RBL Bank Limited (RBLBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the RBL Bank Limited Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Vishwavir Ahuja, Managing Director and CEO of RBL Bank Limited. Thank you, and over to you, Mr. Ahuja.

Thank you. Good evening, ladies and gentlemen, and thank you for joining us for a discussion on RBL Bank's financial results for the third quarter of FY '21. I hope you and your families are safe in these times. I'm joined on this call by my other colleagues who, along with me, will address any questions that you all may have. On the macro front, it's good to see high-frequency indicators, forecasting a sharper recovery of GDP growth in FY '22 and lower-than-expected contraction in FY '21, helped possibly by growth in the fourth quarter of this year. The key monitorable all of us will be watching for as we go along this calendar year would be the success of the vaccination efforts in our country. On the business front, we continue to see uptick in certain segments. Within our various businesses, the wholesale banking book demonstrated good stability and continuous improvement. And the credit cards portfolio has also behaved according to expectations. However, the challenges in credit costs associated with respect to retail business loans in the MSME segment, and to some extent, in micro banking have been somewhat higher. To elaborate a bit, in wholesale banking, we are now satisfied with the stability and quality of the book, giving us confidence to start growing again in a prudent manner. On credit cards, we have bounced back well and new business traction is at pre-COVID levels. On micro banking, while the industry at large and our bank has seen challenges in certain geographies, the rest of the book is shaping well. While we remain cautious, we do expect normalcy to settle in the next quarter or so. Retail business loans to the MSME segment was most impacted by the pandemic, relatively speaking. We have taken all measures to cushion its impact, and new business has been deliberately slowed down until the economy picks up and trends in this business segment improve. What has been most heartening has been the great improvement in our deposit franchise since March, and that trend has continued in this quarter also. Granular deposit traction is strong and better than pre-COVID levels. The branch and the people expansion that we did in this business over the last 18 months is clearly bearing fruit. I'll now briefly start commenting on the performance parameters for this quarter. Total deposits grew 4% sequentially to INR 67,184 crores. Retail, NCR deposit, in fact, grew 10% quarter-on-quarter and 24% year-on-year, to INR 24,413 crores. This is now 36.3% of total deposits as compared to 31.4% in December '19. Similarly, liquidity position continues to be strong with our overall liquidity coverage ratio at 164% for the quarter. Cost of deposits for the quarter was 5.71%, 27 basis points lower Q-on-Q and 100 basis points lower year-on-year. CASA deposits growth was also strong at 24% year-on-year and 4% sequentially. CASA percentage was at 31.1% in third quarter '21 as against 26.8% same time last year. In fact, incremental growth in savings from our branches has been 2.5x higher for the 9 months of this financial year as compared to last year. Similarly, customer acquisition, both through physical and digital channels is 2x year-on-year. Debit card spends have increased 30% quarter-on-quarter. Insurance business is up 22% year-on-year in a COVID affected year. In terms of advances, retail advances grew 16% year-on-year and 2% sequentially, whereas wholesale advances were almost flat to last year -- to last quarter. The retail wholesale mix -- advances mix now stands at 58:42, retail 58, wholesale 42. Year-on-year, in this quarter, revenue growth was 6%. NII degrew 2%, and other income was up 19%. NII and other income was impacted by interest and fee reversals in Q2 and Q3 on the pro forma slippages as was planned and stated in our last quarterly call. As a result of this, and NIMs were subdued at 4.19% for the quarter. Over the next few months, NIMs and other income trajectory should start to reflect our pre-COVID run rates. Our pre-provision operating profit was at an all-time high of INR 805 crores, up 12% year-on-year and 12% sequentially. As a result of the above and after taking necessary provisions, the profit after tax for the quarter was INR 147 crores, 110% over the same quarter last year. On asset quality, reported slippages this quarter were nil. Our gross NPA reported was 1.84% compared to 3.33% last year. And net NPA was 0.71% compared to 2.07% last year. Our reported PCR, including write-offs, was 86.4% against 74.8% at the end of last quarter and 58.6% same time last year. However, on a pro forma basis, pending the Supreme Court's final decision, slippages for the quarter, 90 days plus DPD would be INR 1,470 crores, on which we have taken full NPA equivalent provisioning. Again, on a pro forma basis, our GNPA would have been 4.57%, and our net NPA, 2.37%. As per expectation, bulk of the slippages, approximately INR 1,300 crores out of the INR 1,470 crores are on account of retail businesses. Total restructuring so far has been approximately INR 550 crores for the bank, again, primarily in retail. The final restructuring book for the bank as a whole is expected to be within 1.5% of advances by the end of this financial year. Distribution network. We ended the quarter with 403 bank branches, 398 last quarter, up 5 branches, 1,344 BC branches, 1,219 in September and 412 ATMs, 402 in September, and we expect to add 70 to 80 branches more in this year -- in this calendar year. On our capital position, we ended the quarter with a capital adequacy ratio at 17.9% and with a CET1 of 17.1%. I will now hand over to Harjeet to talk you through some details on the retail businesses.

