RBL Bank Limited (RBLBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '22 Earnings Conference Call of RBL Bank Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishwavir Ahuja, Managing Director and CEO of RBL Bank. Thank you, and over to you, sir.

Yes. Thank you. 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 '22. I hope you and your families have been safe and well over the last few months. As always, I'm joined on this call by other members of our management team, who, along with me, will address any questions that you all may have. Firstly, I want to extend my appreciation for our employees who have continued to serve our customers all through this pandemic and have kept our operations running smoothly. I'm happy to report that we've been able to get approximately 70% of our employees, including those in our subsidiary, RBL Finserve, vaccinated, and hope to get everyone fully vaccinated over the next few months. As the pace of vaccination continues, we hope that life and economic activity will normalize to pre-COVID levels full. The theme for our commentary today is reset for Transformation 2.0 of RBL Bank. Before we discuss what I mean by that, and before I come to the financial numbers for Q1 FY '22, I want to briefly touch upon the impact of the second wave, which has been rather severe and different for a few reasons. While dealing with the first wave, which caused elevated levels of stress, especially in our retail portfolios, we had executed a number of steps to make the bank resilient and stronger. With your permission, I'm going to repeat some of them: granularizing both sets of balance sheet -- both sides of the balance sheet, tightening risk filters; taking prudent additional provisioning, leading to improvement in PCR by 800 basis points in FY '21, although still short of market benchmarks; reducing corporate exposures, significantly improving asset quality rating profile of the business in order to reposition it for growth; rapid ramp-up of our retail deposits' CASA base, significant capital raise that took place in that year; driving other income, particularly core fees, ensuring consistent increase in pre-provision operating profit, and therefore, maintaining the earnings momentum despite the impact of COVID; and then significant reduction in our cost of funds to enhance competitiveness in our lending to facilitate build-out of the new secured loan products. These measures do stand us in good stead entering FY '22. However, just as the environment was returning to near-normalcy in March, we faced the impact of the second wave, which was far more severe than the first, especially impacting our small retail borrowers, including salaried customers, small businesses and our rural customers, where the impact was the highest, all of which were just coming out of the effects of the first wave with some difficulties. For our bank, these businesses have been our core focus areas. So despite the planned countercyclicality in the big business mix that we have, the impact that we faced was higher across the board than some of the other industry players. Furthermore, the resulting impact compared to the first year was a bit higher because last year, we had moratorium as a result of which accounts did not age. This time, there was no such benefit. Impact of the second wave in rural pockets was the worst. Collection efficiencies, for instance, in our micro-banking business were impacted significantly this time falling to 79% for May and 82% for June versus 89% through the moratorium last year before recovering to around 88% in July 2021. Our own impact in terms of self staff infections due to COVID, which was low in the very -- in the first wave, and it has been much higher this time than last year's levels. So as a result of all this, slippages have seen a significant increase in this quarter from what we had anticipated. In terms of the breakup of slippages, as you would have realized by now, bulk of them, 97% came from retail. Wholesale was the balance 3%. We feel that as economic activity and growth revival is down visible July onwards plus the vaccination drive is picking up and with the overall improvement and better preparedness on the health infrastructure front, it augurs better for normalcy to return gradually as also evident from the high-frequency data. Given this background, we have decided that this may be the best time to take a firm view and clear the decks for the future. As such, we are moving forward and have taken substantial additional provisions this time. As mentioned earlier, we had improved our effective PCR by 800 basis points to 52.28% in FY '22, and we are committed to improving it further to 60% plus through this year FY '22. We have now decided to do all of that in one go in this quarter itself. Our effective PCR is now approximately 61%. Furthermore, we have created additional COVID provisions of 4% on our micro-banking, in particular. This was a onetime decision not only to shore up provisioning and mitigate stakeholder concerns over our PCR levels but also adequately prepare the institution to come back to normalized levels of business, provisioning, growth and profitability. Given our business traction and competitive strengths in certain businesses, starting next quarter, we expect to return to profitability, and over the next 9 months, make up for the loss of this quarter and should target an ROA of 1% or so for exit Q4 of this year, thus setting us up well for the next fiscal year. That is why we are calling it reset for Transformation 2.0. And I shall now -- I shall shortly outline the tenets of this Transformation 2.0, which will drive the institution. With this background, now let me talk about our results for the quarter, first. In terms of asset quality and related provisioning, our GNPA and net NPA as of June 30 were 4.99% and 2.01%. Our provisioning stance has ensured that our net NPA is down sequentially as well as over this time last year, June 30 last year. Our total gross slippages were 1-3-4-2 crores, INR 1,342 crores in this quarter, and net slippages were INR 1,069 crores. Our recoveries and upgrades this quarter were INR 273 crores or 21% of our gross slippages. Of our gross slippages, INR 501 crores was in credit cards; INR 445 crores in micro-banking; and INR 346 crores in the rest of our retail portfolio; and only INR 37 crores from the wholesale book. It is our expectation that we should be able to continue to pull back some of these slippages in the coming months so that the current elevation in slippages is likely to be transitory. Since markets have started opening up in July as lockdown restrictions have eased, things have started improving on the ground. We have seen collection efficiencies return to pre-COVID levels in July, barring microfinance where it is still approximately 88% and expected to improve further in the next couple of months. So the on-the-ground situation is looking markedly better than a few weeks ago. We took provisions of INR 1,449 crores in this quarter. As I mentioned earlier, we have increased our provisioning coverage sharply and also taken proactive COVID provisions, primarily on the MFI book. Our provisions' breakup is as follows: specific NPA provisions of INR 808 crores; additional specific provisions of INR 365 crores in our unsecured retail and microfinance business to improve PCR; and additional COVID provision of INR 239 crores. So the additional provisions are INR 365 crores plus INR 239 crores, INR 604 crores, partly towards PCR and the rest for -- has a COVID buffer. PCR is now 60.94% as against 52.28% in Q4 '21. Given our accelerated provision policies in retail, especially on the unsecured portfolio, this will naturally improve by another 500 basis points or so by the end of the year. We believe this should be adequate. As in the past, we have also given the gross and net NPAs by each of our business segments in our presentation. Now going into wholesale advances. The composition of the wholesale book continues to be strong with negligible exposure to the vulnerable stress factor, and which is primed for a good revival. If we look at the rating profile, the loan book rated A- in better at 77.6%, similar to last quarter, and has improved from 67.5% in June '19. Incremental lending over the last 18 months or so has been largely to A- or better and is reflected, therefore, in the overall rating mix. On the retail front, our PCR is now -- on credit cards, our PCR is now 75.4% in line with our policy of providing fully and writing off in 180 days. In micro-banking, as mentioned earlier, we have taken accelerated provisions to increase PCR to 83% on the entire impaired book plus the COVID provision. Lastly, on business loans, our PCR is approximately 45%. In the small unsecured business loans, we have, again, like in the MFI book taken a provision of 75% on the impaired book as against the normal internal policy of 25% in each quarter. A comment on restructuring and the ECLGS scheme. Our total restructuring as at the end of the quarter was INR 1,152 crores as against INR 933 crores as of Q4 '21. The current restructuring portfolio constitutes 1.98% of our advances. Of this, wholesale was INR 435 crores and retail was INR 715 crores, both slightly above last quarter's numbers. We have taken requisite provisioning on the sales. On the ECLGS, our total disbursements as of date have been INR 1,478 crores as against INR 1,212 crores as of Q4 '21. Of this, INR 876 crores was in wholesale and INR 564 crores was in retail. Now let's talk about our operating performance. In the light of challenging environment and our cautious stand, overall advances were flat year-on-year and were down 4% sequentially. Retail advances grew 7% year-on-year and declined 7% sequentially, whereas wholesale advances grew marginally this quarter. Our retail-wholesale mix was 57:43. Our performance continues to be steady as reflected through improving NIM and growth in granular fees and the pre-provision operating profit. Our total revenue growth was 21% year-on-year to INR 1,664 crores. NII, net interest income, grew 7% sequentially to INR 970 crores. Other income was up 108% year-on-year to INR 695 crores. Fee income from our retail business grew 137% year-on-year to INR 422 crores. Retail fee income to core fee was 75% this quarter. We expect this to trend even higher in the coming quarters. NIM for the quarter was 4.36%, 19 basis points higher Q-on-Q, despite impact of lower disbursements in our retail business, interest reversals and market pricing pressures in the wholesale segment. The improvement has, therefore, largely been due to the continuous reduction in cost of deposits. Our pre-provision operating profit was INR 807 crores for this quarter, a growth of 17% year-on-year. However, as a result of the additional provisions to improve our PCR and the COVID provisions taken totaling to INR 604 crores, we reported a loss of INR 459 crores for the quarter. On the retail deposits franchise, which continues to be very encouraging, our deposit momentum remained very strong. As stated previously, our key objective has been to grow granular retail deposits. Once again, I'm happy to report that total deposits grew 21% year-on-year and 2% sequentially, driven by CASA and retail deposit growth. CASA ratio increased 1.9% sequentially and 3.6% year-on-year to 33.7% at the end of the quarter, driven by, as I said, CASA deposits growth, which was 35% year-on-year and 8% sequentially. The share of retail and small business deposits as a proportion of overall deposits also increased 240 basis points, 2.4% sequentially, to 39.6%, up from 37.2% in Q4 '21. And this was 7.2% growth year-on-year. Our liquidity levels continue to remain high with average LCR at 134% for the quarter. Our cost of deposits came out at 5.2% for Q1, a decrease of 107 basis points year-on-year and 25 basis points sequentially. We expect to further track these rates over the remainder of the year while sustaining retail acquisition momentum. Our capital adequacy ratio as of June 30, 2021, was 17.2%, with a CET1 of 16.1%. In terms of our branch and distribution network, we closed the quarter with 435 bank branches, up 6 branches in the quarter; and 1,422 BC branches, up 57 branches during the quarter. With this, I will now hand over to Harjeet to talk you through some details on the retail businesses for this quarter.

