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

Good evening, friends, and welcome to our September Quarter Analyst and Investors Call. I'm very happy to come -- once again, spend time with you in these unique times. Last 6 months have given financial institutions a great opportunity to position themselves for a future in a never-normal world. Yes, the situation has significantly improved from the times which we saw in April and May to October now. But if there is one word, which is coming to become the crucial word around which we need to build our business model, it is resilience. And how resilient are we for these changing times? And what is the capacity of institutions to be far more flexible in terms of the changes required across the board to running off a financial institution? The world is seeing a second wave, which is right now enveloping it in many parts, particularly in Europe and U.S. On the other hand, India is showing a very positive trend, as I talk, in terms of the levels of new active cases from the number of positives, the number of recoveries and a remarkably low level of mortality. This once again highlights the fact that India is at a good position at this point of time. Having said that, what is also true is we are heading for a festival season. And as the Prime Minister has rightly cautioned, we need to be alert and not lower our guard. And I do hope that in the festive season and post festive, India is able to weather the storm and not run the risk of a second wave. Having said that, when we build a financial institution, it is extremely crucial that irrespective of the changes in the external world, the financial institution has to be able to properly navigate itself through fast-changing external situation, including the health situation. On the other hand, I think the positive of excess liquidity has given a great comfort and created a situation of stability for the financial sector. When I think about our bank and as a financial institution, we look at it from 4 important aspects: Number one, the key to a business, including the Banking and Financial Services business is earnings and earnings growth. This is something which has to have the ability of being able to move forward even in the changing circumstances. Risk and credit risk assets, in particular, are only one lever to earnings growth, an important one at that, but not the only lever of earnings growth. Therefore, as we build our asset base and work on the model of credit risk and general risk assets, we have to keep in mind that finally, it must make sense for customer engagement, customer growth and fine tuning into sustainable earnings growth. The next important point, point number three, from an institutional point of view, is the balance sheet, both in terms of growth and quality. And finally, in today's time, more than ever, with changing business models, including the advent of digital technology and analytics, the business model sustainability of a bank and a financial institution are crucial. And therefore, the 4 important levers on which one grows the financial services business are around earnings and sustainability of earnings growth, mix of risk and credit risk assets, balance sheet overall and the quality of the balance sheet, including the appropriateness of provisioning and the levels of stress and final -- finally, in the medium term, the business model sustainability. And it is here, I would like to talk about Kotak in the context of these 4 points. Let me first start with the whole area of the quality of the balance sheet. As I talk to you end of September and I look at the level of stock of provisions, we have for potential stress assets as we go into the future, we actually feel that not only are we adequate, we believe we are very conservative in terms of the level of provisioning we are sitting as a stock. Our total provisioning on the credit count is now 177% of our total net NPS. And when we are looking at the percentages, we also got to keep in mind that this is in the context of how we see our bank balance sheet. The level of the mix of assets, including between secured, unsecured, wholesale, retail, rural, urban. In that mix, we feel that not only the provisions we have carried are sufficient, but very, very conservative. And it is a conviction that we are well provided for and well stacked up for meeting the balance sheet as it stands, and that we are in a very good shape for the future is something which I would like to first share with the investors. Second aspect is, if you look at on the earnings side, on a profit before tax basis, and the reason I'm focusing on profit before tax is last year in September quarter, there was -- in the month of August last year, there was a change in the tax rate and different banks were in different positions. Some were continuing to charge the higher tax rate because their deferred tax assets. And a bank like ours has moved to the lower tax rate in the second quarter, including the excess provision it had made in the first quarter. So for the way we look at our bank in that context because of the differential in tax rate, it does not make an apple-to-apple comparison from our bank's numbers point of view. On a PBT basis, bank stand-alone, I'm happy to report a 39% price -- profit before tax growth. And on a consolidated P&L, I'm happy to report a 33% pretax profit growth in the numbers. Of course, on the bank stand-alone, on a pre-provisioning basis, that is before provisioning, our profit was 31% Y-o-Y. I would also like to here highlight the fact that as we look at the future, we look at to focus on what I call as business model sustainability. And here, again, I would like to share with you a little bit on strategy. We made a major strategic drive in 2011, which is to build a strong and a sustainable liability franchise because we felt that was a core to a sustainable and stable deposit base. And this change made in 2011 has today brought up after a period of 9 years of commitment, including much higher cost to a 57% plus CASA ratio. And in addition to that, low-cost sweep deposits, which is another close to 8%. Therefore, if you look at our low-cost liability franchise from an extremely low number in 2011, in a period of 8 to 9 years, we have journeyed effectively close to 65% of our deposit base as being in the low-cost and stable, sustainable category as we see it. We have made a dramatic process -- progress also on the granularity of our liability franchise. And now we feel we are ready in terms of a strategic move to be thinking differently. Historically, our engine for customer acquisition and ownership has started with the liability franchise and getting our customer as a depositor and then working across a range of products on both fees, services and the asset side. We are now clear from a strategic point of view. We are now opening up a number of gates in the days and weeks to come, which in addition to the liability side of customer acquisition, we'll start focusing on the asset side for significant increase in our customer acquisition. We also recognize the importance of customer engagement and ownership in this digital world, and we will now make an additional strategic shift in addition to liabilities on building the customer franchise on the asset side as well. We do believe therefore a medium-term opportunity of a holistic bank focused on assets, liabilities, fees and services and a constant engagement on the risk reward side is the right way for building our future. We are also seeing reasonably strong traction in our overall financial services business, whether it's our asset management business, securities brokerage business, investment banking business, life insurance and asset management, as I mentioned, and a range of other services, which we think are now getting significant traction. Therefore, we do believe that Kotak is very much future-ready, and the last 6 months have given us the ability to be future-ready as the world continues to be in this new or never normal whichever way we want to look at it. With that, I will now have my colleague, Jaimin Bhatt and my other colleagues, take you through a more detailed presentation on the performance of the bank and the group. Over to you, Jaimin.