Thank you, sir, and good evening, ladies and gentlemen. I will now give you the highlights for the quarter and market trends as seen by us in the retail segments. Let me begin by talking about the credit card business. The new card business growth is now back to pre-COVID levels. We are now at a new card issuance run rate of around 1.2 lakhs plus per month. Our market share, thereby has increased to 4.8%, up 40 basis points year-on-year. We also saw our card spends cross pre-COVID levels. The spend growth for the quarter registered a growth of 23% quarter-on-quarter and 4% year-on-year. Here again, we have shown a 40 basis point gain in market share year-on-year. The per card spends were at INR 10,400 per month. While the active rate improved over previous quarter to 49%, it is still below the pre-COVID levels. This is on account of the bulge in the delinquent pool, where cards are locked for spends. Once this washes out, the active rate should revert back to normal. The spend per active card, however, is better than pre-COVID levels at INR 21,173 despite the travel and hotel spend category being much weaker. We are still operating with a stringent credit acceptance criteria and will do so for at least a few more months till the bureau starts showing 4 to 6 months data post moratorium. A little on the portfolio quality of the cards book. We had previously indicated credit costs of approximately 10% for the year. While we are tracking to that number for the year, for the 9 months FY '21, the credit costs are around 7.4%. The pro forma GNPA is at 5.7%, expected to remain stable for the remainder of the year, assuming charge-off of the pool, which reaches 180 DPD as per our write-off policy. Thereafter, we expect the GNPAs to start coming down. In addition, we restructured around 4% of our book across 53,000 customers, bulk of which happened in November and December. If we look at other portfolio parameters, we see that the entry rate into delinquency, equivalent to a bounce rate in loans is slightly better than pre-COVID levels. And the collection efficiencies are also back to pre-COVID levels. This indicates that the strength is confined now to the identified stress book that is flowing through and would get written off over the next 2 quarters, post which we would return to normalized GNPA and annualized credit cost in the range of 5% to 5.5%. Now let me move to the micro finance segment. In our last call in October 2020, we had mentioned that while the market has started showing signs of normalcies, we were seeing stress in Assam, West Bengal, Punjab and pockets of Maharashtra. Therefore, new business originations were being done in a cautious manner and focus was more on collections and engagement with the customer. Our collection efficiency today is stable at 92%. However, we did not see any material improvement in the stressed pockets I had talked about. Hence, focus on collection continues and the new disbursements are being undertaken in a conservative manner, largely to existing customers or in areas where collection efficiencies are good. On the ground, we have seen a trend where some customers have been erratic in paying their EMIs. They pay for a couple of months and then skip a month and then again pay for the next month. This is quite unlike the typical repayment behavior seen in micro finance. It basically indicates that while customers have an intention to pay, however, their business activity levels are not yet back to normal. In the initial months, they started off early, resuming their payments despite the moratorium, but their activity levels got somewhat hit later as infection levels and sporadic lockdown restrictions hit these geographies from August onwards. Also, this has been more pronounced in areas which were hit by natural calamity before COVID, like West Bengal, Orissa and the Kolhapur and Sangli area of Maharashtra. In Assam, where the proposed bill on micro finance has impacted customer repayments, we had stopped our disbursals much early from November 2019 onwards. The portfolio has been running down, and today it is at 2.4% versus 4% a year back. In West Bengal, disbursals have been very limited to existing customers, and we expect this to continue for a few more months till a clear trend on repayment is available. Post June, we've added around INR 2,200 crores to the micro finance book, which is around 33% of our portfolio. This book continues to operate at close to 99% collection efficiency. We would want to see this for a little while more and expect disbursals and growth to pick up from March onwards. In FY '21, we expect GNPA levels of around 5% to 5.5%. Today, we are around 2.6% and credit costs for the full year in the region of around 2.5%. Business loan segment. The MSME segment, as we have said before, has borne the brunt of COVID-related economic stress. It has still not recovered and perhaps will take much longer and will depend on the effects of economic revival reaching the small business. Notwithstanding the above, the bounce rate of EMIs are now slightly elevated still at about 1.2x pre-COVID levels, but better than 1.5x which we saw in October. As mentioned earlier, the government scheme around ECLGS was helpful to this segment. As a bank, we have disbursed a total of INR 655 crores ECLGS loans by December 31, 2020. Around INR 500 crores of these were to the MSME segment in the retail segment. We also extended the MSME restructuring scheme to this segment. As of December end, around INR 50 crores of loans were restructured. The collection efficiency in this business is now around 96% of pre-COVID levels. We expect GNPA for this year to be in the region of around 6%, which today are in the region of around 4.5%. Since majority of these loans are secured and backed by high-quality self-owned retention or business premises at collateral, the loss given default is likely to be low, as experienced in the past. In fact, the average LGD in the 90-plus DPD pool is below 65%. Therefore, there is a lot of skin in the game for the customers. We are, however, waiting for the Supreme Court restrictions on classifying these loans as NPA to be lifted so that legal action against SARFAESI can begin. It usually takes 7 to 10 months for us to resolve the issue during which time, most customers come to a mutually agreed settlement. Keeping the above in mind, the new business has been deliberately slowed down until the economy picks up. And therefore, it is safe to assume that quarter 4 2021 will remain muted. To sum up, credit card business is back on track in terms of new business and spend. There is a stress portfolio which has been dimensioned and will get charged off over the next 2 quarters. The entry delinquency rates are back to pre-COVID levels. In micro finance, we continue to be watchful in the stressed geographies. In other places, we should see disbursals in growth picking up in this quarter. The MSME segment has still some time to recover, as the new business is being done with tightened acquisition filters. I will now hand over to Mr. Vishwavir Ahuja for his concluding remarks.

Yes. Thanks, Harjeet. To briefly summarize, how we see things going forward. On liquidity, deposits and cost of funds. We expect granular growth in deposits to continue handsomely. We expect to see further improvement in retail LCR metrics as we bridge the gap to our larger peers. Cost of funds has come down significantly, and we should see this trend continue and thereafter -- and therefore, enhancing our lending competitiveness. On the advances side, on wholesale, we are only focusing on better-rated corporates now. As you will notice, 75% plus is now in the A and better category. We have had continued success in managing the BBB and below portfolio, which has not shown any adverse trends. In this segment also, we will now start positioning for some growth. We will continue growing market share in our leading businesses now with a stronger balance sheet. That is, especially on our credit cards business, we expect market share gains to steadily increase. On the rest of retail, like Harjeet said, the credit challenges, credit costs have been somewhat higher than expected, largely in the MSME and to some extent in the micro banking business. However, we see the stress peaking and normalcy returning by the next -- going into the next financial year. Going forward, there will be greater focus as part of our strategy to grow these secured annuity businesses of the bank. As you know, about a year ago, we started doing affordable housing and low-cost mortgages. In the affordable housing, we have put up 65 branches thus far, and another 10 will be added in this fiscal year itself. In the next year, we plan to add another 75 branches. As we enter FY '22, we will look to take advantage of opportunities in our rural businesses as things normalize and introduce a complete bouquet of products, including home loan and tractors there. Similarly, expanding the branch footprint in urban areas will also help improve the cross-sell potential as it continues to grow as an important feeder into the retail assets and card business. As such, on an overall basis, we expect not only to reduce the inherent risk in our business model, but also improve the predictability of the earnings profile going forward. The above will be, of course, supported by a strategy to always remain well capitalized and maintain sufficient liquidity buffers. In conclusion, I'd only like to say that our operating performance this quarter has been rather satisfactory. Our capital and liquidity levels continue to be robust. It is heartening to see the growth in the deposit franchise. And we continue to grow granular deposits and reduce our funding and operating costs, such that the bank as a whole becomes much more competitive. This should stand us in good stead particularly as we have a couple of market-leading businesses, where we see growth revival happening. Having said that, we are, of course, monitoring the recovery in the economy and are cautiously optimistic. Thank you. With that, we'll now open up the call for question and answers.

[Operator Instructions] The first question is from the line of Adarsh Parasrampuria from CLSA.

First question on micro finance. I just wanted to understand, did you indicate credit cost of 200, 250 basis points?

Credit cost of 200, 250 basis points.

Yes. That's right.

200 basis points, yes.

That's seemingly quite low right vis-à-vis the problems that we are seeing. So is it because of our FLDG or there is [Technical Difficulty] all right in the context of the commentary that we've got about problems in specific districts in certain states. So can you elaborate on that a little bit more?