Thank you, sir, and a very good evening to all. I'll outline for you our Q1 FY '22 experience and how are we seeing things as we move forward from here. Let me start by growth. Growth dropped sharply from third week of April: part, self-imposed given the environment; and partly, due to lockdowns and infections. Therefore, how are we seeing things today. Most urban markets are now open, and one is seeing resumption of business activity. Bounce rates are back to normal at Feb, March '21 levels. Resolution rates in the first delinquency bucket, which is 1 to 29 days past due, is back to normal now. Other buckets from 30 DPD to 89 DPD are almost there normal, but sharp falls in resolution rates in May and June in these buckets on account of physical collections is not happening led to much higher bucket sizes. In July, we have seen the first bucket size, which is the 1 to 29 DPD, reduce to below Q4 FY '21 levels for business loans and cards. The second and third buckets are still higher and will come down in the next 2 months. Rural, semi-urban markets still -- are still lagging behind by 1.5 to 2 months because of restrictions in some of the states like Kerala, West Bengal and parts of Maharashtra. Also this time, these markets were more hit by infection. Collection efficiency in July in microfinance was much better than previous months but still low at around 88%. We expect this to improve in the next couple of months. Let's talk about the impact on our portfolio for balance of the year. Gross slippages in quarter 2 of this year are expected to be similar to quarter 1 on account of higher balances in delinquency buckets. Pain is expected to be more in micro-banking. We expect slippages to start reducing and returning to normal from Q3 onwards. In micro-banking, the customers moving into NPAs were paying till April '21. Hence, recovery chances are much higher. We have already seen that approximately 27% of our customers who slipped in June have paid in July; however, recoveries will happen towards the end of the loan tenure as these customers do not catch up on their missed EMIs, hence don't get upgraded or normalized. On COVID restructuring. Under the resolution framework 2.0, we centered this more around the secured loan business, and we did about INR 179 crores of restructuring and a small amount in the microfinance business of about INR 81 crores and almost nothing in cards. Total COVID restructuring between 1.0 and 2.0 today stands at about INR 718 crores, which is 2.2% of the book. Little bit about the future business growth strategy as we see today. In credit cards, our new card issuance is ready to be back to March '21 levels. We issued around 82,000 cards in July until the RBI embargo on new card issuance on Mastercard network came into effect from 22nd of July. We expect resumption in issuance, where this is lifted, or in September '21, when the issuance on Visa network will go live for us. We were in conversation with Visa for many months now, and it so happens that we had closed our commercial terms and started work on IT integrations just before the embargo. Since the technology integrations have started earlier, we are confident of going live in September. We had initially expected a shortfall of about 150,000 to 200,000 new cards this year versus a plan of around 1.4 million cards on account of this disruption. However, we are confident of covering much of this gap over the balance of the year with earlier-than-expected launch of cards on the Visa network. Card spends had taken a hit during Q1 FY '22, but we've seen a very, very sharp pullback in July '21. We crossed INR 3,400 crores of spends, which have been the highest ever since the launch of the business. On micro-banking. Rural and semi-urban markets, as mentioned earlier, are about 1.5 to 2 months behind urban markets in opening up. So you should see microfinance business scale up with a lag of 2 to 3 months. Our focus will be to start doing business in districts where collection efficiencies are comfortable. We also see opportunity in the MFI discussion paper floated by RBI. These would be in the areas of: one, the overall reduction in loan amounts in the industry itself, hence, lowering of risk; second, moving to individual lending in a much more planned manner; and third is additional products' cross-sell to members of the households, mainly secured as the household concept becomes more prevalent. The other interesting business which we've been scaling up or which we launched about a year back was home loans. Our focus has been on building this new asset class and investments in technology branches and people are on track. With the opening of markets and SRO offices, we intend to ramp up our disbursal run rate now. We are setting up a dedicated channel for cross-selling home loans into our own base of customers. We have mapped the existing client base through the bureau and found a very large number of customers that are running home loans with other financials. There is, therefore, tremendous opportunity to target these customers through balance transfer. This will not only bring down the cost of acquisition but will also help us deepen our relationship with these customers beyond the product holding that they already have. Let me talk about a new business which we've just launched, which is Tractor Finance. Last month, we launched a pilot for Tractor Finance leveraging our large presence in rural and semi-urban markets and agri businesses. The customer proposition is completely digital with the customer getting instant approvals at the dealer outlet and disbursal happening within a day. In this pilot, we've successfully disbursed close to 600 tractors. We are now in the process of enhancing the technology and also expanding to 250 districts over the next 3 months. Here, again, we should start seeing a disbursal run rate of more than 1,000 tractor loans per month by end of quarter 3 this year. The MSME business loans -- as mentioned in our last few calls, we have completely moved to a much more resilient and safer segment in terms of new business acquisition. In our assessment, the MSME segment has been subject to various challenges right from demonetization to the introduction of GST, and now, the pandemic. Hence, a large part of this segment is very vulnerable and will take a long time to come out of this. Therefore, our focus is on businesses which can continue to grow even during these tough times, have their leverage under control and are demonstrating strong and resilient cash flows. The underwriting criteria has been significantly strengthened. From a portfolio balance perspective, we have exited the unsecured business loan segment. A small part of this, however, will be done as part of our current account acquisition strategy. Now let me talk about our subsidiary, RBL Finserve Limited, RFL, as we call it. We intend to leverage RFL in the rural and semi-urban markets, building a comprehensive model for Bharat. RFL today is significantly scaled with AUM of about, say, INR 5,000 crores; is present in 21 states and union territories through 759 branches across 295 districts and covers over 20,000 villages. It has a sharp strength of about 9,000 people and a well-experienced management team and a strong Board. The plan is to start positioning RFL as the bank's arm in these markets and its branches as banking outlets offering majority of banking products. We would further enhance the brand unit structure in RFL to include risk assessment and collections, which will be done by the bank. We would be deploying comprehensive analytical scorecards and models to aid the frontline for customer selection and decision making. We would share more on this strategy in the coming months. While we will remain completely focused on collections over the next quarter, you will see that there is enough work happening to move into newer growth areas, and we should start seeing results from quarter 3 onwards. I would now like to hand over back to Mr. Vishwavir Ahuja for his concluding remarks.

