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

Ladies and gentlemen, good day, and welcome to the Kotak Mahindra Bank Q3 FY '25 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashok Vaswani, Managing Director and CEO of Kotak Mahindra Bank. Thank you, and over to you, sir.

Thank you. Thank you so much, and thank you, everyone, for joining us this Saturday evening. A very Happy New Year to start with. It's actually been one year this month that I completed Kotak, and wow, what a one year it has been, quite an eventful year. And I thought I'd share some of my thoughts with you. And I want to give you and demonstrate to you that the team and I have been working on a lot of events through this particular year. And we've made significant progress on a whole bunch of areas in our efforts to transform to scale. Let me now reflect on the last 12 months. First, starting with technology. Obviously, in April of 2024, we got the order from the RBI. And since then, we've been working very closely with the regulator and have made notable progress on core banking resilience, business continuity, cybersecurity and digital payments framework. But what's more important is we've not only done that, we have -- I like to use this period, utilize this period to, number one, sharply define the group's go-to-market tech strategy; two, launch the new Kotak and 811 apps, which are complemented by Neo and Cherry; and three, we are digitizing and automating our customer journeys to make it much easier for the customer to do business with us. With all of the above, we are starting to see green shoots, which is very, very encouraging. The second point I wanted to make is, in my very first quarter, I talked to you about the potential of a credit strain flowing through the system, and that unfortunately turned out to be true. But as the credit strain kind of has worked through the system, what we've seen in this quarter is that personal loan trends have actually improved. The stress in the credit card portfolio is now plateauing. And therefore, hopefully, in the next couple of quarters, we'll actually see a decline. But we continue to be very watchful on the microfinance portfolio. What I can say about the microfinance portfolio is this quarter, we have seen a deacceleration of the strain that was coming through that kind of portfolio. The third area I want to really highlight is the macroeconomic environment. There's absolutely no doubt that there's a heightened volatility, and there seems to be evidence of a slowdown in the economy. Now what we have always said and always maintained is that we will grow the business at about 1.5 to 2x normal GDP growth. And that continues to be the benchmark by which we will direct and manage this business. Now it's not been all negative. Frankly, on the flip side, there's been tremendous buoyancy in the capital markets, and that has been a real tailwind as evidenced by the results that we are seeing in our investment bank, in our mutual funds and in KSec, frankly, as well as in our private bank. This really has brought to [ fore ] that the diversified nature of our businesses as a group helps us to deliver for you, our shareholders, through various economic cycles. So while I'm mindful of all the above factors, I also feel very good about our strategy built around customer centricity and the momentum we are building to transform to scale at the bank. I feel very confident that these results will start to show in the coming quarters. And even in Q3, it's worth noting that despite all the distractions and headwinds, we did grow advances by 15%, grew deposits by 16%, maintained NIM at 4.93% and managed a very tight control on our expenses. So I'm really looking forward to this new year with a sense of excitement, but cautious optimism. Let me now hand it over to Devang to take you through our financial performance in detail. Thank you.

