Ladies and gentlemen, good day and welcome to the Kotak Mahindra Bank Q3 FY25 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashok Vaswani, Managing Director and CEO of Kotak Mahindra Bank. Thank you, and over to you, sir.
Thank you. Thank you so much, and thank you, everyone, for joining us this Saturday evening. A very happy New Year to start with. It's actually been one year this month that I completed Kotak, and wow, what a one year it has been. Quite an eventful year, and I thought I'd share some of my thoughts with you, and I want to give you and demonstrate to you that the team and I have been working on a lot of events through this particular year, and we've made significant progress on a whole bunch of areas in our efforts to transform to scale. Let me now reflect on the last 12 months. First, starting with technology. Obviously, in April of 2024, we got the order from the RBI.
And since then, we've been working very closely with the regulator and have made notable progress on call-back resilience, business continuity, cybersecurity, and digital payments framework. But what's more important is we've not only done that, we have also used this period, utilized this period to, number one, sharply define the group's go-to-market tech strategy. Two, launch the new Kotak and 811 apps, which are complemented by Neo and Cherry. And three, we are digitizing and automating our customer journeys to make it much easier for the customer to do business with us. With all of the above, we are starting to see green shoots, which is very, very encouraging. The second point I wanted to make is, in my very first quarter, I talked to you about the potential of a credit strain flowing through the system, and that unfortunately turned out to be true.
But as the credit strain kind of has worked through the system, what we've seen in this quarter is that personal loan trends have actually improved. The stress in the credit card portfolio is now plateauing, and therefore, hopefully, in the next couple of quarters, we'll actually see a decline. But we continue to be very watchful on the microfinance portfolio. What I can say about the microfinance portfolio is this quarter, we have seen a deceleration of the strain that was coming through that kind of portfolio. The third area I want to really highlight is the macroeconomic environment. There's absolutely no doubt that there's heightened volatility, and there seems to be evidence of a slowdown in the economy. Now, what we have always said and always maintained is that we will grow the business at about one and a half to two times normal GDP growth.
And that continues to be the benchmark by which we will direct and manage this business. Now, it's not been all negative. Frankly, on the flip side, there's been tremendous buoyancy in the capital markets, and that has been a real tailwind, as evidenced by the results that we are seeing in our investment bank, in our mutual funds, and in KSEC, frankly, as well as in our private bank. This really has brought to the fore that the diversified nature of our businesses as a group helps us to deliver for you, our shareholder, through various economic cycles. So while I'm mindful of all the above factors, I also feel very good about our strategy built around customer centricity and the momentum we are building to transform to scale as a bank. I feel very confident that these results will start to show in the coming quarters.
And even in Q3, it's worth noting that despite all the distractions and headwinds, we did grow advances by 15%, grew deposits by 16%, maintained NIM at 4.93%, and managed a very tight control on our expenses. So I'm really looking forward to this new year with a sense of excitement but cautious optimism. Let me now hand it over to Devang to take you through our financial performance in detail.
Thank you, Ashok. Good evening, friends. First of all, very happy new year to all of you. Let me just take you through the Q3 numbers, which we discussed earlier today. Let me start with the consolidated numbers first. We ended this quarter with a consolidated profit of INR 4,700 crores, which is about 10% higher on a year-over-year basis. Minus MTM gain post-tax of about INR 877 crores for the quarter, cumulatively INR 5,600 crores on investments, which, as you know, we have been accounting under the new RBI guidelines as net worth. Obviously, this has not gone through the P&L. With this profit, we consolidated net worth strength at INR 152,000 crores, and the book value per share grows to INR 769 per share, year-over-year growth of 23%. Our consolidated customer assets is about INR 519,000 crores, which is 15% higher than the last year.
Our capital efficiency at the group level continues to be strong at 23.4%, within which the CET1 itself is 22.5%. Our ROE at the consolidated level is 12.43%, with ROA at 2.30%. Let me start with the individual entities and with the bank. Standalone bank delivered a stable performance amidst changing macro environment and continuing embargo. The bank ended the quarter with a PAT of INR 3,300 crores, with a year-over-year growth again of 10%, and now contributes 72% of the group profit for the quarter. At the bank standalone level too, we have a capital adequacy of 22.8%, again, within this, a very healthy CET1 ratio of 21.7%. The ROA for the bank at the quarter is 2.1%. Customer assets in the bank grew to INR 459,000 crores and a 15% year-over-year growth.
The growth mainly coming from secured consumer banking and SME segment, which is contributing significantly to the asset growth during the Q3. Advances at 31st December does not include the Standard Chartered portfolio, which we have spoken in Q2, for which the bank has received all the approval, and we are in the process of migration. We expect this to be completed shortly during this quarter. Unsecured retail mix slowed down to 10.5% during the quarter due to lower disbursement in microcredit and credit card growth, which continues to be impacted by embargo. Our CASA ratio stood at 42.3% at December 31, with current account showing a healthy growth of 5% quarter-to-quarter. Yes, it had some of the IPO-related funds. While looking at the IPO pipeline, we see it continuing Q4.