Thank you, Harjeet. So going into some depth regarding our retail businesses. I'll now take up the next few minutes sharing with you all our medium-term strategies. In my address of May 4, 2021, at the time of the last quarterly call, I had mentioned about the reset we were planning to do in our business approach, capital allocation and capability. I'd like now to give some more color regarding the same, and also enunciate a medium-term growth approach for the bank. The principles of RBL's Transformation 2.0 are built around the following tenets. Emphasizing certain right-to-win franchises, a word we have -- phrase we used earlier, where we have a reasonable starting position in terms of scale, market share and capabilities; incorporating business learnings across markets -- market ups and downs; and an ability to deliver above cost of capital return over market cycles. The franchises that meet these tests today are credit cards to start with. In cards, notwithstanding the temporary hiatus because of the Mastercard situation, our plan still is to issue between 1.2 million to 1.4 million cards in the current fiscal year. We today account for approximately 10% of new card issuances in the country and with a 5% total market share, approximately. We expect to retain this in this range over the next 2 to 3 years. While we have seen higher-than-normal credit costs in FY '21 and perhaps in the first half of this year, this business will continue to generate profitable returns and return to pre-COVID levels in the second half of this year. Our approach over the next 2 to 3 years would be to continue to focus on partnerships with other relevant and well-known brand platforms like Zomato, BankBazaar, et cetera, to be added to expand reach, access to customers. We are undertaking a significant ramp-up of our investment in technology, app design, risk, info tech and service architecture in credit cards over the next 18 months. That will make us even more competitive, not just against the larger players but also vis--vis the fintechs that are redefining customer experience significantly. We'd also have to be mindful that cards proposition is being expanded to other segments in India through the buy now, pay later offering. And it is an opportunity for us to leverage our technology and risk management to start seeing the credit card business as a broader consumer offering. Until recently, our cards franchise was stand-alone, but we have now started integrating this with other parts of our banking franchise in terms of cross-sell of savings accounts, insurance and other retail loans and products. This has required significant technology intervention, which we have largely accomplished. We have around 2.5 million, about 83% of our card customers who use our MyCard app. And this is an effective way to expand our services to them efficiently. Conversely, we hope to meaningfully expand our very low current -- low card penetration to our 1 million branch banking depositors, which also we expect -- the 1 million, we also expect to double in 18 months through our traditional, and more importantly, through our project efficacies. More on that, I will just elucidate in a little while, which is our digital platform. Now on to micro-banking, what we are now calling in terms of Transformation 2.0, transforming to Bharat Bank. Harjeet has called the Bharat Banking segment, and I do believe significant opportunity exists to build upon a traditionally underserved segment that is digitizing fast. In the very near term, the present situation -- while the present situation on the ground warrants some caution, this is another business where we can expand horizontally into other areas of secured loans, such as two-wheeler, home extension, loans against gold, et cetera. The draft RBI guidelines on micro-banking, we believe, are a long-term positive and will favor better capitalized and scaled-up institutions to expand the business using the microfinance JLG as an entry point into the rural households. RBL Finserve, our 100% subsidiary, is now a significant player in this segment. And our endeavor will be to continue expanding our distribution via them across the country and plan at least 70% to 75% of the districts in Tier 4 and 5 geographies over the next 3 to 5 years. The other 2 business segments that we can't claim to have -- to yet have built a large franchise in but are very important are the secured retail business franchise -- secured retail asset franchise and our branch banking business. So talking about the first one, briefly, the secured retail assets, the first aspect being home loans. In our housing business, we have 72 branches currently and are on track to add another 50 branches in this fiscal and 120 branches in the next 2 years. This business in the smaller markets will be done via the RBL Finserve branches directly. We plan to build this book with a view to scaling this to approximately INR 10,000 crores in the next 3 to 4 years, secured retail assets business loans. Harjeet mentioned about a change in our approach, and now only focusing on secured business loans. We do this in 2 ways. In smaller markets, it is done directly through our RFL branches now, and we currently have over 150 branches with a INR 1,000 crore-plus AUM that has performed much better even during the pandemic. So now we have this experience. We will continue to scale this up via RFL, and the opportunity is indeed very significant. The second channel for our secured business loans has so far largely been BFs in the metro urban markets. This is a low ROA business, of course. So we are progressively shifting to internal cross-sell and direct sales teams to minimize the costs and engage more with our business customers. We have already activated our branches for cross-sell over the last 12 months, again. And we shall expand our branch -- as we expand our branch network, this shift in proportions will become more visible to all. Now let's talk about branch banking, i.e., Deposits plus-plus. Actually, I should have put this right on top of our reset 2.0, only because it is absolutely critical. It has delivered significantly during a very tough FY '21. And with our digital capabilities, we believe we can move the needle here significantly, notwithstanding our small size of network. Let me first take the expectations from this business over the next few years. Our retail and small business deposits today are approximately 40%, as mentioned earlier, 39.6%, which we want to take 50% plus within the next 18 months or so. The current cost of deposits has come down very nicely to 5.2% for Q1 '22. We should see it at 5% exit before the end of this year. Thereafter, we will keep narrowing the difference between us and the larger banks. We will continue to add 80 to 100 branches each year, primarily in metro urban locations to add to our branding customer acquisition and servicing. The branch banking business already does a significant cross-sell of 2.8 paid financial products per customer relationship. This scale and product penetration is expected to increase significantly. In fact, in our deck, we put a slide on this. The big delta of cross-sell that perhaps has been underexploited so far is that of retail assets and cards. This is now a major KRA for the team, and we would hope to be able to share more metrics around this over the next few quarters. And now to Project Abacus, something I had alluded to in my commentary last quarter and a little earlier today. This is a platform that we have been creating in a silent mode for the last 3 years. Our objective in doing so was to figure out how we could increase our customer base in Tier 1 India, chiefly our cards and branch banking segments, without having to disproportionately invest in high upfront fixed costs of branches, people, et cetera. Our view was that India -- as India takes to a digital financial services, we will -- there -- will there be a way for us to create a bigger customer base on our moderate branch and people tenets. We have been funding this on our shoestring internally, thus far, but now are quite confident and prepared to up the investment and exposure significantly. This platform, and you will see some details of it on Slides 53 to 55 in our presentation, already does as much business as our regular 400-plus branches by way of new accounts, at a fraction of the overall costs and the traction we have seen on this during COVID is sustained, can dramatically change the way we do business with consumers, and the scale and depth we can create can be a positive surprise. All the design, tech and workflows for Abacus have been done in-house. We did not know it then, but this is what the start-up world now calls a neo-bank. Our belief is that incumbents need to leverage their branch and banking understanding to do a complete makeover internally to stay relevant to their customers. In other words, build all that a neo-bank has plus the deposit licenses that a bank brings. The change will encompass a complete cloud-first technology transformation, customer backwards design, people with different skill sets and an execution approach that is more akin to a single credit team that a typical bank is used to. We have successfully executed against all these requirements of tech skills' agility, thus far, in this 3-year period, but as we said, on a very low scale. It doesn't imply that branches and people are not needed, but that these are tightly integrated into our overall proposition for our customers. As Abacus becomes the main framework of our consumer bank, we will add our credit card customer base to this as well, which right now is a stand-alone of 3 million customers. If I have to make a forecast, I can say that in the next 3 to 4 years, we shall be able to have a total consumer base of 12 million to 14 million customers that would do a variety of products and services with us, signing deposits cards, loans, payments, demat, insurance, investments, et cetera. Just to give you -- just to reemphasize the scale of this, currently, we have, like I said, 3 million in the card customer base and 1 million in the branch banking, 4 million total. What we are saying is that in the next 3 to 4 years, we could scale up our total customer base to 12 million to 14 million and doing a variety of products, as I just said. These customers will decide the way they engage with us: branches, app, smartphone tech center, et cetera. And because the demographics is with the bank, we should be able to provide them a seamless service, avoid duplication of paperwork and focus on how they deal with us through their transactions rather than just rely on a typical push. It also changes the way we should account for our business economics away from product P&Ls to a concept of customer lifetime value. All this may sound a big leap for banks, but for banks of our size and vintage, there is no choice and perhaps no bigger opportunity than doing this. The financial services world of tomorrow will have many nontraditional competitors, who'll anyways force us to change. So net-net, we are striding on 2 boats right now. The COVID 2 cleanup, where the elevated provisioning has now been largely taken. The second boat is to complete the reset around the principles that I've shared earlier. Notwithstanding the COVID 2 costs, we do see a normalized business momentum to get us to a 1% ROA in April Q4 FY '22 and higher levels thereafter on a sustained basis, irrespective. So to summarize, Q1 FY '22 was significantly impacted due to the second wave, hitting lives and health more. We have, therefore, taken proactive provisions to increase our PCR to approximately 61% and also taken additional COVID provisions. This was a onetime decision to shore up our provisioning and mitigate stakeholder concerns over our PCR levels. We should further increase our PCR to above 65%, as I mentioned earlier, based on our existing risk provisioning policies. We expect markets to normalize by Q3. Our focus will be to scale up in the businesses where we have built some expertise, namely card, micro-banking, drive growth in housing, maintain retail deposit momentum while continuing to cut rates in the near term. And we are investing significant time and resources in revamping the bank inside out via Project Abacus. So I think we are set for a Transformation 2.0 journey, and we will continue to share more details with you all and benchmarks for you to track us over the coming quarters. Thank you.

[Operator Instructions] The first question is from the line of Abhishek Murarka from HSBC.

Sir, 2 or 3 questions. The first is on the home loan strategy. Now basically, you said that it will be a cross-sell to existing customers and there would be balance transfers. So if you can share some details around this. So what kind of customers reads as employed and so on -- and so -- or even from which kind of other financials? So getting banks who'd have very low yields. So at what yields are you looking to transfer these balances from? So just some color around what exactly you will do in terms of cross-sell?