Thank you, Ashok. Good evening, friends, and first of all, very Happy New Year to all of you. Let me just take you through the Q3 numbers, which we disclosed earlier today. Let me start with the consolidated numbers first. We ended this quarter with a consolidated profit of INR 4,700 crores, which is about 10% higher on a Y-o-Y basis. Mind you, this does not include MTM gain post tax of about INR 877 crores for the quarter, cumulatively INR 5,600 crores on investments which, as you know, we have been accounting under the new RBI guidelines as a net worth. And obviously, this has not gone through the P&L. With this profit, the consolidated network stands at INR 152,000 crores, and the book value of share grows to INR 769 per share, a Y-o-Y growth of 23%. Our consolidated customer assets is about INR 519,000 crores, which is 15% higher than the last year. And our capital adequacy at the group level continues to be strong at 23.4%, even which the CET1 itself is 22.5%. Our ROE at the consolidated level at 12.43% with ROA at 2.30%. Let me start with the individual entities and with the bank. Stand-alone Bank delivered a stable performance amidst changing macro environment and continuing embargo. The bank ended the quarter with a PAT of INR 3,300 crores with a Y-o-Y growth again of 10% and now contributes 72% of the group profit for the quarter. At the bank's stand-alone Level 2, we have a capital adequacy of 22.8%, again, within this a very healthy CET1 ratio of 21.7%. And the ROA for the bank at the quarter is 2.1%. Customer assets in the bank grew to INR 459,000 crores and a 15% Y-o-Y growth, the growth mainly coming from secure consumer banking and SME segment is contributing significantly to the asset growth during the quarter. Advances at 31st December does not include the standard charter portfolio, which we have spoken in Q2, for which the bank has received all the approvals and we are in the process of migration. We expect this to be completed shortly during this quarter. Unsecured retail mix slowed down to 10.5% during the quarter due to lower disbursement in microcredit and credit card growth, which continues to be impacted by embargo. Our CASA ratio stood at 42.3% at December '24, with current account showing a healthy growth of 5% Q-o-Q. Yes, it had some of the IPO-related funds, with looking at the IPO pipeline, we see it continuing in Q4. Average total deposits for the quarter grew by 15% Y-o-Y, average sweep TD products, which you know, growing at 36% Y-o-Y basis. Bank continues to maintain a very healthy CD ratio of 87.4%. NIM for the quarter was stable, in fact, marginally higher at 4.93%, contributed primarily by benefit of lower SAAR rate and the higher CAR balance, as I mentioned earlier. Fees and services grew 10% Y-o-Y in the current year -- quarter, sorry, impacted by slowdown in credit card income due to embargo and certain regulatory changes impacting the referral fee income earned by the bank. Our cost control measures have resulted in efficiency, reflected in a marginal increase of operating cost less than 1% Q-o-Q with employee costs remaining at the Q2 level. Further, our cost-to-income ratio for quarter 2 improved by 22 bps over last quarter. Overall, P&L impact estimated due to IT embargo continues to be in line with our earlier estimate. Gross NPA at December 1.5% with net NPA 0.41% and the provision coverage ratio improved to 73%. Overall, credit quality for the bank is in line with our expectation and has remained stable over last quarter. Slippages during Q3 were lower as compared to Q2. This quarter also saw improved recoveries from secured businesses. The secured book continues to have negligible delinquencies. On unsecured credit cost, personal loan credit cost is showing reduction. Credit card cost is remaining at the same level, whereas the microcredit showing an increasing trend in line with the industry. Coming to the subsidiaries performance, our capital market subsidiaries, Kotak Mahindra Capital, which is investment banking and Kotak Security, which is the broking, both retail and institutional had an exceptional performance during the quarter. Kotak Mahindra Capital ranked #1 in equity capital market category for the third consecutive year, earned a profit of INR 94 crores for the quarter as against INR 35 crores last year on the back of large IPO and QIP mandate. Kotak Securities recorded Y-o-Y growth of 46% with a profit of INR 448 crores. Kotak AMC continues to perform well with the growth in capital markets. Kotak AMC with the trusteeship company made a total profit of INR 240 crores, a growth of 65% compared to last year, with the increase in average AUM in equity to INR 316,000 crores, Y-o-Y growth of 51%. The total AUM of Kotak AMC crossed INR 5 lakh crores during the quarter. Kotak Prime customer, which is in the car finance business grew the asset base to INR 38,000 crores with a Y-o-Y growth of 16%. PAT for Q2 at INR 280 crores, down 9% Y-o-Y, largely due to the MTM loss in Q3. Kotak Mahindra investment company results for Q3 were impacted by a higher provisioning for one single account. BSS Microfinance business, correspondent business ended the quarter with a loss of INR 50 crores, owing to lower disbursements and increase in the collection cost, related to increasing delinquencies in select states. The BSS net worth continues to be strong at INR 1,000 crores at 31st December '24. Kotak Life ended the quarter with a PAT of INR 164 crores as against INR 140 crores same quarter last year, Y-o-Y growth of 17%. For quarter 2, profits were higher on account of higher investment income and equity gains. We continue to maintain higher solvency ratio of 2.56x as against regulatory requirement of 1.5x in the Kotak Life business. Overall, at the end, we remain cautiously optimistic and focusing on execution of our plan for transforming to scale. With this, I hand over to Shanti for the business update.