Average total deposits for the quarter grew by 15% year-over-year, average Sweep TD product, as you know, growing at the 36% year-over-year basis. Bank continues to maintain a very healthy CD ratio of 87.4%. NIM for the quarter was stable, in fact, marginally higher at 4.93%, contributed primarily by benefit of lower SA rate and the higher CA balance, as I mentioned earlier. Fees and services grew 10% year-over-year in the current year, impacted by slowdown in credit card income due to embargo and certain regulatory changes impacting the referral fee income earned by the bank. Our cost control measures have resulted in efficiency, reflected in a marginal increase of operating costs less than 1% quarter-to-quarter, with employee costs remaining at the Q2 level. Further, our cost-to-income ratio for quarter two improved by 22 basis points over last quarter.
Overall, PL impact estimated due to IT embargo continues to be in line with our earlier estimate. Gross NPA at December 1.5%, with net NPA 0.41%, and the provision coverage ratio improved to 73%. Overall, credit quality for the bank is in line with our expectation and has remained stable over last quarter. Slippages during Q3 were lower as compared to Q2. This quarter also saw improved recoveries from secured businesses. The secured book continues to have negligible delinquencies. On unsecured credit costs, personal loan credit cost is showing reduction. Credit card cost is remaining at the same level, whereas the microcredit is showing an increasing trend in line with the industry. Coming to the subsidiary performance, our capital market subsidiaries, Kotak Mahindra Capital, which is investment banking, and Kotak Securities, which is the broking, both retail and institutional, had an exceptional performance during the quarter.
Kotak Mahindra Capital ranked number one in equity capital market category for the third consecutive year, earned a profit of 94 crores for the quarter, as against 35 crores last year on the back of large IPO and QIP mandates. Kotak Securities recorded year-over-year growth of 46% with a profit of 448 crores. Kotak AMC continues to perform well with the growth in capital markets. Kotak AMC, with the trustee company, made a total profit of 240 crores, a growth of 65% compared to last year, with the increase in average AUM in equity to ₹316,000 crores, year-over-year growth of 51%. The total AUM of Kotak AMC crossed 5 lakh crores during the quarter. Kotak Prime, which is in the car finance business, grew the asset base to 38,000 crores, with a year-over-year growth of 16%.
PAT for Q2 at INR 280 crores, down 9% year-over-year, largely due to the MTM loss in Q3. Kotak Mahindra Investment Company results for Q3 were impacted by a higher provisioning for one single account. BSS Microfinance Business Correspondent business ended the quarter with a loss of INR 50 crores, owing to lower disbursement and increase in the collection costs related to increasing delinquencies in select states. The BSS network continues to be strong at INR 1,000 crores at 31st December 2024. Kotak Life ended the quarter with a PAT of INR 164 crores, as against INR 140 crores same quarter last year, year-over-year growth of 17%. For quarter two, profits were higher on account of higher investment income and equity gains. We continue to maintain higher solvency ratio of 2.56x, as against regulatory requirement of 1.5 times in the Kotak Life business.
Overall, at the end, we remain cautiously optimistic and focusing on execution of our plan for transferring to scale. With this, I hand over to Shanti for the business update.
Thank you, Devang. As has been stated, the bank's customer assets grew by 15% year-over-year, and the average deposits grew 15% year-over-year. I'll start with the highlights on the assets, particularly the consumer assets, where growth was primarily led by secured businesses, which grew 4% on a quarter-on-quarter basis. Mortgage business, comprising home loans and LAPs, grew 19% year-over-year, with stable property prices and risk metrics holding up well. This continues to be an area of focus for us. Mortgage also helps build a solid long-term relationship with our customers and helps increase the wallet share of our customers, particularly in the affluent segment. Thus, we'll continue to remain a key focus area. The LAP market continues to be steady. We have always been a strong player in this segment and will continue to focus on this going forward.
Our secured business banking, comprising of small SMEs, continues to see good growth at 23% year-over-year. Given the festival quarter, utilization was strong. Our portfolio metrics continue to perform well across industry segments and geographies. In this business, we are able to serve the customer across all their financial and non-financial needs, business and individual. We continue to grow in the unsecured business loan segment, which remains stable at the portfolio level. I think the unsecured retail business, both personal loans and cards, have flattened. Personal loans at an industry level have regrown, and this is reflected in our business. We had tightened the underwriting norms more than a year ago, and in the last quarter, we have seen better trends on flows and collections, which has been stated.
P&L is a key offering for our customer segment, and we will continue to build this business by managing risk through rigorous data analytics and policy measures. In the credit card business, because of the embargo, we did not issue new cards, but we continue to grow our portfolio and monitor it well. We saw stress increase in line with the industry, but we have seen a stabilization of flow and resolution in this quarter. Cards, again, is a core proposition, and we will grow this business once we come out of embargo. The delinquency trends in both these businesses have been touched upon, and I'm not going to repeat it. Let's move to commercial assets. Commercial banking saw a flattish growth of 1% year-over-year. The passenger segment continued its positive run for this year, but there was a persistent degrowth in the goods segment.
