Ladies and gentlemen, good day and welcome to the Axis Bank conference call to discuss the bank's financial results for the quarter ended thirtieth September twenty twenty-four. On the call, we have Mr. Amitabh Chaudhry, MD and CEO, and Mr. Puneet Sharma, CFO. I now hand the conference over to Mr. Amitabh Chaudhry, MD and CEO. Thank you, and over to you, sir.
Thank you, Michelle. We have on the call Rajiv Anand, the DMD, Subrat and Munish, EDs, and other members of the leadership team. This quarter, we delivered steady operating performance, led by higher growth across our focus business segments and sequential improvement in key return ratios. We remain committed to build long-term competitive advantage with investments in technology, analytics, fraud control and cybersecurity. The bank continues to win various external awards and recognition across its different businesses, substantiating the investment and progress made over the last few years, resulting in this winning mindset of the bank. Let me summarize the quarter two operating performance. Consolidated ROA is at 1.92%, improved nine basis points year-on-year and 22 basis points quarter-on-quarter. Consolidated ROE at 18.08%, improved a 140 basis points quarter-on-quarter.
Operating profit was up 24% year-on-year and 6% quarter-on-quarter, driven by healthy operating income growth and further moderation in operating expenses growth. Execution on the deposits is on track, with 14% year-on-year growth in deposits and 24% year-on-year growth in new customer acquisitions. CASA ratio and fee to average assets continues to be among the best for private tier banks. Focus business segments delivered strong growth of 20% year-on-year and 4% quarter-on-quarter. The bank is well capitalized with a CET-1 ratio of 14.12%, with net accretion of six basis points in the second quarter and 38 basis points in the first half period. We stay focused on three core areas of execution of our GPS strategy, namely becoming a resilient all-weather franchise, creating multiplicative forces to build competitive advantage and building for the future.
I will now discuss each one of these areas. Becoming a resilient all-weather franchise. The quality and strength of our deposit franchise continues to improve through Project Triumph, the bank-wide deposit transformation program. The bank continues to deliver over 200 basis points higher than industry deposit growth. We have opened 150 new branches in the last three months and 200 in the first half of this fiscal. The new to bank acquisition engine for the savings account franchise has trended well. In this quarter, we saw SA new to bank deposits up 15% year-on-year, with new accounts opened up 5% year-on-year and balances per account up 10% year-on-year. New corporate salary levels acquired in Q2 grew 11% year-on-year, with 10% year-on-year growth in number of accounts acquired.
Salary uploads in the new book acquired in the first half grew 27% year-on-year. Deposit mobilization remains a key focus area for the bank. The asset channel saw 106% year-on-year growth in deposit balances and 25% year-on-year growth in number of accounts, leveraging the relationship and distribution strength. Project Triumph continues to focus on productivity enhancement through tech-led solutions. The SME new to bank unit productivity of relationship managers continue to trend positively, with 40% year-on-year improvement as of September 2024. The premiumization of our franchise continues to progress strongly, led by 36% year-on-year growth in Burgundy assets under management. During the quarter, we also expanded our coverage of Burgundy Private, the bank's private banking business to 15 new cities, increasing our presence to 42 locations across India.
We believe, excuse me, that there is tremendous growth potential in tier two cities for our bespoke wealth management services, given our deep understanding of customers in these evolving markets. On the wholesale segment, refer to slide 37 and 39. Our industry-leading customized solutions across liquidity management, payments and collections continue to drive higher transactional banking flows, leading to better current account balances. Our relative market share in terms of value has increased to 12.9% in first half of this year as compared to 10.4% in the first half of last year. We are also seeing strong pickup in current account growth in our merchant acquiring business, where we have leadership position with 36% incremental share in new POS installations. We've seen all-around growth across businesses and market-leading growth in our focus segments.
Our better yielding focus segments, including select retail, SME, and mid-corporate segments together, grew by 20% year-on-year and now constitute 43% of the total advances, up by thirteen hundred basis points in the last four years. We'll continue to focus on driving growth across our business segments while following our capital efficient roll-off model. We also strengthened the core. We have made significant investments in core information technology, which we refer to as running the bank tech, and further invested in architecture modernization, cybersecurity, fraud control, risk and collections management, et cetera. We have created future-ready and scalable platforms to replace fragmented legacy systems, demonstrated the successful launch of Neo for Corporates and integrated treasury management. Neo for Business, our MSME proposition now has 1.3 lakh customers onboarded in the last one year.
During the quarter, we introduced two innovative industry-first digital solutions at the Global Fintech Fest 2024. The bank launched UPI ATM, an integrated Android cash recycler with UPI technology for cardless cash withdrawal and deposits. We also launched Bharat Connect, erstwhile BBPS, for business in partnership with NPCI's Bharat BillPay. This will provide businesses a comprehensive solution to efficiently manage their working capital needs at various stages of the supply chain and streamline account receivables and payables. We also leveraged our capabilities and leadership in payment space to launch UPI Setu, a UPI-focused payments platform for businesses and developers in partnership with Setu, a Pine Labs company... We now have a strong, dedicated financial crime intelligence division that combines analytics, data monitoring and fraud control capabilities to safeguard the bank and its customers.
We continue to garner several key external recognitions for the capabilities initiatives we have undertaken successfully in the last few years. The bank was featured in the TIME World's Best Companies of 2024 list, and was ranked the highest among the Indian financial peers. The bank also won several awards, including those for best performance and profitability, risk management, and asset quality, apart from recognized for excellent practices and adoption of ESG initiatives at the Indian Chamber of Commerce Emerging Asia Banking Awards 2024. Our second pillar, creating multiplicative forces to build competitive advantage. We believe we are well-placed to contribute and lead on the broader economic trends of the next decade in India. The multiplicative forces that we have built through One Axis, data capabilities, partnerships, and a prudent operating model differentiates us and gives us the right to win.
