fact that what I described is we have made a provision on all accounts, which were overdue and where moratorium has been given and which were overdue on the 1st of March.

Overdue, it could be even 1 day. Overdue is even 1 day. So even if you had a due on 28th of February, and he did not pay on that day, he has an overdue on 29th of February.

So what would that amount be Jaimin?

So that's where we -- as I said, INR 650 crores, which we have provided at account level represents about 10% of that number.

Okay. So the total amount -- loan amount would have been INR 6,500 crores.

About that, yes.

Yes. Okay. Got it. That's helpful. The second question is, is it possible to know the real estate exposure across the 3? So stand-alone, you give it out, but I just wanted to know in other entities also, KMIL and Kotak Prime, if you have that on there?

Yes. I think Raul, the point on KMIL, if you look at it, what is the total balance sheet size, Jaimin now?

KMIL would be about INR 5,800 crores, 5,900 crores as the total...

That is total balance sheet size, something in KMP.

So yes, KMP would be about -- non-par would be about INR 7,000 crores.

Non-par?

If I look at it...

But all that is not real estate. Not all is...

That is real estate.

Yes, there will be some -- in KMP, particularly...

There will be dealer loans there.

So Manian, what is the real estate exposure between the -- in the KMIL and KMP?

Yes. So you see on the -- in the bank stand-alone, we have shown you the number INR 6,251 crores. Total exposure across the group will be roughly about 50% more than this.

That's correct. Between the other 2, it will be about INR 6,000 crores.

No, no. Sorry.

It will be less than that, Jaimin, the CRE part will be less than that.

The CRE part 50%, and you say it's about INR 3,000 crores? So total would be INR 9,000 crores, is that you are saying?

No, no, no. Sorry, sorry. 1 minute. 6,251 plus LRD 4,457 is there. In the bank, it is effectively 10,000.

Okay. Yes. Got it. And the group would be another couple of 5,000, 6,000

And not more than that, less than that, yes.

That includes LRD.

Yes. Understood. The other question was on the liquidity trends, I think first of all, congrats to all of you, it's been a multi-liability franchise. But clearly, I think the demand for loans is going to be low. So therefore, the LDR ratio would likely to come off, which is, I think, in this environment is a good thing. But where do you see that stabilize because at some stages, it will start costing us on margins as well?

I think it's a very fair question. That is why I said we are toggling between matched spread on the liability versus assets, duration call and credit risk call. And we're toggling between these 3, almost every single day and figuring how to position so that we minimize the negative or spread for marginal amounts versus taking a duration call or a credit call? So it's a juggling of the balls in the air, but it's a very, very focused exercise we are doing across on a continuing basis on a day-by-day basis as we go forward. And we have an internal policy as we talk through where we have significantly changed the credit and underwriting metrics where we are looking at accounts on an incremental basis, it is taking a disproportionate amount of our time. But the good news is in this post-COVID world, the productivity of operating from home for all of us has dramatically increased and also the number of hours we are spending at work.

Yes. But is there a band of margin that you would like to operate? Can you help us in that -- I'm sure you would...

I think the answer to that is very simple. It is risk and return. We are not operating on an absolute margin level, we are operating on -- we are operating -- we are ready to operate at lower spreads if the risks are lower. We are -- obviously, if the risks are higher, we need to make sure first, whether we should take those risks at all. And if we take those risks, are the risks worthwhile for the returns.

It's round risk adjusted after-tax return on equity.

Yes. But as you said, these are unusual times, and we are doing the hard work on more things.

It doesn't make sense just to lend for the sake of lending. Because see one of the most important things which is...

I was actually asking more in terms of...

Rahul, one of the most important things which is coming out is you get a great top line and great spreads, pre-operating profits look good and then the provisioning line is taking it all away.

Yes. That's where it's a nice segue to my next question and then perhaps the last one and I'll take it offline is, on these loans, providing the moratorium been taken, when you compare to some of the other developed markets where the kind of facility has been allowed by the regulators, the amount of moratorium is much smaller than in India. And then one would wonder as to what would be a decent rate, eventual default rate in these category of loans? So you've seen many cycles yourself, Dipak, Jaimin, how are you thinking about it? Because one way to think about this COVID provision that you've taken, what sort of percent is more on the moratorium loans. But the eventual loss it could be higher than that in the cycle. So how should we think about it?