Our new vehicle disbursements were in line with the industry, and we retained our market share. We also continue to grow our used vehicle financing business, considering that a large part of this business was coming from our existing clients we have come through here. The goods segment has been showcasing a weak trend in financial years. This has impacted the overall viability of truck operators and resulted in some increase in delinquencies. We have tightened our collections and underwriting in this segment accordingly. I think the overall economic trend does impact this segment, and we hope to see better trends in the next financial year. Construction equipment, the sales have been flat, and whatever growth has happened has been led by the earth-moving segment. I think CapEx spending by the government and overall CapEx spending has been slower, which is reflected in the growth trend in this industry.
We have grown our disbursement by a modest 13% year-over-year, leaving some improvement in our market share. The book remains stable in this segment. Tractor finance, the tractor industry saw a 30% year-over-year growth. We grew our disbursement by 16% and improved our market share in this segment. We continue to remain a key player in this industry with a strong presence and market share. We also continue to grow our used tractor financing business. With a normal monsoon this year, we expect Rabi sowing to improve, leading to better cash flows in the rural and semi-urban. This will be critical support to our collection efficiencies. Pickup in government infra and rural sectors should help this segment. Microcredit, we grew 6% in H1 and expected so in H2. This is at an industry level, and our businesses reflected the same.
I think the trends on delinquency have been talked about due to various extraneous factors in the first and the second quarter. There have been some structural changes in this sector, and in line with industry, we degrew. Our delinquencies continue to show an increase in this segment. We expect this to stabilize over the next two quarters as we see the rural economy come back. We pulled back disbursements in certain quarters, and we will watch the industry trends in this as we craft our long-term strategy for this business. Agri SME, a good quarter given the rally in the busy season. Our portfolio continues to be stable, and we focus on acquiring new customers in this segment. This is a growth area focus for us. I'll now turn to the wholesale business.
Last quarter, Corporate plus SME advances grew at 18% year-over-year, largely led by the mid-market and the SME segment. The SME advances grew 31% year-over-year. Acquisition of new customers has been our main focus area, and the customer acquisition has grown significantly on a year-over-year basis. The portfolio quality is very stable, and we continue to invest in strengthening our customer franchise and deepening our customer base. The mid-market business, again, grew at a fast pace with NTBs in focus and deepening customer franchise in this segment as well. Among the larger corporates, the book showed a more steady growth. However, credit substitutes, which depends on market rates of interest, showed a degrowth. Our portfolio metrics in the large corporate remained healthy, but pricing remains very competitive, and we have given up any businesses given the price competitiveness of this business.
The transaction banking and flow business has grown significantly, which leads to higher fee and flow income, and our trade and supply chain assets grew at a higher rate driven by granular deals. GIFT City continues to ramp well, and advances, particularly trade advances, grew at a sharp pace year-over-year. Our asset quality across all the wholesale segment continues to be robust. We also saw strong growth in the fee income, FX, and debt capital markets, and the debt capital markets continued momentum in Q3 with marquee deals across sectors like retail, infra, hospitality, NBFCs, etc. Let me now turn to liabilities. The average deposits for the bank grew at 15%, and our CASA ratio was at 42.3% this quarter. Current account average grew by 12%. This was aided by both customer, custody, and IPO flows, while savings grew at 1% on average.
Regarding savings, granular fixed-rate savings continued to grow, while the affluent clients continued to move on to higher yield opportunities. Our core proposition of savings with Activ Money helped us grow our customer deposits. Activ Money grew by 36% year-over-year, and retail TDs across our segments continued to show an increase. We will continue to focus on our key segments of savings growth and balance between savings, Activ Money, and TD in a granular manner to achieve our growth targets. Distribution. On the retail side, the focus has been building a granular retail book with focus on affluence and youth across our channels of physical, digital, voice, and video. Customer 360 has been the key pillar as we continue to put our best effort towards providing a seamless customer experience as well as offer our entire bouquet of products to our affluent, salary, and self-employed customers.
Our continued efforts to help our customers provide best solutions around consumption, saving, investment, borrow, and protect remain the focus. On the wholesale side, garnering higher client share of collections and payments through digital offerings was really the aim, and the CMS throughput increased by 54% year-over-year. We have further consolidated our position in the tax payment space with throughput increasing 124% year-over-year. Overall, both on the assets and liability spend, we have seen reasonable growth trends, and we remain focused on growing both the segments with focus on quality, deepening customer franchise, acquiring more customers, and focusing on customer experience. I will now request Devang to take the floor.
Yeah. So I think I hand over to the operator for the Q&A. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to limit their questions to two questions per participant, and also, please use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah. Congratulations for a good set of numbers in such a challenging environment. So firstly, any update with respect to the RBI restriction? You have indicated that there is substantial progress, but if you can just indicate if maybe where are we in terms of the audit, is the report submitted, and maybe how has been the feedback from the regulator? Yeah, that would be helpful.
