Hey, ladies and gentlemen, and Welcome to the Axis Bank Conference Call to discuss its Q2 and half year ended FY20 results. Participation in the conference call is by invitation only. Axis Bank reserves the right to block access to any person to whom an invitation is not sent. Una uthorized dissemination of the contents or the proceedings of the call is strictly prohibited, and prior explicit permission and written approval of Axis Bank is imperative. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions at the end of the briefing session. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. On behalf of Axis Bank, I once again welcome all the participants to the conference call.
On the call, we have Mr. Amitabh Chaudhry, MD and CEO, Mr. Jairam Sridharan, CFO, Mr. Rajiv Anand, Executive Director, Wholesale Banking, and Mr. Pralay Mondal, Executive Director, Retail Banking. I now hand the conference over to Mr. Amitabh Chaudhry, MD and CEO of Axis Bank. Thank you, and over to you, sir.
Thank you so much. We welcome you all to a discussion on Axis Bank's financial results for the second quarter of financial year 2020. I'll start with some views on the prevailing macro environment. There are various challenges at play in the macro today: slowing economy, NBFCs and HFCs grappling with funding issues, leverage issues faced by certain promoters, certain other promoters under the lens of enforcement agencies, et cetera. All these create significant uncertainties for the banking business. If left unsettled, these factors will eventually have a bearing on stress seen in lending pool of banks. Adding to this, recovery and resolution in stress accounts has not seen material progress. Large IBC cases have remained unresolved for a considerable time, delaying the much-anticipated recovery cycle. Early news on pre-festival sales is also mixed. But the context is not all gloomy.
To deal with the challenging economic environment, both the government and RBI are taking bold, aggressive steps. The RBI has maintained an accommodative stance, cut policy rates consistently, and judging by the comments of the Monetary Policy Committee, is prepared for further rate cuts, too, especially given benign inflation levels. The government, on its part, has taken strong policy measures in the last two months, lifting sentiment. Liquidity in the system is adequate, and monsoon trends have been favorable. In this context, let me now offer a brief synopsis of Axis Bank's Quarter Two results. Our operating performance in the quarter has been strong. We have seen strengthening of NIM, controlled OpEx, healthy business growth, reasonably steady asset quality metrics, and a decline in stressed corporate loan pool.
We have continued to focus on what is in our control, strengthening our balance sheet and improving provision coverage. Overall, we remain firmly on track as far as our strategy is concerned, as evidenced by almost all the operating metrics. Having said all that, we recognize that we need to improve in a couple of areas. The bank's slippage numbers have remained elevated this quarter, reflecting the situation in corporate lending I spoke about earlier. Almost all of our corporate slippages came from previously disclosed BB and Below-rated clients. We have a residual stock of stress built up over the years. While slippages continue to come from this stock, the current macro environment is not enabling a quicker rundown of the pool. To that extent, we expect slippages from this stock to remain elevated.
The good news is there are also some examples where slippages from this book are likely to be recovered in the next quarter. In our business segments, we are seeing some signs of positive sentiment returning in consumer segments. In car loans and home loans, the number of credit applications are increasing on a sequential month-on-month basis. Structurally, we continue to see huge opportunities in Indian retail banking. Consumer debt levels have grown marginally in recent years, but remain significantly below developing country averages in almost every product category. Axis Bank's market share in these businesses has increased significantly in recent years, but is still not very large. So the opportunity and the desire on our part to grow this business remains strong. Our focus on retail customer has also led to sustained growth in our granular deposit franchise through our CASA plus retail term deposits strategy.
The bank had strong deposit growth during the quarter at 22%. Despite this strong deposit growth, CASA is another area where we need to do better. We need to improve our CASA growth going forward, and our teams are working hard towards that goal. During the quarter, we opened 190 branches, our highest in the last 24 quarters, to take the bank's overall domestic branch network to 4,284. Branch banking continues to be an integral part of our growth strategy. Despite these investments in extending physical branch network, we have been able to keep OpEx growth under control at 6% year-on-year. In the small business and MSME segment, there are some signs of stress in terms of delayed payments. We need to remain cautious, as the funding issue in NBFCs could have a bearing on this segment, too.
The bank's risk performance in this segment remains steady, but we are watching things closely for any adverse development. Given some of these conditions, the bank is also being cautious about the growth opportunity in SME right now. Our subsidiaries continue to deliver strong operational performance. In a very challenging environment for NBFCs, Axis Finance continues to thrive and has delivered strong returns with stable asset quality. Axis AMC has been gaining incremental market share, with several of its funds among the top performing ones in their respective categories. Axis Capital continues to be a leader in equity capital markets, having executed some of the market transactions during the quarter. During the quarter, the bank raised INR 12,500 crore of capital through a QIP issue. We understand that this was the largest ever QIP by a private sector issuer.
Successful closure of capital raising in the current tough market conditions is a strong indicator of investors' willingness to partner with Axis Bank in the country's long-term growth journey. Axis Bank is now in a position of great strength, with capital and most of the senior management team additions in place. With most of the asset quality issues behind us and strong competitive position in the current environment, we remain committed to delivering on our GPS strategy. We continue to invest in our conservative stance on provisioning, compliance, and risk. We have a lot more to do on improving and automating our systems, controls, and processes. It's a gradual process. It will take time, but we are working at it and improving every day. With that, let me hand over to Jairam to take you through the bank's financial performance in detail.