Yes, Abhishek, so this is Harjeet here. So what -- so first of all, let me just add that, that is not the only strategy for home loans because we are opening up branches, and therefore, also doing direct acquisition through our people. But yes, a substantial part of the home loans should come from our existing customers as well. And if you look at it, so Vishwavir mentioned that there are about 4 million customers, 1 million in branch banking and about 3 million in cards. And even if you look at the breakup, cards itself is about 70% salaried. So the skew will always be more towards salaried than self-employed. And since these are all within the age groups of, let's say, 30 to 40, 45 years and spread across various cities, you will see ticket sizes ranging between INR 20 lakhs to about INR 50-odd lakhs. That is going to be the space in which we will operate. And hence, the yields will not be the typical metro yields, which we see in the headlines of about 6.7% or 6.8%, but would be more in the region ranging between 7.5% to about 8.5%, 9%. So that's the space we will work with. Yes, and -- we -- when we set out to map our existing customer base of these 4 million customers, we did find a very large proportion of them having these loans with competition. And it will be a mix, banks as well as HFCs.

So when we say competition [Technical Difficulty]

I'm sorry to interrupt you. Mr. Murarka, your voice is breaking now.

Am I audible, clearly?

At the moment, you are.

My question was that when you say competition, what kind of -- are these, essentially, large -- mid-to-large HFCs, or let's say, large NBFCs with the home loan portfolio. What kind of competition are you really looking at?

So if you -- that's why I gave you a ticket size range. So if you look at the ticket size range I was talking about, this will be medium-to-large HFCs and banks in, let's say, the Tier 2, Tier 3 markets. And bulk of this is also -- if you recall, I did mention that we will be leveraging our RFL branch network as well, which is there already in the Tier 2, Tier 3 markets. So therefore, there, the competition is more either with PSU banks or with HFCs.

My second question, Harjeet -- in fact, my second question is on the slippage guidance. Now [Technical Difficulty] bounce back in -- check bounces are down. There's a collection effort, which is picking up. Bounce rates are actually...

Your line is breaking, again.

Am I audible?

Abhishek, your voice is cracking.

Yes, Mr. Murarka, your voice is breaking up. So I would just request you to check your phone line and rejoin the queue. In the meanwhile, we'll take the next question. The next question is from the line of Pranav Gupta from Aditya Birla Sun Life Insurance.

Two questions. One was a continuation of the previous one. So when we talk about the housing piece that we're looking to build out, is it sort of in conjunction with the affordable housing book that we're already building? Or is it sort of going to be a separate business?

Yes. This is going to be the affordable housing. So -- see, when we say affordable housing, we must keep into account that when you move into smaller markets, your ticket size automatically falls to somewhere between INR 15 lakhs to INR 30-odd lakhs. And therefore, it fits the affordable housing criteria. It is not in the lower end in terms of income strata, but these markets typically have housing costs in that range, and that is why. But yes, it is going to be more and more of affordable housing with a little bit of prime housings thrown in.

Okay. So then in this business, we are largely going to be competing with the likes of the PSU banks which you mentioned or the affordable housing businesses of the other private banks, someone like Axis Asha or HDFC Affordable Housing, that sort of segment rather than the pure play to INR 12 lakhs, INR 15 lakhs affordable housing NBFCs that we have these days?

No. You will, therefore, compete with the likes of Awaas, Aadhaar, GRUH as well. But yes, we've taken a conscious choice of not to target the segment below INR 10 lakhs.

Okay. And is it fair to assume that the customer mix is fairly going to be more skewed towards salaried versus self-employed, going forward?

Correct. That is correct.

Okay. Okay. Second question is on the corporate book. So you've seen that book obviously de-grow and getting rebalanced more towards the higher-rated corporates. But if I look at your presentation, I see that corporate yields have come down to as low as 6.7%. Now at your cost of funds, which is 100, 120 basis points higher than the larger banks, how do we see this business going forward? Because at a spread of 1%, 1.2%, this business seems to be really tough. So how should we look at this? And what is the strategy going forward over here?

Yes, Pranav, Jaideep here. So I think the current yields are also a little bit colored by some excess liquidity that is being deployed at the short term on wholesale banking. I think as we see demand coming back, right now, we're also in a very subdued demand environment, our focus will be to really grow in the commercial banking and the lower end of corporate banking space, including leveraging our GIFT City business. We also have -- the current deals are also, by the way, influenced by almost 8% to 10% of foreign currency yields. So if I take rupee yields, you could add approximately 60, 70 basis points to that from -- just from a like-to-like comparison perspective. So the idea would be to not really look at AAA names, but really go down to the A+, A, A- names in the INR 30 crores to INR 100 crores ticket categories. And this will take time. It's not going to be a dramatic growth situation that we are sensing right now. It will take time. And -- please also understand that we will continue to reduce our cost of -- deposit cost of funds. So we will -- we should easily target a sub-5% cost of deposits by -- in the next 6 months or so through a combination of cutting rates and improving CASA. So I guess it's a combination of all of this that will happen. Having said that, I don't think we will be as profitable as a 4% cost of funds bank. That's the reality we will deal with.

So is it then fair to assume that over the medium term, the mix will continue to shift towards retail given that corporate is going to be a late -- or is going to grow more in the medium term rather than in the near term?

No. Actually, it's the other way around. Near term, we might -- just because retail will probably be subdued for another maybe 3 months or so, so the drive -- growth drivers for retail will be obviously markets coming back for our core products as well as some of the pilots and the initiatives that have been going on for the last year or so kind of home -- like in home loans.

Sorry?

Yes. I was saying that the retail growth will also be driven by the newer products. So yes, you're right that in the, let's say, 2-, 3-year time frame, I guess, clearly, retail growth should be higher than corporate.

Okay. And could you give us a cumulative write-off on the credit cards business throughout the pandemic, probably over the last 9 or 12 months?

It should be in the range of, let's say, if I take the last 3 quarters, because there would not have been much before that, should be in the INR 1,100 crores to INR 1,200 crores range.

Okay. And just one last clarification, sort of an obvious one, but still clarifying it. This GNPA and NNPA slides segment-wise that you have given, it's a breakdown to 4.99% number, right, rather than obviously, increased digital businesses.

Correct. Correct. Correct.

Okay. So in that case, just one last follow-up. This 1 or 90 basis point number on the credit cards business, sort of implying an overall stress level of 14% to 15% on the book, is that fair to assume if I include the write-offs and the restructuring and all of that?

Yes. See, if you look at credit costs for credit cards, I think we had about 10.5%, give or take, last year. And in the first quarter annualized, we would be similar range, I guess, give or take, in terms of annualized credit costs. So what was pre-COVID running in the 5% to 5.25% range has generally been running at about 10%, 10.25% in COVID 1. And unfortunately, in COVID 2, in Q1 also, it's been elevated because of COVID 2. So -- yes, so that's the range it has been running. We should expect this to come back to the 5%, 5.5% levels as we exit the year or second half of the year.

Right. But I mean, if I just look at your customer mix, the breakage that you provided for the credit card business, a large chunk being from salaried, almost 70% plus. And even if I look at the mix of -- within the Tier 1, Tier 2, Tier 3 cities, almost 70% being in Tier 1. This -- I mean credit costs seem slightly higher. How should we look at this? I mean -- you've mentioned that you've tightened the standards of underwriting going forward. But isn't it -- I mean, it's slightly surprising, looking at the details that you provided on the customer profile that at least the sort of credit costs?

Yes. I think you need to look at 2, 3 things when you look at the credit costs for the cards business. If you look at the second pandemic, the entry rates into delinquency did not go up. They went up by just 1% or 2% over what was there, let's say, in Jan, Feb, March of this year. But what had happened was that your field collections, actually, their efficiency went down dramatically in the months of April, May, June. And that is what has caused the buckets to bloat and slip. So your credit cost is going to be a function of what is your entry into delinquency, which, by the way, in the first wave was fairly elevated. But in the second wave, it was not elevated at all. And if you want to get a little flavor on this, if you look at the Slide 47, where I've given you collection efficiency by buckets, you will notice that the first bucket, which is the 1 to 10 DPD, which is largely through telecalling, we did see a dip, but we quickly recovered there because the telecalling was still possible. But all the balance buckets are where the physical collection happens. And once that gets impacted, there will be a large flow-through, which will happen. So there is -- I mean, this is something one will have to live with, which is flow-through will happen. It will move into NPA, and then charged off, and recovery will happen from it. So you will see a very large recovery coming in some part of this year, but a large part next year as well because these are customers which were perfectly fine. They were not stressed, but every time you have a delinquent customer, you need to go and collect. And if that collection machinery gets impaired, the flow-through is that much higher.

Sure. I have more questions. I will probably connect off-line and get better clarity on.

Sure, Pranav.

The next question is from the line of Nitin Aggarwal from Motilal Oswal Securities.

A few questions. Firstly, we have now significantly upfronted the provision in this quarter and covered a long distance on PCR. And yet, we are guiding for nearly 1% exit ROA for the year. So while 1%, of course, looks good from where we are right now, but just wanted to understand what sort of credit costs are we looking at for the year? And is this like a sort of a conservative number that you're putting out?