Axis Bank is the leading UPI peer payment service provider bank in India. According to data published by NPCI, as of September twenty twenty-four, Axis Bank holds a market leading share of 30.87% in the UPI peer PSP space. This achievement is a testament to the bank's unwavering commitment to innovation, customer-centric solutions, and strategic partnerships. Axis Bank collaborates with 15 prominent third-party application providers. Additionally, the UPI functionality is available through your Axis Mobile, Open by Axis, Freecharge, Axis Pay, and accessories of the bank. The integration of Erstwhile City customer business that we completed in July exemplifies the true power of One Axis. Consequently, Erstwhile City Bank customers now use Axis digital channels, including Open by Axis mobile app and internet banking. The migration was seamless, with minimal disruptions to customers in terms of monthly active users.
by Axis is witnessing higher number of customers than were active on erstwhile Citibank platforms. Further, digital activity of these customers across product services such as fund transfers, fixed deposits, bill pay, et cetera, have gone up materially. Building for the future, our journey to the future really continues to progress, led by our focus on distinctiveness elements, namely digital, Bharat banking, and customer obsession. Digital banking performance continues to remain strong. In this quarter, the bank made several enhancements to its products, including redesign of several journeys, new journeys, and opening fixed deposits via money from other banks, continued to roll out of Neo for Corporates and Neo for Business, which are digital channels aimed at corporate and small business customers, respectively. The bank was awarded the Best Digital Bank by the Financial Express.
In addition to the strong lab ratings, awards suggest this signifies the bank's distinctiveness in digital capabilities and platforms. We continue to work on other bank-wide programs to build distinctiveness. Our Bharat, our bet on Bharat, is going from strength to strength. The rural advances grew 20% year-on-year, and deposits from Bharat branches are up 9%, thereby aiding the PSL and profit metrics. We have expanded our multi-product distribution franchise and architecture to over 2,500 branches, complemented by 62,000 CSB only network across 683 districts and 80+ partners across industry. During the quarter, we embarked upon next phase of Sparsh, our distinctive customer obsession program. Sparsh 2.0 represents a strategic evolution from Sparsh 1.0, and is aimed towards linking Sparsh initiatives to enhance customer satisfaction, leading to improved NPS and better business outcomes.
The program has been instrumental in driving higher NPS scores, led by enhanced process automation and significant digitization. Our retail bank NPS score has matured significantly, rising to 145+ from a baseline of 100 in the past two years. In closing, we find favorable macros backed by a strong and stable domestic policy environment, which bodes well for the banking sector. We are well placed in the current macro environment. We continue to closely monitor the geopolitical environment, inflation, liquidity, cost of funds, and its impact on our business. We will continue to invest where necessary to remain differentiated and distinctive in our journey towards building an all-weather institution. I'll now request Puneet to take over.
Thank you, Amitabh. Good evening, and thank you for joining us. The statement details of the financial performance of the bank for Q2 FY 2025 and H1 FY 2025 across operating performance, capital and liquidity position, and asset quality restructuring and provisions are as follows: The key financial parameters for H1 FY 2025, our consolidated ROA is at 1.8%, and our consolidated ROE is at 17.43%. Our operating profit was INR 20,819 crore, grew 19% year-on-year. Our cost to income at 47.21%, declined 207 basis points year-on-year. Our PAT at INR 12,952 crore, grew 11% year-on-year. In Q2 FY 2025, our operating performance was stable across NIM, fee, and operating expense lines.
The key metrics for Q2 FY25 are as follows: The consolidated ROA at 1.92%, improved 9 basis points YoY and 22 basis points Q1Q. Consolidated ROE at 18.08%, improved 140 basis points Q1Q. Our subsidiaries contributed 8 basis points to the consolidated annualized ROA and 50 basis points to the consolidated annualized ROE in the quarter. The bank's balance sheet crossed the 15 lakh crore mark at September 2024. Our net interest margin was 3.99%. Our NII at INR 13,483 crore, grew YoY at 9%. Our fees at INR 5,508 crore; YoY growth of 11%, QoQ growth of 6%. Granular fees constitute 92% of our total fees. Our operating expenses are INR 9,493 crore.
The YoY growth of operating expenses moderated to 9%. Our operating profit at INR 10,712 crores, YoY growth of 24%, QoQ growth of 6%. Cost to assets at 2.52%, declined two basis points sequentially, delivering a positive jaw for the quarter. Net credit cost at 0.54%, down forty-three basis points QoQ. Recoveries, including recoveries from written-off accounts and upgrades, improved 46% QoQ, in line with our Q1 FY 2025 commentary. PAT at INR 6,918 crores, increased 18% year-on-year and 15% sequentially. Gross NPA at 1.44%, declined 29 basis points YoY and ten basis points sequentially. Net NPA at 0.34%, declined two basis points year-on-year and was flat sequentially. Our PCR was at 77%, flat QoQ broadly.
Standard asset coverage ratio at 1.2%, stable QoQ. All provisions by GNPA ratio at 153%, improving to 158 basis points QoQ. In Q2 FY 2025, the bank received favorable ITAT orders for six assessment years, commencing AY 2011-12. This has resulted in a write back of excess tax provisions made in previous financial years, aggregating to INR 550 crores. In addition to specific loan loss provisions, in the quarter, the bank made provisions aggregating to INR 520 crores under the head provision for other contingencies. These are entirely prudent and are not for current or future NPAs, and should not be construed in any manner as the bank's assessment of expected credit quality. I would reiterate, these are purely prudent, not for NPA assets, and do not reflect bank's own expectation of its asset quality.
This was done to strengthen the balance sheet further. Hence, on a net basis, the effect of reported results is marginal. Further, we are not expecting any further tax orders relating to similar matters in the remaining part of FY 2025. Bank CET1, including H1 profits, stands at 16.61%, thereby accreting net of consumption six basis points of CET1 in Q2, and 38 basis points in first half of FY 2025. In addition, the bank has a prudent other provision of INR 5,012 crore. This provision has not been reckoned for capital computation and translates to a capital cushion of 38 basis points over and above the reported capital adequacy ratio. The bank assesses its capital position on two pillars, i.e., growth and protection. We reiterate, we do not need equity capital for either pillar.