Thank you, Uday. Let me take you through the financial numbers for the bank stand-alone first. At the bank stand-alone level, we closed this quarter with a post-tax profit of INR 2,184 crores, which is 27% higher than INR 1,724 crores we had in the previous year. Our net interest margin, we have a 16.8% growth on a Y-o-Y basis, and we closed this quarter with INR 3,913 crores. Yes, we had -- we have done a QIP issuance in quarter 1, which, to some extent, help the NII growth. It was also helped by the fact that our savings deposit rates, we have been shaving off something or the other over the last period. And our savings cost for this quarter is at 3.87% versus 5.37% a year ago. As Uday had explained, we -- our focus has been on risk-adjusted returns. While loans and advances during the year has actually dropped on a Y-o-Y basis, though flat on a quarter-on-quarter, the balance sheet has actually increased by 18% during the year on a Y-o-Y basis. Our net interest margin for the quarter is at 4.52% versus 4.61% a year ago and 4.4% a quarter ago. Fees and services income, which had taken a dip in quarter 1 has now shown a sharp growth on a Q-o-Q basis. The distribution and syndication income showed a growth of 50% on a Y-o-Y basis and 19% on a quarter-on-quarter. The general banking fees, while sharply up over the previous quarter, are still somewhat lower than the previous year by about 15% as volumes in the various segments for the quarter are still lower than what we saw in the previous year. The non-fee other income, to some extent, helped by treasury profits, which included profits from non-SLR security, including on equity. We also had some recovery on the stress asset division, which had a good quarter this period. And some profit was from sale of realization on some sale of premises. Our focus on the costs continue. Our operating expenses for this quarter are about the same level as the last year's same quarter. This is despite the fact that during this quarter, we've actually taken some hit on account of annuity of pensionable staff again. With volumes which are going up over the previous quarter, business related expenses have gone up on a sequential basis. Our operating profit at this period at INR 3,297 crores, which is about 31% higher than the same period last year. As regards to provisions, in line with the order of the honorable Supreme Court, we have not considered any account of NPA after 31st of August 2020. However, as a matter of prudence, we've taken full provision for all such advances, which would have become NPA if this order was not given effective. This also includes provision for interest, which has not been collected, totaling to about INR 93 crores. As of September 30, therefore, our gross nonperforming assets stand at 2.55% and net at 0.64%. But if you have not taken the effect of the Supreme Court order, the GNPA and NNPA would have been 2.70% and 0.74%, respectively. What we've also done during this quarter is we have not dipped into the provision made for COVID-19 during this quarter. As of September 30, therefore, we carry a total COVID provision of INR 1,279 crores, which is about 0.62% of our advances. In fact, as Uday mentioned, our total nonspecific provision, which is standard provision, COVID provision, [indiscernible] sectors, all of that put together, is now 177% of our net NPAs. And again, as Uday mentioned, in 2019, the tax rates were lower. So if you look at our Q2 FY '20, our average tax rate was just 18% as against 25% this quarter. So taking that into account, our post-tax profit at INR 2,184 crores is 27% higher. But on a pretax basis, we are decently better. Our capital adequacy at the bank continues to be very strong, including the profits for the half year, we end up with a cap add of 23.4% with Tier 1 itself at 22.8%. I'd request Dipak to take through some of the highlights of the quarter, please.

I just sum up basically Q2 based on what Jaimin took you through up to now. Well, 6 months back when we sat over here, we really had outlined the 3 odd scenarios for the COVID environment. As we sit today, we already are actually beyond the third scenario. We're actually into the fourth scenario. We have some visibility of now the pandemic peaking now. But of course, there is always a danger of the second wave and consequences arising thereof. The economy has started showing some signs, some positive indicators based on all our high-frequency indicators. So some segments showing signs of improvement. The Nonurban segment continues as through the pandemic being showing positive signs and a lot of segments within the nonurban sector has been growing. The recovery, if you see has started improving. Of course, the economic recovery is a classic K-shape. Unfortunately, the upper part of the K is still relatively small. A lot of segments are covered under the lower part of this segment. But some signs of recovery are visible. Given the above, Uday took us through how we see our earnings and our highlights and the fact that as a financial services firm, we have various levers, which we can draw on. And you have to choose at various points of time whether you take the risk asset growth or we take the debt lever to take the time and the period-related growth. During this period, we have taken the duration-related lever and sort of conserved our energy on the credit-related growth. And like Uday pointed out, it is now time for us to start moving the ship and start looking at the asset-related growth as various segments start opening out. And you will see some of those segments even in ours. For example, on the retail side, the secured side has started moving to home loans and related products will start moving. Of course, the unsecured side is still some distance away from what I call a normalization. So there will be continued pressure for us to be careful on that. But other segments, we will start valuing [ moving ]. I'll hand it over now to Shanti to take you through the details of the digital and the retail side.

Thank you, Dipak. I'll start with the digital highlights. We continue to see a surge in customers' usage of digital channels with a preference for mobile in quarter 2 as well. We enabled new digital journeys to help customers transact with us across liabilities, assets, payment, protection and investment. Examples, on the asset side, we enable key signs to help customers complete documentation digitally, whether it's for SME or other loan disbursements so that they didn't have to look at physical paper. We enabled digital sanction for mortgages. We enabled collections digitally through a voicebot. With the robotic process automation, we enabled efficiency and were able to process twice the number of service request with the sale capacity. On the mobile banking side, we have a 5.1% share of the mobile transaction value in the industry. We continue to scale our digital banking capabilities for servicing our customers across voice and chat bot, WhatsApp banking and other services. If you look at our digital channels, which is mobile and net, we have about 180 and 250 features, respectively, across banking and service, payments and shopping, insurance, loans, cards and investments. Customers have used these channels extensively even in this quarter across RD, TD, bill pay, recharge, personal loan, cards, insurance amongst the others. We have 200-plus relationships in Open Banking to expand ecosystem participation across platforms, fintech and developers, a faster and digital solution to our customers. Interestingly, our 811 customers use our digital channels extensively across a range of products and services, as you can see. In digital payments, we have seen a 73% increase in volumes Y-o-Y across both customer and merchant transactions. Transaction to UPI has seen a surge in both the segments. Notably, average ticket size in both UPI and payment gateway transactions has increased Y-o-Y. We will continue to build our digital channel journeys for products and services across all our customer and product centers. I'll now turn to the liabilities business. Our network was, by and large, fully operational during this quarter. In-branch transactions have seen consistent increase month-on-month, and by end September was close to 90%. We continue to see strong growth in deposits. Average stable deposit growth YTD Y-o-Y was 32% and current account 10%. The focus has been on granular customer growth. As the unlock opened up across cities, we were able to grow acquisitions around our network. And in September, we're around 90% in the same period last year. We, of course, continue to focus on the 0 contact digital saving account acquisitions through the 811 platform. As Uday mentioned, our CASA ratio was at 57.1% as at September versus 53.6% last year. And we have seen the savings growth across all our retail customer segments, including urban and rural market. CASA and TD below INR 5 crores comprised 91% of deposits versus 86% last year. Sweep was at 7.7% versus 7.1% last year. And the cost of savings is at 3.87% this quarter versus 5.37% last year. Our customer contact center was operational across work from home and our centers. This enabled us to serve our customers for their requirements and active engagement. Our distribution fee income continued to show strong growth this quarter, and we use analytics and our CRM platform to penetrate deeper into our base. I talked about the digital surge, and we have seen surge in digital adoption by all our customers, and we continue to provide solutions for them to transact on a DIY basis. Coming to consumer assets. Mortgage, particularly home loans, has seen a significant traction this quarter across metros and urban cities. The key drivers have been attractive prices by developers, lower interest rates, benefits and stamp duties, people looking for upgrades on homes and, of course, some [indiscernible]. During the quarter, we also launched Digi Home Loans, a completely contactless journey, which enabled our customers to apply for a home loan digitally and get it sanctioned without having to meet anyone in person. In home loan, we've seen bounce rates back to pre-COVID levels. This is a focus area for growth, and we have also offered very competitive rates in the market. Loan against property, we've seen demand come back this quarter for people -- from people looking to raise funds for business. We will focus to grow this business in the coming quarters. SME, working capital business. The MSME loan under the Government of India's scheme was a big focus area. This helps customers with liquidity as they resume their businesses. We have also seen month-on-month improvement in cash flows as the economy is growing, opening up. In this quarter, we also started our new acquisitions, which has been growing. In Q2, we've seen utilization of limits versus a sharp drop in Q1 as customers start opening their business. We will build and focus on building a quality franchise in the MSME segment. Unsecured retail, Dipak has said it all. While we have started origination across products based on data and the trends that we have seen emerging with the unlocking movement, we will continue to use risk analytics to target for the new business in a calibrated manner as the economy opens up, of course, the focus on quality endures. We are continuing with our focused value proposition for customers. We launched 2 new credit card variants between September and October for the mass affluent segment. We, of course, launched secure credit card last quarter for customers who do not have a stable footprint. Coming to collections. Within opening up of the economy, we have seen positive movement month-on-month in collections this quarter. Our bounce rates have improved across products. In secure segments, bounce rates are now nearing pre-COVID levels. Unsecured retail collections have improved, but we need to see the trends over the next few months. Last quarter, I shared with you several initiatives on collections, including investments in technology, analytics and capacity enhancements. These have helped us improve our resolution across products and also helped by the fact that all cities began small have opened up, enabling our collections team to move out and do their job. With enhancement in core collection capacity, we have also started moving our sales team back to businesses gradually. We will continue to monitor and track connections across metrics. Given the festive season, we just launched Khushi Ka Season in October, comprising great offers across our assets and liability products, 100-plus alliance offers across merchant categories for our debit and credit cards, special promotions on Flipkart and Amazon. And of course, to leverage the cricket passion across the country, we launched MyImage Card for customers who can apply for and download the images on their debit and credit cards. I now request Kannan, who heads the commercial banking business, to take you through the business highlights.