Yes. So see, this is not on account of reputation or anything. Reputation is still to kick in. Basically, our exposure in some of the markets which have been hit, are much lower. For example, Assam, we were able to bring down the exposure to only 2.4%, as a result of which the stressed pools are still much lower. And therefore, you may find it a lower revenue compared to the market. We expect by the end of this year, this to be in the region of around 5.5%.

Lower credit costs.

Yes. GNPA.

Yes, that's what I'm saying.

I'm talking GNPA only.

What is the GNPA today?

2.7%

GNPA today is 2.7%.

Yes.

Expected to go to 5.5% by the end of this year.

That's right. You got the answer now?

Okay. And Harjeet, if you can just talk about -- didn't see data about collections in MFI. Can you just talk about where collections are and that gives some sense of -- because what we are seeing and even the industry bodies represented that there was a steady improvement in collection till, let's say, November, and post that, this is a kind of being flattish on collections, right? So it's not really going back to those 98, 99 on a state level. So if you can just talk about where collections is for us?

Absolutely.

So let me just give you collections of some of the states, which I had mentioned where there was a problem or we are sensitive.

Tell overall.

Okay. The overall collection, which we said was 92%. In -- whether we talk of West Bengal, Punjab, Maharashtra, Orissa, they're all in the region of about 88% to 90%. Assam is in the region of about 60%.

So Harjeet, we still find it difficult that how does this add up to 2%, 2.5%, ideally, it's a fast charge-off business. So if collections are closer to 88%, 90%, you should be having a very fast charge-off policy, right, in this business? So ideally the credit cost should be higher, right? Because collections are about 6%, 7%, 8%, below pre COVID, and we're talking about 2%, 2.5% credit cost.

So understand what -- the way it will happen is, there was a moratorium until August end. Customers started paying in between. So if you look at it, there's only about 2% of the customers who have not paid at all. Customers resumed their payment during moratorium itself. And hence, their flow into 90 DPD is much slower. But when your collection efficiency over a period of time runs into this, that is the reason why by March, this -- the GNPA pool will swell to about 5.5%.

Okay. I got that. And second question was on the reversal of income from NII. Are we through with the impact? Because if I remember right, we started accounting for it in the second quarter. And we said that we'll account for majority of that in the second and the third quarter.

That is right.

And the impact this quarter seems to be a little more than the second quarter, at least looking at the NII trend. How does one look at it going forward?

Yes. So yes, we have pretty much -- Jaideep, you want to answer that question?

Yes. So Adarsh, yes, I think the reversal in this quarter was slightly higher than last quarter, which, therefore, means we have clearly hit the lows of the NII. Now we should start standing back where Q4 should be, in our judgment, better than Q2, but not necessarily all the way up, which will happen by Q1.

Got it. And my last question is to Harjeet. There usually is a correlation between card piece and the nonemployee OpEx, right, because a lot of it is paid in benefits to customers. Are you seeing a trend where that benefit that you pay on cards is lower than usual? You're getting the spend income, but the benefits payback is lesser, people are using that lesser?

So benefits, I mean, are you referring to reward points?

Yes, rewards, yes.

Yes. So there are 2 types of benefits which you typically give in cards. One is reward points and one is the offers which we give. The reward points have been lower for the simple reason that reward points for delinquent customers, which flow through are reversed. So that expense is lower. We also took a conscious call during this period not to run very aggressive customer offers, and that has worked in our favor because our spends are usually around the daily spend category. And that is where most of the buildup of our spends happen. So yes, from a cost point of view, that cost is lower. Also, what we've seen is that on our cards, we did have some benefits like a lounge access or a free movie ticket, et cetera, which have not been used in the normal run rate manner during these months because travel is lower, cinema halls are not yet fully opened.

The next question is from the line of Kunal Shah from ICICI Securities.

Yes. So firstly, in terms of this entire BB and below pool, if we look for this particular quarter, it's gone up by another 4 odd percentage points and now it's like almost 16% of the portfolio. So why is that actually happening? And how do we read that? Maybe we articulated that we are pretty confident in terms of the behavior of the corporate pool now stabilizing, but how should we read into this?

No, I don't see that.

Slide 18.

Slide 18.

Yes, on Slide 18. Yes, BB is lower. It is 3,380 compared to -- BB is 3,380.

It is coming off.

Yes. Yes, it's coming down.

Okay. And this is despite the write-offs, which are there. So I think we see a significant write-offs, which have happened on the corporate side. Okay. And I think definitely that is beyond 100% provided to all.

These are all standard assets.

So NPA anyway gets excluded.

Okay. So this is only on our entire [Technical Difficulty] which is there?

That is right. That's right. These are all standard assets. And the comment I made, and I want to emphasize that, is that actually, while there is always concern and circumspection on this amount, but that 6-odd percent number is pretty stable. And the slippages from there, over time, have been minimal. In other words, the comment I was trying to make in my commentary, as this has held up very well over time. I mean these are those small, medium-sized businesses, which are the better quality ones, which tend to sort of stay within that category of BB, BB+, BBB-. But at the same time, they have good ongoing concerns and the repayment track record is also pretty decent. So their credit profile, from a rating perspective, may not be that high because of the nature of the -- nature, size, scale of the company. But actually speaking, that portfolio has been behaving pretty well. And it remains very well contained. That's the first part. And when you actually add the facility structure, the security profile, all of that, it comes down to as little as 3.5% because typically, the facility ratings are superior. And as we've commented on the next slide, if you take into account much of that, more than half of that is investment grade. We had the facility structure and therefore, take the rating on the basis of that. They've moved to investment-grade category.

Okay. Sure. And secondly, in terms of the overall SMA-2 and the SMA-1 pool, if we can just get, so pro forma slippages has been quite high. How about the SMA-1 and SMA-2 pool. And going forward, maybe given that we have been guiding for credit costs very much in line with the last year's average, maybe a few percentage points, plus/minus. But given the deterioration, which we have seen, particularly on the retail side, on the MSME, which you articulated, does that make us to revise the guidance as such? We had given it on individual businesses side, but cumulatively, how would it finally look?

Yes. So in the slippages in the quarter, as we said, much of it is coming from the retail side. So when you look at corporate slippages, it was not material from that point of view. Less than INR 150 crores, INR 170 crores, which is pretty standard for a running bank of our size, yes? And so -- and from the retail point of view, I mean, I think we gave segment by segment. I mean if you take any segment, if you would, say, take cards, I mean, we had said 6 months ago, and we said it again last quarter that during the COVID year, we expect total delinquency to be around 10%. And we will stay within that or around that number. So it's very much gone according to expectations. And we expect the GNPA in that portfolio by the end of the year in the 5%, 5.5% range. Similar is the range when it comes to, as Harjeet just explained on the micro banking side. And on the retail business loans to MSMEs, that may be slightly higher, may go up to 6% because that segment, as we've said is more impacted. So that's the run through in terms of the NPA impact. And the slippage is just a reflection of that, that number, as it's flowing through.

