RBL Bank Limited (RBLBANK) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen, and thank you for joining us for a discussion on RBL Bank's financial results for the first quarter of FY '21. I am joined on this call by other members of our management team, who, along with me, will address any questions that you all may have later. The last quarter was a mixed bag. On the one hand, COVID infection rates increased across the country, causing partial lockdowns to be reimposed in certain states, and therefore, continuation of uncertainty. On the other hand, as we transitioned from a strict lockdown to various stages of unlocking and easing, we saw an improvement in economic activity begin in May 2020, with a sharp lift in June as the majority of the country went into unlock phase. The economic forecasts point to a contraction FY '20-'21 GDP of anything between the 5% to 8% range. And while the government and RBI have announced a slew of measures, growth, according to us, is expected to come back only in the fourth quarter. As articulated in our last call, the rural economy was the first to see a bounce back. As soon as the process of unlocking began, small businesses started and agriculture related activities witnessed a robust growth. The infection levels, however, continued to remain -- the infection levels continue to remain low and the government stimulus in terms of direct cash transfers and MGNREGA helped. For us, this was quite positive for a rural inclusion and agri business. However, we believe that the overall economic recovery will likely be incremental as labor availability, low demand and location-specific restrictions will constrain businesses from reaching their pre-COVID levels in the near future. As a bank, we, therefore, continue to remain focused on balance sheet in terms of risk mitigation, in terms of capital conservation and in terms of maintaining surplus liquidity. We've had a satisfactory quarter from a profitability perspective. However, as an important prudential measure, we have significantly increased our PCR by over 6% to 70.5% now and have taken additional COVID-related provisions also. At an operational level, of course, our employees continue to work tirelessly despite localized interruptions in some areas caused by the pandemic and have ensured that all our operations are run smoothly and at almost full capacity. I'll now briefly talk about our performance highlights for the quarter. Advances were flat year-on-year and declined 2% sequentially from the previous quarter. The Retail, Wholesale advances mix is now 53%-47%. Our Wholesale business declined 18% year-on-year, 3% sequentially as we continue debulking, derisking and rightsizing our portfolio, in line with our target operating model. Non-Wholesale businesses grew 24% year-on-year. Our total deposits grew 7% sequentially to INR 61,736 crores. Deposit traction has continued to remain strong throughout this quarter, leading to a further increase in our surplus liquidity position, which now stands at INR 13,600 crores at present. Our LCR averaged 164% for the quarter. We expect this to gradually unwind as our risk appetite on lending in Retail and Wholesale segments comes back, hopefully, in the next few quarters. Meanwhile, we are focused on reducing cost of deposits, increasing granularity and that leads to a reduction in cost of deposits by 13 basis points to 6.27% in this quarter. We have recently cut our rates on both term and saving deposits further, and we expect the cost of deposits to come down -- to trend even lower in the coming quarters. CASA deposits grew 18% year-on-year and 8% sequentially. CASA percentage crossed 30% for the first time and was at 30.1% in Q1 '21 as against 25.8% in the same time last year. Revenue growth saw some impact owing to lockdown, et cetera. But despite that, we have grown 6% year-on-year in Q1 '21. NIMs continue to be strong at 4.85% for the quarter. Net interest revenue was INR 1,041 crores, a growth of 27% year-on-year. Other income, of course, declined 31% year-on-year, primarily because of lower credit offtake, conservative risk appetite and reduction in credit card income. Our cost-to-income ratio was 49.8% for the quarter. Costs did have the benefit of a lower variable costs as the retail loan origination was subdued. Moreover, we have also initiated a process of cost rationalization. Our pre-provision operating profit grew 14% year-on-year to INR 690 crores. As a result of the above, and after taking necessary provisions, PAT for the quarter was INR 141 crores. Now to touch upon the moratorium situation as of June 30, 2020. For the bank, the overall book under moratorium is now at 13.7% as of June 30, as against 33% in our last quarterly update. Within this, Wholesale is at 5% as compared to 22% as last reported. In the Wholesale book, we have seen a sharper reduction because of multiple reasons, including the fact that many customers who initially thought they needed it decided against availing morat as well as customers who were given conditional approval at the time deciding against it. The morat at in our non-wholesale business is approximately 30%. In micro banking, as rural markets have increased -- increasingly returned to some semblance of normalcy, we have seen collections improve to an almost 77% level and -- sorry, I'll say that again, we have seen collections improve. So now almost 77% of our customers have started paying their EMIs in July. In credit cards, approximately 11% of our customers, constituting a little under approximately 21% of advances are under morat. We have, again, in this quarter, taken some COVID-related provisions on the retail portfolio, which we will discuss a little later. Coming to asset quality. Our gross NPA was at 3.45% as against 3.62% at the end of the last quarter. So there was a decline. Our net NPA was down to 1.65% as against 2.05% in Q4 FY '20, which means a bigger decline due to higher provisioning along with an increase in PCR. As such, in this quarter, as a strong prudential measure, we raised our PCR by 6.4% to 70.5% as of Q1 2020, which is approximately an amount of INR 250 crores of additional PCR-related provision. We've also taken another INR 240 crores of additional provisions on account of COVID. This is in addition to the INR 110 crore provision we took in fourth quarter 2020. So a total of INR 350 crores of COVID-related provisions have now been taken, which translates to approximately 63 basis points of our advances book. A majority of this provisioning is towards our credit card portfolio, where we have provided for approximately 10% of the credit card book under morat. In our estimate, we are on track to remain within the credit cost guidance we had given earlier for FY '21 and that too of remaining at or within the FY '20 levels. On our capital position, we ended the quarter with a comfortable capital adequacy ratio of 16.35% and with a CET ratio of 15.2%. I will now hand over to Harjeet to talk you through our non-Wholesale businesses in some more detail.

