Ladies and gentlemen, good day and welcome to the Kotak Mahindra Bank Q1 FY 2023 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. To gain assistance during the conference call, please signal an operator by pressing star zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Uday Kotak. Thank you and over to you, Mr. Kotak.
Good evening and welcome to all on a very busy Saturday for many of you, and of course, also a very busy weekend where you have lots of work to do, not only in the financial sector but many other companies between Friday to Sunday as well. I'll just go straight to the point and come to Kotak Mahindra Bank. As you may have noticed for the year and the quarter ending June, we have shown a loan growth of 39% and 4% quarter-on-quarter, which is annualized 16%. If I take quarter-on-quarter, this is on loans plus credit substitutes. Our net interest margins have gone up since the last quarter, now to 4.92%. Our ROA on a consolidated basis is in excess of 2%, and for the standalone is around 2%.
Our credit costs, as shown in the P&L, is 4 basis points annualized. If I take out the COVID write back, as also the restructuring write back, our credit costs net of those write backs are at 16 basis points annualized, which is 4 basis points per quarter. Therefore, if I look at the credit costs again to reiterate, for the quarter as reported in P&L, it is 4 basis annualized and without COVID write back and restructuring at 16 basis points. The leakages are very much under control, as Jaimin will separately explain. There has been a requirement of RBI on out-of-order accounts, which has been implemented by us fully, which does co-create some volatility intra-month. Our current and savings ratio is at 58.1%.
We are taking a host of steps, as Shanti will explain, to ensure our continuing focus on CA and SA. Another important aspect which I would like to share with you is our unsecured retail. We consider unsecured retail to include microfinance as well, because that is in its very nature also unsecured retail. In June 2021, unsecured retail for the percentage of our standalone advances was at 5.6%, and it's now around 7.5% for the quarter ending June. We are looking at scaling this as we grow this book over the next few quarters to somewhere in the early to mid-teens of the current seven-odd percent. We would see continuing growth of unsecured retail in our mix of the loan portfolio.
Overall, we continue to be quite confident of building our loan book and are quite comfortable and confident to be able to grow our deposit franchise along with it. With that, I will now hand it over to my colleague, Jaimin Bhatt, to take you further.
Thanks, Uday. Let me just take you through the consolidated numbers first. We ended this quarter at an overall bank at INR 2,755 crores, which is 53% higher than what we did in quarter one last year. Our consolidated customer assets at the group level at INR 337,000 crores, which is about, again, 28% higher than last year. Advances at INR 312,000 crores. Our capital adequacy at the group level at 24%, including this quarter's profit. A large part of it coming through CET1, which is itself at 23%. This takes our book value to INR 502 per share, and our ROE from this quarter's profits is at 11.2%.
Overall, the bank contributed INR 2,071 crores, roughly 70% of the total profits, including the subsidiaries. The bank's profit is 26% higher than what we did in the same period last year. Kotak Prime brought in INR 157 crores of post-tax profit as against INR 79 crores a year ago. In this quarter, actually, Kotak Prime took a hit of INR 111 crores pre-tax on account of a change in accounting policy, which is related to brokerage costs. The microfinance business correspondent entity, which is BSS, had locked in INR 56 crores of post-tax profit against INR 7 crores first quarter last year. The other NBFC Kotak Investments brought in INR 63 crores against INR 71 crores last year.
The capital market subsidiaries, which is Kotak Securities and KMCC, brought in INR 270 crores with KS improving its market share on a YOY basis both in the cash market and the overall market. We had life had a loss in first quarter last year, thanks to increased COVID claims, and it ended up first quarter of FY 2022 with a loss of INR 243 crores. Things have normalized, and this quarter they have brought in INR 48 crores of post-tax profits. The domestic mutual fund entities brought in INR 106 crores, which is about the same as last year. The investment subsidiaries took some MTM losses and brought in INR 60 crores of post-tax profit this year, this quarter. Our overall capital and reserves at the group level crossed INR 1,00,000 crores.
The bank itself at INR 72,000 crores out of this. The two MDFCs end up being well capitalized, with each of them having a capital adequacy of over 30%. Life also has a solvency ratio of 2.72% with a net worth of INR 4,500 crores. At the bank level, we brought in INR 2,071 crores of profits this quarter, which is a 26% jump on a YOY basis. Last year, quarter four, we did take a reversal of COVID of INR 453 crores. The NII this quarter is 19% higher than the same period last year. Our overall advances book at INR 280,000 crores, roughly about 29% higher on a YOY basis.
With the credit substitutes, we crossed INR 3 lakh crores. We are at INR 3,03,000 crore, which is 29% higher than last year. As Uday Kotak mentioned, our retail unsecured book, which includes the retail microfinance, is about 7.9%. Our NIM, which was 4.6 a year ago, ended this quarter at 4.9. Of our overall loans and advances, as much as 69% is on floating rates, which are EBLR, which are repo-linked, constituting 50% of the total advances book. This plus the total advances book, which are linked to floating, plus the fixed rate book, which is due in less than a year, is totaling to 80% of our total advances.
This quarter, we also acquired a small portfolio from DLL India in the agri and health equipment space, which is a standard portfolio of about INR 580 crores. Our fees and services did a 32% higher than first quarter last year. The growth coming both from the distribution side as well as the syndication and the general business fees. Our other income saw a hit on account of both trading and MTM on fixed income book, which has resulted in the other income showing a negative number this quarter. Our HTM book as of June 30 is just 39% of our investment book. The total HTM is less than half of what is permissible as a percentage of NDTL.
We effectively have taken a hit on the 61% of our investment book, which sits in AFS and HFT. The rising interest rates saw some small benefit on the employee retirement costs. Of course, this is much, much smaller than the hit we've taken on the treasury side. As we continue to grow and push for growth, some of the non-employee costs have increased on account of both pushing for growth on both asset side and the liability side, as well as on advertisement and promotional technology and communication. We ended this quarter with an overall customer base of 34.5 million, which is as against 26.8, which we had last year. The operating profit this quarter was a tad lower than the same period last year, partly due to the treasury hits.