Thank you, Devang. As has been stated, the bank's customer assets grew by 15% Y-o-Y, and the average deposits grew 15% Y-o-Y. I'll start with the highlights on the assets, particularly the consumer assets, where growth was primarily led by secured businesses, which grew 4% on a quarter-on-quarter basis. Mortgage business comprising home loans and LAP grew 19% Y-o-Y, with stable property prices and risk metrics holding up well. This continues to be an area of focus for us. Mortgage also helps build a solid long-term relationship with our customers and helps increase the wallet share of our customers, particularly in the affluent segment. Thus, will continue to remain a key focus area. The LAP market continues to be steady. We have always been a strong player in this segment and will focus -- and a continued focus on this going forward. Our secured business banking comprising of small SMEs continue to see good growth at 23% Y-o-Y. Given the festival quarter, utilization was strong. Our portfolio metrics continues to perform well across industry segments and geographies. In this business, we are able to serve the customer across all their financial and nonfinancial needs, business and individuals. We continue to grow in the unsecured business loan segment, which remains stable at the portfolio level. I think the unsecured retail business, both personal loans and cards have flattened. Personal loans at an industry level has degrown, and this is reflected in our business. We had tightened the underwriting norms more than a year ago. And in the last quarter, we have seen better trends on flows and collections, which has been stated. PL is a key offering for our customer segment and we will continue to build this business by managing this through rigorous data analytics and policy measures. In the credit card business, we -- because of the embargo, we could not issue new cards. But we continue to grow our portfolio and monitor it well. We saw stress increase in line with the industry, but we have seen a stabilization of flow and resolution in this quarter. Cards again is a core proposition, and we will grow this business once we come out of embargo. The delinquency trends in both these businesses has been touched upon, and I'm not going to repeat it. Let's move to commercial assets. Commercial vehicles saw a flattish growth of 1% Y-o-Y. The passenger segment continued its positive run for this year, but there was a persistent de-growth in the goods segment. Our new vehicle disbursements were in line with the industry, and we retained our market share. We also continue to grow our huge vehicle financing business, considering that a large part of this business was coming from our existing clients, we have comfort here. The goods segment has been showcasing a weak trend in financial year. This has impacted the overall viability of truck operators and resulted into some increase in delinquency. We have tightened our collections and underwriting in this segment accordingly. I think the overall economic trend does impact this segment, and we hope to see better trends in the next financial year. Construction equipment, the sales have been flat and whatever growth has happened has been led by the earthmoving segment. I think CapEx spending by the government and overall CapEx spending has been slower, which is reflected in the growth trends in this industry. We have grown our disbursements by a modest 13% Y-o-Y, leading in some improvement in our market share. The book remains stable in this segment. Tractor finance. Tractor industry saw a [ 13% ] Y-o-Y growth. We grew our disbursements by 16% and improved our market share in this segment. We continue to remain a key player in this industry with a strong presence in market share. We also continued to grow our used tractor financing business. With a normal monsoon this year, we expect rabi sowing to improve, leading to better cash flows in the rural and semi-urban. This would be critical support to our collection efficiency. Pickup in government infra and rural sector should help this segment. Microcredit degrew 6% in H1 and expected so in H2. This is at an industry level, and our businesses reflected the same. I think the trends on delinquency has been talked about due to various extraneous factors in the first and the second quarter. There has been some structural changes in this sector and in line with industry, we degrew. Our delinquencies continue to show an increase in this segment. We expect this to stabilize over the next 2 quarters as we see the rural economy come back. We pulled back disbursements in certain quarters, and we will watch the industry trends in this, as we craft our long-term strategy for this business. Agri SME, a good quarter given the rally in the busy season. Our portfolio continued to be stable, and we focus on acquiring new customers in this segment. This is a growth area of focus for us. I'll now turn to the wholesale business. Last quarter, corporate plus SME advances grew at 18% Y-o-Y, largely led by the mid-market and the SME segment. The SME advances grew 31% Y-o-Y. Acquisition of new customers has been our main focus area and the customer acquisition has grown significantly on a Y-o-Y basis. The portfolio quality is very stable and we continue to invest in strengthening our customer franchise and deepening our customer base. The mid-market business again grew at a fast pace with NPVs in focus and deepening customer franchise in this segment as well. Amongst the larger corporates, the book showed a more steady growth. However, credit substitutes which depends on market rates of interest, showed a de-grow. Our portfolio metrics in the large corporate remains healthy, but pricing remains very competitive, and we have given up any businesses given the price competitiveness of this business. The transaction banking and flow business has grown significantly, which leads to higher fee and flow income and our trade and supply chain assets grew at a higher rate, driven by granular deals. GIFT City continues to ramp well and advances, particularly trade advances grew at a sharp pace Y-o-Y. Our asset quality across all the wholesale segment continues to be robust. We also saw strong growth in the fee income, FX and debt capital markets, and the debt capital markets continued its momentum in Q3 with marquee deals across sector like retail, infra, hospitality, NBFCs, et cetera. Let me now turn to liabilities. The average deposits for the bank grew at 15%, and our CASA ratio was at 42.3% this quarter. Current account average grew by 12%, which was rated by both customers, custody and IPO flows, while savings grew at 1% on an average. Regarding savings, granular fixed rate savings continued to grow while the affluent clients continue to move funds into higher yield opportunities. Our core proposition of savings with ActivMoney helped us grow our customer deposits. ActivMoney grew by 36% Y-o-Y. And retail TDs across our segments continue to show an increase. We will continue to focus on our key segments of savings growth and balance between savings, ActivMoney and TD in a granular manner to achieve our growth target. Distribution. On the retail side, the focus has been building a granular retail book to focus on affluent and youth across our channels of physical, digital, voice and video. Customer 360 has been the key pillar as we continue to put our best efforts towards providing a seamless customer experience as well as our entire bouquet of products to our affluent, salaried and self-employed customers. Our continued effort to help our customers provide best solutions around consumption, savings, investment, borrow and protect remains the focus. On the wholesale side, garnering higher client share of collections and payments through digital offerings was really the aim and the [ seamless ] throughput increased by 54% Y-o-Y. We have further consolidated our position in the tax payment space with throughput increase -- to increasing 124% Y-o-Y. Overall, both on the assets and liabilities sense, we have seen reasonable growth trends, and we remain focused on growing both the segments that focus on quality, deepening customer franchise, acquiring more customers and focusing on customer experience. I will now request Devang to take it from here.

So I think I hand over to the operator for the Q&A. Thank you.