Thank you, sir, and good evening, ladies and gentlemen. I will now give you the highlights for the quarter and the operating results amongst our different businesses in the non-Wholesale segment. In our micro banking business, almost all our branches are open with over 90% staff in attendance and client-centered meetings are happening regularly in areas where there are no restriction on movement. Over 95% of center meetings are now happening in person or on phone. In our business loan segment, we noticed that the MSME businesses in the market was slow to pick up, as expected and mentioned by us in our May call. While the supply chains have opened up, the businesses are facing twin challenges of low demand and disruption in their regular operations because of restrictions. The moratorium has helped the MSME segment the most as it has just deferred their EMIs and elongated their tenor of the loan while not changing the EMI amounts. The recently announced credit guarantee scheme is also enabling these businesses to raise cheap debt in order to kickstart their businesses. We have sanctioned around INR 225 crores of loans and disbursed INR 192 crores under the credit guarantee scheme of the government. All these have been given to good strong businesses that were in good shape before the lockdown and need assistance in the post lockdown scenario. For the individual segment, we have seen some amount of confidence restored though the health scare is still there. Based on our collections feedback, we haven't seen much signs of large-scale job loss in our client segment, but we have observed salary delays or cuts in some instances. However, the sentiment continues to remain cautious amongst this segment with a strong bias for cash preservation on account of the uncertain future. In our credit card segment, we were wary of an increase in the number of customers availing moratorium with the extension of moratorium and lockdown. However, we are happy to report that the moratorium has, in fact, reduced from 24% to 21% by value. Around 11% of our card customers numbers are in moratorium now. 58% of the customers in Morat 1 moved into Morat 2. However, 25% of these have already moved out. Today, 60% of customers in Morat 2 pool are therefore from Morat 1, indicating that there is a lot of churn in customers under moratorium, and hence, not everything is sticky. 70% of this customer base is salaried, same proportion as the portfolio. Further, 95% never had been delinquent in the preceding 6 months. For clarity, let me spell out the definition of moratorium. We define moratorium as balances of customers who have not made a payment to us in June, irrespective whether they opted in for moratorium or not. In fact, from July onwards, we have asked customers to apply specifically for moratorium. Only 38,000 customers applied. However, payment has not been received from about 3.2 lakh customers. For us, that is the moratorium pool and not the 38,000, which is 11% of our customer base. This is the pool which we need to collect from. Let me now talk a little about customer spend. We have seen pickup in spend from May onwards. And for the month of June, spends were at 78% of March levels. July has even been better than June. And as of date, we are at 84% spend as compared to March. However, we are seeing some variations happen, especially in the last 2 weeks, as more and more cities go back into complete or partial lockdown. Let me now talk about the new business origination. We had taken a conscious call not to book any new business for April and May. We started new business in a very, very cautious manner only mid-June. In micro banking, we did not disburse new loans as we wanted to see 1 full month of pure collections to judge the situation on the ground and ability to pay by the clients without any promise of new disbursals, including emergency loans. Since July, we have started disbursing in centers where we are seeing regular collections. We will start increasing our pace of new business in the coming months as we get more comfortable with normalization of economic activity. However, we will wait for moratorium to end and at least a month of collections post that before we open all our acquisition channels. Therefore, we expect normal disbursal run rates only by around December 2020. Needless to say, our credit filters continue to remain extremely conservative, and we are looking at every client in terms of their current cash flows, repayment on their existing dues across finances and a degree of certainty in terms of their future business. Let me now spend a little while on the business performance for quarter 1 FY '21. Advances, as mentioned, for the non-Wholesale business grew by 24% year-on-year with retail lending growing at 25% and DB&FI at 22% year-on-year. The growth is a reflection of the business already done by the end of quarter 4 FY '20. On a sequential basis, the overall advances book degrew between 2.5% to 3% quarter-on-quarter as new businesses were shut for a major part of quarter 1. The yields on the overall non-Wholesale book further increased by 150 basis points year-on-year to 17%, primarily on account of the mix change within the Retail segment. Fee income in quarter 1 FY '21 was down 41% year-on-year for the non-Wholesale asset business, and was lower than quarter 4 FY '20 by INR 180 crores. Cards accounted for dominant part of the reduction in fee income, largely on account of no late payment charges and reduced interchange income on account of lower spends. The processing and annual fees were also down due to negligible new business plus lower EMI loans. The fee income, especially in credit cards, will pick up from September onwards once the moratorium ends. In credit cards, the total portfolio now stands at 2.7 million cards, flat to previous quarter. We took significant steps to bring down risk in our portfolio through limit reductions and blocking cards. We even blocked cards for customers who were in moratorium to cap our exposure to them. Our spend drop was lower than the market average as our customers continue to remain engaged with us and have also seen a bounce back in line with some of the larger players in the market. Our spends per account in June were at INR 7,450 per month as against INR 9,650 in March. The spend per active card was around INR 19,100, almost the same level as quarter 4, which is an encouraging sign. However, we did see a decline in our 30-day active rate, which was at 39% in June as against 53% in March. The active rate drop is on account of cautious spend behavior by some clients in these uncertain times, plus blocking of cards under moratorium. Adjusted for moratorium, we have a drop of around 5% to 6% in terms of active rate. We are seeing these numbers slowly rise every month in terms of the active rate. The collection build out is another thing which we focused on in the last quarter. As mentioned in the last call, we had proactively enhanced the capacity of our collections team by 1.6x in anticipation of the buildup in delinquency buckets once the moratorium ends. In fact, much of the capacity build out was already in place in May as earlier the moratorium was to end by 30th of May. With the extension, the teams have now 3 more months to reduce the stocks till 31st of August. The opening of field collections in June has been a big help. Collection efficiencies have been increasing. In cards, we've also seen on-time payment rates move up to 84% of earlier levels. Success is also visible in moving out customers from moratorium. The collection efficiency has further enhanced through advanced collection scorecard models, digital payment links and interactive voice and chat bots. We have even seen our recovery channels operational in this tough environment and started to produce results on NPA accounts. Our focus this quarter will be to reduce the opening bucket of September post the moratorium by as much as possible in the intervening period when the account DPDs are frozen because of the moratorium. In our micro banking business, the focus has been on branch resumption of operations, ensuring safety of our staff and starting the discipline of center meetings. In June, as we said, we were able to hold almost about 95% of center meetings. While we explained the moratorium and the associated costs to the clients, we noticed the following: Client business activities has started since May, and cash flows were improving with every passing week, households engaged and agricultural activities were seeing cash flows come on account of robust crop and pickup in light agri activities. Majority of the customers did not want to bear the additional interest burden due to moratorium and wanted to start paying. Therefore, despite 100% moratorium offered to our clients, 62% payments were collected against the full June month's demand. We also saw efficiency of collections pick up with every passing week in June, and the same has continued in July as well, with around 77% of the customers making payments. However, here again, in the last 2 weeks, we have seen lockdowns restart in various forms as many states -- as in many states the authority to announce and enforce lockdowns are now at the district levels and some places at the panchayat levels as well. This does cause some disruption in collection activities and these will be closely watched. We're also closely watching the flood situation emerge in Assam and a few districts of West Bengal and Bihar. The positive feedback is that one has not seen any type of mass behavior in terms of nonpayment or call for loan waivers. To sum up, the portfolio performance and business metrics seem to be on the lines of our scenario model build out earlier, and we are confident of coming within our business forecast. We need to continue to watch the growth of the pandemic and the unpredictable nature of lockdown, which have the potential to disrupt any normalcy which we are trying to restore. I will now hand over to Mr. Vishwavir Ahuja for his concluding remarks.