Yeah. Kunal, thank you. Like I said, Kunal, sorry, this is Ashok here. Like I've been saying, we are in constant communication with the RBI. We give them constant regular updates. We have constant meetings with them, and we tell them about the progress that we are making. They look at kind of stuff and say they do their own evaluations on where we are. And I would say the conversations have been helpful, and they provided us guidance, which I'm very grateful for. And it's been done in good spirit. Kunal, it's very hard to predict at what stage the RBI will say, "We're going to lift out of jail." I honestly don't know, so I don't know.
Yeah, but have we done whatever was required from our end, and all the submissions are done, or how should we look at it? Yeah.
Yes. Most of the work has been done, and the submissions also, we make a whole set of submissions, then they'll come back with some observations, we go back on those observations, so it's not like a one-and-done thing, and thank God it's not a one-minute-done thing, because suppose we had to submit a report, then they came back, and again we go back, it would have become a iterative kind of cycle. This is like concurrent kind of conversations, so we are spending a lot of time and effort with them, and fingers crossed.
Sure. And the second question is on, say, the overall stress. So you indicated some buildup of stress on the commercial vehicle side, but besides that, any other segment that you would be worried about? And PL, we are seeing improved delinquencies. So would we start to push for growth in PL now compared to maybe 10% year-over-year, which has been there? And should that take the overall unsecured proportion up in MFI?
We are not seeing stress in any other segments. This quarter, a large part of our growth was driven by our secured assets, and across the secured assets, we are not seeing any signs of stress. It's pretty reasonably stable. As far as personal loans are concerned, we have already been growing our disbursements month on month. We had to sort of tone down in the initial four, five months because we could not do direct digital journeys. But we continue to disburse as far as PL is concerned. Like I mentioned, it's a very core offering in your affluent segment. Based on the underwriting, based on our analytics, etc., we will continue to grow with this.
Yeah. And Kunal, of course, you know that the Standard Chartered portfolio will come onto the books.
Yes.
Hopefully.
This quarter.
Definitely in this quarter. Hopefully in the first end of the quarter.
Got it. Okay. Okay. Thanks and all the best. Yeah.
Thank you. Thank you, Kunal.
Thank you. The next question is from the line of Chintan from Autonomous. Please go ahead.
Hi. Good afternoon. Can I ask two questions, please? One on your provisioning policy and one on growth. If I start with provisioning policy, could you give us a little bit more detail around that? When do you fully write off a non-performing loan, especially on the unsecured side? Or do you kind of assume some recovery rate? Color around how you kind of treat customers where they default on one product when they have multiple loan products with you? A little bit of color around that would be helpful, and then I have one more on growth.
Sure. Yeah. So, hi. So we follow aggressive provisioning policy, obviously, as compared to the RBI. And within that also, for unsecured assets, it is even more aggressive. So for example, the unsecured book will be provided 100% on a 180-day basis. In terms of the write-offs, Kunal, it is, I think, sorry, Chintan, it is basically for retail portfolio, while we provide 100%, we do have a lookout period after which we sort of write off. On the secured or more wholesale sort of assets, it is case-by-case basis, based on the merit of the case and the estimated collection amount and the time for recovery.
Write-off on retail product 100%, but with a lookout period. So I would say there's some recovery rate assumption there. And then it kind of tapers off if the account is beyond performance.
Yeah. For example, for credit card, we do it at 270 days, right? The write-off. Whereas for other portfolio, we may take some time because we certainly believe that by keeping it, we do see a value of recovery. Because even after providing after 180 days, in our experience, there is a recovery potential possible. So while the credit card, we had elaborated earlier in the call also, it is 270 days. For other businesses, it is case-by-case basis.
Okay. Thank you on that. And then on growth, the second question. I'm just trying to think about the current environment. Your kind of current ROAs are at, say, about 2.1% levels. Where can you take incremental market share where the front book ROAs can reflect well on the back book ROAs without taking excessive risk? So is it kind of retail consumer, which has kind of been the main growth driver, but that's kind of slowing down? So I'm wondering if that can sustain the above-average growth. Corporate margins look weak. Deposit competition refuses to ease. Just trying to understand that. And also, similarly on your subsidiaries, you've had two very strong years in capital markets. How should we think about them sequentially? Thank you.
So to answer the question on ROA, certainly we would like the ROA to be above 2%. But you're right. It depends upon the mix of the book. And clearly, currently, given the stress in the unsecured book or the retail microcredit, which we spoke about, the higher yielding assets, we have obviously a slowdown. In addition to that, of course, we have an embargo. So I think it depends upon when the embargo leaves. We certainly believe that personal loan and the credit card is a very, very big good proposition for us. And once we are permitted, we will be going for the growth on those two segments for sure. And if you look at even today, if you actually before the credit cost, my PAT growth is actually 13%.
Once we come back to the normalized credit cost or credit cycle, and we also have a lot of focus on non-interest-based income like fee income, distribution income, which adds directly to the P&L. Plus, as you've seen, some benefits of the cost optimization have started flowing in. I think given the combination of focus on non-interest fee income, cost optimization, and hopefully the credit cost sort of tapering off, all of this will add to ROA, which we believe will spin further asset mix impact, which it can have.