Yes, I think Dipak will give you a more detailed answer. I just want to add 1 more variable in this. If the sovereign is going to come and guarantee some part of it, that takes some of this sting away for some part of it. However, Dipak, do you want to give an answer or a more detailed one?

So if I can just interject, Uday, on that point. But the sovereign as announced, it seems to be more on the incremental lending part, but...

It protects the base also, no? For example, if I get 100% protection on the incremental lending, it protects my base also better, because that guy would have died otherwise without it.

Yes, that is true.

Yes, yes.

So it will grow out of the problem essentially, yes.

That is one. I would like to add 1 more thing, Manian here. We are finding a lot of cases. Actually, if you ask me the overall working capital utilization of the SME sector actually has gone down in our book, okay, overall utilization. So there are several cases where people have taken moratorium. Doesn't mean that their utilizations are at the brim, but they have still taken moratorium.

It is the same with the small working capital segment as well. Utilizations have actually come down, Shanti here.

The next question is from the line of [ Amesh ] from Tata Mutual Fund.

Two questions from my side. One, on the asset quality. So if you look at the -- you look at the asset quality outcome for customers who have been given opt-in option vis-à-vis who have been given opt-out option can be significantly different? And second question is on employee cost. So currently, we have been hearing that we have implemented some salary cuts for 25 lakhs and above. Just want to understand what are your thoughts, how are you seeing the situation? Because your banks have not implemented such kind of cuts. So what are we looking at in terms of data points that we think that we need to take that kind of a step?

Okay. I'll answer the second one. And then on the asset quality, I'll ask Gaurang to give his perspective. On salary cuts, I think our view is, finally, we need to make sure that especially senior management, we are very institutional in our commitment to our firm. And if the firm is going through -- obviously, a revenue impact coming out of COVID, it is an institutional framework that we will share it and take the pain alongside. Therefore, the leadership, which is the KLP team, has taken a 15% voluntary cut. Now as far as going up to INR 25 lakhs is concerned, we have been driven by our conviction that our team is aligned to the purpose of the firm and will do what is in the interest of the firm on a sustainability basis. Our entire focus on strategy is build up a sustainable firm in the post-COVID world. And it is also a signal to people with salaries above INR 25 lakhs, not only for the salary side, but that this is a time when we must build our firm into a sustainable firm and avoid all areas, which are areas of potential excesses, which may be happening even in operating expenses. So it's more -- of course, there is a real saving, but it's also a moral signaling thing that the world is not the same. COVID has made a significant change to how the world of the future is. And it does not matter what others may do or not do. We are an institutionally aligned, culturally aligned firm. We will do what it takes to build a sustainable ship on a long-term -- on a medium-term basis beyond the current challenges of COVID. So it is about sustainability, it's about signaling that the world is different. And third is that we believe that we will actually spend -- as I mentioned, we will spend more on digital and technology than what we did last year. We are very committed to it so that is where we will put the money and we'll carry our teams with us and work towards a difference in the future. The post-COVID world is going to change how branches look. We are at 1,600 branches with fixed cost. There may be others who may be larger. We will review whether more branches make sense, does not make sense, office spaces. So there is a massive internal plan, which is going on. Then how will we change ourselves structurally in a post-COVID world to dramatically improve our sustainable efficiency without giving up where we can be better to customers or better on execution. And therefore, the signal on salary cuts is more than anything else, that the world is different, we have to be sustainable and signal that we're ready for the change. Now second point is over to Gaurang.

Can you repeat your question on asset quality?

Yes. Just a question is that if you have been given a opt-in for a customer, so the performance of -- asset quality performance of a customer who has been given an option of opt-in vis-à-vis opt-out, will that be a significant difference?

No. But what do you mean by opt-in means, people...

That if I want a moratorium, I will have to opt-in for that moratorium. If -- and that opt-out is that if you don't want moratorium, probably -- but then you have to send the message or you have to inform the bank that I don't want moratorium. So if both the cases, do you think the asset quality outcome -- because what we are hearing that some of the customers are taking moratoriums simply because to conserve cash, they still have balances in their savings account. So that is what the feedback we are getting. So these customers might be completely stranded and might come back and pay. So does the opt-in and opt-out mechanism actually make a difference from an asset quality perspective?