We followed the same principle as we did last year on the COVID reversal policy and on the same principles, we've taken a INR 65 crores write back in this quarter. Other provisions in advances also lower, partly due to recoveries of in past written-off accounts. Credit cost, as Uday mentioned, is a low of 0.16% on an annualized basis as against what we had, 1.3% in quarter one last year. Our GNPA at 0.24% as of June 30. We had 3.56% a year ago. In absolute terms, GNPA has gone to INR 6,379 crores as against INR 7,932 crores a year ago. Slippages, which Uday talked about for this quarter at the gross level at INR 1,435 crores.
However, INR 781 crores of this slippages which happened in this quarter have upgraded or recovered in the same quarter itself. Therefore, the net level, which has taken into account, which slipped into NPA but recovered in the quarter, our net slippages were INR 654 crores, which is 0.2% of our advances. It happened primarily because of introduction of court's order from this quarter last year, which took the full hit this quarter, where any overdraft account which has interest debit has to have an interest credit on the previous 90 days. Our fund-based restructured accounts in either COVID or MSME resolutions together are a low of 0.38% of our overall book.
Our SMA book, SMA-2 book, which is with respect to borrowers with exposure of over INR 10 crores, continues to be low at INR 159 crores. As Uday explained, continues to be healthy at 58%+, and the capital adequacy at the bank level, again, at 22.9% with CET1 itself at 21.6%. Those are the broad highlights of what we did in the bank this quarter. I'll hand over to Shanti for operations to take on the assets.
Hi. Thank you. Thank you, Jaimin. Good evening, everyone. Let me take you through the corporate bank and the SME segment. Overall, as I always do, I'll bring to your attention the credit substitutes in the table and request you to look at the advances in combination with the credit substitutes. Before I get into the numbers, in the market, we saw extremely high price pressures and margin pressures in the corporate segment, clearly in the last quarter. Significant amount of irrational pricing in the market, and we decided to stay away from some of those transactions. We found that to be sustainable and being ROE-accretive, it was important to select transactions carefully. In fact, despite pricing pressure, we also tend to do a bit more of credit substitutes.
In fact, the increase you see in the trade substitutes from 21,000 to 23,000 on a YOY basis, March to June basis, is largely in the short-term side. We did not grow the credit substitutes on the longer end. We grew them on the shorter end. Overall, on a YOY basis, the corporate segment, along with the trade substitutes, shows a YOY growth of close to 15%, and the QOQ looks more moderate at 10% annualized. Overall, if I look at the wholesale as a segment between corporate and SME and trade substitutes put together, the YOY growth is about 17% on customer assets. The QOQ is again slightly muted at annualized 8%. Within the segment on SME, the QOQ is essentially lower because of lower utilizations.
However, we see continued traction on acquisition of customers and the segment looks robust in terms of overall YOY growth at 25%. We continue to look at a 15%-20% kind of growth in the corporate segment and 25-odd% growth in the SME segment. After our strategy to use trade substitutes to maximize returns on the lending side does face the downside of MTM risks in the market where interest rates go up. We did take some of the MTM hits that Jaimin talked about. It happened on this trade substitutes book. The DCM business remained robust in the year, in the quarter, and our revenues continued to be good. Overall fee revenue, apart from DCM, also remained quite robust.
Transaction banking trade and forex fees were quite robust through the quarter. While our transaction banking-led granular CA continued to grow reasonably well, some of our businesses like custody and capital market-related entities, the CA in these does reflect the weaker capital markets, and we did see some impact of that on the growth in current accounts. Overall, the asset quality remained very good and trade costs have been absolutely minimal. The health of the business continues to be good and, we are hoping to be able to capitalize the opportunities that come as the economy turns and further capacity creation happens with the corporate side.
We've also invested significantly in our platform and the progressive rollout of our corporate digital proposition is being very well received across corporate segments, and we continue to gain traction and market share in the transaction banking business. Thank you so much. Can I hand it over to Kannan?
Thank you, Manian. Let me start with the commercial vehicle finance business. The commercial vehicle industry saw good growth in the quarter as compared to the same quarter last year. Our disbursements during the quarter is considerably higher than the same quarter in the last year. Demand for finance is being driven by a decent demand for vehicles. Goods freight demand is good and the recent reduction in fuel prices is helping operator economics. Utilization of passenger vehicles have improved across all segments, staff, school, travels and intercity. Passenger transportation business is getting closer to normalcy. Collection efficiency on current demand is stable and as good as normal times. Demand for construction equipment continues to be good. Demand during the quarter was much higher as compared to the same quarter last year. Demand for equipment in the mining sector continues to show an uptick.
Utilization of equipment across segments continues to be good. We continue to grow our disbursements and market share. Collections against due demand continue to be stable. The tractor industry continues to grow both on a year-over-year basis as well as quarter-over-quarter basis. Our disbursements are strong and we continue to gain market share in this business. Better crop yields and good commodity prices have ensured good cash flows in the hands of the farmers. Given the good monsoons and robust cash flows, outlook for the industry continues to be good. We continue to focus on improving our distribution and market share. Simplification of practice for commercial applications to continue to show improvement. Collection efficiency against current demand continues to be good. Against the background of good monsoons and stabilizing commodity prices, demand for credit in our agri division is expected to be good going forward.
Customer cash flows continue to be good in this business. We continue to grow our retail microfinance book. Focus is on semi-urban and rural markets and borrowers in the agri and allied segments. Collection on demand in this segment has also been good. I'll now hand it over to Shanti to take us.
Thank you, Kannan. In continuation, I'll start with advances. All our retail lending products showed robust growth in Q1. At the consumer asset aggregate level, we grew 44% YOY and above 66% QOQ. Mortgages. We continue to see demand for home loans in this quarter. Last quarter, we shared with you about the launch of our DIY journey. Taking our tech investments further in this business, we went live with revamping our core tech stack for home loans on the Salesforce platform. We expect it to enhance the customer experience even more. We continue to focus on acquiring quality customers and strengthening the market share in this very important focus business for us. We saw good volumes in LAP on account of business momentum in the quarter. Our mortgages business grew 46% YOY, and we continue to consolidate our business in both home loan and LAP.