Thank you, Shanti. I'll start with the commercial vehicles and construction equipment businesses. Sales of commercial vehicles in the July-September period has been much better than the April-June period, and disbursements in this quarter has been better than the previous one. Goods movement has been improving month-on-month. The utilization is somewhere between 75% to 85% for most of the large operators, depending on the segment they are servicing. Movement of agri produced post the harvest and the festival season should lead to further improvement in utilization levels. Improved utilization of fleet and availability of ECLGS loans has improved the liquidity in the hands of the fleet operators. Collection efficiency in this quarter has been better than the previous quarter, and September collections have been better than the previous months. Passenger transportation segment, however, continues to be severely impacted and it looks like it will take a longer time to recover. Demand for construction equipment is getting better month-on-month and so is the demand for finance. Our disbursements have been better than the first quarter. Utilization of equipments in the hands of the contractors and the customers have been improving and it's closer to normal levels. Cash flows of customers have been good and collection efficiency has been improving month-on-month. Our agri business portfolio comprises of SMEs involved in primary and secondary processing of agricultural commodities and are mostly based out of nonurban locations. Since these customers are involved in processing and distribution of essential commodities, activity levels and cash flows have been good. A good kharif crop harvest is expected and should help this segment further. Collection efficiency in this segment is beyond normal, and demand for credit is getting better. Our microfinance exposure is primarily in nonurban markets and focused on customers engaged in agri-related activities. Collections have improved month-on-month. And September collections have been better than the previous months. Disbursements in select markets have begun in the second quarter. The tractor industry volumes have grown between 8% to 10% for the half year up to September '20. Our disbursements have grown during the quarter and our stock on hire as on 30th September has grown 18% Y-o-Y. Given the prospects of a good harvest and good cash flows in the rural market, tractor volumes are expected to do well over the next 2 quarters. Our deep distribution should help us improve on our market share and take advantage of the increased sales in tractors. Collection efficiency in this market is good and improving month-on-month. I'll now hand it over to Mr. Manian to take it forward.

Thanks, Kannan. Let me take you through the wholesale banking business in the bank. Primarily has 2 separate types of books: One is the corporate banking book and second is the SME part of the book. Let me first talk you through the corporate book. We have continued to be alert and have avoided large concentrated low-spec kind of business. Our philosophy of getting right the risk return continues. And also, as you are all aware, building large books has significant PSL costs and building them at low spreads is economically not viable. So we remain conscious of that. We maintained and improved the profitability of the book through the last quarter. And also at the customer level, we are focused on customer profitability, which has continued to be getting better. The other important factor to keep in mind is the impact of the debt capital markets from this business. As you are aware, debt capital markets have been at all-time low rates and sufficient availability of debt. And this has 2 kinds of impact: One is as you can see in the -- on the slide, credit substitutes. If you look at our own balance sheet, the sum of the credit substitutes and the corporate banking book, if you look at Y-o-Y, the difference is not as much as it looks just looking at the corporate banking book. So basically, what has happened is building a credit substitute, it is viable at low spread, whereas building advances on corporate banking book is less viable given the PSL economic center, risk control that you can get, better risk controls that you can get by building credit substitutes. So this is one big impact. The second big impact is, of course, the syndication part of our business. So the syndication part of our business has done well in the first quarter and even better in the second. And our fees are getting better on that, and that is reflected in our financials. Overall, we have kept, as I mentioned, high focus on profitability of the book. The quality of the book per se continues to be robust. As of now, it is holding up. Of course, corporate book is always susceptible to one large bullet hitting you. But as things stand now, we feel reasonably comfortable with the quality of our book. Coming to SME, that's a different story. Of course, when we started in March and April, one of the sectors that we were most worried about was the SME book and we expected the impact to be high on the quality of this -- asset quality of this book. But as of now, the impact of ECLGS and the moratorium has had a dampening effect on this negative impact. And as things stand now, asset quality seems in control. In fact, we are seeing a unique situation where our average utilization of our client is over 15% to 20% lower than it was a year back. So just a clarification. Of course, you see here a drop of more than INR 3,800 crores. INR 1,200 crores out of that is migration of customers from SMB to rest of the corporate bank. Of course, that impacts the profit bank growth to that extent. But INR 1,200 crores is the impact of migration. And rest of the INR 2,500 crores is -- INR 2,400 crores actually the lower utilization. So lower utilization is a double-digit sword. It gives us comfort on the quality of our book. But at the same time, it has impacted the growth of the book for now. But we are also confident that if the activity levels come back, the lower utilization will be a positive, and it will help us bounce back on this book. So -- and in this segment, we have selectively, in some sectors, started onboarding new customers, and we expect to see growth. So overall, we continue to remain close to our customers, looking at holistic opportunities to improve our profitability, confident that we can scale the business as normalcy returns and we get more comfortable with the environment, and we are keeping a very close eye on the book quality and avoiding unexpected bullets, of course, you cannot avoid, but trying to avoid any book quality impact. Our current cost of funds gives us a benefit in the corporate banking segment, where we think we can build a sustainable franchise over a period of time. On specific sectoral exposure, the movement from CRE and LRD is not significant. They are marginal changes over the last 1 year. The change in exposure you see in NBFC is primarily driven by increase in exposure in the housing finance segment, which we consider the safer segment than the rest of the NBFCs. And that too this in particular is to a very large and the best-known HFC in the country. So we remain comfortable with our specific sector exposures. As my colleagues, Shanti and Kannan mentioned, ECLGS team, we have made very good use of this team. In fact, our overall banking sector share in advances is about 2-odd percent, whereas on this scheme, we have disbursed close to over 6% of the banking sector share is with us. And as we speak today, we are about INR 8,150 crores in August -- in October. We have made good use of this scheme. This, as you are aware, comes with sovereign guarantee and therefore, 0 capital and reasonable spread for sovereign risk, and we have made good use of this opportunity. May I now ask Jaimin to take over from me. Jaimin?