Thank you, Harjeet, for that was very elaborate. Overall, therefore, I want to emphasize on a few key thoughts as we navigate through these uncertain times, the focus of the Board and the management team this year would be to preserve and continue to fortify the balance sheet; ensure that asset quality outcomes in both wholesale and retail stay within guidance that we have provided; focus on granularity on both sides of the balance sheet, as already being evidenced in this quarter; and take the opportunity presented to become sharper on cost and efficiency of delivery; focus on businesses where we believe that we have built scale and invest further capital with resources to acquire a market-leading position over the next few years. And lastly, I want to say that as a management team, we have the experience, gravitas and are capable and determined to ensure a successful outcome for the bank irrespective of the nature of the challenge on hand. I will stop here, and we will open up the call for questions and answers.

[Operator Instructions] We take the first question from the line of Manish Ostwal from Nirmal Bang.

My first question on the -- given the focus on the balance sheet quality preservation, so are we looking to raise the capital also to share through this tough period or we are sufficiently capitalized for the at least 1 to 2 year perspective?

Yes. I think if you -- I think the way I'd like to answer that is that if you look at our current capital position, it is more than adequate. We are maintaining our capital adequacy overall of approximately 16.4% with a CET ratio of 15.2% or 15.3%, which is more, more than adequate. The second thought here is that the way we are continuing to, in fact, manage and remain profitable, we don't -- we are not seeing any possibility of a capital depletion to happen over the next few months or quarters or whatever. I mean, in the sense, throughout this challenging period, we are managing to, as I had suggested even, that our -- even in terms of our total credit cost, they should be within our so-called last year levels. And if we project out, there is no possibility we see of any capital depletion. So in a sense, there's no capital erosion possible. In other words, we'll maintain the more-than-adequate capital position. So that sort of calls into question the need and efficacy of any potential capital raise. The environment being what it is, there is no defensive need to do that, but we'll keep -- we'll look at the environment and see and continue to evaluate that situation.

Right, sir. The second question on the moratorium, so you made a comment -- very detailed comment about the moratorium, the definition of moratorium. So based on your -- when you were just remind yourself from quarter 4 to quarter 1 and assess the moratorium trend, so it is in line with your expectation or anything which is abnormal which you would like to highlight to us?

No, actually, I would say that we are actually positively surprised on both Wholesale and non-Wholesale in terms of the improvement in the moratorium situation. At the time of our last sort of update or presentation in the first week of May, I mean the number, as we have said earlier, was 1/3 of the book and now it is down to 13.5% or 13.7% overall. And on both sides Wholesale and non-Whole it's come down significantly. So on the Wholesale side, we were very confident that things will dramatically improve. And we commented on that previously because a lot of the belt-tightening and derisking and debulking had started 9, 12 months ago because of our last year's situation around a few corporate assets where we are facing stress. So we started moving towards a much tighter operating model 12 months ago, and we have been consistently tightening our risk filters and the overall risk culture in the organization, even beyond its satisfactory nature. So that -- as I said previously also, we walked into this year, fiscal year, on a pretty clean corporate book. So we were confident that we were very well positioned in terms of asset quality on the corporate side. So -- and that is now bearing out even in terms of the morat percentages. So while positively surprised but not so surprised, their on the Wholesale side, things were to improve, and they'd look to have improved. On the Retail side, I think, as Harjeet has amply explained, that the segments in which we are have shown very good improvement, particularly on the inclusion side, agri side and also, I would say, on the cards side, which are our 2 biggest if I may say, business segments on the retail side. So that is an encouraging sign. And while to be cautious, this little bit of disruption of repeat lockdown and all that is of concern. I mean, these things, if they continue to happen again and again, that disruption will cause some level of uncertainty to continue. But I think the overall trends are headed in the right direction.