Sure. Okay. And lastly, in terms of the provisioning, if you can just give the breakup, have we drawn up on any of the contingency buffer? And what was the overall breakup of the provisioning for this quarter and write-offs as well?

The write-off number is, I think...

Yes, we've taken INR 700 right now.

Yes, yes. So that's on Slide 22, I think.

Yes.

So see, the philosophy, yes, we have partly used the COVID provisioning. But at the same time, we have made sure that we are more than adequately provisioned as an institution. So for the entire pro forma book, we have taken more than adequate NPA equivalent provisioning, more than adequate. In addition, we have increased our PCR. So additional provisioning has gone into PCR also. So on the reported book, that has now gone up to 86%. And on the pro forma book, now our PCR has gone up to 71%. So that is the way we look at the situation that we are -- overall, even if you take the pro forma book, we are 71% PCR, which is more than adequate going forward. But yes, so that's the way we have looked at it.

And Kunal, we have taken borrower-wise classification. So completely followed IRAC for the pro forma GNPA.

Sure. And just in terms of like overall specific provisioning the pro forma provisioning towards restructured assets and drawdown from the buffer, if we can just get the breakup of that. And finally, getting to this provisioning number which we had reported, that would be very helpful, yes.

Yes, we'll try and share that with you separately.

I don't have that handy, Kunal.

Sure. No worries. Okay.

The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

I have 4 sets of questions. I'll just quickly ask them in sequence, so that you can pace your answer. First is on the micro finance business. Is the difference in collection efficiency and GNPA on one hand, that actual credit loss, on the other hand, is it because the customers are paying 2 installments and not paying 1 installment. So it's more of an accounting issue than a customer behavior issue? That's question number one. In credit card business, do you have data on how many of your card customers are actually your savings bank customers also because it will be like a cross-sell data, and you would also better be able to measure their well being, especially because you said you would tighten some norms. So if you could just give us some flavor on what you mean by tighten norms in the entry point of customers, that will be useful for us. Business installment loans, is it unsecured or secured because normally bill, people use for unsecured, I think you mentioned secured. And the last question is on corporate loans. We see that because of the number of high-rated corporates being -- good corporates being not that many who are borrowing, there's a crowding out on interest rates to lend to them are falling, especially with this [indiscernible] states and all. So how do you -- what is the profitability in this segment? That's it, sir.

Yes, yes. I'll let Harjeet take the first 2 or 3 questions.

Yes. So on the MFI side, the reason I mentioned that was that the customer intention looks good. They had started paying from June, July onwards. They are paying as and when they have money. So while they're erratic, the payment keeps coming, which means that they're not straight flowing into 90 plus. And hence, the reason for what the GNPA number we shared with you today. But we expect that to improve and the collection efficiency seems to be holding. Now your second question was on the card side, where you said how much are -- how many of the customers are from savings bank? So roughly about, I think about 7-odd-percent of the total portfolio are saving bank customers. But if you recall, we've always said that the way we build this business is by looking at data from our partners to be able to better profile the customers and understand their credit quality. We understand that roughly about -- a little over 60% of these customers come from the Bajaj partnership, where we have a lot more details around their profile and their credit behavior. And that is what helps us in being able to forecast and control the risk in the portfolio. During this moratorium period, we further enhanced our scorecards by looking at other data as well. So we looked at data in terms of some alternate data in terms of how customers are performing on our partner businesses. For example, if it was a Zomato, then how are they dealing with it or if it was anything else. We were getting some information from there. We also found that the customer had taken moratorium on other loans and to the extent they have taken also a very good surrogate in terms of the risk on the customer. It not only helped us in classifying risk and therefore, dealing with it as an existing base. It also became a very important underwriting criteria, which went into the scorecard. And therefore, that is now critical. Irrespective of the -- let's say, the bureau score of the customer, how many trade lines, the leverage, the payment rate, moratorium taken, not taken, what percentage of the loans moratorium taken, all those become an element to this. And that's how the card portfolio delinquencies have been kept in control. On the business loan side, as you rightly said, most of them are secured, backed by property and collaterals.

With good LTVs, you commented.

Yes. LTVs, I commented. So even if you look at our portfolio, which had gone to 90 plus, the LTVs are well within 65%.

Wholesale banking.

Corporate.

Corporate question. Yes. I mean, look, I mean, the COVID has thrown up many challenges across the board for all the various economic pockets and segments. In the wholesale banking business, we have a very credible presence. We have the full product suite of not just the balance sheet, but also the trade finance capability, the foreign exchange capability, the capability in terms of cash management and payment services and digital services. So money is made not just in terms of interest income, but it's made from the full bouquet of services that we tend to extend to a corporate client. We've said this time and again that in terms of our business model, we look at multiproduct relationship on the corporate side. It's a balance sheet-only kind of a relationship, we are likely to stay away and so on and so forth. So typically, the interest income is embellished or enhanced by the collateral earnings from the relationship so that the relationship return is at least positive and decent. So that's the way we look at it. So surely, if you look at the balance sheet income, you will not see that as a very profitable activity, particularly doing business with highly rated companies, and obviously, the rates have come off dramatically in the last few months. So I mean, in substance, all I can say, that a strategy with respect to this space in the last 12 months has been one of conservatism. As you know, pre COVID last year, around 4, 5 handful of corporate accounts, we did experience challenges and stress. And we had to deal with that. So what we did is we derisked the entire wholesale balance sheet. And we have talked about that sufficiently in terms of the steps we took to derisk that balance sheet in terms of increasing granularization, removing concentration, tightening underwriting standards, et cetera, and moving the entire portfolio up to rating scale. So we did all that. The idea was to have safety. Thank God we did that. In a way, that having come to us a year earlier, getting into COVID, honestly, on the wholesale side, this -- I mean, we have not had stress -- on the new stress on the wholesale side caused by COVID, whereas for many other institutions, that may be also the case. So we were able to ride through this phase, staying safe and although making lower returns but at least making positive returns in this space and taking this opportunity to at least bring that portfolio to a size -- to a shape and quality, which at least -- and in the meantime, not diluting our relative position with these high-quality customers. So today, if you see whether with our cost of funds going down and going down pretty nicely, as you will notice, we are becoming more and more competitive as an institution, even in the wholesale lending space notwithstanding the fact that we make other sources of income from the wholesale space. So the point being, this has given us the time and space to work on the liability side, to widen and deepen our retail franchise on the liability side to basically bring down our cost of funds and improve our competitiveness. And actually, coming out of COVID, I think we are much strongly positioned to even revise doing more business on the wholesale side. So I see this as a big positive development for the bank in terms of going forward. Retail was a high-growth area for the bank. I mean we talked about it so much. And these are high ROE businesses, the card, the micro banking, et cetera. So yes, they were riding the economy. There's -- yes, COVID has impacted them a little more in that sense. But the costs have been such that we are able to absorb them. And now having done everything in the last 9, 10 months, I think we are reaching the tail end now, i.e., the fourth quarter. And after that, higher and higher levels of normalcy, should start coming back. And we do expect, given our market-leading positioning in certainly 2 out of these businesses, i.e., cards and micro banking, we expect, therefore, that profitability to also start coming back. So that's why sort of in my closing remarks, I said that overall, if you see the entire sort of institution, we are trying to, on the one hand, reduce the embedded risk in the business model itself, trying to build more and more secured products even on the retail side but at the same time, take advantage of the growth opportunities that we already have in a couple of businesses where we are positioned strongly.