[Operator Instructions]. We have the first question from the line of Kunal Shah from Citigroup.

Yes. Congratulations for a good set of numbers in such a challenging environment. So firstly, any update with respect to the RBI restriction? You have indicated that there is substantial progress. But if you can just indicate if -- where are we in terms of the audit? Is the report submitted? And maybe how has been the feedback from the regulator, yes, that would be helpful.

Kunal, thank you. Like I said, Kunal, we've been -- sorry, this is Ashok here. Like I've been saying, we are in constant communication with the RBI. We give them constant regular updates. We have constant meetings with them, and we tell them about the progress that we are making. They look at kind of stuff and say, they do their own evaluations on where we are. And I would say the conversations have been helpful, and they've provided us guidance, which I'm very grateful for. And it's been done in good spirit. Kunal, it's very hard to predict at what stage the RBI will say, we're going to lift out of jail. I honestly don't know. So I don't know.

But have we done whatever was required from our end and all the submissions are done? Or how should we look at it, yes?

Yes. Mostly all the work has been done, most of the work has been done. And the submissions also there, we make a whole set of submissions, then they'll come up with some observations. We go back on those observations. So it's not like a one and done thing. And thank God, it's not one and done thing because suppose we have to submit a report, then they came back. And again, we go back, it would have become a iterative kind of cycle. This is like concurrent kind of conversations. So we're spending a lot of time and effort with them and fingers crossed.

Sure. And the second question is on, say, the overall stress. So you indicated some buildup of stress on the commercial vehicle side. But besides that, any other segment that you would be worried about? And PL, we are seeing improved delinquencies. So would we start to push for growth in PL now compared to maybe 10% year-on-year, which has been there? And should that take the overall unsecured proportion ex of MFI?

So we are not seeing stress in any other segment. This quarter, a large part of our growth was driven by our secured assets. And across the secured assets, we are not seeing any signs of stress. It's reasonably stable. As far as personal loans is concerned, we have already growing our disbursements month-on-month. We had to sort of tune down in the initial 4, 5 months because we could not do direct digital journey, but we continue to disburse as far as PL is concerned. Like I mentioned, it's a very core offering in your affluent segment. Based on the underwriting, based on our analytics, et cetera, we will continue to grow the business.

Yes. And Kunal, of course, you know that the Standard Chartered portfolio will come on to the books.

Yes.

This quarter.

Hopefully, this -- definitely in this quarter, hopefully, in the end of the quarter.

The next question is from the line of Chintan from Autonomous.

Can I ask 2 questions, please? One, on your provisioning policy and one on growth. If I start with provisioning policy, could you give us a little bit more detail around that when do you fully write-off a nonperforming loan, especially on the unsecured side? Or do you kind of assume some recovery rate? Color around how you kind of treat customers where they default on one product when they have multiple loan products with you. A little bit of color around that would be helpful. And then I have one more on growth.

Sure. Yes. So we follow aggressive provisioning policy, obviously, as compared to the RBI. And within that also for unsecured asset, it is even more aggressive. So for example, the unsecured book will be provided 100% on a 180-day basis. In terms of the write-off, Kunal -- it is I think -- sorry, Chintan, it is basically, for retail portfolio, while we provide 100%, we do have a lookout period after which we sort of write off. On the secured or more wholesale sort of assets, it is case-to-case business based on merit of the case and the estimated collection amount and the time for recovery.

So a write-off on retail product, 100%, but with a lookout period. So I would say there's some recovery rate assumption there. And then it kind of tapers off of the account is [ canceled or ]...

Yes. For credit card -- for example, for credit cards, we do it at 270 days, right, the write-off. Whereas for other portfolio, we may take some time because we certainly believe that by keeping it, we do see a value of recovery because even after providing after 180 days, in our experience, there is a recovery potential possible. So while the credit card, we elaborated earlier in the call also, it is 270 days. For other businesses, it is case-to-case basis.

Okay. And then on growth, the second question. I'm just trying to think about the current environment. Your kind of current ROEs are at about 2.1% levels. Where can you take incremental market share where the front book ROAs can reflect well on the back book ROAs without taking excessive risk? So is it kind of retail consumer, which is kind of being the main growth driver? But that's kind of slowing down. So I'm wondering if that can sustain the above average growth. Corporate margins look weak, deposit competition refuses to ease. Just trying to understand that. And also, similarly on your subsidiaries, you've had very 2 strong years in capital markets. How should we think about kind of there sequentially?

So to answer the question on ROA, certainly would like the ROA to be about 2%. But you're right. It depends upon the mix of the book and clearly, currently, given the stress in the unsecured book or the retail microcredit, which we spoke about, the higher-yielding assets, we have obviously a slowdown. In addition to that, of course, we have an embargo, so I think it depends upon when the embargo leaves. We certainly believe that personal loan and the credit card is a very, very big, good proposition for us. And once we are permitted, we will be going further growth on those 2 segments for sure. If you look at even today, if you actually -- before the credit cost, my PAT growth is actually 13%. So if -- once we come back to the normalized credit cost or credit cycle, and with -- we also have a focus on -- a lot of focus on noninterest-based income like fee income, distribution income, which adds directly to the P&L, plus as you have seen some benefits of the cost optimization has started flowing in. So I think given the combination of -- in our focus on noninterest fee income, cost optimization, and hopefully, the credit cost sort of tapering off, all of this will add to our ROA, which we believe will [ spur ] further asset mix -- asset mix impact, which it can have.