Let me quickly take you through some numbers for the consolidated entity. The bank overall contributed 74% of the post-tax profits. Other contributors this quarter, notable ones. Kotak Securities, which at just short of INR 200 crores had their best ever quarter. This is almost 33% higher than what they clocked INR 149 crores in the previous year. Kotak Life ended with a post-tax profit of INR 171 crores against INR 141 crores in the last year. The mutual fund entities got in INR 84 crores, about the same as the previous year. Our Kotak Prime had a post-tax profit of INR 133 crores. This was lower than last year as on account of lower volumes and again, provisions. The profit, though, was recently higher than the quarter 1 this year. Kotak Investments had a post-tax profit of INR 74 crores against INR 67 crores last year and INR 43 crores in the previous quarter. Both the NBFC subsidiaries have given similar treatment to the Supreme Court order on recognition of NPAs and the provision thereof. We talked earlier at the post-tax level, the consolidated profit now at INR 2,947 crores, which is 22% higher than quarter 2 last year. We talked earlier about the tax differential. And as Uday mentioned, on a pretax basis, the consolidated number pretax for the entity would be 33% higher than pretax last year. Our net worth at the group level, pretty strong with around INR 79,000 crores. And each of the subsidiaries have pretty healthy capital. Prime at about INR 6,200 crores; Securities entity at about INR 5,000 crores and the insurance -- life insurance entity at INR 3,700 crores. Our NPA at the group level again at GNP of 2.55% and net debt 0.7%. Capital adequacy LD at 24.5%, with Tier 1 shares at 23.9%. Balance sheet at the group level is now at INR 4,57,000 crores. And with the half year profit, our book value per share now at INR 399, just short of INR 400. I'll request Narayan to talk about Prime and then the others.

Thank you, Jaimin. Kotak Mahindra Prime, the closing advances as on September 30, 2020, was INR 22,710 crores. Total income for quarter 2 was INR 353 crores, as against INR 369 crores in same quarter last year. PBT for the quarter was INR 179 crores and PAT of INR 133 crores. KMP Kotak Mahindra Prime's car and 2-wheeler disbursement month-on-month is improving. October, November, we expect good demand for cars and 2-wheelers supported by festive season. The margins for this quarter are better than compared to that of the previous year same quarter. And also the collection efficiency and resolution efficiency across buckets are showing signs of improvement month-on-month. With this, I will request now Murali to take over. Thank you. Talk about life insurance.

Thanks, Narayan. Thank you, Narayan. I'll now take you through the progress made by the life insurance company in the background of COVID-19. During this period, the gross written premium for the second quarter grew by 10%, and we could see a significant progress on the single-premium business, this grew by 15% during this quarter. The individual APE new business payments for the first half grew by 2% Y-o-Y against the private industry de-growth of 11%. However, our group APE business did well in this quarter compared to the previous quarter, it grew by 2.5% over the previous quarter. But on a Y-o-Y basis, had a de-growth of 5%. Kotak Mahindra Bank, which contributes on the APE business grew by 9% during this quarter. The individual renewal premium in Q2 F '21 has grown by 21% and our persistency ratio was [indiscernible] reasonable and good. Our PAT at INR 332 crores grew by 20% Y-o-Y. Our solvency ratio remains at an healthy 300%. Our AUM has touched close to INR 36,000 crores and has grown by 18.5% during this period. I will take you through the progress on digitization. Digitization has been a big focus area for life insurance. And we focus on it, particularly using digitization while empowering our institution and enhancing our employees and better customer experience. Our [ core ] distribution where most of the employees are involved with, the digital onboarding of customers, which is our Genie is now touching 98%. We have now empowered the advertisers through a superior engagement app known as Boost, which is really helping us to engage our agents better and so have impact on productivity. Our lead nurturing tools has been significantly strengthened during this period. For a better customer experience, we launched a new system known as Digipro, which is completely digital and this should significantly give a superior customer experience. They also launched an insta-servicing for 4 high-volume services [indiscernible] across the counter in the branches. And our digital servicing tool has shown a significant growth of 29% Q-o-Q during this period. Employees need to be energized and empowered and we have. With our significant increase in use of CRM and Amie, it is an employee chat bot, it gives -- energizes our employees a lot more. With this, I hand it over to Jaideep Hansraj to take you about Kotak Securities.