Yeah. And Chintan, look, our market shares right now are so small, right? That for us, it's not we're not trying to grow the market. We're just getting growth of market share. And I really believe that with the kind of stuff that we are putting into place, we will be able to do that and continue to kind of grow in line with what we've always said. We've always said that we will grow our business at about one and a half to two times normal GDP, right? Obviously, you don't want to grow and put any put the firm at risk. So we'll continue to grow at that level and just keep going, right?
Okay. Thank you.
Thank you. The next question is from the line of Mahrukh Adajania from Nuvama. Please go ahead.
Yeah. Hi. Congratulations. I have two questions. Firstly, that your loan growth has been strong sequentially, which is very good. You've grown in a balanced fashion in most segments. So in that sense, the ban is not impacting your growth, right? It's more about obviously banks have to be digital and you need digital for onboarding customers, and you need to be up-to-date in tech. But despite the ban, you have achieved a sequential growth, which is materially better than other banks. So would it have been different if the ban would have been lifted, or the ban is impacting the overall customer franchise, but not really the loan? That's my first question. And my second question is that different banks are at a different stage of asset quality, but most of the channel checks or the macro checks or the bureaucrats give negative indicators only.
So are these lagged indicators, or is it that asset quality going ahead is likely to remain volatile given that these indicators are still emerging or still being seen, and therefore credit costs for the sector will continue to be volatile? So you may have seen lower slippages now. Do you think that your slippages would have peaked, or there could always be some other linked sectors of stress? That's my next question. Thanks.
Yeah. First of all, thank you very much. Talking about the impact of the ban, Mahrukh, I think that there are certain areas which really have got impacted, which we've got highlighted before. Clearly, I would have liked to continue to grow our credit card book. Our credit card book has not grown at all. In fact, quarter on quarter, it has degrown, and that's not a good place to be. Our stated desire was to have an unsecured book, which is credit cards, PL, as well as microfinance, at about 15% of our total assets. And we've kind of dropped off to about 10.5% right now, which is obviously I wish that had not happened. We also have affected 811, which is another business that's kind of been impacted.
The reason that hurts is that 811 provides tremendous growth in granular deposits, low-cost granular deposits. Obviously, that is very valuable at this time. Definitely, the embargo has hurt, and I'm hoping we get out of the embargo soon so that we can get back to our ways. Then once we get back to it, we're going to come out I believe we're going to come out much stronger on both 811 as well as in other products. That will be fun to actually go back to proper business.
Will the growth trajectory change or reduce via different mix?
No. See, definitely the growth trajectory for cards and P&L will be much higher, right? It's not all linked, right? What we have always said is that overall growth, we'll try and do at about one and a half to two times GDP growth, right, and we will continue to kind of, and that's the kind of range that we think we'll be able to grow. The mix will, of course, change because right now, credit cards are zero. So obviously, credit cards will contribute to that growth, and linked to that volatility, there's no doubt there is a volatility in the market. We are very mindful of that. We evaluate that on an ongoing basis, and we tweak and adjust the kind of things that we do in the business to make sure that we are not kind of caught out. Generally speaking, we are conservative.
People accuse us of being overly conservative, but I'd much rather be conservative and maintain this stance of conservatism through what we do. So we are very, very conscious, and we react to the situation. The business is not on autopilot, as you can assume, right? All of us as a management team are kind of adjusting what we do on a very regular basis.
Got it. And can I just slip in one more question, please?
Sure. Go ahead.
So in the last call, you had mentioned that you wanted to be among the top four banks, right, over five years. You meant organically or a material inorganic I mean, a material acquisition as well?
No. What I said was that I want to be within the top three private sector banks in the country in terms of profitability and get there over a period of time, call it the next five years, which is like 2030 kind of time frame. I also mentioned there that we will look at opportunities both organically as well as inorganically, right? And if the opportunity makes sense, if the opportunity fits the strategic perspective of what we're trying to do, that's a big tick. After it fits the strategic perspective, we then look and see whether it makes financial sense. And if it ticks on the strategic fit and it ticks on the financial kind of thing, we will definitely do it. And therefore, we look at every opportunity that comes our way, and then we see whether it makes sense or not.
Okay. Perfect. Thanks a lot.
Thank you.
Thank you. The next question is from the line of Saurabh from JP Morgan. Please go ahead.
So hi. So just two questions. One is on your slippages again. Is it possible to quantify how much of it would have come from microfinance, and what is the write-off quantity on microfinance? So that's the first one. And the second is, on quarterly, you've seen a profit drop sequentially. Can you explain what's happening here? Thank you.
Sorry. Hi. I could not hear properly, but you mentioned slippage breakup, right?
Yeah. On microfinance. How much is microfinance and what's the write-off quality?
Yeah. So yeah, I think this quarter, the contribution in slippage for this quarter, microfinance does contribute a higher percentage in that sense. But obviously, there is an improvement in some other secured businesses, which is why the slippage for the quarter is lower than the last quarter. And your second question was around.
KMPL.