No, sir, can -- yes, sorry. I think I guess it's a function of many things. I think we are -- you could argue, we are conservative. I think it's also that as we look at what has happened from a provisioning standpoint, is that we have taken the extra PCR and the COVID provisioning to largely say that we should come back to some sort of a run rate provisioning by second half. And the run rate itself will be higher because of the mix of businesses we are in. And one of the things is that we need to have a substantially higher growth come back. So I think the balance sheet has been roughly similar sized for the last COVID impacted period. And therefore, the jaws of operating income being higher than costs, et cetera, et cetera, will happen when the growth begins to materialize in the balance sheet, which we think should happen by early next year and not so much by the end of this fiscal.

And the other question that I have is on the card business. Now after the spends revival in July, how much further room do you think there is like overall in expense normalization? And rest of customers also, while the share of transactors is going up, but that still remains comparatively lower versus others. So how is this mix likely to evolve that?

Yes. So I think spend metrics July are at all levels, while in the presentation, we've given you until June, but at July levels, we are perhaps seeing the higher spend metrices across -- and therefore, I don't expect spend on existing customers to go back -- go further beyond this, but you will see more of new customer additions and therefore, spend coming from there, which will go up which is there. And you had a second question, sorry, I missed that.

On the mix of customers, how is that likely to change?

On that as well. Yes, transactors. -- if you see transaction, actually, volumes are fairly okay. When you look at a percentage, you are seeing it as lower only because the term population is -- term balances are higher. Please note that almost about 75% to 78% of the term balances are also transactors, just that we have converted their transactions into loans. So the transactions are higher. In fact, across all at industry level, I think most of us will start seeing revolvers come back. Because what has happened in this period is that most of the revolvers have flowed into delinquencies or NPAs. And therefore, the revolve balances have actually started coming down. And that, I think, will start coming up and bring up the income dynamics for the business. But I think from a pure transactor or customer spend point of view, the business is pretty well placed. It's now the new customer acquisition will further take up the spend.

Okay. Good. And -- like as you are saying now the new customer acquisition will drive the overall spending in the card because the normalization is like almost sort of done. And but the mix of TRP cities is going in the total like acquisition chart, if you look at mix, if you look at. So how is this going to affect the per card spend? And how has been the delinquency trend in Tier 3 cities?

Yes. So a couple of things on Tier 3 cities. I think we've seen that if the customers start spending, engaged customers who spend, active customers, the spend levels are fairly similar to your larger markets. They're not -- the only thing [ might have ] to work on it in that the active rates, the active rates in Tier 3 cities are lower. And therefore, that is what one has to work on to see how do you get those customers engaged at the same level as what the large market customers are. And that predominantly also happens because large market customers are used to using their cards because they're multi-carded. And hence, that same effort has to be made on the smaller market customers. From a delinquency perspective, Tier 3 markets are better than the larger markets, purely because the leverage is much lower.

Okay. And lastly, if you can share the data points on interest reversals during the quarter and what was the impact on margins due to that?

Just one second. We would have had approximately about INR 80 crores to INR 100 crores of interest on our sales in Q1.

Okay. So this mean like 40, 50 basis points of margins [ up ].

Yes, yes, that's right. That's right. But -- yes, but if you compare to pre-COVID also, there will always be some interest also the delta would be lower. But yes, otherwise, what your thinking, yes.

The next question is from the line of [Samid Usay ] from Axis Capital.

Question on operating costs. There is a slide which indicates that there's a spike due to infrastructure costs. Also secondly, I wanted to get a sense on how OpEx would move and what are your thoughts given the branch expansion tax plan?

Yes. So I think broadly, we've been adding branches quite aggressively, including during the -- as soon as we came out of the COVID period, we've been adding branches. I think the idea is to continue to do that, maybe even accelerate because I think 1 of the key focus areas, as Mr. Ahuja also mentioned in his speech is to granularize deposits, which is 1 of the core focus areas. We are also adding to technology investments as, again, alluded to in the speech in terms of what we have been doing. We've even partnered Accenture in the recent past to revamp the way we do technology investments. So those were some of the reasons and also, ultimately, then retail growth comes back, which is cards coming back, et cetera. These are generally upfronted costs, origination costs. So with business volumes going up -- going forward, we will expect costs to go up during the course of the year. So we will have somewhere in the 30% range increasing cost year-on-year, I would say, if I have to give an estimate.

Okay. So that kind of growth rate will sustain, you think.

Yes.

The next question is from the line of Manish Shukla from Citi Group.

First question on cards. When you mentioned physical collection on cards, I'm just curious, 70% of the card base is salaried. So why does it need to be a physical collection effort?

Manish, I would have loved it if everything would have come on the phone. Unfortunately, it doesn't. We've noticed that once the customer slips beyond 10 DPD you would need to knock on the door to be able to get this because it's not just cards which the customer is under stress for. And you would want to be the first person there to recover your deals before the other loans. That's the normal philosophy one would follow on any unsecured loan, for that matter. And that is the reason why physical collection becomes important. Because after some time, it's very easy for a customer to just stop taking calls. And hence, you need that knock on the door.

And this is not just a post-COVID behavior. This is BAU.

The collection strategy, physical is a very, very BAU number. In fact, for most of the unsecured products, it is quite a lot physical which augments it. You use telecalling initially because that's where bulk of your early, let's say, lazy payers are removed from delinquency.

Okay. And when you say Tier 1, Tier 2, Tier 3, are these RBI definitions by population or is it defined separately?

No, no, it's -- so the Tier 1 is typically the top 10 cities and then Tier 2 is the next 25, 30 and then Tier 3 is the balance.

Okay. Fine. That is clear. The other question, maybe, Jerry, you can answer Q-on-Q, the yield on loans are up almost 40 basis points. What explains that?

I think...

Slippages are similar. Retail has declined more than wholesale. So I'm just curious why should yields go up so much?

Yes. One is, I think the interest reversal would be less this quarter than last quarter. The second would be that we -- if you look at the -- we would have shed some corporate lower-yielding loans which we were carrying in March because of excess liquidity. And if you look at our LCR technically, we are down from, let's say, 150. So the excess equity has marginally come down. That would have been the other reason.

Yes. So that was my second question. The 20 percentage point fall on LCR Q-o-Q. I mean, where has that got deployed? Or how should one look at it? Because the balance sheet growth in aggregate, it doesn't show up in the aggregate numbers, hence I'm wondering.

Yes, I think there are some more nuances Mani, and we can probably have a more detailed call offline. But see, for example, we will have lower non-premium deposits, if you have non-premium deposits, you will typically have 0 outflow. So the -- those are also generally bulky in nature. So we have tried -- we have kind of gone down on our top 20, top 100 quite materially because the growth is coming from retail. So -- and there is some reduction in excess liquidity consciously.

Okay. Right. Really, the last question we talked about exit ROA at ballpark about 1%. Any thoughts around exit NIMs?

Yes, yes.

I think similar to what it is.

It should get slightly better.

I mean there is scope on the upside. But next quarter will remain muted in NIMs. But after that, we are hoping that we can improve them.

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

Yes. So firstly, in terms of broadly under this transformation 2.0. And finally, when we look at the various initiatives that we have been taking all across. So finally, how should we look at the book mix over the next 2 to 3 years? Does it change in any way given the circumstances or what has been the learning? Or broadly, so you alluded that it will be largely business loans card, but how would be the proportion panning out over the period?

Kunal, Rajeev here. I think we should look at a 35% wholesale and about a 65% retail. And the secured business should keep improving as should cards. Micro finance, as we said, we'll watch for a couple of quarters before we bring the growth back. But even in micro finance segments of the households, in addition to microfinance, there will be other horizontal services and products which we will endeavor to put. So take it as like 35%, 65% in a 3-year time period.

Yes. And structurally, the margins should also be down. Maybe this year, we are still guiding for an improvement out there, okay? But structurally, should we expect it to be down given the proportion of the secured and dollars want to go up. So yields would definitely have picked out. Would that be the fair assumption?

No. No, Kunal, actually, you have to see that we are carrying a wholesale book, which has about I would say, 20%, 25% of the book is actually very, very low yielding. So we will be able to redeploy that once demand comes back and we are prepared to ramp up on our growth. I don't think we are looking at the average spread on our business being materially different. There will be some cost of funds advantage. There will be some of our business loans as well as our MSME loans, which will improve. So will the card growth happen. So I don't think this is being guided to that. I mean, if you remember, we were 50% or plus thereabouts on wholesale about 5, 6 quarters ago, it's 43% arithmetically right now because retail hasn't grown or has degrown. But over the next 3 years, retail should be about 65%. So all of those yields are far, far better than the wholesale yields which we have currently. We obviously expect the wholesale business, especially in commercial banking, to come back. We don't know. But my guess is in the next 6, 9 months, we should see somewhat of a better than what we've seen. But still, the average yields in retail will be higher than the wholesale book.