Normalcy is a lovely word in these current circumstances and I wish you a good luck.

No, I said cautiously optimistic towards the end. That was my last 2 words.

Okay. Even better, sir.

The next question is from the line of Rohan. Well, we just lost the line for the current participant. We take the next question from the line of Rohan Mandora.

Can you hear me?

Yes, very well.

So on the credit card, I had a few -- a couple of questions. One is in terms of the MDRs that we are earning on the online spends and groceries, how does it compare with the MDRs on, say, traveling spend and the blended MDR that we will be earning on the portfolio? And since the spending pattern has changed right now, is there any material change in the MDR -- blended MDR on the portfolio, whether we say a year ago? That's one. And second, if you are looking at the credit card spend for the quarter, whether the last year or maybe in the previous quarter and the card fees that we have earned, there's a disproportionate increase in the card fees. So if you can explain what are the components that are driving the fees within the card portfolio right now?

So by MDR, I guess, you mean the interchange, because of the issuing bank, we saw an interchange and acquiring banks on MDR. So interchange over a period of time, if I was to compare it, let's say, with a year back, has come down from about 1.45%, which we used to earn on a blended basis to about 1.35%, 1.37% today. And that is because the large ticket spends especially around travel, et cetera, are not happening, neither is hotel happening. And there has been more towards the -- either the online spend or towards supermarket groceries, et cetera, where the MDRs are -- interchange change is lower. But if you look at quarter-by-quarter, you will see that our POS spends have picked up. And are now back to, let's say, pre-COVID levels, which, therefore, enable us to get a higher interchange. So we expect some normalization, but I think some spend behavior has changed. So we may not, as an industry, may not be able to revert back to, let's say, a year back's interchange.

Sure. And on the card fees versus spends?

Yes. So last few quarters, especially the last quarter, you will see a slight bit of bump up on fee on account of late fee.

Okay. So that's almost 62% sequential jump. So it's primarily because of the late fee we are getting?

No, no. Sequential jump, you are seeing is because we were -- during the moratorium period, 2 things were not happening. If you're comparing with the moratorium period, the spends were very depressed. And we couldn't charge any late fee.

Okay. And because year-on-year, the spends have grown by 4% and fees has gone up by 22%.

That is the late fee, which has come in.

Late fees, okay.

You understand that the late fees come in and whatever cards we acquired post that, their annual fee kicks in.

Sure, sure. And you also talked about the reward point expenses being lower. So is that adjusted in the fee line item? Or is it part of the OpEx?

OpEx.

OpEx.

OpEx

OpEx. Sure.

The next question is from the line of Dhaval Gada from DSP Mutual Fund.

Yes, just 2 questions. One is related to provisions. So I mean just wanted to reconcile the math, approximately INR 280 crores to INR 300 crores is what we would have used from our buffer of last quarter during the current quarter. Is that correct?

Approximately, yes. Like I said, we'll send the exact detail later, but you're in the right ballpark.

Okay. And then the second part is, if I look at the NPA composition today, based on the segmental numbers, it seems that a large part of the write-off this quarter is from corporate. And next quarter, we'll see bulk of the write-offs related to MFIN cards. Again, is that broadly correct? So therefore the...

Correct, correct.

Okay. Understood. And then if you could just tie in -- so basically, at the end of the year, the calculated coverage. So while including technical write-offs, the coverage looks high, but on a calculated basis, the coverage would still be slightly at the lower end, sub 50%. So how do you think about that going into next year? I mean, directionally, what's your intent on that number?

Jaideep will always be ready.

Yes. So we've been in that 50% to 55% range of the calculated coverage. This will actually inch up because credit card slippages that may happen again, they will typically come with high PCR. So this will just go up because of the product and the slippage coming through retail.

Okay. And just lastly, in the topic of...

Can I just -- one minute, one minute. Can I just add to that answer? On the -- in sort of on a reported basis as we report, see, we have moved from a 58.6% this time last year to 85%, 86% now. Even on an effective basis, we have moved up 15%, 20%. Now we decided at some point in the last few months that we should always remain above 70%. And the effective coverage should also keep creeping up, yes, which will happen naturally as the write-downs on the card side accelerate based on our provisioning policy, which is aggressive. So that will automatically happen, and you will see that happening quarter-on-quarter.

Dhaval, and the other thing is that on the business loan side, we are actually quite comfortable with because it's a high LTV -- sorry, low LTV business with LTVs being pretty much in the sub-15% range. The cover there on that portfolio, we'll be quite comfortable with 15% to 20% cover.

Understood. And just lastly, on the MFI portfolio. So I think, Harjeet, you mentioned about that slight delay in terms of the bucket movement but just if you could give the 30 DPD in this portfolio? And just to get a sense how much gross -- weak assets, how much is that number. So if you could give that, that would be useful.

So I may not have a 30 DPD number, but I have -- I have indicated that's why the year-end GNPA at around 5.5%.

And what would be the write-off because it would -- a lot of will not -- would depend on how much write-off you do. So that will...

Write-offs will not happen this year. Write-offs will happen next year.

The next question is from the line of M.B. Mahesh from Kotak Securities.

I just had one clarification. If I look at the overall slippages that you have reported for the quarter, and is it right that the numbers that we are reporting, let's say, gross NPAs in the card book and the MFI book at about 5.5%. Is that the current number, which is sitting there? Or it is on the pro forma numbers or is it on the reported numbers?

Everything we are talking is on the pro forma numbers.

But not MFI. MFI...