We may opportunistically evaluate issuing Tier two and AT1 instruments based on market conditions. In the current quarter, we applied increased outflow rates to our operating deposits, and this increase has impacted our reported LCR percentage and LCR accreted deposits number. These changes help place us better for the implementation of the draft circular. Net interest margin at 3.99%, declined six basis points QoQ, largely attributable to the interest on income tax refund recorded in the previous quarter. Operating NIMs largely remained flat QoQ. Yield on interest earning assets improved nine basis points year-on-year. This was offset by a cost of funds increase on a YoY basis by 12 basis points, resulting in a NIM drop of 12 basis points. Our progress on structural NIM drivers continues. Please refer slide 10, with improvements across various variables on a YoY basis.
Our balance sheet mix, loans and advances comprise 90% of total assets at September 2024, improving 48 basis points YoY. Average advances comprise 66.9% of total assets at September 2024, improving 40 basis points YoY. Retail and CBD advances comprise 71% of total advances, improving to 143 basis points YoY. Low-yielding RIA BF books declined by 10,448 crores year-on-year. RIA BFs comprise 1.1% of total assets at September 2024, compared to 2.14% at September 2023. Quality of liabilities measured by outflow rates remains best in the industry, but declined marginally year-on-year. Quarterly average CASA at 40%, flattish quarter-on-quarter, declined year-on-year. Our fee performance was good, reflected in fee growth of 6% QoQ and 11% YoY. Our fee to assets improved five basis points QoQ.
Total retail fees grew 5% QoQ, supported by our third-party products business. Total wholesale fee grew 8% QoQ, better than the growth in advances, reflecting improvement in the franchise across transaction banking, debt capital markets and our treasury activities. Trading profit and other income at INR 1,114 crore, improved by INR 634 crore sequentially, mainly on account of NPM on investments. Please note that under the current RBI guidelines related to investment accounting and recognition norms applicable from April 2024, NPM gains are recorded through the PNL, unlike the past, where only NPM losses were recognized and gains were ignored. Operating expenses for the quarter stood at INR 9,493 crore, growing 9% year-on-year and 4% sequentially. We opened 150 branches in the quarter and 200 branches in the first half of FY 2025.
The YoY increase in INR crore expenses can be attributed to the following reasons: 19% volume linked, 20% technology and growth related, and 74% to BAU expenses. This was offset by a reduction in our integration expenses. Technology and digital spends grew 31% YoY and constituted 10.2% of total operating expenses. Staff costs increased by 19% YoY. We have added 4,091 people from the same period last year, mainly to our growth businesses and technology teams. Q1Q increase in operating expenses is largely attributable to our cards business and BAU expenses across all business and functional lines. Net credit cost provisions for NPA was INR 1,441 crores, declining 44% Q1Q.
Provisions and contingencies for the quarter were INR 2,204 crores, higher sequentially, due to the provision for other contingencies discussed earlier. The cumulative non-NPA provisions at September thirtieth, 2024, is INR 11,815 crores, comprising provisions for potential expected credit loss of INR 5,012 crores, restructuring provision of INR 466 crores, standard asset provision at higher than regulatory rates of INR 1,912 crores, weak assets and other provisions of INR 4,425 crores. Moving to the performance of our subsidiaries. Detailed performance of our subsidiaries is set out on slides 62 to 69 of our investor presentation. In the first half of FY 2025, domestic subsidiaries reported a net profit of INR 927 crores, growing 35% YoY. The return on investments on domestic subsidiaries was 58%.
Overall assets for Axis Finance grew 30% YoY. Retail book constituted 37% of total loans. PAT grew 24% year-on-year to INR 327 crore. Strong asset quality with a net NPA of 0.25% and negligible restructuring represent the strength of the Axis Finance balance sheet. Axis AMC, overall quarterly assets under management grew 20% YoY to INR 312,338 crore. H1 PAT was INR 244 crore, growing 29% YoY. Axis revenues for H1 FY 2025 grew 98% YoY to INR 907 crore, and PAT grew 139% YoY to INR 272 crore. Axis Capital PAT grew 29% YoY to INR 87 crore. We executed 30 ECM transactions in the first half. Moving to asset quality provisioning and restructuring. Gross NPA in INR and percentage terms declined YoY.
Slippages, GNPA and NPA and PCR ratios for the bank and segmentally for retail, CBD and corporate, are provided on slide 54 of our investor presentation. Gross slippages for the quarter were 4,443 crores, declined sequentially. Our gross slippage ratio also declined by 19 basis points sequentially. Gross slippages segmentally were 4,073 crores in retail, 264 crores in our CBD business, and 106 crores in our wholesale business. For the quarter, 33% of gross slippages are attributed to, attributable to linked accounts of borrowers who were standard when classified or have been upgraded in the same quarter. Net slippages for the quarter were 2,374 crores, declining 28% Q1Q.
Net slippages segmentally were INR 2,607 crore for Retail, INR 91 crore for CBG, and INR -324 crore for our wholesale business. Recoveries from written-off accounts for the quarter were INR 984 crore, improving 67% sequentially. Net slippage for the quarter, adjusted for recoveries from written-off accounts, were INR 1,390 crore, declining 49% QoQ. Segmentally, Retail was INR 2,164 crore, CBG was INR 31 crore, and our wholesale business was INR -805 crore. To summarize, Axis Bank is progressing well to be a stronger, consistent and sustainable franchise. Consolidated ROE and ROE for Q2 were 1.92% and 18.8% respectively, an outcome of our disciplined execution. The bank has ample and sufficient liquidity, visible through the average LCR ratio of 115%.
Given the increased regulatory focus on CD ratio as one among multiple measures to be tracked, deposit growth will continue to be a key constraint for growth in advances in the short to medium term. In the medium to long term, we believe advances can grow 300 to 400 basis points faster than industry. We are well placed in the current macro environment. We continue to closely monitor geopolitical environment, inflation, liquidity, cost of funds, and its impact on our business. Thank you for your patience. We conclude our opening remarks, and we will be happy to take questions.
Thank you very much, sir. We will now begin the question-and-answer session. Anyone who wishes to ask questions may press star and one on their touch-tone phone. An operator will take your name and announce your turn in the question queue. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mahrukh Adajania from Nuvama. Please go ahead.