And Chintan, look, our market share right now are so small, right, that for us, it's not -- we're not trying to grow the market. We're just getting growth of market share. And I really believe that with the kind of stuff that we are putting into place, we will be able to do that and continue to kind of grow in line with what we've always said. We've always said that we will grow our business at about 1.5 to 2x nominal GDP, right? Obviously, you don't want to grow and put a -- put [ the form ] at risk. So we'll continue to grow at that level and keep -- just keep going, right?

The next question is from the line of Mahrukh Adajania from Nuvama.

Congratulations. I have 2 questions. Firstly, that your loan growth has been strong sequentially, which is very good. You've grown in a balanced fashion in most segments. So in that sense, the ban is not impacting your growth, right? It's more about, obviously, banks have to be digital and you need digital for onboarding customers and you need to be up-to-date in tech. But despite the ban, you have achieved a sequential growth, which is materially better than other banks. So would it have been different if the ban would have been lifted or the ban is impacting the overall customer franchise, but not really the loan growth? That's my first question. And my second question is that different banks are at a different stage of asset quality, but most of the channel checks or the macro checks or [indiscernible] funds, give negative indicators only. So are these lagged indicators? Or is it that asset quality going ahead is likely to remain volatile given that these indicators are still emerging or still being seen and therefore, credit cost for the sector will continue to be volatile? So you may have seen lower slippages now. Do you think that your slippages would have peaked or there could always be some other linked sectors of stress? That's my next question.

First of all, thank you very much. Talking about the impact of the ban, Mahrukh, I think that there are certain areas, which really have got impacted, which we've got highlighted before. Clearly, I would have liked to continue to grow our credit card book. Our credit card book has not grown at all. In fact, quarter-on-quarter, it has degrown, and that's not a good place to be. Our stated desire was to have our unsecured book, which is credit cards, P&L, PL as well as microfinance at about 15% of our total assets, and we kind of dropped off to about 10.5% right now, which is obviously -- I wish that had not happened. We -- also, it affected 811, which is another business that's kind of been impacted. And the reason that hurts is that 811 provides tremendous growth in granular deposits, low-cost granular deposits. And obviously, that is very valuable at this time. So definitely, the embargo has hurt, and I'm hoping we get out of the embargo soon, so that we can get back to our rates. And then once we get back to it, we're going to come out -- I believe we're going to come out much stronger on both 811 as well as in other products. And that should be -- that will be fun to actually go back to top of business. On your...

Will the growth trajectory [ fare a ] change? Or it will be just a different mix?

No. See, Mahrukh, definitely, the growth trajectory for cards and P&L will be much higher. Right? And it's not all linked, right? What we have always said is that overall growth, we will try and do at about 1.5 to 2x GDP growth, right? And we will continue to kind of -- and that's the kind of range that we think we'll be able to grow. The mix will, of course, change because right now, credit cards is 0, so obviously, credit cards will contribute to that growth. And linked to that volatility, there's no doubt Mahrukh, there is a volatility in the market. We are very mindful of that. We evaluate that on an ongoing basis. And we tweak and adjust the kind of things which we do in the business, to make sure that we are not kind of caught out. Generally speaking, we are conservative. People accuse us of being overly conservative, but I'd much rather be conservative and maintain this stance of conservatism through what we do. So we are very, very conscious and we will react to the situation. The business is not on autopilot as you can assume, right? All of us as a management team are kind of adjusting what we do on a very regular basis.

Got it. And can I just slip in one more question, please?

Sure, go ahead.

So in the last call, you had mentioned that you wanted to be among the top 4 banks, right, over 5 years. You meant organically or a material inorganic -- I mean, a material acquisition as well?

Mahrukh, what I said was that I want to be within the top 3 private sector banks in the country in terms of profitability and get there over a period of time, call it in the next 5 years, which is like 2030 kind of time frame. I also mentioned there that we will look at opportunities both organically as well as inorganically, right? And if the opportunity makes sense, if the opportunity fits the strategic perspective of what we're trying to do, that's a big pick. After it fits the strategic perspective, we then look and see whether it makes financial sense. And if it ticks on the strategic fit, and it ticks on the financial kind of thing, we will definitely do it. And therefore, we look at every opportunity that comes our way. And then we see whether it makes sense or not.

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

Sir, just 2 questions. One is on slippages again. Is it possible to quantify how much of it would have come from microfinance? And what is the write-off policy on microfinance? So that's the first one. And the second is on [ process ], you've seen a profit drop sequentially. Can you explain what's happening here?