I think it's very qualitative, but my view normally is people who have probably gone for the benefit of opt-in, like have proactively gone for it, the likelihood of those guys probably giving you maybe a marginally higher probably delinquency. It's very difficult to say how exactly it's likely to play out because the entire thing actually is dependent upon how we come back in terms of near normalcy, maybe just now, we have just opened up. And with the economic activity or industrial activity just starting, maybe it may -- if near normal, you reach in, say, 3, 4 months, perhaps that is likely to affect the delinquency more compared to how quickly you achieve normalcy. That will affect the delinquency more compared to whether somebody has preferred a moratorium just now whether opt-in or opt-out.

Well, if I would answer it differently, I think it will depend a lot more -- than opt-in, opt-out, more on the sector first; the customer segment, second; and the type of balance sheet and business, which the customer runs. It really doesn't have to depend too much on opt-in or opt-out. But having said that, all of this is early days. Yes, we have to go through it. We have to go through the next 1 or 2 months to really realize what happens with each segment.

[Operator Instructions] We take the next question from the line of Prashant Poddar from ADIA.

Uday, I've been hearing you in the media as well as in this call that the world post COVID would be very different. If you could help us understand what is the framework you are using internally as to what are the key changes that are likely to happen post COVID and which are sustainable ones, sustained changes? And what does it mean for some of your key portfolios like commercial real estate, et cetera, or LRD within that? And the second question is regarding, which are the segments where you see incrementally higher pockets of stress within your book? Or which are the segments where you're seeing incrementally huge opportunities because of consolidation of the industry, financial sector, which is?

Yes. I think, Prashant, a very good question, but very wide. So first is on the changes in the post-COVID world. Number one, I think we will need less office space, full-stop, okay? That seems to be a reasonable outcome where we have found that operating from home is not that difficult a thing. And in a lighter way, I was just joking with my wife, Pallavi, and telling her that I just wonder whether I need to go a full day office, 5 or 6 days a week and attend office where a disproportionate amount of time gets wasted in relative trivia compared to the kind of focus one is getting operating from home. And therefore, maybe the requirement to go to office comes down 30%, 40%, 50%, 60%, okay? I'm just looking at each of us. And we have all tested this in a new way. Therefore, certainly, I believe the demand for space has to get different from the past. Number two, I think we are bound to see significant increase in the digital journeys, okay? So whether it is recoveries, whether it is sales, whether it is customer account opening, whether it is branches, whether it is the whole business about how we conduct our life, it is fundamentally changed, and this is like the tipping point. I think demonetization was the tipping point. For us, demonetization was a wakeup call. And as you know, it was 8th November, and that gave us an outcome of 811, okay? We think the post-COVID world on the digital and the technology side is a turning point for the future of most businesses and certainly for us as we see the future. We ask the question, how many branches will we need in the future? How much office space will we need? How many call centers will we need? How do we get to significantly higher levels of productivity, both on space and digital? Post-COVID world, I also clearly believe spending on digital and technology will go up. I also believe brands will matter a lot more, established people with certain brands must leverage that and invest in brand and customer franchise. The importance of -- from a financial institution point of view, the importance of noncredit risk businesses and the share in the revenues of the firm as a focus area will significantly go up. Therefore, whether it is our advisory business, our wealth management business, our securities business, our asset management business, these are the businesses will have -- which will get to a very, very significant focus and customer franchise. And they too, will be subject to a lot more digital. I think these are some of the immediate changes I see. And the post-COVID world will also take a very important point, no firm is safe forever. It will make the credit decision-making process far more flexible than -- and alert than ever before. I cannot take for granted, for example, the way banks do renewals. We review it once a year. It is in the post-COVID world, we should be thinking about how we're going to review every stage and maybe much faster because the change in business models and the future of institutions and companies will change in a much shorter period than before. What looked like a good business in the BC world may change in the AC world and may change again. Therefore alertness, fleet footedness, the -- the institutions have to be careful that they do not remain stodgy as they have been. These are some of the changes I see.

Okay. I'll quickly just add one question. So that is -- so which parts of the portfolio do you see incrementally higher stress? And where do you see more consolidation-led opportunities?