Yes. MFI numbers for the December number is about 2.5%

2.5% -- 2.6%, yes.

But our commentary is on...

Pro forma.

Pro forma. The entire commentary that we have discussed with all of you is on the pro forma basis.

Okay. So when I look at this INR 1,400 odd crores of slippages that you have reported, and then if I look at the slippages that you're reporting of, let's say, gross NPAs of 5%, 5.5%, is there any way to analyze as to whether we have reported all what needs to be reported in this quarter? Or is there no carry-through into the next quarter as well?

So Mahesh, we have basically when we report GNPA for -- on a pro forma basis, that is basis for an IRAC, which is borrower level NPA classification, like we would have done if the Supreme Court judgment was not out there on a daily NPA basis.

No, no, no. Sorry, I'm asking the reverse question. Now if I ask this INR 1,470 crores of -- INR 1,400 crores of slippages that we've reported this quarter, and then if I say -- and then if you say that I expect a gross NPA of X% in credit card and MFI, have you factored all the possible slippages in this quarter? Or is it -- is there going to be a spill off into the next quarter as well?

How can I factor slippages next quarter, Mahesh? Yes. How can I -- I mean, basically...

Slippages are kept for future NPAs.

As and when slippages happen, it will fall into NPA next quarter.

Okay. So let me rephrase it, has all -- whatever has to slip into the 90-plus bucket, have you reached the point where it has reached the peak slippages on the credit card and the MFI book?

Credit card, yes, I know.

So whatever has become 90-plus, or was 90-plus during the quarter, has been taken into slippage, and has been taken into the number of the GNPA, which we -- pro forma GNPA, which we've informed. And I'm giving you a...

Slow down, slow down. I'm just repeating what you're saying. Everything that was 90 days plus, including what touched 90 days and maybe slipped back to 70 days, we have taken all of that.

Yes. Okay. Listen, I'm sorry, I just kind of have to extend this question here. I have a book of INR 12,000 crores in the -- let's say, the credit card book. And you've kind of indicated that, let's say, the gross NPA is close to about 7-odd-percent. So that essentially means, let's say, about it grows about 5.5% today, it can translate to about INR 600 crores kind of a slippages on a net basis. On INR 6,000 crores of MFI book, if you just put 5.5%, it translates to INR 350 crores. When I look at your slippages, which you reported about INR 1,450 crores, does all what needs to be figured out in the gross and net NPA lines from these 2 books, has it reflected in the books or not? That's the simple question I have.

Yes. Today, MFI is 2.5%.

Is it fair to assume that next quarter, the slippages, which comes for the bank will be meaningfully more...

[Foreign Language] The straight answer [Foreign Language]

That's what I said, 5.5% for cards, 2.5% for micro finance.

5.5% for cards?

Yes, 5.7% for cards.

So December 31 number...

GNPA.

GNPA now. Okay? December 31 number or GNPA on a pro forma basis, forget reported and all that. On a pro forma basis, for cards, it would have been 5.7%, okay? For micro finance, it would have been 2.6%. 2.6%, okay? And for other business retail loans, including MSME, would be 4.5%, okay? And for -- yes, and for wholesale bank as a whole, was 4%, right? 4%. Okay. This is the entire portfolio broken down for you, yes? If you take the average of the 4 -- weighted average, you will come to 4.57%.

Okay. Perfect. This is useful. I will take this question offline. I just wanted to understand, if I have to forecast the slippages for next quarter alone, just for the time being, are you in a mindset that this number will be a meaningfully lower number?

No.

No. So might be...

What we can say is that the gross NPA number across the portfolio will be in similar range, Yes? In other words, the entire sort of -- I'm talking about the bank as a whole. 4.7% will be in that ballpark, 4.6%, 4.7%, whatever it may be, 4.5%, like that. I mean, so -- but obviously, there will be -- yes, slippages. Because, like you say, in micro finance, some of slippage has to happen. In cards also, some more slippage has to happen.

The next question is from the line of Amit Premchandani from UTI Mutual Fund.

Sir, what is the outstanding contingent provision now? That number was around 500 something last quarter.

So yes, the previous question had, that have we taken about INR 250 crores, INR 300 crores. And we said, yes. We said in that ballpark, yes.

So is it safe to assume that around INR 300 crores plus is the outstanding contingent provision now?

No. Like we said, we'll send the exact numbers. This is the third time it's being asked. A little over 50% has been utilized. The rest is still to be utilized. That's the answer to the question, but the exact number, we'll send you, yes? Having said that, we have also taken not only the IRAC provisioning on the pro forma balance sheet, we've also taken additional PCR-related provisioning, which sort of further adds to the overall provisioning number. That's the way to look at it, leading to an overall provision coverage ratio.

And in one of the previous commentary, you had said -- I think Jaideep had said that the NII reversion will be much more muted from next quarter onwards. So does it imply that -- which by definition also implies that slippage will be much more muted? Or is it a wrong conclusion to make?

No, that conclusion cannot be drawn. The 2 are not connected. Because when you look at slippage, something that what we have taken care of is Q2, Q3. Whatever slippage happens in Q4, there will be no interest accrual on that, right? It may not be a reversal. It may not be a reversal, but there will be no interest accrual.

Yes. So I think the margins will take one more quarter to come back to pre-COVID levels, but definitely, it should be better than Q2.

Let us take the answer very simply as a continuing between what it is for this quarter, third quarter and what it will be in first quarter of next financial year. Assuming that quarter will reflect your full NIM or net interest margin, the next quarter will be in between. Let's put it that way.

Sure. And the entire impact on fee income and interest for all the performance slippage have been taken, right?

Yes.

Entire, entire has been taken. Fee as well as interest.

In the revenue line itself.

Yes, not in the provision line item?

Correct.

In the revenue line.

The next question is from the line of Shilpa from Kotak Mahindra Bank. Shilpa, you may please go with your questions. Looks like no response from the current participant. We take the next question from the line of [ Venkitakrishnan ] from HDFC Securities.

Just 2 questions, if you might. One, just wanted to understand the external rating slide that you have shared, does that surprise you in terms of the upgrades that you have seen from September to December? We have moved very sharply on the AAA there. So just wanted to hear your thoughts on whether that's something that's surprising you or if there are any insights that you can probably share with us in terms of what might be driving those upgrades. The second bit I wanted to check was just around the fact that the credit card business is now almost 22% of your loans. It's contributing about 60% of your fees, nearly 75% of that portfolio is very, very high-yielding, more than what the retail portfolio itself is earning. So I mean, at some stage, do you look at the concentration risk that is coming from just one single engine and what you can do around it? Just those two.