I could not hear properly, but you mentioned slippage breakup, right? So.

Yes, on microfinance and what's the write off [ process.]

Yes, yes. So yes, I think this quarter, the contribution in slippage for this quarter, microfinance does contribute a higher percentage in that sense. But obviously, there is an improvement in some other secured businesses, which is why the slippage for the quarter is lower than the last quarter. And your second question was around KMPL. So KMPL, it's a car finance business where, obviously, the business is facing some margin pressure. And also, it has an MTM on some OIS, which really has been a negative, which is more of accounting sort of hit, which has happened during this quarter, which has resulted in the loss. But having said that, on a pure core business also, it has margin pressure and the delinquencies are higher in the 2-wheeler business. So that's the reason why sequentially it is going down.

Just microfinance -- how much could be -- if you can just quantify how much. Will it be higher? And this because your...

It is higher than the last quarter, yes. As a proportion, it is higher.

Sir, I appreciate that, but in terms of -- if you can get some clarity. And when will the write-offs come? Because the concern is that if it comes in forward quarters, you could see another pickup in credit cost. That's where I'm coming from.

So I think -- see, what we can certainly say that there are 2 parts, right? One is the fresh inflow, which is a slippage thing. And second is the resolution of existing NPA accounts. There are 2 separate things, right? So the slippage, as we said, has come down as an overall number, yes, but the proportion of micro finance is higher there. But if I look at or only micro finance business on a quarter-on-quarter, while slippages are there, it is showing a downward trend in terms of the slippage part of it. However, the real issue, I think, Saurabh, we see existing NPAs in those unsecured businesses where the collection continues to be a challenge on the ground.

Okay. Sir, can I ask one more question or...

Yes, go ahead. Go ahead, Saurabh.

Sir, will there be a case to, at some point, tighten the provisioning policy on these unsecured loans in line with your like the bigger bank peer group? Or that's not something which is right now....

So we anyway provide 50% on 90-day, at 100% on 180 days. So it is far, far more conservative than the IRAC norms or RBI norms, right?

No, no, I was comparing to, let's say, your private banks, bigger private banks' year growth.

So we do not have information...

I mean write-offs at 120 and provision of about 120 and write-offs for that same -- around those lines.

A write-off may reduce the gross NPA, it may not impact the credit cost or slippage is in that sense, right? So I think....

Saurabh, at 90, 50% at 90 and 50% at 180 is a pretty gradual provisioning policy. I don't think there is -- I don't think -- honestly, I don't think there is need to get more aggressive than that. Write-off, frankly, is just an accounting entry. It's a pure accounting entry and we do that. Obviously, it affects the GNPA. But we do that to make sure that there is no pressure of the [ collections ] to continue to push for collection, and that's not the only reason. From a P&L perspective and from a return perspective and stuff like that, it makes absolutely no difference.

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

Just a couple of questions. So just to maybe ask differently on credit costs and slippages. So I think what I understood is MFI, still a bit of a trouble, CC is plateauing, PL is gradually improving, not the recoveries, but whatever it is into NPA, but the new formation of NPLs. So does it mean that the slippages will peak in this year and thereafter into the next year start to improve, considering whatever has been happening in the broader economy?

So I think we will have to see it over next 2, 3 quarters. While yes, this quarter, the slippages has come down. And if you recall in the last call, I had mentioned that essentially, the tractor business and other commercial businesses other than microcredit normally performed well in the second half of the year. So I think we will have to be watchful in terms of slippages going forward. But as we see today, the slippage on personal loan is tapering down. Credit card has played out remaining at the same level. Let's see how -- at what stage it starts coming down, but the microcredit continues to rise. So it will be a question of when will the other sort of taper down and to what extent the microcredit setoff will happen. And again, it's also a question of size of the book. Because if you see the retail microcredit is only INR 8,000 crores as at December, out of our [ INR 4 ] lakh crore book. So I think we will have to be watchful. And that's why I mentioned that I remain cautiously optimistic. So we will have to see these trends over a few more quarters before sort of commenting on this.

Sorry, we also have to look at the broad economy and how things are going, right? Obviously, we are affected by those kinds of things. But as we sit now and where we are, Devang, has kind of summed up how we think about it.

Got it. And credit costs should see a similar trend, therefore, right? So I would reckon that this quarter, a significant part of the credit cost may have come from let's say, write-off of the MFI loans, we know the write-off figures and maybe unsecured, which you have to recognize. So as you get into the next year, all of this would have been recognized as slippages trend further keeping in mind, like you said, Ashok, where we are in the economy, credit cards also should start to taper off. Would that be a fair assumption to make? Is this how you're also thinking about your -- this line item?

Yes. So Rahul, clearly, there is a strong -- clearly there's a direct correlation between slippages and credit costs, no questions about that. So that will kind of hold. I think what we've got to look at and say, is how does the economy kind of move along? And if the economy kind of stabilizes or gets better, then your analysis is absolutely correct. If there is a worsening in the economy or there's a fair amount of volatility in the economy, the question -- and that's what we constantly keep a look out for is to see whether we are seeing any contagion in any other kind of portfolio. As of now, we don't see it. But am I cautious and looking at it on a very, very regular basis? I sure am.