See, obviously, the question which you asked is -- I think, unsecured consumer is an area which I would worry, okay? Because here it becomes the high passion model where everybody was lending. It was giving higher spreads, and it was just the place to improve short-term ROEs because of the accounting treatment these unsecured consumers got. You recognize -- you did not recognize -- you accounted for profits along the way of accrual without knowing that till the last -- your profit is all in real world, only in the last few installments. The unsecured consumer is the area which will be affected. Therefore, for example, if business is rationalized, there was this perception that small business people are at higher risk than the salaried people. Companies will reduce jobs. I mean, it is -- in my view, both have the risks. I'm not saying the small businesses don't have the risk. But so also the salaried segment, and it does not matter whether you're a large company or a small company, everyone will have to find a way of handling excess jobs if the world changes. And therefore, to say, a salaried customer of a large company is safe, I don't think so. Similarly, obviously, sectors which look apparently under the heat are hospitality, malls and shopping is -- are we going to see a lot more e-commerce going into the future? Yes. And look at the dramatic turnaround of the telecom sector, a sector which has 13 players for the destruction of 10. And out of the balance 3, one was under pressure. And in a matter of 45 days in the post-COVID world, that is the backbone of our future. So that is a change post COVID. And that will happen sector after sector. Do we need so many airlines? And we will have to deal with a question, how many banks should there be there? How many NBFCs should there be there? How many entities should be doing the same thing differently with different levels of governance, underwriting, et cetera? And while public sector may be safe because it is ultimately owned by the government, which has the right to print money, the question is, where is quality underwriting, execution and a fast-changing business model requirement? How are you going to meet it even in the financial sector in the times to come? And those are the questions which need front-end answering and strategic focus.

The next question is from the line of Anand Laddha from HDFC Mutual Fund. Mr. Anand Laddha from HDFC Mutual Fund, you may go ahead with your question. There seems to be no response from the line of Mr. Anand Laddha. We move to the next question.

Hello?

Yes, he's called. He's on the line. Yes, Anand. Oh, he's gone again.

We'll move to the next question. The next question is from the line of Mr. Kunal Shah from ICICI Securities.

Yes. Sir, 2 questions. As you clearly said that there will be a lot of consolidation and we will be seeing whether there will be how many players could be there in the financial services space as well. So do you think this is a time or an opportunity to look at maybe the growing inorganically in any of the areas, particularly on the lending side, okay? So does it make sense? And I think just to tie it up maybe the need for a equity raise despite such a strong balance sheet, are we looking at any kind of inorganic opportunity that could come up in these challenging times?

Yes. Kunal, I think the answer to that is if consolidation happens, as you know, consolidation will happen in the sector through 2 routes: one is mortality; second is combinations. Okay. These are the 2 routes through which it happens. Now if you look at the telecom sector, a lot of it happened through mortality and very little through combinations. So we don't know how the sector plays out. The first job of ours is to ensure that we don't take anyone's mortality -- or immortality for granted, we included. Our first job is to navigate our ship and -- sorry, our boat through the turbulent sea. Therefore, the first job of any financial institution, which is a high -- by very nature, high leverage, high fixed operating cost is to navigate its boat. While you're doing that, you keep your eyes and ears open, particularly as you look -- as the shore may look closer to see what is possible because it's not just about being acquisitive for the sake of acquisition, it is about health of the industry. And I worry fundamentally in the financial sector because if you look at the last 5, 6, 7 years, we have made barriers to entry we have reduced. Before, we have had a flood of 8, 10, 12 small finance bank, nothing against any of them individually. So we had a flood of small finance banks coming. So barriers to entry have been relaxed. Similarly, we have seen a whole host of NBFCs come in, in the last 5 to 7 years. Again, welcome, no issues on that. But across all these new players, there are varying layers of governance. There are varying underwriting standards. There are very varying execution issues and the quality of the liability franchise, which I think is extremely important in financial sector. And at this stage, at this policy level, we do not have a clear strategy for exit of financial institutions. One of the important aspects of any free entry has to be thought through exit. Now we were trying to get the financial resolution and deposit insurance bill approved, I think, about a year or 2 ago. It has not happened. Therefore, you have a reasonable entry availability for people, what is the exit policy, which we, in the financial sector have? Inevitably, that leads to a situation where you will have either mortality or some of them may be appropriate for consolidation in the sector.