KMPL. So KMPL, it's a car finance business where obviously the business is facing some margin pressure. And also, it has an MTM on some OIS, which has been a negative. It is more of an accounting sort of hit which has happened during this quarter, which has resulted in a loss. But having said that, on a pure core business also, it has a margin pressure, and the delinquencies are higher in the two-wheeler business. So that's the reason why sequentially it is going down.
Yeah. But just in microfinance, how much if you can just quantify how much will it be higher? Because you're at 60%.
It is higher than the last quarter. Yeah. As a proportion, it is higher.
So I appreciate that, but just in terms of if you can get some clarity. And when will the write-offs come? Because the concern is that if it comes in forward quarters, you could see another tick-off, tick-up in credit cards. That's where I'm coming from.
So I think what we can certainly say that see, there are two paths, right? One is the fresh inflow, which is the slippage thing. And second is the resolution of existing NPA accounts. They are two separate things, right? So the slippage, as we said, has come down as an overall number, yes, but the proportion of microfinance is higher there. But if I look at only microfinance business on a quarter-on-quarter, while slippages are there, it is showing a downward trend in terms of the slippage part of it. However, the real issue, I think, is the existing NPAs in those unsecured businesses where the selection continues to be a challenge on the ground.
Okay. So I'll take an answer to one more question, or?
Yeah. Go ahead. Go ahead, Saurabh.
So will there be a case to at some point tighten the provisioning policy on these unsecured loans in line with the bigger bank pivot, or that's not something which is the write-off?
So we anyway provide 50% on 90-day and 100% on 180-day. So it is far, far more conservative than the IRAC norms or the RBI norms, right?
No. No. I was comparing to, let's say, your private banks, bigger private banks like this.
We do not have.
Write-off at one. I mean, provisioning at 120 and write-off at a stream around those 70.
Write-off may reduce the gross NPA. It may not impact the credit cost or slippages in that sense, right? So I think that, yeah.
Yeah. So Saurabh, at 90, 50% at 90 and 50% at 180 is a pretty aggressive provisioning policy. I don't think, honestly, I don't think we would need to get more aggressive than that. Write-off, frankly, is just an accounting entry. It's a pure accounting entry, and we do that. Obviously, it affects the GNPA, but we do that just to make sure that there is no pressure of the collections to continue to push for collection. And that's not the only reason. From a P&L perspective and from a return perspective and stuff like that, it makes absolutely no difference.
Okay. Thank you.
Thank you. The next question is from the line of Rahul Jain from Goldman Sachs. Please go ahead.
Yeah. Thanks. And good evening, everyone. Just a couple of questions. So just to maybe ask differently on credit costs and slippages. So I think what I understood is MFI is still a bit of a trouble. CC is flattening. PL is gradually improving. Not the recoveries, but whatever it is, that is still into MTM, but the new formation of NPL. So does it mean that the slippages will peak in this year and thereafter into the next year and start to improve considering whatever has been happening in the broader economy?
So I think we will have to see it over the next two, three quarters. While yes, this quarter, the slippages have come down. And if you recall, in the last call, I had mentioned that essentially the tractor business and other commercial businesses other than microcredit normally perform well in the second half of the year. So I think we will have to be watchful in terms of the slippages going forward. But as we see today, the slippage on personal loan is tapering down. Credit card has plateaued, remaining at the same level. Let's see at what stage it starts coming down. But the microcredit continues to rise. So it will be a question of when will the others sort of taper down and to what extent the microcredit shut-off will happen.
Again, it's also a question of size of the book because if you see the retail microcredit is only INR 8,000 crores as at December out of a INR 4 lakh crore book. I think we will have to be watchful. That's why I mentioned that I remain cautiously optimistic. We will have to see this trend over a few more quarters before sort of commenting on this.
Very helpful. Thanks.
Sorry. We also have to look at the broad economy and how things are going, right? Obviously, we are affected by those kinds of things. But as we sit now and where we are, they've almost kind of summed up how we think about it.
Got it. And credit costs should see a similar trend therefore, right? So I would reckon that this quarter, a significant part of the credit cost may have come from, let's say, write-off of the MFI loans. We know the write-off figures and maybe unsecured which you have to recognize. So as you get into the next year, all of this would have been recognized as slippages trend further, keeping in mind, like you said, Ashok, where we are in the economy, credit costs also should start to taper off. Would that be a fair assumption to make?
Is this how you're also thinking about your slide item?
Yeah. So I would clearly there is a direct correlation between slippages and credit costs. No questions about that. So that will kind of hold. I think what we've got to look at and say is how does the economy kind of move along? If the economy kind of stabilizes or gets better, then your analysis is absolutely correct. If there's a worsening in the economy or there's a fair amount of volatility in the economy, the question, and that's what we constantly keep a lookout for, is to see whether we are seeing any contagion in any other kind of portfolio. As of now, we don't see it, but am I cautious and looking at it on a very, very regular basis? I sure am.
Got it. Very comforting.
On a similar note, any qualitative trends you can share about the early bucket movements in both the secured and the unsecured portfolio? Secured, I mean, excluding the home loans and the LAP book. If you can just share qualitatively how you're seeing those, are those stable? Because the environment, I mean, the different players are sharing different views and different data points as they're seeing different trends. How are you seeing in your portfolio? A qualitative comment would be helpful to us.