Yeah, hi. I had a couple of questions. Firstly, on deposit growth, you've done a good job in improving the quality of deposits. You've been working on it for a long time. But, and I know you've given a medium-term forecast of, growing faster than the sector, but, like, if you really look at the yearly deposit growth or yearly loan growth, you know, even if you build a 3%-4% QoQ deposit growth for the next two quarters, it comes to at best, low single- digit or, you know, maybe very high double, low double- digit or very high single- digit, and that's kind of lower compared to peers. So any plans to accelerate deposit growth from now on, given that the quality has been achieved, like increasing rates? That's my first question.
If you could call out the IT refund this quarter, like last quarter was INR 200 crore, is what was called out.
Mahrukh, thank you for your question. I'll clarify all the data points that you raised. Last quarter, we had interest on income tax refunds, which was recorded in the net interest income line.
Mm-hmm.
That was INR 220 odd crore.
Hmm.
In the current quarter, we have favorable orders from the ITAT, for which we have been able to reverse tax provisions created in previous financial years. We received favorable orders for six financial years, that's assessment years, and the aggregated amount of tax provision reversed, and this reversal is sitting in the provision for tax, so below the PBT line, that amount is INR 550 crore.
So there's no IT refund this quarter?
Nothing meaningful to speak of. This is a provision reversal number.
Okay, cool.
So Mahrukh, this is Munish. First of all, thank you for acknowledging our, our work on the quality of deposits. Indeed, we have seen a, a dramatic shift in our quality of deposits in the last few years. We've been at it, as you just said, as signified as, you know, depicted by the improvement in the outflow rates, our CASA ratio, et cetera, and the growth, which is better than the rest of the industry. You know, it is obviously, we are focused on increasing the momentum of growth in the business. We are growing at 200 basis points higher than the industry. There are a few levers or pillars that we are working on, which I would just want to bring to your notice. They're also mentioned on page 18 of the investor deck.
The first is we've been telling you that we are working on a multi-quarter, you know, deposit transformation project, improving the, you know, customer engagement and the operating rhythm in our branches. We are seeing good outcomes as a result of that work that we've done over the past few quarters. On NTB productivity, NTB growth rate, and premiumization of deposits have indeed shown a good momentum in the last, you know, few quarters. We're also focusing on building a micro-market strategy. We've opened 500 branches last year, close to 500 branches last year. This year, again, we are looking at opening 500 more branches. We are working on premiumization of our total base.
Our growth rates in our premium accounts in our markets is actually higher than the overall growth rate, but that number, we will continue to focus on. Our wealth franchise, which is within the private franchise on top, is also growing at a very healthy pace, and it's crossed INR 2 lakh crore of overall AUM. We also, we've also, you know, added 15 more cities and taking our within the private number to about 42 cities in the country. We are working on our Bharat Banking strategy is also continuing to you know to ensure that we get deposits in the deeper market as well through multiple channels of distribution.
And our digital partnerships, including our world's best app on the Retail side and our Neo project on the wholesale side for our customers. We're also ensuring that we continue to deepen our engagement. If you look at our overall number, in the first half, we've grown deposits 14% in the first half of the year, and it's our endeavor to continue to push for higher, better, and better quality growth from here.
Okay, perfect. Thanks. And if at all I can slip in a third question, if you could explain the vintage of write-offs, right? So these will be old NPLs, right? The write-offs that you do through the, in the walk.
Yeah, Mahrukh, thanks for the question. I'm presuming you're looking at the NPL walk slide that we published-
Yes.
As part of our investor presentation, slide 56.
Yes.
And you are wanting details on the 3,119 crore, correct?
Yes.
Mahrukh, as I have previously indicated, we are one of the few banks that writes off loans on a regular basis. For our Retail portfolio, as well as our Commercial banking portfolio, we have an auto write-off rule after an account has been provisioned 100% for a certain number of quarters.
Hmm.
A dominant part of the write-off for the current period has come from our CBG and Retail portfolio.
Hmm.
I have also called out, as in the earlier part of my opening comments, that we've had strong recoveries on the wholesale side.
Hmm.
In the INR 3,119 crore, there will be the residual provision. There'll be the residual amount on wholesale accounts that would have been written off as part of the settlement process. So predominantly CBG and Retail will be with a few wholesale accounts, which would have a tail amount that would have been written off post recovery.
Got it. Very clear. Thank you so much. Thanks a lot.
Thank you. The next question is from the line of Rikin Shah from IIFL Securities. Please go ahead.
Thank you for the opportunity. I have three questions. The first one is on the SLR investments. There was a marked jump sequentially in the SLR investments that we are holding. Is this a function of the higher run-off rates that we have applied on some Retail deposits and to shore up the LCR? The second question is on asset quality. While you've called out, Puneet, that the gross slippages are largely from Retail, if you could provide some additional color as to whether it's coming only from the unsecured or there are other Retail segments which are contributing to that as well.
And, a sub-question would be that, the recoveries, while they have improved sequentially, would you say that there is still some more catch-up of the lower recoveries that we saw in 1Q to come through in the second half? And the last question that I have is on the draft RBI norms, which were announced recently, and specific to the subsidiaries are not allowed to do overlapping businesses. So some of your subsidiaries would be in the lending segment, and what is your preliminary assessment or understanding of this guideline?
Rikin, thanks, thank you for the question. Multiple parts, let me break them up and respond. Your first part is your observation on GSEC growth on balance sheet. My request to you is, please, and that number will reflect a 10%-12% sequential growth. Please do not look at that number in isolation. We manage the balance sheet with an interest rate view, so please look at overnight placements plus SLR together. And if you look at the two numbers on a cumulative basis, there will be a net increase if you add the two lines up by roughly about INR 3,800-INR 3,900 crore. This is in line with the balance sheet growth. So it is just how we have deployed liquidity, as at reporting date, that shows you the anomaly between the two line items.