Unsecured retail. We had one of our best quarters in credit cards with acquisition of over 6 lakh cards, and the card spends also saw the best ever quarter. Bulk of the sourcing has been from existing customers. We launched a marquee product, White Reserve, targeted on the ultra HNI segment, and has been one of the best offerings in this space. Overall, credit card advances grew at 77% YOY. Personal loans. We had a healthy quarter on account of increased demand in consumption from segments like travel, wedding, home loan renovation, and over 40% of the personal loan continues to be sourced digitally and internally. We have scaled up our acquisition in both the traditional and the digital-led industries. Consumer finance, a good quarter across physical and digital distribution, and we continue to focus and scale in this space.
Across personal loans, consumer finance, and business loans, the advances grew 77% YOY. In the working capital and business banking segments, we have seen consistent growth and focus on prime quality. Businesses are witnessing higher input prices, and currency volatility along with interest rates. However, we continue to identify opportunities through sector focus and with clients which are at the top end of their respective industry and segments. We have been sole bankers for most of these clients with a full suite of loan and banking products. We are seeing a demand for CapEx picking up and therefore some increase in demand for their working capital needs. Unsecured business lending is seeing steady demand from all sectors, particularly the services sector.
We were the first bank to go live with transaction on GeM Sahay platform this quarter, and we hope to scale this up on a real-time lending basis. About 85% of our business banking portfolio in consumer qualifies for the priority sector. On collections, our bounce rate continues to be better than pre-COVID levels and demand efficiency stayed stable across all products during the quarter. We've invested significantly in the consumer assets across tech, digital, and data and will continue to grow this business. Now to deposits. The average fixed rate deposits, savings deposits grew at 8% YOY, current accounts at 19%, and term deposits at 16%. The focus continues to be on granular retail customer growth across digital and physical channels, and 811 continues to contribute successfully to our digital customer acquisition.
The bank had 34.5 million customers as of March 2022 versus 26.8 million customers, a growth of 28% YOY. Our SA ratio was at 58.1% as of March 2022. CASA and CD below the hike floors comprise 88% of deposits. CD sweep deposits were at 7.4% of total deposits. Cost of savings was at 3.5% this quarter versus 3.73% in Q1 last year. We continue to be focused on asset cross-sell to our customer across all, the retail consumer, and the commercial space. This was driven by deep analytics and thus helps deepen our customer base. We continued our focus on fee income across trade, FX, insurance, and key investments.
After receiving in-principle approval from the Government of India for agency business, we've gone live with customs duty contract payments for our customers and will go live with GST, customs, and rail detention upon receiving necessary approval, and we intend to build each and every one of the individual propositions. Our savings deposit growth has largely stemmed from granular retail customers, and we have seen funds move to liquid and other higher interest-bearing options from HNIs and UHNIs. We have a very low base of government business since we have started our journey after the agency business approval, and we'll focus on scaling this with a continued focus on the retail segment. Customer acquisition, deepening, and CASA is at the core of our consumer bank strategy and will continue. I will now request my colleague, Dipak, to take you through the digital highlights.
Thank you, Shanti, and good evening, everyone. Our broad tech strategy continues to be three-pronged. A, sharpening the acquisition engine. Two, enabling customer engagement. And three, enhancing customer experience. If you look at this quarter, we focused on all above three aspects, and to that extent, we've been working largely on building resiliency.
Reinforcing all our core systems and improving the customer journeys. You know, Shanti mentioned about some of the interesting introduction of products, particularly on the tax payment side. You'll see a lot of those going forward, and this will help us build more of the government deposits, but acquire new customers while it helps our existing customers with their transactions. On the digital side, we have progressed with the market. Initially, several of our digital initiatives were largely in the payments space, really. This keeps witnessing continuous technological developments driven primarily by UPI and other P2P and P2M customer segments. We've recently launched Spend account as an interesting proposition. Spend is a prepaid account for our customers, Kotak customers, to manage their everyday expenses. We've seen a lot of traction from customers on this proposition.
You secure your small payments without exposing the main account or debit card through the Spend account, really. While payment continues to be an area of focus, we have moved on to the retail asset segment. Again, Shanti touched upon some of these. Basically, the consumer lending space. The key focus of technology and analytics here has been to, A, improve the customer acquisition metrics, convert or cross-sell to a larger base of our existing customers. A lot of work is going on in the unsecured retail segment in this area. B, significantly improve the customer journeys through DIY, that is do it yourself, and assisted digital processes. An ongoing endeavor in all these digital pieces is to continuously improve the customer experience.
A lot of work on the mobile, newer versions, state-of-the-art versions and developments on the mobile, on the net and several other channels, public sector, whatever the customer chooses, really. While a lot of digital is focused on the retail customers, I must mention about the work on the retail commercial side, and Manian also mentioned briefly about the corporate side. Kotak.biz is our offering in the retail space, retail commercial space. It is a mobile app which offers a sort of a all-in-one bundled merchant proposition. A lot of digital generally tends to be largely focused on the retail side. We've actually invested very significantly also on the wholesale and corporate side. You know, we talked briefly about Kotak Pin in the past. That's a state-of-the-art transaction banking offering, and we've added a lot of functionalities to that, really.
The key digital metrics are outlined in our presentation, and just to name a few, our mobile banking app continues to be among the top-rated banking apps. 98% of our self transaction volumes are in digital or non-branch modes, an increasing trend in digital source retail asset products, really. I'll hand it over now to Mahesh Balasubramanian to take you through the life insurance business.