Rahul, I think Shanti covered it, right? Shanti said that most of our growth and everything has come from secured. Our secured book, touch wood, is behaving very, very well. We don't anticipate any issues there. The unsecured book, by definition, is a little more volatile, right?
And that will be a function of how the economy kind of shapes up, right? We will talk extensively about PL card, microfinance. I'm not going to repeat myself. And then there are other books like CVs, which we are looking to see how they would grow. The good news, Rahul, is that we are quite diversified. There is no particular segment of loan type that overwhelms the balance sheet. So to that extent, that gives me a slightly greater degree of comfort.
Got it. Just slightly shifting gears to the margins. So clearly, the mix has changed over the last two quarters with absence of new CC onboarding and MFI, etc., which is a high-yielding portfolio. So now margins are clearly stabilizing this quarter, which is great. How should we think about it next year? Because I think some of these components will come back.
You will have Standalone book also. So shall we assume that margins are bottomed out and next year they might have the upward bias?
So I think the margin has various components, as you know, yield on the earning assets and cost of funds. And both of them have different levers in addition to, of course, the regulatory repo rate change, right? So it's very difficult to comment on that. But yes, you are right. As the share of unsecured business grows, either by lifting of embargo and once we are comfortable with the credit quality, it will obviously add to the yield on the earning assets. As far as cost of funds is concerned, the cut in the SA rate is helping us. And of course, as the share of current account deposits, which we grew nicely during this quarter, continues, then the margins will continue to remain or improve from there on.
Very helpful. Just one last data-giving question, two data points, if you can share. One is the employee count at the bank level. And also, in your business banking book, how much is unsecured? Thank you.
So our headcount, approximately, this is including on-roll, is close to about 77,000 people as of 31st December. Yeah. And business, what did you say? Sorry.
Business loan.
I thought.
Business banking?
Yeah.
The business banking, as we presented it there, is fully secured.
Yes. Correct.
Okay. Very comforting. All right. Very helpful. Thanks again. Once again, congratulations on a great quarter.
Thank you.
Thank you. Ladies and gentlemen, we request you to please restrict your questions to one question per participant. We have the next question from the line of Abhishek M from HSBC. Please go ahead.
Yeah. Hi, good evening. And congratulations for the quarter. So the question I have is, on this RBI's bank subsidiary norms, how are you positioning the bank and the group to meet that circular? So for example, I mean, if you take the example of real estate, different stages of financing is done in different entities. How would that adjust or be adjusted? Or would you have to do everything in the bank? So just from a business angle, how are you preparing for that circular?
Yeah. So Abhishek, the October 4th circular, we've kind of studied it like every other bank. I think we've given our comments on what we think makes sense and doesn't make sense. Look, in our case, the level of overlap is actually very, very, very low. There are very few instances where we do the same kind of business in multiple entities. And therefore, for in our case, if the circular goes through exactly as was indicated at the time of issuance, it really will just be about consolidating it into the bank. So that will be a lot of operational matters that will have a dramatic impact on anything else.
I want to add to what Ashok said and what we cannot do in the bank, we cannot do in our subsidiaries. You talked about different stages of financing in the real estate. We cannot do different stages of financing. What the bank can do, the subsidiaries can do.
Okay. Okay.
This changed about two years ago. We do not do any differential type of financing in the subsidiaries as far as real estate is concerned.
Okay. And if you don't mind, can I squeeze in just one more question?
Yeah. Go ahead.
Go ahead.
Thank you. So this is on cost of funds specifically. One, can you give the balances on Activ Money maybe this quarter and the last quarter? And second, if I look at the quarter-to-quarter movement in cost of funds, there's been an 8-9 basis point decline. Maybe 4 or 5 out of that is coming due to the SA rate cut. But the rest of the drop, quarter-to-quarter, is that because of Activ Money balances going up a lot, or is there some other repricing? Or how has the cost of funds really come down sequentially ex the SA rate impact?
Yeah. So if you can see the update where we have the share of current account and the growth in the current account average balance shows a 12% growth year-over-year, actually, right? So our sequential quarter also, it has grown by 5%, right? So as the non-interest-bearing current account share increases, the mix of the cost of fund obviously reduces, right? And you're right. We implemented the SA rate cut on 17th of October. So the effect of that is also obviously coming in the cost of fund. So these are the reasons for that. And of course, as I mentioned, the growth in ActivM oney continues to be 36% on a year-over-year basis, on an average basis. So I think it is also obviously.
It's a sequential.
It's sequential. So I think it also obviously, the rate of interest on the sweep TD is lower than the normal TD. So it is also helping us in lowering the cost of fund.
So how sustainable is this average current account growth? I mean, what are you doing at a business level to keep pushing it up? Or it can be a bit of an aberration and then it subsides. So that's what I'm trying to understand. So this is critical to your cost of funds and limits.