Overnight placements get reflected in cash and balances with banks, whereas SLR securities get reflected in the investment schedule. Yes, there is an increase in the SLR securities on account of the run-off comment. So yes, that does partially contribute to the increase, but it is not to the extent as visible on the face of the financial statement. Your second question was the October 4 Circular from RBI. I would simplistically state today that the bank is reviewing and evaluating implications of the draft circular on our legal and operating model. We do intend to review and make representations to clarify our understanding of the draft circular as it stands today. We will wait for the final guidelines to determine our position on the October 4 Circular outcome.
But the one principle philosophy that we will use as we assess October 4 implications, is we will do what's in the best interest of our shareholders. That's all that we are able to comment today. It's very nascent to give you a categoric outcome on what, when, and how we would deal with the implications of the October Circular today. I think the third part of your question was Retail slippages and color thereof. You fairly observed, as I had called out earlier, Retail slippages are a large part of our slippages for the quarter. Directionally, they are coming from the unsecured product segments. We have never given you product-specific details, so we would not like to start doing that now. But suffice to say that it is largely unsecured Retail, where we have accounts slippages in the current quarter.
I think that covers all the questions you had, Rikin. I hope I've not missed anything.
Just one sub-part. One was on the recoveries. While it has improved sequentially, but the shortfall from the 1Q, would you say that there is any further catch-up remaining on that? Or, this should be general normalized trends going ahead?
No, Rikin, I clearly said that our recovery from written-off accounts for the quarter are actually up 49% to up 67% sequentially. And the other comment I made was, we had very clearly called out that there were timing differences in quarter one performance, and I think we've borne fruit to our initial comments that we will find those recoveries come through. So if you add the two quarters together, you pretty much get what we had promised.
Got it. Thank you very much, Puneet, for answering all the questions.
Thank you. Ladies and gentlemen, in order to ensure the management will be able to address questions from all the participants in the conference, kindly limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. We'll take the next question from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah, thanks for taking the question. So first is with respect to the loan growth, and you alluded when you were answering with respect to the deposit growth. But even in terms of the breakup, if we look at it, in few of the segments like home loan, vehicle loans, corporate, we are still lagging significantly to the system average growth. So I think, should we still assume that this might continue for a while, and the larger part of the growth will still be driven by higher yielding focus segments, more to manage the yields?
Hi, Kunal. Thanks for your question. So, if you look at page 21, we've got a breakdown of the loan growth. Obviously, when we look at our balance sheet, we do so holistically, and we do so with two or three aspects in mind. Our primary driving factor is returns on different parts of the balance sheet. Now, if you look at the way unsecured, which is traditionally a higher yielding asset book has performed, the return will be affected by the credit stress, similarly on card, similarly on others. At the same time, we are also acutely aware of the situation in the market which affects some of the derived demand products such as auto and home loans.
So we're expecting to see a pickup in the loan growth in this quarter and the next, but we will continue to calibrate the composition of the loan growth, particularly on the Retail side, in order to optimize the best return, while keeping in mind what we will get as placement yield and also what we expect to see as credit losses.
Okay. So fair to assume, maybe at least, in terms of the traction on Retail, we will still see the decline, particularly on the unsecured and some pickup on the secured side?
I would not qualify it as a decline. We haven't even, even here, we haven't seen a decline as a sequential QoQ, or nor YoY. But yes, it will be-
Or quarter, yeah.
Yeah, it will be calibrated for those segments, where we believe we see signs of stress. So we will take early action, and obviously you will see the composition of that, change on a fairly dynamic basis.
Okay. And second question is on cost of deposits. So that has still stayed flat this quarter. So how do we say maybe are we largely done with the repricing? There has not been much increase in the term deposit rates for us. So should we assume that it stays at the current level, given the rates which we are offering today?
Kunal, thank you for the question. I presume you're looking at data on slide nine of our presentation. Yes, we've been flattish on cost of funds. We put out cost of funds, not cost of deposits. Effectively, if you look at the way I would expect you to think about-
Sorry, so on slide seven, there is cost of deposits at 5.08.
That's correct, so effectively, if you look at 5.08 flat, even cost of funds has remained flat. The one basis points change in cost of funds is principally led by borrowing cost increase. As long as the market remains disciplined about pricing for deposits, we would expect a reasonable part of the bank book to be repriced. We'll have to look at how the forward book moves. We, as a bank, have remained very disciplined on deposit pricing, and that is a operating model that we intend to continue to follow, on a go-forward basis.
Okay.
Kunal, if it's, I mean, if you look at the Fed has cut rates by 50 basis points, ECB has cut by 25, the third time today, and there is already conversation on when the RBI will cut. Now, one can argue on whether the cut is going to come in December or March. But in the environment like that, it is unlikely for deposit rates to go up.
Yeah.
- and therefore, to that extent, you know, the pressure to push deposit rates up seems unlikely.
No, only question was on repricing. We are largely done with respect to the repricing on the back book.
I mean, very large percentage of the book is between, let's say, you know, six months to one year. So you can do the math, I mean.
Okay.
On what that number could be.
Got it. Okay. Yeah. Thanks. Thanks, and all the best. Yeah.
Thank you. The next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Yeah, hi, good evening. Thanks for the opportunity. I have two questions. One is on the CD ratio and LCR, if you can indicate, like, what is a comfortable, like, number or threshold that you will want to maintain on this? And specifically on LCR, what really driven this increase in outflow rate? Because we were like over last three years in a consistent decline, and the entire increase seems to have come through in this quarter. So how are you looking at this, going forward in the next quarter?
Nithin, thank you for the question. I think let's start with the outflow rates. As I called out earlier in my conversation on this call, we have revisited the risk rates and operational deposits, and because we revisited the risk rates, the outflow rates have changed, which is a reflection of the number that you see on our investor presentation. The reason for the change or the rationale for the change is we think that's a better representation. It also places us well for the final ECL adoption in shape and form that it comes out in April, so that's the reason why you're seeing outflow rates move up. Otherwise, core Retail outflow rates have remained steady for us on a period-on-period basis.