Thank you, Murali. Good evening, friends. I'm going to talk on the Q2 numbers of Kotak Securities for FY '21. For the period July '20 to September '20, we generated a top line of INR 516 crores. This is comparable with INR 407 crores for Q2 of FY '20 and INR 459 crores for the previous quarter, which is Q1 FY '21. Profit before tax for the period was INR 266 crores against INR 181 crores for the same period FY '20 and INR 235 crores for Q1 of FY '21. Profit after taxes for Q2 FY '21 is INR 199 crores, which same time last year was INR 149 crores and the PAT for the last quarter was INR 169 crores. There have been some major highlights for this quarter in the broking industry, which I'd like to bring to your notice. Average daily cash market volumes for the retail broking industry touched a new high for the quarter of approximately INR 62,000 crores a day. This cash turnover used to be about INR 35,000 crores a year ago. At the same point of time, the daily options market turnover for retail broking touched somewhere between INR 17 lakh crores to INR 18 lakh crores a day. This is a jump of 40% to 50% over the last few quarters. Retail turnover of mobile continues to grow exponentially for the market and all part of the business. New clients entering the direct broking industry is on the rise as well. New demat accounts opened in Q1 of FY '21 was 23.06 lakh number, which in Q2 has gone up close to 50% to approximately 34 lakh accounts. Our trust in digital continues in a very, very serious note on both product as well as platform. The focus on work from home, which we've commenced in early Q1 continues, and there's hardly been any disruption to the platform or the customer experience during this period. September 1 finally saw the implementation of the new margining norms from SEBI. Though it has impacted cash trading volumes in September because volumes have recovered in the first fortnight of October itself. We see this as a temporary phase, but the step is a decisive one towards ensuring industrial protection from shady players. Thank you, friends. With this, I'll hand over to my colleague, Manian, who talk about the Kotak Investment bank.

Right. So Kotak Mahindra Capital Company, our investment banking arm remained quite busy in the second quarter of this year. As you can see, they were part of several marquee transactions, whether in the financial sector, some in the real estate sector. So ICICI, HDFC, Mahindra Finance and YES BANK, UPI, asset management, all of these in the financial sector. These are also part of the second REIT in the country. These are part of the first and now the second one as well, Mindspace REIT. And we also raised capital for Phoenix Mills. CAMS was another very successful issue. So we continue to build upon our market-leading franchise on the equity capital markets side. And the quarter was quite busy, and we do have a pipeline going forward as well. We have also -- over the last few years, we have worked very hard at building our advisory capability. And I think we have done quite well over the last few years, and we continue to have a good pipeline of transactions to be completed. And in the first half, we have completed transactions with Signet, where we were the exclusive adviser sale of their business. Motherson restructuring. Again, we were part of it and Tata's passenger vehicle business, subsidiarization of that. So it was a busy quarter, and there is a good pipeline, and we hope to -- so the second quarter was better than first, and we hope to make the third and fourth quarter better. Thank you very much. I will now hand it over to Nilesh to talk you through the AMC business.

Thank you, Manian. Good evening, friends. COVID-19 crisis continued to post challenges for mutual fund industry in last quarter. Kotak Mutual Fund acted early to transit from physical world to digital world. Our operations continued uninterruptedly in last quarter, including during an unexpected power outage in Mumbai. For the quarter ending September '20, our mutual fund AUM grew 13% year-on-year to INR 1.92 trillion. Our equity AUM grew 12% year-on-year to reach INR 0.77 trillion. For the 12 months ended September '20, our total AUM market share grew by 30 basis points to 6.9%. Our core equity AUM market share grew by 30 basis points to 4.9%. Our SIP market share grew by 53 basis points to 5.41%. Consequently, our PBT grew by 8.65% from INR 104 crore for the September '19 quarter to INR 113 crore in September '20 quarter. Fund performance, customer servicing, digital transactions remain above industry averages. Our fund performance continued to be recognized by various agencies reflected in several prestigious awardables in last quarter. Kotak Group total AUM across mutual fund, insurance, offshore, alternate assets and PMS services grew by 12% to reach INR 2.72 trillion across local and global retail and institutional clientele. Relationship value of wealth, priority and investment advisory business stood at INR 3 trillion at the end of September '20. We remain well poised for capturing opportunities in asset management space. Thank you. Over to you, Jaimin bhai.

Thanks, Nilesh. Thanks, friends. We'd be open to taking questions from many of you [ for question ].

[Operator Instructions] The first question is from the line of Manish Karwa from Axis Capital.

Congratulations on a good set of numbers. So I just got 1 or 2 questions. First is on deposit cost. I think you've done phenomenally well on the deposit even after cutting deposit rates. I think deposits have continued to come in really well. I want to ask, is there more room to cut deposits? And are you thinking of doing that? And also some color on -- is there any change in customer behavior once you have cut deposit rates, some comments out there.

Yes. Manish, I'll answer the first and ask Shanti for the second in terms of changing customer behavior on the deposit side. On the first one, of course, there is room to cut. But as I've mentioned earlier to you, if you recollect, you had asked this question even a few years ago that we will be very strategic in terms of what we do. We are not looking at short-term financial gains coming out of the rate cuts, but we will do it strategically at a time when we feel it is appropriate. Of course, we did not bargain for COVID, but that was a good strategic time for us to be doing it and still preserving the deposit franchise and continuing to grow it despite the cut. Yes, there is room for more, but we are going -- as I mentioned, not going to take a quick short-term financial decision in terms of what we do, but we are always keeping all our options open in that context. And we will do what is right from the franchise and sustainable growth of earnings of the firm. On the second point, I will ask Shanti, who heads the consumer bank to give a sense on the consumer behavior with reference to the lower deposit rates and what it means. Over to you, Shanti.

Thank you, Uday. So as I had mentioned that we are focused at the granular end. At the granular end of the customer, would say deposits of up to INR 1 crores savings, we think the customer reasonably steady. And if you have noticed, we have been sort of -- we've reduced the rates over a period of time. And we have not really seen a change in the behavior. Customers continue to grow quarter-on-quarter. Some of the very large value customers, we have seen some attrition, not all attrition, but a small part of the attrition where there is perhaps higher rates. And we've seen customers move money into term deposits with us. But with the granular end of the customer, we continue to see the customers grow with us quarter-on-quarter, including during this very crucial COVID period of time.

Okay. Okay. Just one more thing, in the last call, you had indicated and as you were harping on the negative spreads that are going on in the market, are they still negative? Do you -- are you now comfortable in pushing the pedal for growth? How are you thinking investments versus loan argument on the balance sheet?

Yes. Manish, if you notice in my initial comments, we did talk about the asset engine as an engine for customer acquisition and thereafter, not only cross-sell -- not only selling a particular asset, but cross-selling other assets and then moving into liabilities and fees and services across the board. Historically, as I mentioned, the Kotak engine has been liability into cross-sell into everything else. We are now very clearly focused on opening the asset engine for broader single consumer bank. And the approach is to bring assets and liabilities much closer together as we see going forward. And we are very focused on what makes sense. And we are in the business of earnings growth, resilience and sustainable earning growth. If it gives us an opportunity on the asset side for sustainability on all these factors, we are certainly open, but I just want to again reiterate, Manish, our approach is not blindly doing because this is what the markets may like or may not like. It has to come out of our deep conviction that this is the right way for us to go. And we are getting a sense about how we want to position in this marketplace when I think about next 1, 2, 3 years. And we are getting a sense of being able to play the game on our terms, and the future is certainly giving us that opportunity. In many ways, I think, post 2011, we got an opportunity to play on our terms on the liability side and the savings side. We think the post-COVID world is giving us that opportunity, and we are very much future-ready. The last 6 months has given us a great time and opportunity to think through and strategically go forward, both in ideation. And, of course, what is a bigger challenge is how we execute it, but clearly open.