Next question is from the line of Utsav Mitra from Falcon Edge Capital.

Sir, are there any specific pockets that you are particularly worried about? In the sense, do you see that based on your sense, is this close to the bottom and do we build from here particularly when you look at the ROAs, ROEs? And the question on capital requirement incrementally has already been addressed, but how should we think about the, call it, 1.5, 2 years, probably even a 3-year plan of the original guidance of, call it, 1.5% to 1.6% ROA, call it, 15% to 18% ROE, are we still on track based on what you're seeing currently?

So I'll give you a very practical answer to this. We are not pushing for growth in the next 3, 4, 5, 6 months. The kind of, if I may say, focus on our balance sheet preservation, capital preservation, liquidity preservation that I've talked about, is going to be very much the guiding principles for now. And I don't think as a thoughtful cautious institution, which has to take care of all its stakeholders, we should be thinking otherwise in an environment of remaining uncertainty. And I think the time for that will come and will hopefully come soon. Yes, things -- the virus situation has lasted longer. The peaking is just about happening in Mumbai, Delhi, whereas in other parts of the country it is still increasing. And I don't think we should call an end to it, and we should remain cautious. So in that sense, our hopes of a full revival have got pushed back by 3, 4 months, for sure. And which is why we are saying that perhaps, by and large, that, that kind of growth perspective will come back perhaps closer to December, yes? And that is what all the experts in the country and in the world are also suggesting, yes? Based on the various trends. So no, we are not looking for growth right now. Yes, but we are positioned for growth. And I think that's the way to look at it, that we are extremely well positioned for growth. And as and when -- and we are positioned for growth, and we -- as and when those opportunities start presenting themselves. I think we will be very agile and ready to get off the block just in the way we are positioned, and I think that's the way to look at it. Now to answer the second part of your question. So in simple terms, we see the growth trajectory reviving closer to December of this year and perhaps not earlier. And in fact, in the next quarter, second quarter, we may see a similar flattish to minor down territory. Although in Retail, new business has started happening, and I think Harjeet can elaborate on that. But overall, I would say that, that trajectory will remain where it is. Beyond that, I think once the growth starts reviving, in terms of our overall metrics today, and reaching the so-called benchmark metrics that we have talked about earlier, and you just mentioned, our path to getting there will, in fact, be faster this time around because a lot of improvements have happened in the meantime in terms of our operating and financial ratios. And I think -- so as the growth in the top line start reviving, the more in terms of the -- not so much in terms of just the net interest income, it is more in terms of the other income lines which have been impacted more because of COVID. And once they also start reviving, along with the growth in the top line, then I think with a pretty decent asset quality going into the growth stage, I think, therefore, the provisioning that will be required in the future will come down dramatically and will have a direct impact on not just profitability but also on all our return ratios. So I would say that the path to reaching those benchmarks will be a lot better because of the tightening that has already happened in the meantime. Cost rationalization efforts have also started bearing fruit. So in a sense, we will be a much better organization coming out stronger on the other side to reach those goals and targets.

We take the next question from the line of Amit Kumar Premchandani from UTI Mutual Fund.

Just had a question on the morat number of credit cards. I think Harjeet mentioned that this 24% has moved to 21%, and there has been a churn of around 42% of the morat customers paying, is it right?

That's correct. So 42% of the Morat 1 customers exited and 58% of the Morat 1 pool entered into Morat 2.

So just to -- reading on the numbers, so around INR 25 billion of credit card loan took morat in 1 and of that, around INR 1,000 crores -- INR 1,050 crores have paid. And so basically under INR 1,400 crores, INR 1,500 crores of this INR 2,500 are still to yet to pay, right? Plus then the morat. So of the INR 2,500 crores around INR 1,400 crores are from Morat 1.

So let me just look at it this way. If I look at the pool today, which is around INR 2,200-odd crores, 60% of that, so about INR 1,200-odd crores is -- roughly is from Morat 1, but they either are from April or from May.

Sure. So this INR 13 billion of pools which are taking 2 morats, how viable is taking a morats for these kind of customers? And hence, what can be the credit cost estimate for these kind of customers who are taking 6-month morats for a loan product which is anywhere between 20% to 40% rate?

Yes. So understand that the outstandings here are fairly low. We're talking about average outstanding in the region of about INR 30,000, INR 40,000. And therefore, the interest burdens are not prohibitive from that point of view. While from an interest rate perspective, they look, but in actual rupees, they're not. Having said that, majority of the losses which will come will come from this pool because what is left is able to service are unlikely to go bad for the rest of the year. And therefore, when we have said that credit cards could actually see a credit cost increase by almost about 70-odd percent over its normal 5% levels, this is the pool which will result in that. The only good thing or silver lining which we are seeing is that if I would have said that 85%, 90% of my Morat 2 pool consists of Morat 1 customers, then I should be worried because that's a very sticky pool. That is not the case here. Even when I said 58% entered Morat 2, in July itself 25% of them are paid. So you are seeing people come out and go in and come out, and therefore, the churn is there. But the reality is that, yes, we will see a credit cost increase, and that will come from the morat pool itself.

And just to clarify, you said 38,000-odd people have actually taken morat as compared to who are not and you have taken morat pool. While -- if you look at a listed player with 100% card business, for that player, the morat number went down quite sharply. So why is this divergence between your number and to someone else number?