To your question on the CD ratio, you've seen us operate at a CD ratio level over the last three to four quarters. We will operate in a range. We are very cognizant and respectful of the regulators' outlook on this number, but it is one of the many variables that we look to manage our balance sheet by. It's not the same variable. Our reported number for the current quarter is a number we are comfortable with at the moment.
Okay. And the second question is on, like, the employee base. There is a very slight decline, 1100 employees this quarter, while we added 150 branches. So how are you looking at the expansion going ahead in terms of?
Thank you for the question. I think it's a function of, it's a reflection maybe of some of the past questions that we've been asked, that reduction is after the fact that we've added 200 branches, including 150 in the last quarter. Part of it is productivity gains playing through for some of our previous investments that we have made on the digital and tech side.
Okay. So we can expect this to continue as in the productivity gains resulting in lower employee base?
Nitin, I will not offer a comment on individual line items of my cost. I have very clearly stated in the past that for Axis Bank, you should see pace of growth of cost to moderate. We have delivered that in Q1 and Q2. We are down to 9% year-on-year cost growth. I think that's something that we would like to be measured by. We would not like to offer commentary on individual line items of our cost base, please.
Okay, thank you so much. This, this helps a lot. Thank you.
Thank you. Thank you, sir. The next question is from the line of Saurabh from JP Morgan. Please go ahead.
Hi, just two questions. So one is on CASA. So it's about 5% on a quarter average basis. What's your outlook for this number for the full year? And if rates were to come down by 50 basis points, would you expect some improvement, especially on your savings account? And the second is, on this loan mix. So we see corporate and mortgage still grow very slowly. How would you think about this going forward? Thank you.
My apologies, couldn't hear you clearly. May I request you to please repeat your question?
So the first is on CASA.
I'm sorry, Mr. Saurabh. I should request you to kindly use your handset, sir. Your audio is not clear.
Is this better now?
Yes, please proceed .
Yeah. So, so on CASA, so sir, how would you think about this CASA growth going ahead? It's about 5% on a quarter basis, especially on savings account, and if rates were to come down by 50 basis points, would you expect the SA rate to actually the SA growth, savings account growth to go up? And the second question is around the corporate and the mortgage growth. Basically, it's been pretty muted this quarter. Should we expect a similar trend going ahead? Thank you.
So let me start with the asset growth piece. I think we monitor and manage our businesses on a risk-adjusted return on capital basis. Effectively, that's how we will manage our balance sheet. Mortgages honestly still doesn't give you, at marginal cost, an adequate risk-adjusted return. We like that segment for it being secured, but growth there will continue to remain calibrated till we can find the right rate of outcomes for it. I pause there and request Rajiv for his input on the whole process.
I'm not overly concerned about asset growth on the Corporate side, and I've mentioned this many times. On the contrary, we've actually had a pretty good quarter from you know, from a Corporate perspective and you know, how we've been engaging with customers. Axis Capital has had a fantastic run over the last three months; 60%-70% of their business that they have taken to market are customers of ours. We've gained market share on foreign LCs, RTGS. We now have a 48% market share on NEFT transactions in this country. GST payments that go through us, 7% of India's GST goes through us, and there are about BBPS market shares of 80-odd%.
So you can clearly see that the transaction throughput that we are seeing is increasing on a day-on-day basis. Amitabh's commentary around Neo for Corporates, Neo for Business, Neo for Treasury is gaining traction, and though that is showing up in numbers and is also showing up in current account balances. Both Amitabh and Munish spoke about the fact that our salary franchise continues to grow quite strongly, obviously supported by the relationships that the corporates bring.
And finally, you know, things like, you know, because of the fact that we are, the banker of choice, the transaction banker of choice, we get, and corporate India is flushed with liquidity, we get our fair share of, of term deposits, non-Retail term deposits, as well as, liquidity into, into our mutual fund, et cetera. So therefore, you know, the way that we transact with the bank, with, with corporates, has diversified quite significantly, adding to PPOP. We've also had a very good quarter in terms of DCM activity. We have something like a 50% market share, on, on the loan syndication market as well. We may not necessarily use our balance sheet to support our clients.
But we are able to deepen relationships and improve ROE for ourselves.
Very clear. And just on CASA, sir?
On CASA growth, as I said earlier, and Rajiv and Amitabh also mentioned, you know, we are focused on ensuring the granularity of our deposits, and you know, deepening in multiple customer segments within the banks, and we expect to continue to, you know, push this number. Difficult to give a forecast for next quarter, which is, you know, which we don't give, but in general, all the actions that we're taking across multiple pillars of delivery and deposits should continue to ensure that we are able to deliver to our objectives. If you look at our number, we have grown H1 deposit by 14% over previous year, which is about 200 basis points better than the industry.
I think you mentioned a 50 basis points rate cut. I think that's a bit out into the future, so we'll worry about it when it actually begins to happen.
Okay, thank you.
Thank you. The next question is from the line of Chintan Joshi from Autonomous. Please go ahead.
Hi. Thank you for taking my questions. I've got two: one on asset quality and one on NII. On asset quality, can we get a sense of how vintages are performing in unsecured credit? And would you kind of, you know, looking at the various data points you can see, would you say that fresh slippages have peaked at kind of what we've seen in the last quarter? And on the NII line, I wanted to kind of dig a little bit more into rate sensitivity. You know, we haven't really seen monetary policy transmission fully on the loan book compared to the liabilities over the last rate cycle.
If you think about rate cuts coming over the next, you know, nine months, say we get 50 basis points, how do you think the pass-through will be, in terms of, various products? You know, any color you could give us on those pass-throughs would be interesting. Thank you.
So hi. Thank you for the question. I'll cover the first part, which is about the vintages. We don't actually give out that level of granular data in the provision, but suffice it to say that we do see a general trend, particularly in unsecured, where there is stress across multiple segments. That stress is being driven by indebtedness. It is being driven by higher degrees of loans which aren't necessarily being able to be serviced by those customers. Most of those loans have actually come through after we dispersed our loan or our card. So what we've done in response to that is we have actually taken a very granular look at our own portfolio and tried to see what are those.