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

I think kudos to Uday and then Shanti for great efforts on liability franchise. Actually I've got 3 sort of questions. Let me start with the most topical asset quality. We've seen -- you've kind of put out the pro forma numbers. And of course, we know moratorium got over in the month of August. So to what extent the pro forma is reflecting the potential roll forwards that you have seen? Or the asset quality pain, if at all there is, has been reflected in these numbers? Or you think the next 1 or 2 quarters are going to be equally critical?

Yes. Rahul, first of all, you require to be a nuclear scientist to be able to figure out a combination of 4 things, moratorium 1, moratorium 2, Supreme Court stay, restructuring. And through that maze coming to an accurate picture about how stress will work and how will the ultimate recovery work. So that is an important question. And you actually will find it more challenging. There is lots of stuff going on in the marketplace with loans getting to be flexible, ability to restructure loans, all that is happening. So we have to have -- be clear that this is a maze. How do you decipher through that maze? So that is, I think, point number one, I just wanted to park and something which is not capable of giving a glib easy answer that this is the way it will play out. Having said that, we did a deep amount of analysis of our balance sheet, okay? And we huddled together, which includes a lot of our senior leadership going and pouring over different aspects of our asset categories. And we have come to a view that the amount of provisioning which we are carrying, and it is linked to the mix of our book and the quality of the underwriting of our book as we see it. Therefore, I cannot translate it for what it means for the rest of the sector or other players. I can talk about my book and my mix. But based on our deep pouring of our book, our underwriting and our mix of loans, we feel adequate and comfortable, with the level of provisioning we are carrying as of 30th of September on a stock basis. And our stock basis are carrying, as we just explained, is the COVID provisioning, the unhedged foreign exchange, standard provisioning, stress asset sector provisioning, NPI provisioning, all that put together, we feel very comfortable that we have not only adequately provided, but we have been conservative, and we are very, very confident in the context of our book. And as Shanti alluded and as some of the others have alluded and something which I've gone public with, there are many areas which have actually done -- and I think Manian mentioned also, which have done better. I think the MSME scheme and ECLGS scheme has been a great scheme by the government of India, and I complement the government for giving the balm and safety net for MSME sector. But what it has also done is that it has enabled banks to not only lend, but by lending that additional money, you have given the MSME sector a chance to fight it. And two, it has helped the bank also have a better ability to save the INR 100, which they have given to the MSME sector in the first place. So it has improved not only the MSME by giving that person new money, but also improve the quality of the book. So I'm very feeling much better about the MSME book as we look at it. However, if you look through the entire COVID situation, and this is not trying to posture or anything. If you look at through the entire COVID situation, the broad thing is rural India has done better than urban India. In urban India, if you have a home, if you have a car, if you have any sort of security, you're more likely to pay our loans. The worst impacted segment by far is the unsecured urban consumer. And that is the reality. And this consumer, again, based on what we have analyzed within our book because we also have the corporate salary base of our customers. We are finding that employees with lower salaries in companies, whether large or small, are more vulnerable than employees with higher salaries. So in many ways, COVID is disproportionately hitting the lower end of the strata, including employees of companies big and small. This is a fact. And combine this with an overall urban stress being more in the unsecured. I will still watch it carefully. And if you look at the breakup of our advances portfolio, you will see that our advances portfolio speaks about our strategy because that is walking the talk. We are more comfortable with home loans, even less working capital, construction equipment, Agri MSME. But we have -- year-on-year, dropped our unsecured credit card book and unsecured personal loan and business loan book by design. And therefore, our mix on that has gone down. It was always a very conservative mix. At this point of time, we have definitely taken a view, and we stand by that view. Of course, now the time may come where we can pick and choose better quality customers and segment ourselves to be getting better in the growth. Therefore, as I said, 6 months has given us a great opportunity to prepare for what I think is a great future ahead in terms of how we attack and focus on the consumer finance different segments as we go forward.

No makes sense. I think that's a great, great elaborative answer, Uday. Just 1 or 2 follow-ups. So when we think about, let's say, third quarter, by which time, hopefully, whatever you have to restructure, will be out there, whatever NPL has to be formed, also -- also will be there. So the 60 basis points of extra provisioning that you've made on the entire portfolio would take care of pretty much everything that will happen, be it restructuring or the NPL formation is essentially what you're saying. And from next quarter, we should actually see a normalized credit cost run rate of 30, 40 basis point, which we used to do in the past. Is my understanding correct on that front?

Rahul, first of all, there is some normal provisioning which goes into the provisioning every quarter. In addition to that, we have a COVID provisioning, which is actually -- which is INR 2,179 crores on a INR 2 lakh crores, Jaimin, that is more than 1%, no?

That's right. Yes. Yes.

It's -- therefore, in addition to normal provisioning, which we do every quarter -- sorry, it's...

So INR 1,279 crores, which is 0.62%, which is obviously...

Yes. So COVID provisioning, INR 1,279 crores. But if you look at our overall provisioning, in addition to that, we have standard provisioning, we have stress asset provisioning. We have USB provisioning. If you add all that, we have more than 1.1% provisioning, which we are carrying, out of which COVID provisioning is 62 basis points.

Yes. Got it. The other question, moving on the growth side. So Uday, definitely, it's very heartening to hear that the bank is now fully ready to grow, and we hope to kind of see performance of liabilities getting repeated here. But now that the bank is entering into sort of a new phase, every bank has got certain portfolios in which it kind of creates its niche. How would you see Kotak over the next couple of years? Will it be more driven by consumer secured book? What kind of the franchise for us Kotak would have that's in the next couple of years? And now that the cost for deposits have fallen to almost like below HDFC bank's card rates. So how would you define it over the next couple of years, Uday?