I think it's a question of how you define morat. If I was to define morat as saying that people who've opted for it, then my morat number in terms of number of customers would be 38,000 out over 2.7 million customer base, which would be maybe 1.5% to 2%. The way we define morat is people who have not paid and on which you have to collect. And that is the reason why I said that -- I gave the definition, at least from our point of view, to clarify what the morat is. Now different players will use different definitions, but we wanted to be clear as to what are we seeing.

In terms of value, this 38,000 customers would be?

Proportionately the same. See, the average ticket sizes don't vary yet. This is a card product. So they're all same.

Okay. And the overall morat number is 21% by bank interest side, right?

That is correct.

Because that is in the call, 13.5% was mentioned somewhere.

No, no. That is for the aggregate book of the bank.

Bank morat number is 13.7% by value.

By value?

Yes.

Okay. Okay. So there was some confusion about whether it's 21% by value and 21%, 32% is just for the credit card number.

21% is specifically for credit cards.

Excuse me, can I clarify, 13.75% -- 13.7% for the bank as a whole. Dying down from 33%. That's one parameter. Within that, wholesale 22% down to 5% and cards 24% down to 21%. Clear?

And sir, just on the MFI number, how do you classify morat under micro finance now?

Customers who start paying their EMIs are out of morat. Customers who have not paid their EMI are in morat. So customers in June who have paid their EMIs will be out and customers who have not paid their EMIs will be -- continue to be in morat.

And what is the morat number for micro finance?

So micro finance, when we said in June, it was about 35%. These are customers who have not paid. When we said in July, we've seen 77% of the customers paid -- pay their EMIs and hence, 100 minus 77 is what would be the morat number if I was to, let's say, calculate for July.

And this is opt-in or opt-out?

No, there is no question of opt-in here. So we don't follow a principle of opt-in and therefore, classifying morat. See, in micro finance, you go, meet customers, you explain the morat. There are customers who come and pay you an installment, which means they are opting out of the morat and customers who don't pay you continue to be treated as opt-in, irrespective whether they've given a request to you or the request is simply in the form of not paying.

Also, I think we want to emphasize this fact a little bit, that this is the most conservative view that should be taken, okay? I mean, we are not pointing fingers at anybody else. We are saying this is the most conservative view that should be taken. We don't -- we are not going by this opt-in, opt-out structure. As far as micro finance is concerned, we gave them morat to 100% previously. It is those who have voluntarily come forward and paid are the ones that are out of morat. Those whether opt-in or not opt-in, those who have not paid automatically get treated from our point of view as morat, which is why we are more confident about this number improving steadily and not necessarily becoming the so-called bad asset, which is a natural implication, largely because we are not using that opt-in definition. If we were to reduce -- use opt-in definition, the numbers would go down dramatically on our morat, and we don't want to, therefore, mislead anybody by using that kind of assessment of the situation. I hope we are amply clear about this.

We take the next question from the line of Manish Karwa from Axis Capital.

So my question is also on credit card. So Harjeet, you mentioned that of the morat pool, almost 40% or 45% of the customers are actually new customers. Isn't it a bit worrying that even after 4 months of recovery, I guess, we may have seen a much lower new number coming in, but still, the numbers which are coming in for morat is fairly high or people who are not paying is fairly high?

Yes. So I think Manish what you have to keep in mind is credit card is a product where you bill a customer. Customers pay you on due debt because there is always a threat of a late payment fee which is levied. When the threat of late payment fees goes away, customers tend to miss their due date. And therefore, when they miss their due date, they come into morat. And then when the card gets blocked, they come back and pay again. That is why you're seeing a big churn happen and you are not seeing sticky customers who just continue to remain in morat.

Very good.

That is the main reason why you will see this. So I'm not worried about people suddenly in the month of June or July come in on morat because I know that they will also exit morat very easily. So if you look at it with every -- if today, I say that in my total morat pool, 60% are customers from Morat 1, which means the others are coming and going very fast. And therefore, I'm not that worried about that. But yes, you will have a situation till you don't levy the usual threat of late fee, customers today, I mean, will pay as and when they remember to pay.

Okay. So basically, what you're saying is these are the customers who are just simply choosing not to pay, we are classifying them as morat. And when we go out and engage with them, or you apply some fees or something, they may come back and pay something.

We don't apply a fee. See what happens is they missed their due date. After the grace period, the card gets blocked. The customer is intimated since you missed your card is blocked. Therefore, a lot of those customers then come back and make a payment, and therefore, the card gets opened again. Now in this period, when they don't make a payment, it gets counted as morat. But when I give you a morat number, let's say, 22% -- 21%, I'm basically saying is, at the end of June, 21% of balances were not paid, which means from these 11% customers, I did not receive a payment in the month of June.

Okay. Okay. And how are you defining active customers? Guys who are in morat are no longer active customers is that…

No, no, no. People who transacted in the last 30 days are active. So a customer in morat, since the card is blocked cannot transact, and therefore, they're not. That's why I said, adjusted for morat, we are only about 5%, 6% down in terms of active rate. But people who are active are now spending as much as what they were spending in quarter 4.

Okay. And just to read from the first morat, 54% of people are in Morat 2. So if the first morat was, say, 24% and 54% of that is say 12%, 13%, those guys have not paid at all over the last 4, 5 months?

That is right.

And you will bucket that as some sort of a high-risk customer or you think that they can…

No. So they're already bucketed as high risk. Field collections are going, but understand that we cannot use the usual intensity till the moratorium is on because that's the -- I mean, that's the regulatory guidance which has been given that till that period of time, while we go educate them, we'll speak to them, we try and coax them and show them the costs associated with moratorium. But if they choose not to pay, that's their right. Therefore, once the moratorium ends, these will automatically -- the intensity on these customers will increase because they are the ones which are the most risky, the way we see it amongst all the moratorium customers.