We found that multiple set of variables which are actually the drivers for, or the predictors of credit cost. Vintage, of course, is one of them, but there are many other things such as, you know, obligation to income ratios, degree of indebtedness, the number of inquiries, the nature of the loan, the nature of the occupation, multiple things. It's not just the vintages, but we do see stress across the board, and we continue to calibrate both our acquisition and our existing stock of loans and cards, in line with what we see.
So would you say fresh slippages have peaked, or there is still some more cleanup to be done?
No, it's too early into the cycle to take a call either way, and I think the way to look at this is that every lender's vintage distribution will be different. So it depends on the proportion of new vintages which they have in their books, so I don't think we would call out a peak or a trough either way.
Thank you.
Thank you, Arjun. I'd just like to supplement. I think, Arjun said that he's seeing stress across the board. Please read and contextualize that comment to what he meant to say was stress across the board, across for unsecured products, across different types of customers. So it's not a broad-based credit comment. That comment has to be contextualized to the unsecured portfolio, and within the unsecured portfolio, the comment is to be construed as there isn't an identified pocket of stress that we are in a position to call out today. To your question-
Very, very clear. Thank you for that.
To your question on transmission, effectively. Look, we do present to you on slide nine of our investor presentation, the rate composition of our loan book. The way this will work is, on a repo rate cut, our assessment is assets will reprice faster than liabilities, and that is the nature of the business. We think that will hold true for the system, but I can comment more specifically for us, it will hold true for us. My request to all of you would be, please review margins not on a quarter-by-quarter basis. Please look at the duration of our assets and liabilities that we disclose in our annual report. Over a fiscal year, we've been able to manage peaks and troughs reasonably effectively.
An example would be in FY 2023, when we saw rates moving up, our margins increased from 3.6 to 4.22, with average margins of 4.02, 4.03. FY 2024, where liabilities repriced but assets remained flat, we still managed to close the year with 4.07. So my request is contextualize this, this discussion or argument on rate cuts impacting margins. We agree and acknowledge first quarter there will be a negative impact, but we don't manage margins on a quarter-by-quarter basis. Over the duration, we do expect that the structural improvements of our balance sheet should hold us in good stead.
Thank you.
Thank you. The next question is from the line of M.B. Mahesh from Kotak Securities. Please go ahead.
Hi. I just had one question. In the movement of these contingent buffer, it was INR 11,700 crore last quarter. It's gone to INR 11,800 crore this quarter. Whereas you have indicated that you had an additional provision of INR 520 crore, which can move through the P&L. Can you reconcile these numbers, please? That's it. Thank you.
So broadly, what we had through the P&L is the INR 520 crore that I call out, but on the cumulative provisions, if we are making provisions against a non-balance sheet business, that number is not depicted on slide two as cumulative. So that is provision over and above the cumulative provision. So, Mahesh, I made provisions for on-balance sheet exposure.
Right.
That on-balance sheet exposure cumulative provision comes in the cumulative disclosure of 11,700, moving to 11,800. I made provisions for off-balance sheet, which gets routed through the P&L, but because it's off-balance sheet and I use the 11,800 to reference to a standard asset cover number, since the denominator does not include off-balance sheet, the numerator also does not count that. That will explain the reconciliation gap for you.
Okay. Got that. Thank you.
Thank you. The next question is from the line of Pranav Gundlapalle from Bernstein. Please go ahead.
Hey, good evening, team. Thanks for the presentation. I just have one question on loan growth. If you look at our loan growth this quarter, at about 11% to almost 3 percentage points below the system growth. So what are we really doing differently versus the system? Is it more conservative given the asset quality trends, or is the bar much higher in terms of the yield? Or is it constrained because of, you know, the various liquidity requirements a bit stronger for us versus the system? Just trying to get what is being different for us versus the system.
Yeah, thank you for the question. On page 21, we've given a breakdown of the loan growth, particularly for our Retail book. The way I'd like you to look at that and sort of internalize it is we will, we've talked about the fact that as a sector, the unsecured segments of our book do show some signs of stress, and those are industry-wide. Those represent indebtedness. We therefore will continue to observe and calibrate our book on the basis of essentially three factors. One is, where do we see the placement teams being the best? Also, in this environment of a slightly stressed unsecured lending book, we will also then need to optimize it for returns, and where do we see the predictive losses coming on our book?
So if you translate that down, we will continue to calibrate this book. However, the growth per se, if you look at it as a total Retail level, is not very low. It's at a 15% YoY. And while the composition of the book will change going forward based on the three factors which I mentioned, we will continue to strive for growth, but we will be very careful and very cautious about the segments in which we will get that growth. That's where you'll see some of the change coming, but we will continue to strive for growth in those segments where we would like to operate and where we believe the returns will be supportive.
Understood. Would it be fair to say that your choice segments are more on the Retail side, therefore, if the system sees a slowdown there, that, you know, that outperformance that you referred to, just 4%-6% of system growth, would probably be at lower going forward?
No, we wouldn't give a forward guidance of that nature, and also, as I said, the situation with respect to the stress in the environment is also fairly dynamic. So we will, and some of these loans are also demand based, for example, auto, for example, home loans. So there are a multiple set of factors that will go into determining the growth for the forward quarter. It will be difficult to give you a number for the future quarters at this juncture, but we will observe it on the basis of those factors which I already mentioned.
Understood. Thank you. Thank you very much.
All our focus sectors, as we've been calling out, which is basically the MSME sectors-
Mm-hmm.
All the way from small to mid-corporate space, that book continues to grow strongly. It's grown strongly this quarter as well. You'll see that on page 44, and I think that is quite an exciting space. To me, that is quite an exciting space. It's, you know, we're seeing a lot of possibilities of growth. It's, you know, we've seen strong growth in this book for the last five years, and I see no reason why this book should not continue to grow strongly over the next many years. I do believe that MSME will be what Retail was, or MSME will be, over the next decade, what Retail was in the previous decade.
Understood, now my question more was just like, you know, at an aggregate level, you know, if you were to pick the three factors I mentioned, where do you see the biggest differentiation with the system? Right. So I, I'm guessing you're hinting that you have a higher bar on yield, versus the broader system.