Yes. And secondly, particularly for Kotak, so obviously, a very, very strong balance sheet with such a capital adequacy deposit inside. But maybe in terms of the salary what you clearly highlighted that looking at the long-term sustainability and stability. So I think, obviously, coming from a low growth, very, very strong underwriting standards, credit filters, is there any pocket which is worrying us? Or is it something that we see that this is going to be much more prolonged, and that's why this kind of a decision is needed at a such a late stage?

Kunal, the fact of the matter is, worry is a way of life, okay? Therefore, you're going to keep on worrying. At the same time, you must also have a nose for opportunity. So you must have worry, worry, worry, opportunity, opportunity, opportunity. So you really are toggling between these different things, but you've got to constantly do it because the challenge with opportunity also, it never announces that it has come. It's only after it's gone that you know the opportunity has gone. So you need to keep both in your mind. And worry is, I wake up in the morning worrying about something else. By night, it is worrying about something else and then wake up next morning and find something else as an opportunity. And I think my entire team who is on this call, we debate endlessly. We start our days having a small group chatting every single day and saying, every day is a new day.

Okay. And lastly, in terms of the moratorium, I don't know if you have shared it, but can you just highlight in terms of this breakup between the retail SMEs and the corporate at a broad level?

Jaimin?

Look, we've not giving the overall numbers. But broadly, you could suffice to say that the percentage of people opting -- and I'm talking value terms, opting at the retail level would be significantly higher than at SME levels. And then you take, let's say, for example, the micro finance guys, almost everybody because you did not collect got into moratorium credit. Then you take the next set of levels would be different. But as you go to the upper-end corporates, the numbers come -- keep tapering down. They're smaller in terms of number of customers, but really large in value. That segment would be the smallest in terms of opting for moratorium at that stage.

No, but since you had given it in terms of value, so maybe when we look at 26% value of the loans being under moratorium, would there be too much a different customers? I clearly understand that retail would be much on the higher side but in value terms, how are we thinking between retailers and corporate?

Yes. So value-wise, as I said, the wholesale number, the larger corporates would be a small number compared to what is their weight in the overall industry segment.

Therefore, Kunal, the percentage in value terms of retail is higher than percentage in value terms of wholesale.

[Operator Instructions] The next question is from the line of [ Gaurav Kochar ] from Mira Assets.

What is the average SA balance of 811 customers versus non-811 customers? If you can kind of give some color on that.

Jaimin?

Sorry, What we were talking about is, in the last year, we had opened a total of about 44 lakh customers. In the lockdown -- hello?

Yes, yes.

Yes. In the lockdown, we have -- earlier we said how would you reach out to customers, whatever, but in the lockdown, we've continued to get these customers on board. And if I look at the average for May in the current month, we're actually opening on this month, the average is as good as what I had the average for the previous year.

I meant the average balances in their accounts?

Balances in their accounts, in the 811 accounts will still be small. But then you can now migrate them to the full KYC account and make him a regular customer. So that's the journey.

Sure, sure. But what is the difference? I mean, I'm sure the 811 would be significantly lower. But the non-811 customers, what would be the average savings account balance there? Non-811 customers would be higher. It would be close to INR 40,000, INR 50,000. I didn't have the exact number here.

All right. All right. On SA, clearly, last 2, 3 years, I mean, our SA has grown in place of the term deposits, which the other banks -- where the other banks have grown faster. But this was primarily because our SA rate was about 200 bps higher than the largest private bank, perhaps. Now that gap has narrowed down to, say, 75 bps. Do you see that as a risk? And now probably the bank will focus more on term deposits going ahead?

Shanti, you want to give a sense on SA year-on-year, April, without getting into specifics, how is SA year-on-year April versus last April growth?

Yes, I will do that. So to answer the question, last year, we had dropped rates, and we saw no change in the acquisition or deepening pattern of our customer base on savings account. This April, as Uday has mentioned, we have dropped rates further. And in fact, this has perhaps been one of the best Aprils that we have seen. Typically, post March, you see a different April, but we have seen significant franchise improvement in our savings accounts for the month of April as compared to last April, and it is significant. So right now, we...

And this is despite drop in rates.

Sure, sure. So I just asking from a strategy point of view -- sure. Yes.

Go ahead.

Go ahead, question.