Thanks, Dipak, and good evening, friends. We had a more normalized quarter for life insurance business with profit after tax at INR 248 crore for the quarter against loss of INR 243 crore last year. Last year, we had significantly higher death claims and COVID-19 related provisions and claims net of reinsurance for this quarter, Q1 2023, was at INR 306 crore against INR 562 crore in Q1 2022. The premium growth also came to more normal. Gross written premium has gone up by 35.8% from INR 2,663 crore to INR 2,258 crore in Q1 2023. Individual new business APE grew by 44.6%, which is more or less in line with the industry.
The group new business premium grew by 78% on the back of strong recovery in credit term business. The AUM growth was 15% YOY. We ended the quarter with a net worth of INR 4,522 crore, with a capital solvency ratio of 2.72, compared to 2.557 at the end of Q1 FY 2022. I hand over to Manian to take the presentation forward.
Thank you, Varun. In absence of Jaideep, let me stand in for Kotak Securities. As you can see in our presentation, the cash volumes in the market plunged from about INR 56,000 crores last year and INR 48,000 crores in the Q4 of last year to INR 42,000 crores in the current quarter. Option volumes grew to INR 51 lakh crore from INR 22 lakh crore a year ago and INR 46 lakh crore a quarter ago. We have gained cash market share in the quarter from 9.6%-10.4% on a YOY basis. You can see a drop in the Q4 to Q1 from 11.5% to 10.4%. That is essentially because we closed some large block deals in the last quarter in the institutional segment of the business.
Overall, our market share has grown from 2.4% last year to 4.3% and 3.7% in the last quarter. Primarily because we gained market share, significant market share in the options segment in the retail side, where we made a specific customer offering to enhance this market share. Overall, our franchise remains strong, both on the retail and the institutional side. We continue to gain new account opening market share on the retail side and on the institutional side, our research analyst and sales teams continue to be rated very highly by institutional clients. Retail side is also seeing significantly enhanced usage of digital channels. Those numbers are there in the presentation.
More importantly, we have gone live with our new app, Neo, which has been launched for acquiring new customers and a gradual migration program from existing customers from the old app to the new app is on the way. In profit terms, we ended the quarter with about INR 219 crore of PAT, which is a small decline over the Q1 last year at INR 236 crore and a 13% decline from the sequential Q4 quarter. Taking you through CMCC. We capitalized on the small window that remained open kind of before it closed in the first quarter on the ECM side of the business. We were involved with several market transactions in the first quarter, and we could sustain our revenues in the first quarter based on that.
We do see pressure on revenues especially on the ECM side in the subsequent quarter. We do have a reasonable pipeline on both ECM and advisory mandates. On ECM, of course, depending on markets returning and getting comfortable with launches of reasonable size issues, we do have potential to book revenues through the year. On advisory as well, we are seeing transactions take slightly longer to close than we have seen in the last couple of years. We do have a good pipeline there. Overall, the business ended with quarterly profits or profit after tax of INR 51 crore, which is better than the first quarter as well as the sequentially quarter behind us, Q4. I'll now hand over the presentation to Kannan to take us through Kotak Mahindra Prime. Thank you.
Good morning. Kotak Mahindra Prime had a profit after tax of INR 156 crores, 157 crores for the quarter. The profit after tax is lower due to a one-time charge of INR 111 crores. The growth of PAT is much higher than the same quarter last year. Demand for cars and components continue to be good in spite of increase in vehicle prices and interest rates. At Kotak Prime, we continue to invest in our distribution infrastructure and technology to grow our market share. The collection environment through the quarter has been quite stable. I'll now hand it over to Nilesh to take over the AMC business.
Thanks, Kannan. Our total average AUM grew 15% YOY to INR 2.84 trillion. Our equity average AUM despite market correction was flat at INR 1.44 trillion. Our total AUM market share increased to 7.43%. Our SIP inflows for June 2022 grew 34% year-on-year to INR 7.3 billion. Our SIP book and average AUM growth continues to outpace industry. Our retail AUM stands at 49%. We continue to serve investor requirements by launching active as well as passive funds, focused on local as well as offshore markets across debt, equity and commodity. Our profit before tax was almost flat at INR 106 crores for June 2022 quarter. Our total AUM across mutual fund, PMS, offshore insurance and alternate assets grew 10% year-on-year to INR 3.78 trillion.
Our relationship value across private banking, priority and investment advisory grew 24% year-on-year to INR 5.01 trillion. With this, I will hand it over to Jaimin Bhatt.
Thanks, Nilesh. We would be open to taking questions from any of 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 their telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. First question is from the line of Rahul Jain from Goldman Sachs. Please go ahead.
Thank you. Good evening, everyone. Thanks for allowing us to ask the questions. The first one is, just wanted to understand about these savings deposits, and thanks for giving more disclosures around it. The fixed, SA, can we really know the average balances and how sort of that is moving and what would be the cost of deposit on the fixed [SA] ?
Cost of deposit is.
Cost of deposits, what you see there, the 3.59% is the overall cost of the savings deposits. Technically there's not much between what is fixed and floating. Sir, could you share that? The average deposit base. Average fixed deposit.
That's not what he's asking. Rahul, what's the question we missed here?
Yeah, the first one we couldn't hear.
I just wanted to understand about the savings deposit base. What would be the average balance per customer in the fixed SA part that you have shared this time?
Rahul, hi, this is Shanti here. You know, it's different across different customer segments. At the very retail end, you know, it would be below INR 1 lakh. You know, in the HNI segment, it is much and significantly higher, several lakhs. In the NR segment, again, it is about INR 5.045 lakh. In the institutional segment, retail institutional segment, it's much higher. Different customer segments have different average balances. At the absolutely retail level, it will be just under INR 1 lakh roughly.
Rahul, on your second question with reference to cost of SA, the average for the last quarter is 3.59%. You should note, you may be aware that we were amongst the first banks to increase our SA rate because of the changes in interest rates post RBI on May 4th. We did it sometime late May, if I'm not mistaken.
June.
To increase the deposit rates as of June. As things stand today, our deposit rates, savings deposit rates for up to 1 lakh is 3.5%. Up to 50 lakhs is 3.5%, and above 50 lakhs is 4%. This in general is, compared to the other larger banks, our savings deposit rates are 50 basis points higher than the larger banks.