I think the point that I just want to reiterate the same point that Puneet made. Ultimately, lending is our dharma. As long as it meets our underwriting standards and as long as it meets our pricing standards, we will lend.
Yes, like, just to belabor the fact, yes, your growth is slightly slow. I'm just trying to understand which of those constraints are, for you, a bit stronger or higher versus the broader system, right? Because you have that two, three percentage points growth gap that exists today.
See, I don't think at any stage any of us have, you know, ever mentioned that this 3% outperformance that we've spoken about is something that we will deliver on a quarter-on-quarter basis. I think it is a medium-term outlook and, you know, I don't wanna get too overly focused around it. So, for example, you know, just to meet these expectations, I can easily put on growth on the credit side. The credit will be super strong, but may not necessarily meet our pricing standards. That's not the way we want to run our business. We are very confident that into the medium term, we will find ample opportunities for us to grow such that we are able to meet the growth expectations that we are building.
Thank you very much, sir. The next question is from the line of Param Subramanian from Nomura. Please go ahead.
Yeah, hi, good evening. Thanks for the opportunity. My first question is, on the contingent provisions made in the quarter, INR 520 crore. I just wanted to ask again, you know, what is the need for, making the provisions in this quarter? You know, if we think there are no pressing asset quality issues, you know, why are we making these provisions? Because, you know, provisions like these, you know, depress the profitability and the book value. And if we also have, you know, significant buffers already and, no real visibility of when this will get written back. So yeah, just on that, firstly, yeah.
Param, thanks for the question. Please appreciate that we did have a one-time write back of INR 550 crore. We have indicated to you that we want to build a strong and proven balance sheet, which withstand cycles on a go-forward basis. There was INR 550 crore of tax write back. And we thought it was a fair and opportune time to create a balance sheet strength, for which we created the INR 520 crore provision. So there isn't. So it's a one-off, offset by a one-off. On a net basis, they broadly equalize. So that's the rationale of the provision.
Okay. Thanks for calling it out that way, Puneet. Yeah, that helps. Secondly, my question is on the LCR and again on the outflow rates. So the outflow rates, you know, like you discussed, is down quarter-on-quarter. Just wanted to check if is this regulatory driven? Because, you know, we had this news flow a few months ago about RBI doing LCR audits. If it is related to that, you know, because for some of the smaller banks, we've seen, you know, a shift between the stable and the less stable deposits. And secondly, you know, on the LCR, again, how do we plan to, with the new draft norms coming in?
Because we're at 115% now, which will probably take us closer to, you know, 100%, when the new draft norms kick in. So, you know, how, what are the tools we have at our disposal to, you know, navigate the new norms? Yeah.
Thanks again for the question. I think on— I don't want to offer forward-looking comments on what we would or can do based on the digital implementation. It's still draft, so we want to wait for what the final contours of that is. I think all of us understand multiple representations have been made, so we really don't know what shape and form the final guidelines would come. But yes, we'd like to prepare and be ready for those guidelines if and when they're issued.
On the outflow rates? Yeah, sure.
The operational deposit reclassification, it's simplistic. We have a practice of benchmarking ourselves to best practices across the industry. This was one place where we had a divergent practice, and we've gone ahead and realigned ourselves. That's the change that you see in the current quarter.
Okay, perfect, Puneet. Thanks a lot. Yeah.
Thank you. Ladies and gentlemen, this will be the last question for today, which is from the line of Jai Mundhra from ICICI Securities. Please go ahead.
Yeah, hi. Thanks for the opportunity. So I have only one question. On the Retail slippages, right? If I were to calculate the Retail slippage as a percentage of loans, it would come out, let's say 2.7%-2.9% in the last two quarters. Considering the way you said that, you know, you keep focusing on the risk-adjusted growth and risk-adjusted return, and there has been a little bit rise in the slippages in this the Retail portfolio, driven by maybe unsecured. Fair to say that this 2.7%-2.8% slippage may sustain in the near term, even if it does not go up? Because, you know, the loan mix is still in favoring of the unsecured book at the moment.
I just wanted to get some sense there.
Okay, thanks for the question. We don't offer guidance on what our slippage numbers could be. Therefore, I'm not going to provide an indication of what the gross slippage ratio for Retail would look like in the coming quarters. I will just leave two comments for your consideration. One, Q2 FY 2024, since you've done the computations for yourself, the change in gross slippages on Retail have been about 40 to 45 basis points from same quarter last year. So it is an exponential increase in that context. We clearly called out as part of our responses to earlier questions, that it is coming from the unsecured business. Our risk and business teams have taken corrective action on segments and products.
We do expect those corrective actions to deliver, but we are not calling out a point in time where we think this will peak out, because portfolios run their course. I'd reiterate what I have said on the previous quarter commentary. Portfolios are behaving within the internal risk guidelines we have set out for ourselves, so we have priced for this risk that we are seeing manifest today. So that's where we would like to leave our response on this. We don't offer guidance, so unfortunately, I can't give you a direct answer to your question.
Sure. No, no, understood. Thank you, and all the best.
Thank you very much. That was the last question for today. I would now like to hand the conference over to Mr. Puneet Sharma for closing comments. Over to you, sir.
Thank you, Michelle. Before I conclude, I think I want to make two clarifications to the questions asked on the call. I think there was a question asked by one of the participants, which indicated our guidance or outlook on loan growth to be 400 to 600 points. I just want to reiterate that we are—t he management guidance is 300 to 400 basis points in medium to long term. So I just want to make sure that we register that with all participants. I also want to register one data correction. As part of our opening comments, we had said outflow rate is 22.2%. It's 25.7%, as set out on the investor presentation.
So that number should be read in line with the investor presentation that has been published and not as stated on the call. With that, thank you, everyone, for taking the time to speak with us this evening. If there are questions that remain unanswered, we'd be happy to take them and respond to them. Please reach out to our business and the IR team. Wishing you and your families the very best for the upcoming festive season. Thank you very much.
Thank you, members of the management. Ladies and gentlemen, on behalf of Axis Bank, we thank you for joining us, and you may now disconnect your lines. Thank you.