Rahul, you'll see the plan play out over the next few years. Just give us a chance to be able to come back to you and show you the progress every quarter, and we will be very strategic, including bold and long term. Keep in mind on savings deposits, for example, we have spent hundreds and thousands of crores between 2011 and 2020 to build a deposit franchise. We are not scared of spending money, but we will spend money in a strategic manner. Look at the amount of money we spend for digital account opening on the liability side. It has cost us a lot of money through our P&L in the past. Therefore, we have -- once we have the conviction, it's not about the amount of money we need to spend. But there are 2 areas you spend money: One is to build a franchise and second be, take a cost on the risk. We are far more comfortable to build the franchise and spend whatever money it takes on the asset side going forward. On the risk side, we always like to keep in mind -- the trouble with risk is the downside is unlimited. On building the franchise, it's a defined amount of money we will need, whether it's INR 500 crores, INR 1,000 crores or whatever that number is. Therefore, we need to be clear. On the asset side, there are 2 aspects of spend, building the franchise and the risk. Between the 2, our bias will be clearly build a franchise but be generally more conservative on risk.

Makes sense. But when you say build a franchise, do you mean more branches or -- I mean, inorganic, you keep talking about, and coincidently, we saw the news also out there. So when you talk about build a franchise, can you throw some more light as to what you're talking about?

Let me first categorically address the second question, which you have the news you said. I just wanted to very clearly and categorically state on this call, that as a policy, we as a bank and a company, do not comment on rumors and speculation. And if we had anything to report, we would report it as required under the listing guidelines. And the fact that we have not reported is an answer in itself, okay? So I think you should be clear about where we stand on that based on these 2 important points that as a company policy, we do not comment on rumors and speculation. And if we had anything to report, rest assured we would have reported. And that should bring to rest our clear answer on this speculative news, which has been going around since yesterday evening. On the strategy, there are various ways of playing that strategy, Rahul. If I share it all, what's the fun? You stop coming on our calls over the next 2 years. So give us some time and we will have the pleasure of getting you on the call back, all of you on the call over the next few years.

Great. Uday, I think -- yes, I'll leave it there. I know you don't want to reveal. But yes, I mean, what is heartening to see the direction which after a long while we've heard that the flood gates are opening up for growth on the asset side, and we'll definitely look forward to that.

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

Congratulations for the guidance as well as a good set of numbers. So firstly, in terms of the future readiness, so no doubt not specifically referring to the news, which was there yesterday. But what would be the role of inorganic opportunity in terms of customer acquisition? So would it be more of an organic only or inorganic, maybe in terms of some of the segments wherein you are trying to niche, that would also play a key role, maybe not immediately, but in the near-to-medium term?

Answer to that is, Kunal, very clear. What we need is to get more customers, need to get more customers engaged and need to sell them the appropriate range of products across assets, liabilities and services. The way to get new customers in this new world are digital, physical or somebody else's customers, which we can get at some point of time. So all the 3 options are the way to get customers. Therefore, I don't want to confuse between which route we go or what routes we take, but it is pretty clear that if we have to build a future-ready bank with a huge opportunity, which India has, we are currently at 2% to 2.5% of the total banking sector market share. The digital and technology world has given us an opportunity to look at very significantly expanding our footprint without expanding our branch network at the same speed. And therefore, our approach to whether it's organic or inorganic, is clear. Customers, customers, customers, whether it's through the asset grade -- gate, liability gate, the fee and services gate but get customers, engage with them, provide outstanding service and cross-sell the appropriate products for the entire customer base through whichever gate and whichever channel which we can get.

Sure. And secondly, in terms of operating cost. So last time, we were highlighted that, definitely, we would see a lot of improvement. No doubt Q1 was more of a skewness between the physical and the digital one. But currently, when we are looking at it in terms of the year-on-year growth, it's more or less back to where we were. So what is the kind of flexibility going forward we can have on the operating cost? And with this customer acquisition, how should we see the overall cost-to-income also settle over a period of time? No doubt, the digital is going to help in a big way.

Kunal, let me give one simple answer for that, what I can talk about Kotak Bank. We are at 1,600 branches. I'm pretty clear, we don't need 10,000 branches for getting customers, okay? There was a -- physical world game has changed. And with the liability cost, if they remain low for a while, the cost of our physical network is enormous. Be clear about that. And I'm not saying we are averse to anything, but we are very clear. It is customer acquisition, customer servicing, customer engagement and customer delivery. And all the floodgates are open and the translating to your -- to the answer you want on operating costs. The future-ready model, if we were looking at much larger physical network, clearly, that strategy is going to be different. We will put that spend in other things. We'll put that spend in getting customers different ways, and that's how the future will be.

Right. Okay. Okay. And lastly, if you can more specifically highlight in terms of the collection efficiency and where there was the maximum surprise apart from MSME, which you have highlighted. But as we moved from morat to into the collection efficiency, more specific across the various -- maybe the various segments. And where was the maximum surprise wherein we are now very comfortable with the credit reserves, which we have?

No, no. Kunal, it's a very broad question. Each segment has a different -- on a broad answer, collection efficiency is certainly better second quarter compared to first quarter. It is better in September compared to August and July. I think both Shanti and Kannan addressed it head on. Having said that, in many segments, it has still not got back to normal. It is well below normal. And particularly in the unsecured loan segment, it is getting better compared to what it was. But is it pre-COVID? The answer is categorically, no. Suppose it is -- my view on entire collection efficiency and all other parameters is that, we have to be clear that, yes, things are better, but please do not count victory on collection too early.

The next question is from the line of Suresh Ganapathy from Macquarie.

Uday, I have 2 questions. One, is it possible to share the collection efficiency for the month of September? I mean -- and what it would have been pre-COVID levels, just across some product categories? That's the first question. And the second thing is, of course, we have talked a lot on this growth aspect. But somewhere down the line, maybe a lot of people believe -- for analysts like us believe is that perhaps you are far too conservative in the approach that a bank, which is 5x your size still finds growth opportunities and grows the books at 16% and still has a very low NPA level. Just not strictly comparing but are we letting go off good opportunities available in the market? Because a view which is emerging is this is perhaps, by far, the best time to grow, old the private sector banks, weak NBFCs, weak public sector bank systems, and there are only 5, 6 banks in the system who are strong enough to lend. So should we not take good amount of market share and grow the book a bit more opportunistically and aggressively within obviously the credit parameters and standards that you have set for yourself.

No, Suresh, I think you -- we certainly see that very clearly. And having said that, growth has to be a part of a deeper strategy and a much superior focus on execution. And our approach to growth is through the route of customer acquisition and engagement and sell. I highlighted that, that we will certainly be more aggressive on the growth in asset side as a gate on both for customer acquisition and deepening. We will be ready to do what it takes. Having said that, we don't like to compare -- I mean, other institutions may be better, maybe superior, we will do it on terms what makes sense and conviction from our point of view. And if it gives us conviction, we will do it. And as I said right at the beginning of my call, earnings growth, sustainability are the crucial aspects of building a business. Credit risk is a means, and one of the means to achieve this objective, but there are various levers which are available for financial institutions to produce sustainable earnings growth, one of which is credit growth, but that's not the only and the sole lever as it seems to be very often made out to be. We are open. We are certainly clear that it makes sense, but we will like to do it with a growth on strategic acquisitions. And in general, on the margin, we will work on terms of risks which make sense from our point of view. And on your specific question, I'll ask Kannan on the commercial bank side to share some numbers, which -- and Shanti, if you want, but quickly Kannan and Shanti.