It would have fully reflected in the 3.59% that you've recorded or yet to reflect?
Just as a distinction, Rahul, as I said, the change happened in June, somewhere around the tenth or twelfth of June. If I had to get a comparative number for the previous quarter, the savings average number was 3.53%.
Understood. Just the reason why I actually asked these average savings balances is just to understand the strategy behind growing these savings deposits again in the cycle, given the LDRs have already touched, you know, close to 90. What strategy are we sort of looking to follow? Can we be pricing more on the higher end of the customer base, the ultra HNI, the HNI, et cetera? Or this will be all across and again, you know, just from the LDRs, what's the comfort level that you all have? You know, 90%-92% is where we want to run or it could be even higher.
Rahul, basically we feel that our current view is that we are in a comfort zone, considering significantly higher capital adequacy. Therefore, your credit deposit ratio has also to be looked at, number one, with your overall capital adequacy. Second, the refinance, medium-term refinance, which you have got from financial institutions. We have taken reasonably significant refinance earlier from some of the financial institutions, which was fixed rate, which was taken and locked in through entire 2021, 2022. Which does not reflect in the credit deposit ratio because that does not come in as deposits. In addition to that, as Jaimin said, we are sitting on capital of around 23%. Both these give us greater flexibility to be able to be comfortable in the broad, around the 90% range.
Maybe a little lower is what we would like to see, but at 90 we are still comfortable. That is what our broad strategy is. In terms of the savings deposit rate, we obviously have significant discussions on strategy, how to go forward. When we are sort of looking at that and implementing that, I'm sure we will certainly share with the marketplace.
Got it. Can I just squeeze in one more question on, actually that's more on the credit cards bit, or should I get back into the queue?
Go ahead, ask.
Sure. Thanks. On the credit card side, you know, you've been building up your receivables base. Can we just know, you know, what sort of revolver, you know, that you're running in, you know, or this is more like the EMI loans. What's the nature of these balances that you're building up and what sort of customers are these on that? Sorry.
Rahul, our current revolving ratios, the ratios are around 30%, which is more or less in line with industry.
These balances would largely be revolving or there would be an EMI element also in this, or that goes and sits in the PMF?
In fact, EMI has grown reasonably, maybe faster than revolve.
Rahul, I can say that we are absolutely in line with industry in both segments, both EMI as well as revolve, in the industry. EMI has grown more than the revolve, as Uday just said.
Rahul, as I just mentioned, we have moved from 5.6% to 7.9% in the mix on unsecured retail. Please keep in mind, unsecured retail has a significant amount of front-ended costs in acquisition, which is what we have, we are taking through our P&L. You know, the benefits of margin on unsecured retail come over time. As I mentioned to you, and we are also looking at our pre-COVID numbers, over time. We like to include microfinance also in unsecured retail. We don't see it any different. Overall, our comfort is to move in unsecured retail to early mid-teens from the current 7-odd%, as we have discussed.
You would see that growing as we have seen in the last quarter with a much greater comfort on our credit and deep analytics. Our ability to take higher risk for adjusted returns, especially with annualized credit costs at 15 basis points. Our appetite is reasonably significant.
Great. Thank you so much for the questions, and good luck.
Thank you.
Thank you. The next question is from the line of Aatash from CLSA. Please go ahead.
Hi.
Sorry to interrupt you, Mr. Aatash. The audio is not clear from your line. Please use the handset mode.
Okay. Sorry. Just checking on the liability side, so that you mentioned it, now priced marginally higher than some of the larger banks. Obviously we are seeing an uptick in our growth. We give a rundown on all the extra liquidity that we had in the bank right now. What kind of delta are we seeing once we've moved on the term deposit rates? Like, how comfortable are you with the pricing or would you need to have a higher differential?
Let me just clarify. When I talked about deposit differential, which is 50 basis points on SA. It is on savings deposits compared to the larger banks. Most of the larger banks are up to 3% on SA. We are 3.5% on SA, up to 50 lakhs. Most of the larger banks are at 3.5% above 50 lakhs. We are at 4%. There is a reason why we are at 4%, because we think that in India, cricket matters. Okay. Four is also a very important cricketing terminology. Just in a lighter vein, sort of sharing with you. When I said 50 basis points higher, it's with reference to savings deposits. From term deposits, I'll ask my colleague, Virat, to give you a sense about how the flows are going as we talk.
On term deposits, the difference between some of these banks is barely 10-15 basis points plus minus, depending on the situation of each bank, and it's nowhere near the 50 basis points I talked in the context of savings deposits. With that, over to Virat Diwanji.
Yeah. The growth in the retail TD that we have seen in this quarter has been what you call mainly coming from the fact that the interest rates have started moving up, and hence the investor is investing in the TDs. I think this has given us the growth and it continues to continue in the coming quarter.
Pretty strong growth this quarter.
Aatash, I hope that clarifies for you.
Yeah, absolutely. Just one more question is, do you-
Aatash, again, it's not clear.
Not clear.
Sorry. Can we just.
Let's take it offline. I think this line is not clear. No worries.
Thank you. The next question is from the line of Mahrukh Adajania from Edelweiss. Please go ahead.
Yeah. Hello. Hi. I had two questions. Firstly, just on the AFS book, so how much would be G-sec and how much would be non-G-sec?
The 61% which I talked about is overall, which does include corporate bonds and all. Let me just give you something.
I think while Jaimin Bhatt is giving you the breakup between G-sec and non-G-sec, I wanted to just clarify another important point. If you notice the duration which we are carrying on our non-HTM book is about one year. I want to highlight some facts to you as analysts, which I'm sure you're aware of. If you look at our overall, fixed income book, just about INR 88,000 crore odd, out of which if about 39% is HTM. If I take that out, around 50%, about INR 50,000 crore odd is what is AFS and HFT. You would have seen a hit on our P&L, which is about INR 857 crore coming out of our fixed income book. Please keep in mind, all these are government securities with shorter duration. They are not T-bills.