Okay. Sure. And in terms of write-offs, so if you look at on the credit card side, so almost like whatever was outstanding GNPL, mostly everything has been written off and maybe the overall slippages, which you have highlighted for this quarter, that is what is now outstanding. So would that be -- so maybe how would have been on the existing GNPL book of bouncing credit card of INR 500-odd crores. Should we say that it is just like accrued in this particular quarter and can be recovered? Or there is some stickiness out there of the earlier quarters as well?

So there will be a little bit of stickiness. But yes, broadly, when an account crosses 90, it kind of flows into 180 and then the recovery starts happening post that. Roughly over 1.5 years you should -- one recovers about 30% to 35% of that.

Yes. No. So the way last time, the credit card, I think GNPLs were around about INR 63-odd crores. And I think that entire -- maybe that the portion similar kind of write-off has been there in this quarter as well, okay? Because I see credit card GNPAS coming down to INR 500 crores. And this is what you highlighted as a slippage number maybe out of -- yes.

Yes. Kunal, I think you said this in the past, credit cards automatically get written off at 180 days. In fact, therefore, the GNPA on credit cards is never a reflection of the business. It's the credit cost [ that the payment takes ]. So the GNPA will always be low because it will not carry burden beyond 180 days.

Yes. No, I am saying it was largely like 90 days as well. So that's why maybe 100% of GNPL is being written off, yes.

Okay. Recovery is only about 10%, which comes in post 90 between 90 and 180.

Okay. It's hardly 10% kind of a thing.

Because the main recovery comes after that, is when you get your recovery is good.

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

My question was that do you find any material difference in delinquencies from the book originated by Bajaj and originated by you?

You're saying between the book originated by Bajaj Finance and the rest of the book?

Yes.

Yes, not much. It's about 20 to 30 basis points, that's it.

Okay. So theirs is better or worse?

Theirs is better because it's a tested customer.

The next question is from the line of Rohan Mandora from Equirus.

Yes.

Sorry to interrupt you, Rohan, your voice is not very clear. May I request you to come onto handset mode?

Yes, is this better?

Yes. This is much better, thank you.

So sir, on the cards, what we were showing the 1 to 10 DPD and the resolution rate there. Now if you look at the resolution rates in that segment, it's almost 97% and 100%, 100% for the 3 months. And still, the flow-through is pretty high. So would it be fair to assume that these are just the month-end number and during the month, if there is some slippage that those would have flown through into the higher bucket?

No, the correction -- yes, card resolutions card runs by what we call a cycle. So it's not month-end numbers. You have to keep in mind that the 1 to 10 DPD resolution, when you say 100% is not 100% resolution. It's 100% as indexed to pre-COVID. Typically, these numbers run in the region of about 96.5% to about 97%, 97.5%. The real slippage, which you are seeing is because when you see the next bucket where the resolution fell, which is what I was referring to earlier, where the field collections fell that those numbers, if you see dramatically reduced.

Sure. And just second one on the current account circ. Is the impact of that completely over on our books? Or is there some further outflow that can happen on the current account we may not be having a 10% market share in some of those accounts that you may have account relationships in.

This is Renren on the current account circular impact. There is obviously a little bit of gain and a little bit of loss, which is expected. We are working on both sides of it right now. Most of the impact has been assessed. It may not materially impact us over this period. There is some more impact left, which is going to happen in the month of August, but it will not be material to make an impact on the overall business.

Sure. And lastly, in terms of the exit quarter, ROA is up 1%?

Yes, go ahead. Yes.

So sir, in terms of the exit quarter ROA of 1%, is it contingent on business as usual credit costs that we are factoring in for 4Q? Or will it still have a slightly elevated credit cost in 4Q.

No. By Q4, we should come back to reasonably close to BAU credit costs.

The next question is from the line of [ Sachin Upadia from Play Securities ].

Just wanted to know a few things: a, in terms of -- you just highlighted that 25% of the customers corporates effectively low yielding. Could I actually know the book duration or tenure? And second is in retail, what will be the product power client, which is there right now? And if you could give me a similar number last year same time.

What is the question? -- I didn't understand the first question.

The duration of the margin book portfolio...

Which is low...

Quite short.

Quite short, yes.

So that will be less than 3 months?

Yes. Yes, in the 3-month segment range, yes.

On the product holding, Sachin, can you repeat the question?

So I am looking at product per client in the retail segment. If you could kind of share that data as what will be the current product liability of that [ both ex line and per client ]

We have a product rolling in the retail world at 2.82 right now. And it is growing in the range of about 15 to 20 basis points on an increased base of customers every year.

The next question is from the line of Jai Mundra from B&K Securities.

I have a few questions. First, on your slippages. So you have mentioned that even the 2Q may have similarly similar kind of slippages. So just wanted to check, is there any element of regulatory prescription as to why the slippages are slightly higher at maybe 10% annualized? I mean like there was an RBI circular on daily timing of NPA or anything else, which may have led to higher slippages apart from the core, of course.

No, Jai, there is nothing with respect to RBI guidelines. We moved to daily NPA almost a year plus back. So this is purely on account of COVID. I think just to kind of give you some context, COVID 1, people are just coming out. It was not as if everything was perfectly fine. It was just coming back to some sense of normality when COVID 2 happened with all its complexity. So -- and the business mix that we have, got a little more impacted because of the business mix. So there's nothing regulatory in this at all.

Right. I mean nothing specific to RBL Bank, for example, right?

Absolutely not.

Sure. And second thing on credit card bank, right? So well in time, you already have entered into partnership with another network operator. And I think [ Vishwavir ] also mentioned that there will be around 2 months delay from now within which you would start sending out new cards. But in the card business, do you suspect that there could be a lead lag or I mean there could be lag also, a, for the next 2 months, we are not issue any card. And there may be some lag impact of cards issued before they start earning revenue meaningfully. And hence, your top line also in maybe not only in 2Q, but 3Q also maybe may get impacted with the lag?

Yes. You're right, card revenues do come with a lag because customer activation happens over 90 days. And therefore, there is a lag, which will come in, in terms of the spend which one is expected to have from these customers, which would have been acquired in the month of August. But I think luckily, we've been able to shrink that time line, and that is why we said that we should be able to launch that -- the new partnership in September. Now if you look at even July, we were -- despite the ban, we were still able to issue about 82,000 cards. The reality is whenever we launch Visa, we will launch and start sourcing a little earlier. So the objective is to try and minimize this. So by the time we end this year, we won't have too much of a gap, which will therefore impact the overall performance of the business. In any case, in the short term, a new card is always a drag on the P&L. So if you're coming from a P&L perspective, then it's not that much of an issue.

Understood. Right. And just on restructuring. So you had given some INR 715 crores are retail restructuring, if you can further divide that into MSI, credit card and others.

Yes. So in this INR 718 crores, about INR 458 crores was Restructuring 1; and about INR 260 crores is Restructuring 2. And within this, microfinance is about INR 111 crores; cards is about INR 179 crores; all card restructuring is Restructuring 1, there is no card restructuring in R 2.0. And the balance is all retail, which is business loans, et cetera.

Right. So I mean this is the outstanding number, right INR 111 crore and INR 179 crore?

That is right.

Sure. And -- Just one more thing. Now I mean assuming a similar slippages in 2Q and you maintain PCR or probably take it ahead. And so even then the provisioning requirement, you may have to dip into the contingent provision that you have already made in this quarter, right? Or until unless you have something else in mind? So is that understanding correct that if the slippages are similar and you increase the PCR from here on also, you may have to dip into the contingent provision that we have created in this quarter?

Yes, that's a call we will have to take at the end of the quarter. But the belief is that if COVID-2 is settling down well as we are already seeing in July, then we will obviously reevaluate the need of how much to carry forward and whether we should claw back something, yes.

Right. Okay. Yes. Sorry, sir, I missed that slippage breakup from -- in the MFI and credit card is -- If you can repeat that slippages breakup.

Approximately INR 450 crores on MFI; and about INR 500 crores.

INR 500 crores in cards.

Cards.

The next question is from the line of [ Vishang ] from Point72.

Yes, am I audible?

Yes, you are.

So first on growth, just to clarify. So is it safe for us to think about this year FY '22 as more of a trend in year on growth because of the COVID. So maybe we are likely to see like flattish loan growth similar to last year. And then FY '23, we will start our kind of growth again.

Yes, I think you're right. FY '22 will be a year of consolidation, we could see growth in the second half. Like we said, our other businesses could grow, wholesale banking could grow, retail assets could come back, housing will certainly grow. Microfinance will be a little circumspect until we see a clear line of recovery in the rural markets, which are lagging urban markets. So yes, I think we could grow overall as a small percentage, but I don't think I can call that something which is dramatically changed. We'd rather use this period to get some of the other stuff we are doing much stronger. And FY '23 could be a more normalized year of growth. Obviously, on the back of a lot more clarity on where things are and what we would be doing in terms of our risk exposure and management.