Got it. Very comforting. And on a similar note, any qualitative trends you can share about the early bucket movements, in both the secured and the unsecured portfolio? Secured, I mean, excluding the home loans and the LAP book, if you can just share qualitatively how you're seeing those? Are those stable? Because the environment -- I mean, the different players are sharing different views and different data points as just seeing different trends. So how are you seeing in your portfolio? A qualitative comment would be helpful to us.

So Rahul, like, I think Shanti covered it, right? Shanti look, most of our growth and everything has come from secured. Our secured book, touch wood, is behaving very, very well. We don't anticipate any -- we don't anticipate any issues there. The unsecured book, by definition, is a little more volatile, right? And that will be a function of how the economy kind of shapes up, right? We have talked extensively about PL card, micro finance, I'm not going to repeat myself. And then there are other books like CVC, which we are looking out to see how things go. The good news Rahul is that we are quite diversified. There is no particular segment of loan type that overwhelms the balance sheet. So to that extent, that gives me a slightly greater degree of comfort.

Got it. Just lightly switching gears to the margins. So clearly, the mix has changed over the last 2 quarters, with absence of new CC onboarding and MFI, et cetera, to high-yielding portfolio. So now margins are clearly stabilizing in this quarter, which is great. How should we think about it next year? Because I think some of these components will come back, you will have [ standard ] book also. So shall we assume that margins have bottomed out and next year, they might have the upward bias?

So I think the margin has various components, as you know, the yield on the earning asset and cost of fund. And all of -- both of them have different levers in addition to, of course, the regulatory repo rate change, right? So it's very difficult to comment on that. But yes, you are right. As the share of unsecured business grows, either by lifting of embargo and once we are comfortable with the credit quality, it will obviously add to the yield on the earning asset. As far as cost of fund is concerned, the cut in the SAAR rate is helping us and of course, as the share of current account deposits, which we grew nicely during this quarter continues, then the margins will continue to remain or improve from thereon.

Very helpful. Just one last data keeping question, 2 data points, if you can share. One is the employee count at the bank level. And also in your business banking book, how much is unsecured?

So our headcount, approximately, this is including on roll is close to about 77,000 people as of 31st December. Yes. And business, what you said, sorry?

The business banking, as we presented it there is fully secured.

Yes. Correct.

Okay. Very comforting.

[Operator Instructions] We have the next question from the line of Abhishek M. from HSBC.

Congratulations for the quarter. So the question I have is on this RBI's bank subsidiary norms. How are you positioning the bank and the group to meet that circular? So for example, I mean, if you take the example of real estate, different stages of financing is done in different entities. How would that adjust or be adjusted? Or would you have to do everything in the bank? So just from a business angle, how are you preparing for that circular?

Yes. So Abhishek, the October 4th circular, we've kind of studied it like every other bank. I think -- we have given our comments on what we think makes sense and doesn't make sense. Look, in our case, the level of overlap is actually very, very, very low. There are very few instances where we do the same kind of business in multiple entities. And therefore, in our case, if the circular goes through, exactly as was indicated at the time of issuance, it really will just be about consolidating it into the bank. So that will be a lot of operational matters, but [ won't ] have a dramatic impact on anything else.

I want to add to what Ashok said and what we cannot do in the bank, we cannot do in our subsidiaries. So you talked about different stages of financing in the real estate, we cannot do different stages of financing. What the bank can do the subsidiaries can do. And this changed about 2 years ago. So we do not do any differentiated type of financing in the subsidiaries as far as real estate is concerned.

Okay. And if you don't mind, can I squeeze in just one more question.

Yes. Go ahead.

Go ahead.

So this is on cost of funds specifically. One, can you give the balances on -- in ActivMoney maybe this quarter and the last quarter? And second, if I look at the Q-o-Q movement in cost of funds, there's been 8, 9 bps decline, maybe 4 or 5 out of that is coming due to the SAAR rate cut. But the rest of the drop Q-o-Q, is that because of ActivMoney balances going up a lot? Or is there some other repricing? Or how has the cost of funds really come down sequentially ex of the SAAR rate impact?

Yes. So as you -- yes, so if you can see the [ other update ] where we have the share of current account and the growth in the current account average balance show a 12% growth Y-o-Y actually, right? So on a sequential quarter also, it has grown by 5%, right? So as the noninterest bearing current account share increases in the mix of the cost -- the cost of fund obviously reduces, right? And you're right. We implemented the SAAR rate cut on 17th of October. So the effect of that is also obviously coming in the cost of fund. So these are the reasons for that. And of course, our -- as I mentioned, the growth in ActivMoney continues to be 36% on a Y-o-Y basis, on an average basis. I think it is also obviously a sequence. So I think it also obviously because the rate of interest on the sweep TD is lower than the normal TD, so it is also helping us in lowering the cost of fund.