If it was T-bills, there would be no need to mark-to-market. Because they are government securities, they have to be mark-to-market. For comparison, analysts, I'm just highlighting two touch points. On thirty-first of March, one-year treasury bill yield was 2.45%. On thirtieth of June, one-year treasury yield was 6.2%. If the difference is 177 basis points on one-year maturity paper. Now because in our case it was G-sec with a duration of one year and not T-bills or any other paper, and which was completely in the AFS book, you have to do your mathematics. 1.75% differential on a INR 50,000 crore book, which is our 61%, gives you the number which will explain the size of the hit which we have taken.
We want to be completely transparent about the hit we have taken in this quarter. Please keep in mind, along with the MTM hit, our entire book is repriced to adjust and going forward.
Got it. You wouldn't have transferred anything to the HTM, though you had limits this time?
No, we have not transferred anything to HTM. Our view on HTM versus AFS and HFT is we like to put more tenured paper, which is longer duration treasury paper into the HTM book. Whatever is shorter tenure paper, we are much happier to take it, keep it in our AFS book. This has been our philosophy for a long time. As a result of which, if there is volatility, I would rather take the pain rather than have a long-term drag on my NIM, which inevitably happens if I'm having a low yield paper stick in my HTM and give me lower NIM over a long period of time. More importantly, it reprices my book to the current market price, which means if one year duration security is today trading at 6.30%-6.40%, I'm fully priced to market in terms of my yield going forward.
Got it. That helps. Uday, sir, you did not give any overview on the sector this time. I mean.
You know I thought, Mahrukh, some of it you may get from my tweets, yeah.
Yes, I do follow your tweets. I think that this.
Look, Mahrukh, my view is that this is early stage of the interest rate cycle increase. I think there is some way off. It depends on how this whole business about commodities plays out globally. My personal view is the US Fed goes all the way up to 2.5% over short-term rates by end of this calendar. It is right now every central bank is following suit and different central banks have different choices. Our central bank has to make the tough choice between sort of supplying dollars to the market and increasing interest rates versus some level of currency depreciation. At least based on the evidence as of now, our central bank seems to be more comfortable with supplying dollars in reasonable amounts based on the data available, which undoubtedly reduces the liquidity in the marketplace.
I was just looking at the commercial banking liquidity numbers. September 30th, 2021, the liquidity in the system was INR 808,000 crores. The number I saw day before yesterday, the liquidity in the system was INR 129,000 crores. My colleague mentioned that there is about INR 200,000 crore surplus unspent government money. Even if I take back the INR 808,000 crore, you're down to about INR 300,000 crore of liquidity. As you supply more dollars in the market, you take rupees out. I am of the view that at least for short-term, Indian interest rates continue to tighten. We can see that situation clearly. In that context, Mahrukh, if you look at and look in connection with macro with our overall asset book.
My floating rate book plus fixed rate book less than one year is more than 80% of my advances. That is consistent with our macro view that the short-term interest rates move up and therefore we must be less stuck on the long-term fixed rate loans. For us, more than one-year fixed rate loans is now below 80% of our total book, which means our entire loan book up to 80% gets more reasonably priced in the short term, consistent with our macro view.
Makes sense. Do you see any risks to loan growth for the sector and therefore for you, either in retail or corporate going ahead, maybe in the second half?
Mahrukh, my view is that, yes, there are different sectors which are demonstrating different trajectories. My view is that it is possible for us as a bank to grow 1.5-2 times nominal GDP.
Got it. Thank you. Thanks so much.
Thank you. The next question is from the line of Shubhranshu Mishra from UBS. Please go ahead.
Yes, sir. Thank you for the opportunity. Just to ask a question on the credit card. How do we source these when we straight cut into own liability customers? When we straight cut into own liability customers, how many of them are coming from the salary account versus customer liability customer? What portion is coming from different sources? What is the cost of each of these sources? When we have to look at the PM set right now, if you revolve rate percentage of EMI as it was over a year ago. What would be the steady state ROA of the credit card business?
I think, you're asking too many questions. Let me address the larger picture. Close to 100% of our credit card sourcing is from internal liability customers. Yeah? From our internal asset and liability customers, close to 100%. So it would be a very marginal percentage to come from outside. We have a good mix of both corporate salary as well as the non-corporate salary. The customers with salary account and segment as well. As Uday had stated earlier, our revolve is around 30% and our EMI and revolve is in line with industry. Exactly what was it a year ago as well as now. I think a year ago, the revolve ratio was around close to 27%. It's about slightly under 30% as of now. Similar to the industry trends that we have seen here.
Is the steady state ROE, ma'am?
Sorry?
The steady state ROE on this book.
Right now we are having high acquisition costs.
ROE.
ROE. Yes. No, I don't think we sort of talk about ROE specifically for a product. Uday made a general comment last time, that the risk-adjusted return on our asset products, including on secure retail, is holding steady.
Thank you.
The NIM's reflected. Yeah. Thanks. I can't hear clearly.
Thank you. The next question is from the line of Saurabh from JP Morgan. Please go ahead.
Just two questions. One is, what will be the LCR during the quarter, both average and period end? Secondly, so, I mean, could you just explain what's happened in Prime and Investments both? I understand the accounting policy change, but there seems to be some additional impact in Investments as well.
I'll request our Head of Risk, Paul Parambi, to answer that, please.
Yes. Our average LCR for the last quarter was 119.9.
Okay. The period end too? Sorry.
End of the period.
End of period was.
It's not that level.
Yeah, it's.
Why don't we come back to you on that?
We'll just come back to you on that one.
Okay.
On your second question?
Prime and investments both are the profit here. I mean, there's an accounting change.