So let me take the first question. So those are not necessarily upgrade bankers. Those are new business which happens. And some of the old business in A or BBB falls off, which we may not necessarily want to pursue again. So it's not so much a reflection. There may be some upgrades, but the large part of our explanation would be because of new business.

Okay. That -- yes. Fair point. So the second bit around the credit card -- and probably the risk, the concentration risk that is emerging from the overdependence on a single division maybe. I mean I know you have other -- you have incubated a lot of other businesses, which are high ROA. But just wondering, at what stage do you start worrying about are there too many exits in this market. And yes, you want to continue building market share there, you're obviously having a very high-profile customer base. So just your thoughts there will be interesting.

Yes. So one of the good things is that business itself is quite granular. We obviously have 3 million customers. We are also looking at it more as a customer acquisition deal because the idea over a period of time is to win the customer base for multiple products, including potentially looking at converting them into savings account customers. So it is, in a way, a customer acquisition engine. Obviously, it is a highly profitable business. It's something that we have reached a size and scale, which therefore, allows us to make those investments in those business in terms of analytics, in terms of collections and become a formidable player. It's a very difficult business to be a marginal player. So from that perspective, we will want to continue to be investing in the business. Obviously, we will not want this to be 50% of the business at any point in time. We are incubating other businesses, as you mentioned. And when those businesses start getting traction, the concentration risk, if you can say that, will moderate over a period of time. But in the interim, yes, it will go up a little more before it starts to moderate.

Venkat, this is Rajeev. If I can just maybe add, and obviously, COVID has made this transition a little tough because the seriously impacted businesses were credit cards. And so I think if you look at on a 4, 6 quarter out, you have 3 or 4 drivers. One is, obviously, improvement all around. Wholesale banking, which has actually been pretty much a very low PPOP on a percentage basis, should start coming back because we do expect the business model we have now will become far better in terms of the collateral business. Our cost of funds, if you've seen, though there is an overall liquidity environment, which has been benign, but there is a material improvement in the structure of our cost of funds. Almost 100 basis points year-on-year, and that has still some room to run. I think that itself will give us a little bit of a lift in the overall earnings structure. And then if you look at what has not been highlighted here is the serious amount of cross-sell, which is happening of retail assets in through a branch banking, obviously, interrupted by COVID, but it started again. Once that starts picking pace, you will find that, that becomes a natural engine. And most banks have taken that kind of period to actually become more internally sourced rather than externally sourced. So across retail loans, cards, et cetera, you'll find internal generation improving over time.

Great. Just one last question. You are very close to your state-level caps on the micro credit business in a couple of states now. Just wanted to understand you -- I mean you have a self-imposed cap of about 15%, if I'm not wrong, from what I read, right? So just wanted to understand your thoughts on how you build that business out, knowing that, that self-imposed cap, is there. Is there any thought around relaxing that cap for maybe states where you have certain -- more comfort?

So if you actually look at the trend historically for the last 2 years, you will see that we always had 2, 3 states which were close to 15%, almost touching 15% and then came down. And the reason they come -- so the way we control this is that there are a whole lot of other states, which we entered, let's say, about a year before COVID began. And those states are still to scale up. So if you take the top 5, 6 states and then go below, they're all in the 6%, 4%, 5% range. So there is enough room for growth there. And growth here depends on the number of branches we put in. And therefore, mindful of the cap, that's the way our branch opening strategy goes. And that is the reason why we're fairly comfortable remaining there. Even if you look at, let's say, between March '20 and December '20, you will see that the states -- there was a state which was touching almost 15% was brought down. So that's the way the portfolio management goes.

The next question is from the line of Manish Shukla from Citigroup.

FY '21 in large way has been a year of granularization of your loan book. But if you were to look at beyond that into FY '22, how do you see your credit growth, either in absolute terms or relative to the system, given that with economy improving expectation of credit growth improving for the system is also building up?

Yes. So Manish, I think just -- I think I want to just preference it with the idea that the next 3, 5 months is very important for us to see how things are evolving. We've highlighted that there are 2 emerging risks on small business, which has been the most impacted. And then micro banking in a few geographies. If you take that equation out, I think in all our businesses, we have internal growth drivers, wholesale banking, where we've actually degrown over the last 15 months. Just so as a metric, this quarter, we added about 110 customers, 70 customers on the liability and 40 on the advances side. So there is enough for us to do. I don't think today, I want to go out and give a very specific guidance. I want to watch the next 4, 5 months, get our own house stronger, but there is -- we are positioned for growth. As the economy comes back, as the uncertainty around a few areas reduces, which we expect to happen in the next 4, 5 months, I think we can grow. And frankly, the growth has to be profitable on a risk-adjusted basis. And like we said, our effort is right now to get all our ROA structure in shape, including our delivery, digital as well as our branches. So I think there is enough momentum once we are very sure that the economy is on a good footing, it will all mean a matter of 3 to 4 months more. That's it.

Okay. Sure. Moving to funding cost a bit. So you corrected your retail liability franchise quite a bit through the course of this year. But that's also at a time when balance sheet is not growing. Now if and when the growth does return, how do you see the spread that you offer on retail deposits vis-à-vis your peers? How does that move? I mean it stays where it is? Or will you be forced to start paying higher to run more deposits?

In fact, Manish, we have been bringing it down over the last 5, 6 months. Even in the month of Jan, we brought it down, and you should progressively see that coming down. I think as we mentioned in our commentary, we're about 100 basis points down from a year ago. I think there is still a lot of give in that cost of funds over the next 2, 3 quarters. So we think our deposit structure is now getting more and more anchored around our distribution and client segmentation strategy, both in retail and wholesale. So the sensitivity to rates is coming down appreciably. In fact, what is not palpable through our numbers is that we got almost INR 2,000 crores to INR 2,500 of high-cost deposits out of our deposit over the last 10 days of December. And that has not impacted our growth. That has not impacted our overall cost of funds. In fact, that flow will actually improve our cost of funds in this quarter. So we are very much on that track. We don't think, over the next 3, 4 quarters, we will have to link any of this from a competitive perspective. In fact, we think there is, as I said, a lot of give in our cost of funds over the next 2, 3 quarters. We intend to exercise that and come out as a much stronger cost of funds bank, which can help us build a very competitive client business on the asset side.

Right. That is encouraging. Last question is the cost intensity, the OpEx intensity of the asset growth in the post-COVID world, I mean, whether you take a 12-month view or longer. How do you compare now versus, let's say, how it was going till FY '20 going forward in terms of cost to assets?