Yes. Just from a strategy point of view, will there be focus on term deposits, say, for a longer term, I mean, in the next couple of years? Or will you continue with the same strategy of SA acquisition in place of term deposits?

No, we are continuing to take term deposits, but the focus on term deposits is smaller ticket. That means deposits up to INR 1 crore is our preferred term deposit strategy.

And our focus on savings accounts continues both number of customers, growing the customer franchise in terms of deepening products and of balances, there has just been no stoppage in that strategy.

All right. Okay. Sure. And if I can squeeze in one more question. If I look at the Basel III data that we disclosed, roughly 100% and above risk weight comprises of around 58% of the overall assets. Now that number does not tie up with the loan book mix. Am I missing something? Or what forms the large part of that 100% and more than 100% risk weights? If you can give some color on that.

Jaimin? Or do you want to get back? Jaimin?

I'm on that. The Basel III disclosure -- sorry, no, I'll get back, but Basel III disclosure, just to say, they are all on exposure levels. They take into account nonfund-based investments, all of that.

I'm talking about only the funded exposures.

Yes. So I'll get back to you with the exact categories and whatnot. Not on outstanding business.

Yes. Sure

That's exposure, not outstanding. All right. The funded exposure.

It's not outstanding loans, not outstanding loans. We have a limit on a client, which is 100 and he may utilize 60. So then the loan is 60, the exposure will show as 100.

All right. So we can take it off-line. That's fine. And lastly, the slippage number that you gave would have increased by 6.6 billion in March, which means that as 31st March, if not for moratorium, 6.6 billion would have slipped. Is that the right assumption?

That's correct. INR 660 crores, would have slipped, that's correct.

But this ideally should have then been reflected in the SMA2 book because as on March 1, if these are 60-plus...

12 times, yes? Broadly, there are 2 categories. SMA2 reflects only balances of accounts which are INR 5 crore plus. The INR 660 crores would help accounts which are not NPA in the classic definition of having crossed 90 days, but they get into that category because they're not, let's say, service the interest debited in the cash credit account for a 3-month period. So they're not 90 days overdue. But what is technically called out of order. So they get into -- they would have got into NPA, but they're not SMA2 still.

[Operator Instructions] The next question is from the line of Anand Laddha from HDFC Mutual Funds.

Yes. I have a couple of questions. Sir, what's your view on the consumption spend going to happen? What's your view on credit card and personal loan? How do you see growth in these 2 segments? And sir, do you still believe the credit card has more risk than a personal loan or visa vise? First question there. Second, sir, when do you think the economy will come back to normalcy, be it September, be it December or maybe take a longer time? And lastly, sir, what's your view on the CV/CE2 construction equipment and auto portfolio? Do you think the risk on the CV and CE2 is higher than the personal loan book? Or is it similar to SME? Or -- and if you can share your view on the same price?

Okay. Based on what we have seen, I think unsecured consumer loans and credit cards, we see some pain coming clearly in that segment. In the secured segment, we are seeing commercial vehicles continue to see high pain. Therefore, the 3 -- obviously, you can't compare a secured versus unsecured. I would say the areas which we are watching very closely are unsecured consumer loans and credit cards, micro finance loans and commercial vehicles in particular. These 3 segments are the reasonable soft belly of the lending business today.

The next question is from the line of Anirvan Sarkar from Principal Asset Management.

A few data-keeping questions. First, if you could provide the split of provisions for loans into provisions for NPAs and standard asset provisions for the full year.

Jaimin?

Yes, okay. Just you have to wait. Yes. For the full year, my specific provisions would be about INR 1,400 crores. And all standard provisions, including COVID and all will be INR 720 crores.

Okay. All right. And sir, my second question is on the cash on the balance sheet. So I see that there is a sudden spike in the amount of cash on the balance sheet. And my calculated margins actually are lower than your last quarter, but I see that your reported margins have increased. And so that's a bit counterintuitive when I see how much the amount of cash has increased. So is it like a lot of cash saving towards the end of the quarter? Or how should we look at this? Is that why your average balance is lower than what I get from the P&L and the...

What you're looking at is end of period. The NIMs are calculated on a daily average basis. So on the daily average, what is my earning investment and what is -- what I have earned against that?