If you look at the accounting is only in Prime. It has nothing to do with investments. Broadly, what we did in Prime is, you do get sourcing of car loans through brokers. The expense which you incur was kind of being amortized over the life of the loan. From April 1, 2022, we have taken the entire hit upfront. We will ongoing take the entire hit upfront. Whatever was there as unamortized as of March 31st, we've taken that entire hit into the current quarter. That's the pre-tax number of INR 111 crore.
Okay. For investment properties, the profit made current quarter in terms of investments.
Yeah. Investments were small. If you look at quarter four for investments is always a very healthy quarter, so it's not correct to look at quarter four to quarter four. Quarter four to quarter one. Quarter one last year was about INR 71 crores. That has dipped about INR 8 crores in the quarter, which is not significant.
Got it. Right. Thank you.
The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.
Yeah. Hi. Firstly, with respect to margins, this improvement which is there, that will be previous reverse to it. But just want to understand in terms of the repricing benefit because of EBLR and MCLR, has it happened? Is it like a one-month reset and it is already reflected maybe apart from the period from which it is effective, but at least, it's already done in terms of the reset?
I think, Kunal, the way EBLR works is three-month reset.
Right.
Some part of it has come in this quarter. Balance will flow over the next few months in terms of the repricing benefit. Similar for MCLR. Bulk of our MCLR book was six-month MCLR. Depending on when the six months gets over, it starts flowing in. Both those, I think, significant part of those benefits. Some part has come in, and a lot of it will come in second quarter.
Okay. EBLR, three months. MCLR, six months. Larger part of the increase is again in terms of deployment of liquidity and growth in unsecured.
Right.
Okay. Maybe perhaps highlight in terms of your view with respect to the short-term Indian rates still getting tightened. I think it's very much unlike Kotak in terms of still having more than 60% in AFS and HFT. What's there in terms of Kotak keeping it all through this entire cycle, rate hike cycle? You have articulated that direction since last year because all the other banks are much lower, and we are accordingly maybe.
You know, Kunal, I think I've given you the mathematics.
Yeah.
61%, it translates to INR 50,000 crores of book. Average duration of the book, I think around 50, somewhere in that range. Average duration of the book is one year. I gave you one-year treasury bill rate on March 31st, which was 4.25%, which is a publicly available number. I'm giving you June 30th one-year T-bill rate, which is also a publicly available number of 6.20%. That is 175 basis points difference. If our one-year duration G-sec book was 50,000, 1.75% into 50,000, it converts to INR 850 crore. Of course, there are some other variations now, but I'm trying to simplify it because I don't need to look at what other banks are. Our number is clear.
One-year duration, INR 50,000 crore book, INR 857 crore hit, 175 basis points increase in one-year T-bills rates between March 31st and June 30th. It's very clear. I cannot comment on others. I can talk about us. Let me again bring you back to history. In September 2013, if you go back to [history] , we have always followed a philosophy that the short-term book is always kept in AFS and HFT. I don't think if you have a short-term book, you keep it as HTM as a philosophy. Maybe we are different. Even in September 2013, we had taken a very large hit because a very large part of our book was in AFS. You're aware of September 2013 taper tantrum and the significant amount of MTM pains which happened. Kotak had a very high MTM number even then.
No, totally.
We did not. At that stage, RBI had allowed banks to amortize it over time. Kotak had taken a decision not to amortize it and take the hit on the chin in that quarter. The philosophy in September 2013 and by June 2022 is no different. What we care about more is the substance of our duration from a risk management point of view and in terms of substance, our duration is one year. I mean, we cannot make it significantly lower from that, keeping in mind the risk-adjusted returns. The duration is one year. 61% of the book is AFS, HTM. Movement in treasury bill yields are publicly known, and the translation to us is transparently put in front of the investors in the marketplace. We cannot comment on what others are doing.
In any case, Kunal, like what we explained, the whole book is repriced already, so you're running a higher yield for the remaining period now. Ultimately, financially, it doesn't really make too much difference.
True.
Okay.
Secondly, in terms of credit costs, you said like in terms of the unsecured, we would want to take it to somewhere around early to mid-teens. On a steady credit cost, what we had seen prior to COVID, in fact, I think now it should settle at a relatively higher level. At the same point, if the margins are also improving, you said you always talk about the risk-adjusted return etc. In terms of the underwriting and the kind of credit which we are doing, we are very confident that it can actually lead to relatively better profiles because we would still be able to contain credit costs better than what benefit we are seeing on the margin side.
Kunal, I think, you know, it's always on credit cost, it's always better to walk rather than talk too much. Let me give you the history about, again, the analyst community concern in calendar 2020, when we wrote a large ECLGS book compared to many other players. There was significant concern that is going to hit us in credit costs. We said that we feel reasonably confident about what we are doing. All that is now reflected in our current credit costs, which are not considering credit, COVID write-back and all of 16 basis points annualized. We think this is very, very good, but we also realize that some of this, we are in a very sweet spot for how sustainable 16 basis points annualized is something which I don't want to speculate at this stage.
Pre-COVID credit costs used to be between 40 and 50 basis points. Today at 16 basis points annualized. I don't want to be a predictor of where the credit costs will be, but we are brutally focused on risk-adjusted margins, and that's what will drive our behavior.
Sure. Thanks. Can you follow up that point from, I mean, firstly on the total recovery books are between more than INR 50 lakhs and less than INR 50 lakhs if we can use. Second, in terms of the consolidated earnings and the intercompany adjustment seems to be quite high. It is almost equivalent to what was there in full year of FY 2022. Anything to read into it, and does it have any impact on distribution income?
No. Okay. Let me the first one, honestly, I don't think we are talking about giving the data about what is over 50 and below 50, so I'm not getting into that data. Intercompany adjustment, actually, if you look at quarter one last year also, it would be a reasonably large number, but to a large extent, the largest portion of this would be intercompany dividends. If my subsidiary has paid dividend to the parent or subsidiary is also held by some of the other entities, those will all get knocked out at the consolidated level. If you look at last year first quarter also, it was a high number, almost equivalent to the whole number which we had for the year, and that's also reflected in the current year.
Okay. Sure. Thanks. That's helpful. Yeah. Thank you.