So I think there are 2 major cost drivers for us. And maybe 2 plus 1. I think one is the entire cards growth, which obviously, the number of cards has been just about starting. I think that's a major driver, and we do expect that to continue. And you know that, that's a large upfront cost. But the fact is that the base of cards is now large enough to start absorbing. And as the economics of the card business becomes settled, we can start absorbing it. That's a major one. Second is our expansion of distribution and distribution plus people. I think we've done about 75, 80 branches over the last 15, 18 months. We probably will do another 75, 80 this calendar year. Again, those will be metro urban centric in the existing clusters. So the payback periods will be far better than what was when we were far smaller. And the third element will be technology refreshes, which you know are happening far faster, IT security, resilience 24/7. So these are the broad costs. Obviously, COVID has given us an enormous opportunity to digitize much faster. So even in our cards business now a lot of the stuff we used to do physically has now become digital. Obviously, this is more a progressive thing, and we believe that at some size and scale, the cost-to-income dynamics will start getting divorce from the growth rates in card, which we'll see. But I still think that's about 2 to 3 quarters away once we get that base right.

Mr. Roshan Chutkey.

Sir, I wanted to understand accounting that you follow for a customer who has been -- has taken a moratorium but has paid a couple of installments, 1 or 2 installments during the moratorium period. How are you accounting for those customers? I'm talking about MFI book.

Accounting meaning, if you could just elaborate?

So when you say 88% to 90% collection efficiency, I'm just trying to reconcile this number with the credit cost guidance that you are giving. And you referred to a customer in the morat pool, the payments and have come in the morat period from the morat pool as an offset to the credit cost being a lower number.

So collection efficiency is a function of the amount you collect versus the demand you generate for that month.

Right. So if it is 88% to 90%, how is it that the credit cost will only be 2% to 2.5% or thereabouts?

The credit cost will -- credit cost for the year will be 2.5%, but it is a function of how much it will be in our 90-plus pool. On that, you will take a provision. And then some bit of FLDG will get adjusted as well. The FLDG adjustment happens after a lag of -- I mean, in the next quarter to which it becomes 90. Therefore, on our portfolio, you will see hence, the credit cost, which will be slightly lower because there is an FLDG.

So because of FLDG credit cost, okay. How -- what portion of the credit -- of the MFI book is held by the FLDG arrangements that you have?

About 40% to 45%.

40% to 45%. And these -- and predominantly the West Bengal book is supported by the FLDG arrangements? Is that the right understanding?

Part of it is.

Yes. But how much of is it...

But West Bengal, please bear in mind, is running at a collection efficiency today of 90%.

The next question is from the line of Haresh Kapoor from IIFL AMC.

Couple of questions. First, I just want to get a sense on the provision going into next couple of quarters. You had guided for around credit costs around similar to last year for this year. But there were comments around credit card provisioning isn't going into maybe Q1 and maybe some of the other product lines like maybe MFI, et cetera, also being there. And also your retail GNPA that you have mentioned in the PPT to formalize. That also being higher. So -- and even the COVID buffer you have kind of utilized a large part of it, so how are you looking at the credit cost estimate for this year also in terms of building some buffers and even going into Q1, how heavy could those things be? That's the first question.

So credit costs for the next quarter should be, give or take, around the current numbers in the 5% to 10% range. Next year, honestly, it's a little too early for us to comment on. I think we will want to see how Q4 pans out. By that time, we will have also a better handle on general economic trends for the next year. So we should be able to give some guidance on credit costs for the next year by Q4. Suffice to say, obviously, given that this was a COVID-heavy next year is going to be definitely significantly lower.

Sir, my question was largely a Q1 number, considering there is going to be some spillover there. So the question was largely Q1.

Okay. So the moderation of credit costs, it will continue to moderate. So let's assume that the total credit cost number for next year is let's say 100, it's not going to be 25 for Q1, it's going to be higher.

Okay. Sir, second, just want to get a sense. So there were some questions around growth and then maybe there is some visibility that you're kind of looking at for the next 3 to 4 months before you communicate to us. But there were some comments around trying to even focus on BBB and below corporates for growth going ahead. I know all of them might not really be too bad. But largely, what is the corporate strategy now incrementally? Let's say, in terms of ratings or in terms of growth because you kind of sounded that you are really focusing that going ahead, which you didn't do previously.

No, no. So I think let me just clarify. The comment was that our BBB portfolio is very granular. It has stayed in the same risk bucket for years, and it has a fairly good model cost of credit, which we've always been able to absorb. The endeavor and objective is to improve our exposure to A and above. That was clearly said. We are not increasing our BBB BB book. In fact, the endeavor should be to lower it as much as we can. The other comment was that when we are working with A and above, as was rightly pointed out, the NIMs on advances are obviously going to be not exactly what you can get in sub investment-grade book. And the comment was that we actually make a lot of our business around not just advances, but liability revenue, cash management, FX, trade, et cetera. In fact, on our overall wholesale book, not more than 55%, 60% of the net income comes from advances income. The rest comes from liabilities, FX, trade. And I made a comment that of the 110 clients we've acquired in this quarter, 70 of them are liability centric, which means trade, FX, salary as well as deposit income.

And the Corporate clients.

Corporate clients. And this is the model which we've always had. It's been accentuated, and this period of the last 12 to 18 months has allowed us to sharpen it. And there is enough opportunity for our size of the bank for the next few years to continue doing on the same philosophy rather than sacrificing our overall risk profile just to get NIMs on advances. I hope that clarifies.

Sure. Sure. That's helpful. So sorry, just that provision line, I just missed that part. So there is no change to the guidance for this year, right? Though you kind of mentioned next year is still far, but at least for FY '21...

Guidance on '21?

Credit cost guidance.

I mentioned that the Q4 numbers should be, give or take, within the 5% to 10%.

5%, 10%. Sure.

Of the Q3 number.

Sure. Great. Sir, and 2 quick last questions. One is this NII number, I think last quarter, you had mentioned that NII will possibly come back to, let's say, around the INR 1,000 crore number for Q4. There seems to be maybe lower on that one to Q1. Is that right? Or you kind of going to be under INR 1,000 crore number?

No, no, no, that is right. It's going to be somewhere between the Q2 number INR 1,000 crores, I can't say, but I don't think it's costing INR 1,000 crores.

Sure. And last, sir, collection efficiency, given out for the business loan segment, [Technical Difficulty] mentioned is 96% of pre-COVID level. The pre-COVID level and was that [Technical Difficulty]

Is that collection efficiency on business loans?

Yes. So what is the collection efficiency on business loans? I think you mentioned it is 96% of pre-COVID.

Yes. We are still not fully back. We are not at 100% pre COVID. We are at about 96% pre COVID.

What was the pre-COVID number?

Pre-COVID number was in the region of about 96%, 97%.

Thank you. We 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. [email protected]. On behalf of RBL Bank Limited, we thank you for joining us this evening. You may please disconnect your lines now. Thank you.