The next question is from the line of Chandan Yadav from AU Small Finance. Please go ahead. Chandan Yadav from AU Small Finance, you may go ahead with your question. There seems to be no response from the line of the Chandan Yadav. The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.

I had 2 questions. On the savings account rate cut, this would, what, lead to a INR 700 crores, INR 800 crore kind of benefit on the P&L this year? And secondly, on home loan and LAP, that has been a growing segment. So is it due to lower cost of funds, which are the cities we are seeing? Are we building the LAP book? What is the mix, if you could give some sense?

Shanti?

Yes. I will talk about the home loan and the LAP book. Number and savings. I'll leave that to Jaimin Bhatt. So our strategy last year has been to build a home loan business actually quite aggressively over the course of the year. We incrementally have focused around our own branches and our own customers. So we have followed the strategy of our liability customers on the home loan segment and really tried to build largely in the main cities, which is Mumbai, Delhi, Bangalore, Ahmedabad, Pune, but also the smaller locations where we are. So that's been our strategy. On loan against property, it is more in the larger cities, and the home loan business has been more aggressive than the LAP business in terms of the growth. Historically, LAP has grown though. And roughly, you can say in terms of the breakup between the 2, it is almost equal.

Even today, it is equal?

Yes, almost. Home loan may be slightly marginally higher. Home loan maybe higher, yes.

Jaimin, do you want to give some color on the savings rate cut?

Yes, the savings changes which we have done over a period of time, we started doing it last year, and we continued with cuts in the current year. They will bring in benefits. Some of them have been seen in the last year, including the last quarter. And some of it will slow because there have been further cuts, which have happened in the month of April. So yes, we'll get some benefits, but that's where the cost of funds have come down sharper and which has resulted into the NIMs going up and whatnot.

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

Sir, just one on the asset quality side, given that we will not get color on the asset quality of the moratorium accounts, any guidance in terms of credit costs for FY '21? And if I assume that non-COVID, we were closer to 70 bps in terms of loan loss provisioning, the number for FY '21 could be similar or you see higher risk? But I think we need to wait for the clarity on the moratorium account behavior? And second would be the question on -- in terms of your consumer books, could you give some color as to what -- how much is salary, then how much is self-employed? And I would assume, so we would have given higher loan to the existing customers, any sort of color on that would be helpful, sir? That would be all.

Yes. On the first, on credit costs, when I look at before COVID era, which is before 31st March, one of the things which we have done, as you know, which I have mentioned is, whatever is our standard provisioning plus COVID provisioning versus our net NPA, we are in excess of -- on those provisionings over and above our net NPA numbers. Therefore, we start 2021 with a provisioning number, which has taken care of the balance sheet as of 31st March more than adequately. Now you've come to the new year, the AC era, as we call it, after corona or after-COVID era. Now on that, the issue is, at this stage, we are talking about -- the World Bank talking about India's GDP growth at 1.9%. And Nomura is talking about India's GDP growth as minus 5%. We are all speculating up in thin air. Therefore, if I take a 100 lakh crore banking sector loan book, it is impossible for us to say whether the loan losses will be 2% for the industry or 10% for the industry, okay? And it also depends on how much is the state and the sovereigns coming in to plug the hole. Therefore, the way I would look at it is take it as it comes. And of course, you must be conservative, therefore, make your provisions to the extent possible, which fortify you and make you safe. But speculating on how much the hit will be -- of course, we have internal workings, numbers, what we think could happen, base case, sector, everything, but the position changes almost every day. What looks bad today, looks good tomorrow. What looks good today is looking bad tomorrow. And it's changing at a very fast pace. Therefore, whether it is us as of in the banking business or you in the asset management business or in any other -- or some of you as analysts to try and predict what that cost will be, it's still early days. We will get a better sense of this, in my view, by July, August. And therefore, I don't want to speculate on that at this stage what it will be. But all that I can say, at this stage, it is reasonable to assume that the banking sector, credit costs will certainly be higher than what they were.

The next question is from the line of [ Vikram Kotak ] from Lansdowne India Equity Fund.