And as you are saying, some part of that customer base will probably become NPAs, most likely in the December quarter.

That is right. Actually, you will see more in the quarter after that, which is the Jan to March quarter because even if they make 1 payment in between, they will not become an NPA.

Okay. And just a small question on the staff cost. In this quarter, that number has actually gone up. Any one-off there? Ideally, I think for every bank, we're seeing that number either remaining flat or declining.

So Manish, Jaideep here. We start the year with some sort of provisioning on bonuses and gratuity and other costs which are more provisioning oriented rather than actual costs where we typically start with being conservative in the beginning of the year. So that is the primary reason, plus, of course, certain hires which were done in March. We are a growing bank. We have expanded our branches. So all of those additions have also come in. People have joined. We are happy to kind of take people in morat as we have committed, and that is also added to it. So a number of people today are higher than what were there in the last quarter.

So we should assume this is a run rate as and this kind of a number will continue?

Yes. Yes.

Okay. And other OpEx, I believe, it's purely because of lack of activity. And as activity picks up, this number also starts going up, right? The other operating expenses?

Yes. So substantially, the reduction on other OpEx is actually -- from a variable standpoint is more than what you see in the final outcome because there will be some incremental increase also. So the variable, new business oriented, especially Retail, is down by more than INR 100 crores, but there is some compensating general increases also. But yes, that will come back as and when business origination happens at some pace.

We take the next question from the line of Nishant Shah from Macquarie.

A few more questions on credit cards and some of my questions are queries. A payment for credit card is defined as it is that anything above the minimum 5% that requires to be paid, right? So if I have a revolver balance of, say, whatever X, Y, Z INR 30,000. 5% of that, if I pay. I'm out of morat. I'm now able to transact using my card. Is that correct?

That's correct.

Right. So for the cards that are under morat, you don't necessarily ask them to clear the entire balance for them to be able to start using their cards again?

Look at it this way. When you take a loan, your EMI is 5% of the loan amount, right? That is what you demand and that is what you pay. As a credit card, I demand only 5%. It is a choice of the customer if he wants to pay the full amount or anywhere in between. So contractually, he's supposed to finish the minimum amount due which is what I'm asking for.

Even in normal times.

Yes, even in normal times. And that is there. So if the customer continues to pay me, even if it is a minimum amount due, he's out of morat -- 5%. So we -- a lot many times, a lot of us get confused with this 5%. A normal loan EMI payment is also 5%.

Yes. Yes, got that. Perfect. Second question, on Slide 39, you've given advances breakup of your credit cards for the month of April, May and June, surprised that the mix has not really changed quite materially. Like -- ideally, I would have thought that the transactor balances would have gone down by a little bit more and the perhaps like a disproportionate kind of an increase in the revolver and the term balances because your spends will go down and transactors go down first. It's not as intense of a drop as you would have expected. There's still a 7% kind of mixed growth. Could you explain probably why that is? Like why is like a month-on-month between 4Q and the month of April, the increase only about 600 basis points on the revolver pool.

See, 2 things happened. One is that the spends themselves are depressed. So when the spends are depressed, the number of customers who normally would revolve would go down. And therefore, what you are seeing here is on account of the moratorium because the moratorium customer is, therefore, accruing interest and is being treated as a revolve balance. But look at 2 things. One, the number of active customers have gone down. And hence, that's also, therefore, bringing down the revolved balances and the spend itself has gone down. So that's the mix, which is at play. But if you look at it, I mean, to me, 31% of our revolve balance, let's say, in Q4, went up to 37% and then came down to 34% in June, that is when the moratorium also came down. So it's a direct correlation to the moratorium which is happening.

Correct. Okay. Fair enough. Makes sense. And just in general on, say, for example, micro finance, these are very separate question. When you classify someone out of morat, you are including that month's billing or are you including the backlog as well? Like if someone is not paid for the month of April, May and June, do they have to clear the entire balance or just the month of June and the remaining is just adjusted in the principal amount outstanding?

So understand that if a customer, let's say, taken morat, the EMIs are no longer due. The EMIs have been pushed forward by that period. So if a customer pays voluntarily, it goes and gets applied to the first due which was there, which is, let's say, in this case, April. Okay? As long as the customer begins the cycle of payment, we take them out of morat because they are now paying, but the EMI dues are still later. The EMIs are still not due. So if a customer pays me back in July, okay, the EMI is due 3 months hence. I'm going to apply that to -- if it's already the June month EMI applied to April, the July month EMI which is paid will get applied to May.

Perfect. Got it. And just one last question. What is the component of corporate spends in your total spends?

Nothing.

0. So it's 100% Retail?

Yes.

We take the next question from the line of M.B. Mahesh from Kotak Securities.

I have 3 questions from my side. One, have you -- when you indicated that the customers who are in moratorium have seen, you kind of classified it under the revolver?

Yes. So I don't classify moratorium customers as a revolver, but when you split your book, customers who are paying you interest on a non-term book automatically become revolvers. And therefore, a moratorium customer who is therefore accruing interest will become -- will be treated as a revolving balance.

Sorry, I didn't get it. So for example, if I go to that slide, in Slide 39. 31% has gone to 37% for the month of -- from March to April. And our moratorium book was about 22% by value. Just trying to just kind of figure out what has happened here. That's just the first question. And just to kind of extend this discussion, this 22%, where has it come mostly? Has it come from the term side or has it come from the transaction?

Yes. So the 22% will have a mix of -- first understand what 22% balance is will have a mix of revolvers and transactors -- sorry, revolvers and term, right? A customer has both term and revolving balances?