Shanti, you want to go or -- yes. On the commercial vehicle and construction equipment side, the September collections are closer to the pre-COVID levels. As Uday mentioned, it is not still equal to the pre-COVID level. It is closure there, but it will take -- we would have to watch out for the next couple of months to see how it pans out. We have just 1 month after the moratorium is over. So we will have to just watch out for the next couple of months. The construction equipment side collection efficiency is almost near normal. In fact, they seem to be behaving better than the commercial vehicle side. And the -- as I mentioned, rural cash flows are good, so our collections in the -- on the tractor side is closer to normal.

Shanti?

Okay. Yes. Thanks, Kannan. So Suresh, on the secured asset side, and I said that in my this thing. Both balances and resolutions are significantly better, and we are coming closer to the pre-COVID level. We're not fully there, but we are getting very closer. On the unsecured retail side, month-on-month there has been an improvement. July over June, August over July, September over August. But has it come to pre-COVID levels? Not yet. But I think the trend is very encouraging and which is why, sir, we need to see the next few months or 2 months or 3 months, do we have a change.

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

So 2 quick questions. Number one is on [indiscernible]. I mean how will you manage...

Nilanjan, I'm sorry to interrupt, but we can't hear you very clearly, if you're on hands-free, better if use handset.

Hello. Am I audible?

Better. You may go ahead.

I hope I am audible. How do we manage [indiscernible] of the system that was -- it was mentioned in the PPT, was the first question.

I missed the question. I didn't get the question.

[indiscernible] of the system.

Yes. Manian, you want to go in terms of our deeper penetration?

Yes. So I would say there are 3 reasons why. Of course, one is the focus that we saw an opportunity in billing this right. Second is we had -- as Shanti briefly mentioned, we had rolled out a completely digital process to ensure conversion and before it helped our conversion. Number three is it requires across the 3 banks, that is corporate, the SME, the commercial bank and the retail bank. I think the task was fairly among us, because you had to reach out to a large number of customers and convert. And therefore, execution was very, very critical. And I guess we got all these 3 right, and that's the reason we did better. And I think our disbursement process, as I said, also was fairly smooth and it helped us get.

Right. So if I can get a little more clarity, I mean, what percentage of the [indiscernible] would have qualified? And of that percentage, how much -- how many number of accounts we do end up [indiscernible] do we get some clarity there?

Broadly, we got the conversion of close to about 65% of the eligible players. And that is our sanction, and our disbursement is at about 80% of our sanction.

[Technical Difficulty]

I can't here you.

We can't hear you.

The next question is from the line of Mahrukh Adajania from Elara Securities.

My first question is again on collection efficiency. If you could quantify a rough figure for the whole bank on collection efficiency, 95% or above or below 90% or whatever that figure is for the whole bank?

Jaimin, do you want to answer that now? Now it's in the CFO terrain outside the business terrain. Or how you feel about it?

Mahrukh, if you look at overall, as people have said, it is closer to what we were getting in February. So yes, it would be in the mid-90s very much.

Okay. Got it. My next question is on the market repo borrowing that you have talked about even in the last call, was that source available to you even this quarter? You had said that you could raise those at under 3.5%.

No. No. The question is, Mahrukh, there's a full treasury operation. Treasury does what is best for treasury to do. And whatever are the opportunities in the treasury markets within the framework, we are always open to that, and that's something which treasury actively manages.

Okay. I just wanted to squeeze in one last question on [ NNA ]. Also just in terms -- so you have talked about inorganic growth for the group as a whole in fourth quarter and first quarter earnings call. So in order of priority, what would it be, acquiring loan portfolios, acquiring a bank caring company? Or an NBFC for the parent bank? Or doing acquisitions for the subsidiary? So what would be the order of priority?

Mahrukh, I gave you this. Our biggest focus is building the customer franchise and building the customer base, okay? Whichever route gets us to the customer, larger customer base, organic, including the very dramatic change because of digital and other avenues across the framework of all the platforms we have is something which we are very focused on, customer, customer, customer.

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

Sir, just 2 questions. One is on this commercial real estate exposure. So your consolidated exposure as per your Basel disclosure is about INR 18,000 crores. What you show in the presentation is about INR 10,000 crores. So fair to say about INR 8,000 crores is sitting in the subsidiaries?

Sorry, just adding here, the Basel disclosures also include non-fund investments, all of that put together. This one is funded outstanding.

Yes, the non-fund is actually not very high. I don't have your September number. I'm just looking at the June, but the non-fund is not very high, but it will be fair to say that the prime and investments would have part of that, right?

That's right. Yes. Yes.

Okay, sir. And the second is effectively on the -- I mean, what is the restructuring request you have seen in the CRE sector, or say, both subsidiaries and in the parent?

Manian?

So it's still early days. We haven't seen a lot of request yet. But I think it's early. I think we still have a couple of months to go for making those requests. So -- and let me tell you that in many of our cases, we don't do pari-passu and we don't do general lending to companies unless at the very top end of that business, CRE business. So most of our loans are specific project loans. And currently, our projects from whatever data we have seen till now seems -- still the cash flow seem okay.

[Operator Instructions] We take the last question from the line of Sri Karthik Velamakanni from Investec.

Sir, if you could quantify your SMA0, 1, 2, the total SMA book as of September?

Jaimin?

I wouldn't have SMA0, 1. SMA2, and there's a different way of looking at it. SMA2, and we put that in the presentation, it's INR 133 crores, but which will not include the guys who would have become NPAs in the month of September, who we have not taken cognizance of. So without that, it is INR 133 crores. That's SMA2.

That is -- what is it as a percentage?

0.06%.

Hello?

We seem to have lost the line for Mr. Karthik. That would be the last question. I would now like to hand the conference back to Mr. Uday Kotak for closing comments.

Thank you very much, ladies and gentlemen. It's always been a pleasure interacting with you and having a frank discussion. I just wish each of you a very happy festive season, a happy Diwali, a happy new year. And hopefully, COVID, at least, in India behaves itself and does not misbehave like the rest of the world. So that when we are on the call next time, we have hopefully better way of -- better news to look at and think about the future. Good luck. Stay well, stay safe and look at the new world in a never normal mindset. Thank you very much.

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.