Thank you. The next question is from the line of Sumeet Kariwala from Morgan Stanley. Please go ahead.
Yeah. Hi, team. Congratulations on great numbers. I had a question on OpEx. If I understand this well, there are three key drivers. One is personnel, second is tech and digital, third would be collection infrastructure, which you've generally been saying that you've been investing in. Should we expect some of these expenses to now normalize over the next three quarters and these doors between revenues and costs to open up by the end of this year? Thank you.
I think I'm gonna ask Mr. Dipak Gupta since he is now our champion on tech and digital and also on acquisition. He can also comment on it. Over to Dipak.
Sumeet, did you say jaws open up or jaws touching?
Dipak, I'm talking about revenue is growing faster than costs, which logically should happen. I'm just trying to.
Yeah, yeah. That's logical, but I think some amount of tech spend, uptick will happen. Having said that, you see, as your retail piece grows faster than others, the upfront cost hits you. The revenue stream happens over a period of time, and that goes on until you slow down the growth rate. I don't see, you know, retail slowing down in the next one or two quarters as such really. I think for the next one or two quarters, you will continue seeing upfront acquisition costs hit you and the tech costs, really hit you. The rest of them probably will normalize.
What happens really is once digital, one of the things which I mentioned on digital really is a lot of DIY and assisted digital processes. Now, once these fall in place, a lot of your acquisition costs, particularly the manpower related acquisition costs, start evening out really. That automatically gets your acquisition cost down. That impact will take about two to three quarters for it to start reflecting. It will happen big time because, you know, we are changing, you know, acquisition journeys especially across all our asset products, including the non-retail ones really. It will have a significant efficiency over a period of time.
Quite clear. The other question was on fee income. I'm not talking about fee income this quarter, which was 40% and actually helped margins. Generally, should we expect fee to assets to grow over the next two, three years? One is because you're doing unsecured much faster. Second is, there could be some fee pools on the corporate side that you might be able to capture. Just trying to get some sense on how fee will look in the next two, three years.
Yeah. All three will happen. You know, the corporate side will happen. I think on the retail side, again, you know, products like credit cards and all have very significant fee pools. Yeah. The third one, which also depend on markets to some extent, are really the distribution related ones. All three streams will happen, really.
Got it. Thank you. Thank you.
Okay.
Thank you. The next question is on the line of Praful Kumar from Dymon Asia Capital. Please go ahead.
Yeah. Hi, team. Congratulations on great results. Only one question on the deposit side, since you have significant advantage now as asset repricing, your investments you have taken ahead already. Any broad strategy on this term deposit rates or how do you accelerate the deposit growth over the next three-four quarters?
You know, I think, let me first say that, by design, we had slowed down the engine on retail term deposits in the last two years in terms of not pushing it as aggressively as, we used to do it before that. I think retail term deposits, it's not that we were shooing customers away. Please don't mistake that. We were not necessarily wanting to be the most aggressive on the price on retail term deposits. We are finding that that engine is cranking up pretty well on CDs, and we therefore feel reasonably confident. I joke internally that if I look at our deposit market share, this is our bank. Okay? There are 98 systems out there.
Therefore, we don't feel it is that difficult for us if we decided to crank up and get our deposit yields higher. The franchise, we feel, is strong enough for us to be able to do it as we are sort of getting our engine cranked up. I don't worry about the term deposit part and getting our act together in terms of cranking it up significantly. We have also. That's a very important difference between us and some of the larger banks is till now we were completely absent from payment of taxes and government revenues, which since we were not empaneled. As you know, the budget last year opened up empanelment, and then we had to do all the tech connections with the central government and also some of the state governments who depend on central government signal whether we are empaneled.
Now we are fully empaneled. We got all our tax specs cleared or some of them cleared. Therefore, a whole new sense of flows, which was otherwise not available to us versus the larger banks, has now opened up and we see the government payments, tax, GST, all those being available to our customers. A simple point is on tax 2.0, which is a new system put in by the government. We are among the first banks to run with the ball literally about a couple of weeks ago. Some of the existing banks have to come to the new platform. They're still on the older platform. Over time, government expects all the players to be on the new tax platform. We are already there, and we are starting with the new tax platform. We don't have the legacy issue.
Therefore, we see some of these actually making much greater customer stickiness for many of our customers. Otherwise, what was happening is existing customers would say that Kotak Bank maybe cannot pay taxes, GST, and then you have to, we have to either use another bank or pay one day early. Therefore, there was a friction for our customers. That literally two weeks ago has now opened up. We think some of these, along with a much greater focus on getting our liability engine firing across the board, which is a big area of focus for us as we speak. I would like to believe that Kotak management, when we make up our mind, we do bring the change.
Many of you about 18 months or 24 months ago would have said, "Kotak asset engine." Now you're asking the question where we have historically been good at, which is the deposit engine. I think we are getting our act together. That's all I'll say.
No, that's a very comprehensive explanation. There's one anxiety that, you know, all the investors have is the management transition. Maybe I'll start on what do you think in terms of timelines, if it happens, what will be the overlap? You know, we understand and appreciate that, you know, you remain the largest shareholder and, you know, you worry about things much more than we do. That is one pushback, you know, a lot of analysts give us.
Please rest assured that the 26% shareholder is fully committed to the balance 74% shareholders to ensure smooth transition.
Got it. Thank you so much and goodbye.
Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to Mr. Kotak for closing comments.
Thank you very much. I think we are certainly into volatile times. Having said that, we think we are reasonably positioned and we see ourselves being able to navigate through this in a reasonable manner. I'm gonna share with you a comment which I've put in my annual shareholders message for this year, which will be out shortly, that the change, the word change is the new comfortable feeling at Kotak. Change is the new comfortable feeling at Kotak. Okay, with that, I will end this call. Thank you very much.
Thank you. Ladies and gentlemen, on behalf of Kotak Mahindra Bank, that concludes this conference call. Thank you for joining us.
Change is the new comfortable.