Yes. My question is that we've seen the quality of borrowers deteriorating over the last 5 years whether you're seeing in terms of individual borrower or sector-wise. And post COVID, as you rightly mentioned that the further bank sectors will be nonlendable. So don't you think that this is going to lead to a portfolio concentration risk, whether it's sector-wise or group-wise or company-wise? And how do you deal with that? Like whenever you give a right example of telecom sector, it is on debts back to 6 months back. And today, we are in the positive side. So do you really see this is going to be a huge challenge for banking industry to have portfolio concentration first and how do you deal with this?

No, I think, [ Vikram ], it's a very good question. If industry consolidates, the lending business takes more concentration risk. That's an inevitable outcome. But we will have to see how it plays against that. I think the banking industry will get more responsible on kind of covenants it must have for its lending. One of the problems in Indian banking and underwriting has been very poor covenants, okay? And that will also change. As also, if you get consolidated industry, the larger players, we will assume, we will have better fiduciary responsibility of auditors. We will have hopefully better fiduciary responsibility of rating agencies, and it's -- you need to make sure for a properly functioning financial system, which is both the loan market and the bond market at the same time, you need significantly higher levels of commitment, diligence and accountability by every player in the sector. And I do believe consolidation will get us better on that path as well.

The next question is from the line of Gurpreet Arora from Aviva India.

Three quick questions. In your sense, do you think there is a case for the loan moratorium extension? And if yes, then what is our assessment of our numbers that way? Second is, I mean, if you could spill a little bit on the recovery infrastructure that the bank has and is planning to scale or I mean develop? And can you talk about cost in terms of more technology and less of others, if you can quantify will it be 18% OpEx growth rate is what is sustainable? Or we looking at a lower number than that? And third and last question is, if you can quantify what's the excess liquidity in the balance sheet? What is the quarterly average LCR ratio? And till what time do you think we will need to keep excess liquidity in the balance sheet?

Dipak, do you want to go for this? Dipak, you're on it, you're on the line? Yes.

Yes. Yes, yes. It's difficult to say whether the moratorium will get extended or not. But once the package from the government is there guaranteeing a lot of this stuff, probably the moratorium may not necessarily be required for any longer. So I guess one hopes it doesn't -- even if it does, it doesn't extend for too long, but it probably may not be required because of the financial factor I didn't get the second part of your question.

Second, with respect to the OpEx, I mean, we have spoken about increasing OpEx towards -- more towards technology and less towards others. So in terms of recovery infrastructure, I mean, how are we placed, if you can highlight a few qualitative and quantitative aspects? The OpEx growth run rate of 18%, are we targeting a lower number than this, overall?

Well, like Uday mentioned some time back, we have to look at our overall cost structure in the post-COVID environment. Yes, what costs are required, what costs are not required, what costs are useful, what costs can be cut down. All of this will go through productivity measures as we come out of the lockdown. So there will be some savings, yes. There will be a lot more work from home, so office space savings, all of that will be there. Travel savings, all of those will be there. When it comes to recovery infrastructure, recovery infrastructure is different for retail and for SME and [indiscernible]. I think going forward, one has to invest a lot more in the retail infrastructure because what happens really is at such times, those numbers actually shoot up in a step fashion. So you require a lot more of infrastructure. Infrastructure is not just people, it's people plus technology required to chase customers and do your collection. So those costs do go up, and some of that is reflected even in this quarter's numbers which you see today.

So, where are we...

You use technology to do some of this very smartly. You don't have to chase all costs. You -- technology and analytics provides you with the inputs to chase customers who you think will probably pay you faster and more quicker rate. So some of those also we put in place.

So overall, are we targeting...

In the previous year, there was no Aadhaar-based 811 account opening, which has come back in the current year. So those costs are front-end acquisition costs we are taking through P&L. And they are more sort of acquisition costs for future growth. And obviously, that increases the operating ratio -- operating cost ratio.

We'll take that as the last question. I would now like to hand the conference over to Mr. Uday Kotak for closing comments.

Thank you very much. I think this has been a long call. We are now nearly, what, 1 hour 40 minutes into the call. I would just like to add -- end by saying that in this new world, we move forward with, what I would call as, conservative optimism to build a sustainable and resilient firm as we go forward, would like to be fleet footed and flexible and be able to look at the world from a different lens than what we have looked at in the past. And we do believe that for all the challenges which we are facing, there will be also opportunity for growth across the financial sector as we go forward. Thank you very much, ladies and gentlemen.

Thank you very much. On behalf of Kotak Mahindra Bank, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.