Yes.

Okay. So that split roughly is 65-35, 65% revolving balances, 35% term balances. Okay. Now your second question was?

This is more or less like answered the part of. Just to extend this question. If the customer was in revolve, how do you kind of step into the portfolio and said look, why don't you just kind of move it into a term book as well? When I look at repayments, you're doing roughly about INR 1,600-odd crores of every month. Would you include a transaction from a revolve to term as a repayment as well?

No, no, no. We'll not include it as a repayment. That will -- but we do offer what we call as balance transfers to customers who may want to convert their entire outstanding into a lower rate term loan. That is offered, yes.

That's not repayment.

That's not repayment.

It's not a repayment?

No.

Okay. Perfect. And one clarification, just finish up on the card. The trends that we've seen today of customers, how are they across customer segments? Have you seen -- one of the challenges that one has is that it can't can be issued both at all signs of the population. Where has the spend picked up for you? Do you think it's a risky spend or a less risky spend?

Yes. So if I can just take you to Slide 43, okay, we've classified spends into daily spends, discretionary spends and travel and cash. Okay. And roughly, let's say, March mix, we've given you 78% were daily spend, 17% were discretionary and 5% for travel and cash. Okay, now in the recovery phase, which is, let's say, July first half, in terms of 85% of that value spends are back, 93% of the discretionary spends are back. What are still not back, travel and cash is not back, which is understandable. I think the ones which need to still pick up are areas like fuel, cabs, dining, food delivery. These are still not at the levels which they were before, and those are the ones which need to come back a little more.

Sorry, Harjeet. My question was the other way around. The customers who spent it, how is the quality of the customers who are spending it?

See, the customers who are spending it -- look at it this way. There are no morat customers in this. So the balance customers are, in any case, the good quality customers which are not seeing any stress and they are the ones who are spending less. So in any case, the customers are spending less are good customers.

Okay. Sorry, just, just one last question from my side. This is, I think, on the deposit side. Just wanted to understand, you've done a very good job on kind of -- this kind of addressing that the key concern which was sitting in the month of March. If you could just kind of broadly give us some color, this deposit mobilization that you're doing today on the retail and also to some extent on the wholesale side. How was the duration of the book of those deposits looking like as compared to where we were probably a few months back? And how sticky are these deposits that you are able to originate today? That would be all.

I'll start. You can continue. Yes. I'll try to start answering that and then Surinder can chip in. First of all, on 2 fronts, there has been positive movement. One is that the bulk deposits which are also relatively higher cost deposits have been -- we have been working on bringing them down. And the more granular retail stuff, we have been working on increasing that. And in that endeavor, we have seen very good traction, very positive traction, which is a very, very good sign. And that is why stuff like CASA in both absolute percentage terms, et cetera, is going up. So that's the first, if I may say, trend, which is a very positive trend. The second is that more and more people are coming forward now on their own despite some of the rates that we brought down and that deposit traction is continuing even at lower rates. So we -- our second attempt was to first reduce the bulky ones and also the second trend was to see whether at even lower rates that percentage of growth can be sustained, and that also is happening. So both are positive signs from that point of view. What is the third part of his question?

Duration.

Duration?

Stickiness.

Stickiness. So that duration is also headed in the right direction. Am I right, Surinder?

So Mahesh, basically, we've accreted almost entire increase at a net level Q1 over Q4 through retail. And typically, retail comes in the 2-year to 3-year bucket, which is where we are -- we've been offering our, let's say, the peak rate. So in that sense, June 30 or March 31, we increased duration of deposits.

And as compared to where you were probably a few months back, is this back to those levels?

Better.

Yes, yes, yes, absolutely. Absolutely, so…

Mahesh, I could give you some more color for the retail book, in particular, we have improved both on the granularity side vis-à-vis say last June or last December as well as the tenure side.

So Mahesh, I mean, just to add, I don't think -- we are resisting clearly the temptation of going short on -- to reduce the cost of funds.

No, the question was actually just to see the stickiness of the deposit actually. So I don't think the margins is an intrusive, which is kind of looking at the stickiness of the deposits.

So no, on many other parameters. First, like Jaideep also mentioned, the tenures went up. We are getting now 85% of our deposits on the retail side, which are about 1 year. On the granularity side, our less than INR 5 crores deposits has gone up to 66% on the retail side, which is about 60-odd percent last June. The same trend is visible on the CASA side as well. So -- and if you look at the individual entity, which has been clearly the stickiest segment, so to say, even that has gone up significantly as an entry proportion to the overall mix. On the Retail side, we have now started garnering about INR 30 crores, INR 35 crores a day on our branch network, which is absolutely Retail, Retail deposits. I mean, it's less than INR 10 lakhs, for example. That's the kind of granular deposits that we've gone down to.

Which is higher than ever before.

Yes. So concerted efforts on making sure that the retail proportion to the overall business goes up, cost of deposits come down and tenure goes up as well. And given the fact that we added a few branches last year, about 60-odd which are fully operational now and another 20 of which are almost ready which will get operational now, this proportion is only going to improve from here.

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

Sir, real estate book, what will be the moratorium? And secondly on the book, how much standard asset provisions do you have now?

See, of the real estate portfolio, it's about 0.7% high quality. So not all the overall book is 0.7% on the real estate morat.

Sorry, what was your second question?

Real estate moratorium as a percentage?

Of the wholesale advances is 0.7%. And these are good mix, not preserving liquidity.

Okay. Okay. And secondly, sir, on the standard assets?

Sorry. So what is the question on standard assets?

Total standard asset provisioning on the book, including this 63 basis points. I mean -- so I'm just the 63 basis points is part of just standard asset, right, the COVID-19 provisioning.