So how sustainable is this average current account growth? I mean, what are you doing at a business level to keep pushing it up? Or it can be a bit of an aberration and then it subsides. So that's what I'm trying to understand, because this is critical to your cost of funds in NIM.

Sure. So as I mentioned in my speech, I think it is also helped by the IPOs. As you know, we have the large custody business, so it also depends upon the FPI flows coming in. So I think it's very difficult to predict. But I think at the consumer bank level, there is a sustained increased growth happening. The one with the volatile part, obviously, is in the wholesale IPO and the [ consumer ] segment, which depends upon also obviously, the capital market part of it in that.

Yes. There is also a core customer franchise in the wholesale and consumer side. Then there is custody flows, then there is capital market flows. So different quarters gives you different flows. Our aim is really to keep growing the core customer franchise, which is the payments, the collections, both in the home side and in the consumer business banking and current account services, but we did benefit from custody, IPO, and that's a month-to-month change.

Great. Great. And all the best for the next quarter. Please share the ActivMoney balance if you can. Otherwise, it's great.

It's there in the deposits. Yes. If you look at the deposit slide, it is there, Slide #12.

Slide #12.

In the investor [ slides ].

Sorry. Yes, my bad. I will pick it up.

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

Congrats on the quarter. Just a couple of clarifications. Firstly, on slippages, which are down about INR 200-odd crores Q-o-Q. Is it entirely driven by retail, which means that unsecured slippages have still remained as high as last quarter? Or -- I'm a bit confused here.

Piran, so yes, the slippage breakup obviously, as I had mentioned, the slippage is for the secured or the commercial businesses like tractor finance and all that have come down compared to last quarter. But unsecured, as I think we continue to maintain that credit card is sort of remaining stable. Personal loan is tapering down. And retail microcredit is sort of showing a growth. So this is how the composition has changed. So the fall in the secured and commercial businesses compared to last quarter has been coming down.

Got it. Got it. Okay. That's clarified. And secondly, just on fee income, fee income growth, which was stronger last year has been moderating for the last 2 quarters. And now we're barely at 10%. Is this merely a function of, a, lesser credit card spend, b, maybe slower disbursals in personal loans? Or is there more to it?

No. So you're right. This has the impact of the credit card business because obviously, we are not able to do any incremental card business. It also actually got impacted by the referral fee circular, which was there in that sense. And also some of the transaction-related fees, so we had in earlier quarters, some debt capital market transactions. Compared to last quarter, this quarter has been lesser. So these are our deal-based income, which was there. And of course, there is some IPO-related fee income also, which is lower as compared to last quarter. So these are the reasons why the fee income is lower.

The next question is from the line of Suraj Das from Sundaram Mutual Fund.

[ Most of ] my questions have already been answered. Just a follow-up. I think in the commentary, you mentioned that there are signs of sales that are building up in the CV segment. However, if I look at the growth that is now, in fact -- in terms that growth has been this quarter, 4% versus last quarter, 3% on a Q-o-Q basis. So just wanted to know if you can give some color in terms of the segments where you are growing or you are seeing [ an impact of ] synergies and when and where this is repeating. [ And if you are seeing ] what kind of growth or [ if you are seeing some kind of synergies. ] I mean what kind of growth you are seeing in this book from this [ booked ] segment, if you can give some qualitative color that will be great.

So if you look at the CV, there is a CV retail, there is a large fleet operators and you have construction equipment. All of them are bucketed. And if you look at the growth, it's 4% quarter-on-quarter. It is a retail CV where we saw a slight increase in delinquency, which is in accordance with the industry levels where disbursements and the growth are actually slow. And it's the construction equipment and in the larger CVs that we have seen growth.

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

Most of them have been answered. But does this one on Prime, on Kotak Prime, you mentioned there is a pickup in the delinquency whereas on the secured assets of the bank, we are very comfortable. So what is driving this divergence in asset quality?

Yes, yes. So I think I mentioned the delinquency is also in the -- Kotak Prime also does 2-wheeler finance. So then the higher delinquencies in the 2-wheeler financing, which is not obviously done in the bank. So that is where the delinquencies are higher. Yes.

Okay. Okay. Fair enough. And in the last quarter, we had made a comment saying that we expect credit card and microfinance delinquencies to largely be absorbed within 2 quarters, largely. Are we holding onto that sort of guidance?

I think as we mentioned, credit card delinquencies remain flat quarter-on-quarter. And the retail microcredit delinquencies are yet to peak. So that is how we look at it as of now.

So guys, it's already, I guess, 6:30 on a Saturday evening. I'm very conscious of your time. And therefore, I just wanted to say a sincere thank you. Appreciate it. I hope we've got a good sense of the business and the progress that we are making. And I sincerely look forward to catching up with you again. Thank you.

Thank you.

Thank you. Bye-bye. Good evening.

Thank you. On behalf of Kotak Mahindra Bank, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.