Sure. So as I mentioned in my speech, I think it is also helped by the IPOs. As you know, we have the large custody business. So it also depends upon the FPI flows coming in. So I think it's very difficult to predict. But I think at the consumer bank level, there is a sustained increase growth happening. The one with the volatile part, obviously, is in the wholesale IPO and the custody segment, which depends upon also, obviously, the capital market part of it in that.
Yeah. There is also core customer franchise in the wholesale and consumer side. Then there is custody flows. Then there is capital market flows. So different quarters give you different flows. Our aim is really to keep growing the core customer franchise, which is the payments, the collections, both in the wholesale and in the consumer business banking and current account services. But we did benefit from custody IPO, and that's a month-to-month change.
Great. Great. Thanks a lot. Thanks and all the best for the next quarter. Please share the Activ Money balance if you can. Otherwise, it's great. All right. Thank you.
It's there in yours, it's there in the deposits, right?
It's written there in the.
Yeah. If you look at the deposit slide, it is there.
The slide number?
The slide number.
In the investors.
All right. Sorry. Yeah. My bad. Thank you. I'll pick it up from there.
Yeah. It's there.
Yeah. Sorry. Yeah. My bad. I'll pick it up from there. Thank you.
Okay.
Yeah.
Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.
Yeah. Hi. Congrats on the quarter. Just a couple of clarifications. Firstly, on slippages, which are down about 200 bps quarter-to-quarter, is it entirely driven by retail, which means that unsecured slippages have still remained as high as last quarter, or I'm a bit confused here?
No. Hi, Piran. So yes, the slippage breakup, obviously, as I've mentioned, the slippages for the secured or the commercial businesses like tractor finance and all that have come down compared to last quarter. But on unsecured, as I think we continue to maintain, that credit card is sort of remaining stable. Personal loan is tapering down, and retail micro-credit is sort of showing a growth. So this is how composition has changed. So the fall in the secured and commercial businesses compared to last quarter has been coming down.
Got it. Okay. That clarifies. Secondly, just on fee income, fee income growth, which was strong till last year, has been moderating for the last two quarters. Now we're barely at 10%. Is this merely a function of lesser credit card spend, maybe slower disbursements in personal loans, or is there more to it?
No. So you're right. We have an impact of the credit card business because, obviously, we are not able to do any incremental card business. It also actually got impacted by the referral fee circular, which was there in that sense. And also some of the transaction-related fees. So we had in the earlier quarter some debt capital market transactions. Compared to last quarter, this quarter has been lesser. So these are all deal-based income, which was there. And of course, there is some IPO-related fee income also, which is lower as compared to last quarter. So these are the reasons why the fee income is lower.
Okay. Okay. This answers my questions. Thank you, and wish you all the best.
Thank you, Piran.
Thank you. The next question is from the line of Suraj Das from Sundaram Mutual Fund. Please go ahead. Suraj Das, you're the next.
Yeah. Hi, thank you.
Yes. Please go ahead.
Yes. Hi. Hi. Hi. Thanks for the opportunity. I think a few questions have already been answered. Just a follow-up. I think in the commentary, you mentioned that there are signs of stress building up in the CV segment. However, if I look at the growth, that is intact. In fact, the growth has been this quarter 4% versus last quarter 3% on a quarter-to-quarter basis. So just wanted to know if you can give some color in terms of the segments where you are growing or you are seeing pocket of opportunities and where this book is going. Is it an LCV, HCV, what kind of growth, or is it the construction equipment piece, or I mean, what kind of growth you are seeing in this book from each segment? If you can give some qualitative color, that would be good.
So if you look at the CV, there is a CV retail. There is a large fleet operator, and you have construction equipment. All of them are bucketed. And if you look at the growth, it's focusing quarter on quarter. It is a retail CV where we saw a slight increase in delinquency, which is in accordance with the industry levels where disbursements and the growth are actually slow. And it's the construction equipment and in the larger CVs that we have seen growth.
The next question is from the line of Param Subramanian from Nomura. Please go ahead.
Yeah. Hi. Good evening. Thanks for taking my question. Most of them have been answered. But there's this one on Prime. On Kotak Prime, you mentioned there is a pickup in the delinquency, whereas on the secured assets of the bank, we are very comfortable. So what is driving this divergence in asset quality?
Yeah. So I think I mentioned the delinquencies is also in the Kotak Prime also does two-wheeler financing. So then the higher delinquencies into two-wheeler financing, which is not obviously done in the bank. So that is where the delinquencies are higher.
Okay. Okay. Fair enough. And in the last quarter, we had made a comment saying that we expect credit card and microfinance delinquencies to largely be absorbed within two quarters, largely. Are we holding on to that sort of value?
I think, as we mentioned, credit card delinquencies remain flat quarter on quarter, and the retail microcredit delinquencies are yet to peak, so that is how we look at it as of now.
Okay, so guys.
Okay.
It's already, I guess, 6:30 P.M. on a Saturday evening. I'm very conscious of your time. And therefore, I just wanted to say a sincere thank you. Appreciate it. I hope you got a good sense of the business and the progress that we're making. And I sincerely look forward to catching up with you again in the upcoming few days.
Thank you.
Thank you.
Thanks.