Yes. That should be about 100 basis points.

Yes, correct. It's about 100 basis points will be.

About 85.

100 basis points.

Yes, sorry, about 100 basis points. Yes. Total standard assets, yes.

Next question is from the line of Chirag Sureka from DSP Mutual Fund.

Just 2 quick questions. On the micro finance you said 23% are in moratorium, but 95% of this, we think are happy. So what does the player get from those customers? Are they just having a strategy that flow is they'll come back and so some color on how you think the next few months is going to be the question number one? And question number two is on the deposit the previous stickiness. The customers have moved to you, where did they move from? I mean, is it like new salary accounts or it is probably more sticky than, let's say, somebody moving in for higher rates and then later when the market another so the somewhere else. So stickiness component and if you could that would be helpful.

So I'll start with the micro finance one. I think the -- you have to understand that while technically rural areas do not have infections, you still have restrictions in terms of holding large center meetings in rural areas, which is where the most of the discussion typically happens. So sometimes in some of these meetings you contact the center leaders center leader, therefore, gets in touch with all the other members and she, therefore, then collects from them and gives it back to your loan officer who goes and does that. Our feedback, as I said, was that the business has started. So I don't think there is much which is happening there. Also, customers have understood that they have morat. But because of the interest issue, they want to start reaping early. Some of them are also paying in installments. So for example, they may not pay their full EMI at one go, but during the month in 2 odd installments they would pay their EMI. So that's the flavor which one is seeing. There are some markets, especially in Assam, and West Bengal, some districts, which were -- Assam because of floods, West Bengal because of the Amphan piece which happened and a few districts in Bihar now which are again impacted by the floods, is where while the center meeting and the contact is happening, yet collections has taken a little bit of a pause, which will start, again, once the floodwater recedes. But people seem to have the money.

On the deposit side, there were 2, 3 points that I want to mention first. As a general routine business has, in the months of June and July, almost returned to us opening out on the physical side about 80% of the accounts that we were opening earlier. But on the digital side, we've actually ramped up significantly from our last quarter business. So we should do about 100, 150 accounts a day on the digital side and we now go up to 450, 500 per day. And all of these digital accounts, because that's how we are able are essentially individuals. So clearly, there is a significant shift happening in the entity mix that we are generating now. That's point number one. Point number two is the stickiness, as you mentioned, really comes from the fact that we're not only just opening an account of an individual making sure that at the same time, you're doing multiple other products and channel engagement with the client as well. So we are a very focused effort around product holding and channel engagement. And we don't look at every customer only as a customer in the first place. We don't only sell everything. We first sell CASA account and then start to open FDs. Point number three is that when we say that if deposits have come back, all the time deposit accretion that's happened in the last 3 months has essentially come from CASA customers essentially. So the same customer has increased his wallet size with us. And a retail customer, we're talking about very small values. It's going to help on the deposit side, and it's also helps on the CASA side in the long run as well. So that has been our focus. On the new acquisition side, we've had a very long-term strategy around making sure that we looked at customers, the salaried customers and high net worth individuals around our geography catchments. And I think that clearly continues to be one of our biggest strategies, and our customers are really coming in from almost all the lines. But clearly, that mix has not changed, but our penetration and productivity with our branches and our people going up has improved drastically. So the mix is good and same as earlier. The number has come back, and now we're selling more within the same customer base as well.

Okay. So what you're saying is have it become the transacting account stickiness increases, and that's what we are doing and crossing a lot of things from the account, and that's what we're doing?

Absolutely right. And one another indicator as a very small one. Our mobile banking penetrations have gone up by about 70% since last year. Our FD unique penetration has gone up by about 2 percentage basis points on the overall base. And that's like really changing the way the stickiness is improving.

We take the last question from the line of Saurabh Dhole from Trivantage Capital.

I have 2 questions. The first one is, could I have the number of cards that you may have blocked and which are out of your moratorium period out of the moratorium book?

Cards blocked out of the moratorium, that would not be a very large number. We have reduced limits, but blocking would be for customers who have not paid.

Okay. And reduced limits would be for what proportion of that portfolio, unblocks in the portfolio?

If I was to see the reduction in limits is something we've been doing for the last 2, 3 quarters. All now put together, this will be close to about 150,000 to 200,000 customers over the last, let's say, 3 quarters.

Okay. Okay. Okay. And sir, on the -- on -- the second question was on the MFI business. If I remember correctly, you said that during the months of April and May, you did not make even any top-up loans, is that right?

Even in the month of June, we did not make any top-up loans.

Yes. So actually, when we were listening to a few other players, they said that because the segment is so vulnerable, they were selectively giving top-up loan. So I'm a little curious to know as to what risk do you have by not giving top-up loans to this segment because you are losing those customers, right?

No. So the way it happens is, look, we wanted to, therefore, get a good insight into which customer is paying you because they have enough cash flows and they would do it and not get influenced by the fact that there is a top-up loan which is coming. So therefore, let me just pay 1 installment and then I'll get my top-up loan. It's ultimately a top-up loan -- the installment which the customer is paying is only a fraction on the top-up loan which the customer is getting. So we consciously took a call that at least for the month of June we will wait out and see how many customers start paying and show intention to pay. And therefore, now we will start doing or have already started doing disbursals, both top-up and renewals. And in some markets, even new businesses in the micro finance space. So it is still 30% of our normal run rate.

Well, we will now conclude the Q&A session. If you have any further questions, please contact RBL Bank limited via e-mail at [email protected]. I repeat the e-mail ID, [email protected]. On behalf of RBL Bank Limited, we thank you for joining us this evening. You may now disconnect your lines. Thank you.