Got it. That's clear, thanks. And the second is on the credit costs. So your previous -- your guidance was second half likely more like 4Q like a BAU kind of credit costs. Should we assume somewhere around 200, 250 bps of credit cost as a normalized credit cost or...

Fourth quarter.

Yes, that is right.

Right. So BAU credit cost NOI is about 250?

Yes. I mean it will also make a difference based on the product mix, but broadly if I want to kind of give some split here, we should expect cards to normalize to somewhere in the 5.5% range, plus minus, which was what we were doing pre-COVID, microfinance could run at about 2%, 2.5%; secured retail will run at about 1%, 1.25%. So I think it will depend on the mix. But yes, broadly, we should be in that range. But we will want to see when we get there before giving stronger guidance.

Got it, understand. So on restructuring, are we seeing more inflows in the current quarter? And -- is there any color on where the total restructuring is going to end up?

If you look at, at least on the retail side, when I gave you the numbers, you would notice that the numbers in the second restructuring are fairly much lower than what we saw in the first restructuring phase. We are seeing a little bit of restructuring happen in the business loans in the MSME segment and a very small amount happening in the micro finance segment. Cards, there is nothing which is happening. And wholesale, of course, there is no more restructuring.

Got it, understand. And on PCR, so we are at, I think, 60% of this, 61% this quarter. And I think previously, we talked about a 65% kind of target. So given that it's kind of COVID year, so how should we think about the time line to achieve that target?

We mentioned in my commentary that during the year -- before we end the year, we will be above 65%. We said that through the year through our provisioning policies as they exist, we should easily add 400 to 500 basis points more during this year. And so hopefully, that should happen by itself.

All right. Understood. And just lastly, so...

I mean if you don't have that COVID buffer, we would be on top of that.

Right. So if I pull all this together, is this safe for us to think about credit costs this year to be higher than last year [ because you're bringing ] our PCI up?

Yes. Credit costs because we've taken -- I mean, effectively, year-on-year, PCI would have gone up 13%, 14% FY '22 over '21. So does require provisioning and therefore, it goes into credit costs.

The next question is from the line of [ Rashi Kalwa ] from [ Ashmore ] India.

Just a quick question from me. The cost-to-income ratio saw a reasonable pickup this quarter. I was just wondering why and what should be, I mean is there any onetime stuff in it, which will normalize going forward? Or should we budget in a higher number going forward?

I think Jaideep can provide you more granularity. But all I will say is that last year's number was very suppressed because there was no growth-related costs, which largely come from credit card and other businesses. So as you know, that is a very upfronted cost model. And last as there was no issues literally happening, those costs were not there. Also, our costs in our investments in branches technology continues. And we are talking about some more ramp-up in those investments. So some variable costs associated with largely cards are going to come back this year. And we need to put in the normal, if I may say, investment-related costs that are also there. So yes, if I may say, you should budget 2%, 3% higher costs, yes, in terms of the cost income ratio this year. Anything, Jaideep, you want to clarify what I said or are you okay with that?

No, that's fine. And I think just a point to add that as we are in the current environment, we are also not substantially growing the balance sheet, it will be a single-digit kind of a growth situation. So somewhere, I think on the same cost base, we could be much bigger and which will begin to kind of reflect itself starting next year. So to that extent, that's also the other reason because we could support a much higher balance sheet at the same cost. So that will happen over a period of time. And that is how the cost to income should also trend down after the subdued growth situation starts transforming itself.

The next question is from the line of [ Naval Gara ] from [ BSC ].

Two questions. First is related to the credit cards guidance. I think Jaideep highlighted that it should normalize by the fourth quarter. I thought earlier, our expectation was that we'll have a write-off in the first quarter and thereafter, we'll start normalization to 5.5%. So is it higher than expected stress from Wave 2? And that's the reason it's getting pushed out? So that's question number one. And the second question is related to upgrades during the quarter. Does that include any restructuring implementation-related upgrades? So yes, those are the 2 questions.

Yes. So on the card side, we had said that -- earlier last year, we had said that the credit cost will slip into the first quarter. The second wave has made it slip -- added another quarter to it. So it's not the fourth quarter, but credit card will normalize in the third quarter itself for cards.

Yes. And the second one was upgrades during the quarter. Does that include any restructuring implementation related upgrades. So accounts which will slip in grade because...

See, not material.

The next question is from the line of Rakesh Kumar from Systematix Group.

Can you hear me, sir?

Yes, please. Go ahead.

So the first question is with respect to collection efficiency in micro credit. So it is low still. And how do we see it going ahead?

So if you look at it, we've seen a little bit improvement in July. It was hovering around 81, 82-odd percent the previous month. It's jumped to about 88%. And that is because somewhere in July, you did see some of the Southern markets open up. We still have some markets around West Bengal and Kerala is still under some restrictive opening timings. It will climb up, but I -- as I said, I think it's about 2 months behind urban markets. So you'll see these inch up over the next 1 or 2 months till it reaches comfortable levels of about 95% plus.

Got it. Second question is with respect to that majority of high-yielding credit book either has slipped or has got restructured. But I'm very surprised that your credit yield has actually moved up. And LCR thing is very disruptive because it depends that how the high-quality liquid asset composition is. So if you provide what is the excess SLR and excess cash you're holding on a quarterly basis, that would help more because it does not explain complete impact on margin. And I think that margin is kind of at the top level. Is it going to fall from here and how much? So if you can help me on this second question.

Go ahead, Abhijit.

Yes. So I think margins will have multiple [ affect ] the proportion of different businesses. We have yields as high as 20% on a blended average basis with cards vis-a-vis as low as the lowest corporate book advances could be as low as 4%, 4.5%. So I think it's a wide variety, and it will depend on how the mix shapes up. Plus it gets influenced by reversals of income basis slippages in each of these categories. Having said that, I think from an expectation standpoint, I think as we go towards the end of the year, we -- as slippages normalize, especially in the higher-yielding books of microfinance and cards. Clearly, that will be one tailwind for margins along with, of course, reduction in cost of deposits. In the very near term, we could be flattish to marginally down, maybe 10 basis points down. It's very difficult to predict, given too many factors here. But in the near term, I would say it is probably a little down rather than up, but exit should be trending up. That's how I would look at it.

And last question, sir, on the credit card cumulative gross NPA, including written-off loans and then the provision coverage for credit card segment.

Isn't that information there on one of the pages?

Cumulative written-off GNPA plus cumulative written-off.

On cards.

Cumulative written-off from when?

From the last 1 year.

Yes. So last year, we wrote off about 10% to 10.5%, and you have about 4% as GNPA. Is that what you're asking?

Yes, yes. That was the question.

The next question is from the line of Anand Dama from Emkay Global.

Sir, basically about your restructuring. So we are seeing many banks, NBFCs actually have done heavy restructuring instead of recognizing them as NPAs. What basically is not restructure much and take the pain of current? Is it basically the underlying customer itself was weak and there we took a call that he is slipping into 90 days delinquent. Basically, you will not be able to recover those deals and that is the reason you chose not to restructure but to take the pain upfront primarily for card portfolio, microfinance and the business portfolio. So what was the [ possible for ] that?

Yes. So I think fundamentally, when we did restructuring for cards under the first restructuring policy, most of it was done in the months of September, October and partly November. We did see that it doesn't really help too many customers in terms of them being able to come back into the normal way of functioning on the card. And hence, this time, we took a conscious call of not pursuing restructuring to that effect. And that is why we've almost done nothing. There's only INR 13 lakhs of restructuring balances which have been done in the last quarter. Microfinance same, unsecured loans, see, for that customer segment to understand what a restructuring means doesn't work. The customer only understands that she has to pay her EMIs, which are equal to the tenor of the loan, and she continues to pay that. It's not that she will be in a position to pay them upfront or anything. So rather than restructure, you let it go and the customer keeps paying and therefore, the loan gets recovered over a period of time. So that's been the philosophy on the unsecured side. Whatever we've tried to do restructuring is more on the MSME side because there, we genuinely believe that the businesses have got disrupted because of lockdowns and restrictions. And these are perfectly fine running businesses. And if you give them time, they will be able to come up. So these are largely secured businesses. And hence, even from a hierarchy of payment, we expect customers to really pay more on these businesses. And hence, restructuring has been focused more on the MSME side. So that's been the going-in assumption and that's why you're right. For most of the unsecured segment, you will find our restructuring numbers much lower than the rest of the industry.

Yes. And that's also the reason basically that in the second quarter, you are expecting the [ payments ] to remain at that whatever flow that you have into 1 to 90 DPD pool is basically you would try and upfront it rather than defer it.

That is right.

Absolutely right.

Yes, that's good. Sir, secondly, the question is about...

On time, yes. No, no, no. Carry on. That is the philosophy, to clean.

And the -- and secondly, basically, you're also trying to ramp up the provision cover as such. Any color that you have given in terms of SMA 1 and 2 pool. I know that basically, if you have given the bucket as well, but if you can just tell us basically what would be the SMA 1 and the SMA 2 pool on a cumulative I mean, on all the portfolios altogether?

I don't think we're carrying that for all portfolios, but these remain elevated in, as we mentioned in microfinance and cards. So maybe I'll just give you the data point offline. I'm not carrying the SMI data right now in terms of rupees crore.

Okay. And is it basically into a higher bucket like SMA 2 so that whatever slippages have to happen would largely happen in the second quarter and then we will have a normalized slippages. Is that assumption sort of correct?

All correct. It will be a mix of SMA-1 and SMA-2 because both of those will slip into this quarter, which is quarter 2.

Yes. So these will have...

In SMA 0 starting to come down because that's where -- when I said the first bucket resolutions have improved and the entry rates are lower. So -- the first bucket has started coming down. The second and third buckets are elevated, which will, therefore, slip in quarter 2, and then it will get washed off.

That's great. Sir, secondly, about your tenure, we have seen one of the other bank MDU has now got 3-year term basically had applied for a renewal of his stock. Is some -- is there a probability that basically you can also other more can reapply for your term extension beyond 1 year?

No. I mean, the answer is surely, why not. But at the same time, I think the only way we can answer this question is that there is a very strong management pipeline in the bank. And we are all here to ensure leadership continuity. And the focus on our plans remains unhindered. And we are all working towards doing that in a very committed manner. We're all excited and enthusiastic about coming out of this and building a better future, which is something that I tried to outline in considerable detail today in my commentary. So I think more than that, one cannot say.

So you continue to be very much required to see through the strategy implementation that you talked about in the current call.

Well, I think that will continue unhindered. I think, like I said, there is a huge management pipeline. And this is very futuristic. It's just -- this is the first. So we are just looking one further year into the future. And I think everybody wants banks to be secure, well-led and with competent capable leadership. And I think RBL Bank is a fine example of selective leadership, deep management, and we've done a Transformation 1, which ran extremely well for 10 years. And now there's a hiccup this year, which is fine. Any bank's 10 or 11-year history, one hiccup does happen. But the way we have strategic clarity and the way we have outlined the future, we are all set to build the bank of the future. And there is so much work that's gone into it in the last 2, 3 years that I can only emphasize that there is a lot of enthusiasm and excitement towards that, which is exactly why we call it reset for Transformation 2.0 because we felt this is the time to just clean the deck and just focus forward with a mindset of growth and profitability and sort of bringing back the return expectations that stakeholders would have.

We'll take one last question, which is from the line of [ Ashwini Agarwal ] from Ashmore Investment.

So I'm going to circle back to the questions that have pretty much dominated the whole evening. And Mr. Abhijit, you said that you wanted to clear the deck and get expectations in line with what they would be as a going concern. So my question is why not take the entire credit cost -- the elevated credit cost that you expect in Q2 from SMA-2 and SMA-3 in this quarter itself, and have the September quarter credit cost come closer to normal. I mean the banks moved into losses, very large credit costs that you have upfront, you've taken the provision coverage to 60%, why not 65% [ pay it ] off and be done with it? Why are you spreading it out over 2 or 3 quarters?

No, no, no. 65%. Clearly, we don't have to do anything more. Our current conservative provision policy are such where the policy itself provides for 100% or 75% in most cases. Therefore, without having to do like this time, we had to take a conscious decision to take the additional provision. If I just went on forward based on the portfolio as we see it, 65% 6% -- 5% additional PCR would not naturally develop based on the existing provisioning policy. So -- and average is, we are 61% and we have taken 4% additions from micro banking. We have taken, okay? And the policies will ensure that this progression on PCR is natural. It is not going to require another extraordinary [ efarma ] action on our part. So it is exactly what we have said. We have said that 65% should be -- so it is happening naturally. Now the way we have put out the business plan for ourselves and the numbers are reflecting that. So we are saying that we will be able to absorb that revised profitability in the second quarter, improve profitability in the third quarter and hit a certain benchmark that we have targeted in the fourth quarter, which I've indicated. So it's a journey. Rest of it is a board and a management decision at some point.

Okay. A second question is again...

My micro banking book today is provided 83%. And I have another buffer. So -- and for all the other businesses, I think we have mitigated our approach in a very elaborate manner today. So it's a question of where you want to take it. 83-plus is already a hell of a lot.

I agree with you. My whole point is that when you're taking INR 1,426 crores, why not take that number to INR 1,800 crores and be done with it. So that next quarter onwards, you revert back to the INR 700 crores, INR 800 crores provision number and your ROA starts to improve. What's the point of spreading it towards the September, carrying it for another quarter?

It is not a spreading. It's also a question of -- I can't take more than 100% in certain cases. See, my point is that -- this is what we have declared today, yes, at the end of the day. And we did believe that the feeling was a 65% PCR is well benchmarked to the better industry standards. We were short of that. We have brought it to that, okay? And that is exactly what I wanted to say. We have done 61%. We've taken additional COVID buffer of 4%. And in the rest of the year, another 5% will happen on its own. So the PCR coverage could actually turn out by the end of the year, close to 68%, 70% by itself. More than that, I cannot say.

Yes. Okay. The second question is on operating costs. I mean you spoke about hiring a consultant [ is ] for [ more 3 ] branches...

Yes, sorry.

Yes. We spoke about operating expenses. [ Ashi ] has also asked this question. I mean the data in operating expenses, especially the other operating expenses is about INR 107 crores between the March quarter and the June quarter. And if I compare it year-on-year, it's up by INR 150 crores. I mean, it's a very large number in the context of asset book that's not growing, even if I had, say, you added a number of branches, you kind of put out an effort to grow your credit card book. I mean, this number is very large. And it is a significant cost-to-income percentage point movement. I mean, if I just look at a INR 100 crores base between March quarter and June quarter, and look at the total income of roughly about INR 1,500 crores. I mean you're talking about a 5 percentage point movement in that single line item. Is there any one-off embedded there? I mean I'm not able to understand, I mean, what kind of consultant costs INR 100 crores, how many branches can be put up in INR 100 crores? I didn't quite understand that.

This is -- it will have many elements. But I think the bigger challenge for us in terms of cost-to-income ratio, as I mentioned, is more to do with the fact that with a similar cost base, we should be having a larger business interest-bearing asset yields, et cetera. And I think that will take us some more time given the environment we are in, and which is why the cost to income will remain slightly elevated for this period. The other thing is that when, we when we open branches, I think the full impact comes with a lag. So we will have a combination of that. We are also adding to technology costs. We will have certain assumptions that we revalidate at the beginning of the year in terms of actuarial costs, et cetera, which Q4 may not be the best benchmark for it. So there will be some nuances. I would expect, if I have to give some guidance, Q2 costs should be, give or take, similar before it starts going up again with growing business. But as I said, cost to income, we will expect 1% or 2% higher before it starts reverting back to a trajectory which is lower.

So that's my whole point that if you look at the full year number last year, your other operating expenses, this is Slide B6, if I can read it, yes, was INR 1,500 crores, just short of INR 1,500 crores, right? You were saying that first, second quarter would be INR 1,000 crores and third, fourth quarter will be slightly more. So let's take like whatever. INR 600 crores average for Q3 and Q4. So you're saying that the INR 1,500 crore line goes to INR 2,200 crores for fiscal '22. I mean that's a very big jump. I mean, could you help us understand what's driving this delta of INR 600 crores, INR 700 crores on an annualized basis.?

So if you look at last year, honestly, the first 4, 5 months or 4 months or so, we really had no new business across all the retail businesses. So I think fiscal '21 is a very harsh comparison in that sense because we had the benefit of the past book in terms of income, but we did not have any new origination in retail. See, retail origination on asset side is largely upfronted in terms of cost. And we had almost 3 months of negligible or 2.5 months of negligible and very slow business in the next couple of months. So it is easier to therefore, look at our run rate. At an overall level, we are at about INR 850 crores, give or take run rate, which will probably be there for 1 or 2 quarters before it inches up.

Yes. I think this discussion. Let me assure you, there is no -- I mean, if you're asking if there is anything mysterious or one-off? No, answer is no. It's just the way Jaideep is explaining it. And further detailing, we can do off-line. I mean we'll also... Yes.

Ladies and gentlemen, we now conclude the Q&A session. If you have any further questions, please contact RBL Bank Limited via email at [email protected]. I repeat the email ID is [email protected]. Thank you. On behalf of RBL Bank, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.