Thanks, Amitabh. Ladies and Gentlemen, good evening. It's my pleasure to take you through the detailed financial performance of the bank during the second quarter of FY 2020. As always, do keep the Investor Presentation handy, as we expect to refer to multiple slides here. Let me start with a summary of our quarter. There are five themes that summarize our second quarter performance. Number one, asset quality metrics, largely stable, with a decline in BB pool. Number two, strong operating profit margins. Number three, healthy growth metrics across both advances and deposits. Number four, continued leadership across digital products. And finally, number five, much stronger capital position in the wake of our recent capital raise. Over the next few minutes, allow me to walk through the details of these themes. Towards the end, we will also share the management's emerging outlook for the rest of the year.
Let me start with theme number 1, asset quality. Please refer to the asset quality section, starting slide 47 in the earnings presentation. NPA ratios for the bank improved during the quarter. We ended the second quarter with a GNPA ratio of 5.03% and a net NPA ratio of 1.99%, both lower than corresponding numbers at the end of June. Gross NPA at the bank level was INR 29,071 crore at the end of the second quarter. The GNPA book has now reduced in absolute terms for six consecutive quarters. Net NPA of the bank was at INR 11,138 crore.
Gross slippages in the quarter were INR 4,983 crore, compared to INR 4,798 crore in the first quarter and INR 2,777 crore in the second quarter last year. I request you to refer to slide 49 for some of the details. Of the total gross slippages, as you can see on the slide, the corporate segment slippages were INR 2,862 crore. I'm referring to the chart on the bottom left. Of the INR 2,862 crore of corporate slippages, 97% came from loans and investment exposures to clients rated BB and below at the end of the previous quarter.
Net slippages in the quarter were INR 2,770 crore, compared to INR 2,621 crore in the first quarter and INR 591 crore in the second quarter last year. Of these net slippages, INR 1,806 crore came from corporate, INR 468 crore came from SME, and INR 496 crore came from retail and agriculture segments. Let's now turn to slide 50 for a loan, for a look at the bank's BB and below book. As you can see here, the bank's BB and below book reduced from INR 7,504 crore at the end of Q1 to INR 6,291 crore at the end of Q2.
The bank also has a non-fund-based outstanding of roughly INR 2,200 crore to these BB clients, and an investment exposure of roughly INR 1,750 crore to them. As you can see on the chart, the funded BB and below outstanding has reduced during the quarter to 1.1% of overall loans. If you flip to the next slide, slide 51, you will see that this is 3.4% of the bank's corporate loan book, down from a peak of 12.6%. We are now close to the range in which we saw the BB portfolio during more benign periods in our history, though clearly there is still a small gap for us to cover. Moving beyond corporate lending, I'd also like to spend a minute to highlight some facts about the retail asset quality.
Asset quality ratios in retail continue to be modest. Net NPA ratios in retail remain around the 0.6% mark, similar to where they have been through most of the last two years. Moving on to provisions, I request you to refer to slide 55. Specific loan loss provisions for the second quarter were INR 2,701 crore, compared to two thousand six hundred and eighty-six crores in the second quarter last year, and INR 2,886 crore in the first quarter of FY 2020. Including provisions for standard assets and other provisions, total provisions were INR 3,518 crore. These other provisions include INR 535 crore towards the ongoing provision for DTA, which we have spoken about in prior quarters.
You might recall that the book value hit of this land asset provisioning has already been taken by the bank in its entirety in the fourth quarter of FY 2019. The bank's provision coverage on non-performing assets stands at 79%, compared to 73% at the end of second quarter last year, and 78% at the end of the first quarter this year. The bank currently holds additional provisions of around INR 2,600 crore towards various contingencies, up from INR 2,358 crore at the end of June. This is over and above the NPA provisioning included in our PCR calculations and the 0.4% standard asset provisioning requirements on regular assets. Please refer to slide 52 in the presentation.
This is a new chart that we have added this time, where you will see that the bank has been recovering about 10% on an annualized basis from the prudentially written-off pool. We currently have a stock of INR 23,089 crore in the prudentially written-off portfolio. SMA-2 levels at the bank are currently under 0.5% of loans. If you move to slide 54, this is our regular slide where you see the credit cost trajectory of the bank over the last multiple quarters. Credit costs for H1 stood at 1.95% on a gross basis and 1.77% on a net basis. This, the gross compares to 2.24% in the H1 of last year.
As we look forward to Q2, a quick comment that over the last 6 odd years, the bank has consistently witnessed credit costs in the second half to be lower than the first half. Our H2 should be seen in that context. An important monitorable in this regard, however, would be recoveries from large cases that have been in the IBC process for a while. Over the medium term, we continue to expect our credit costs to be below our long-term average. Let's move now to theme number 2, the bank's strong operating performance, which is visible across almost all revenue and cost line items. I request you to refer to the section starting slide number 10 in the earnings presentation. Operating profits grew 45% year-on-year, with contribution from all revenue and cost lines. This was driven in part by a strong quarter on treasury income.
However, even if we exclude those treasury gains, the core operating profit grew 30% year-on-year. Profit before taxes for the second quarter was INR 2,433 crore, up by 109% year-on-year. During the quarter, we saw a reduction in the corporate tax rate from 34.94% to 25.17%. This reduction is likely to have a strong positive impact on the bank's profitability as we go forward. However, in the quarter of transition, it does introduce a large one-time tax provision as we restate the deferred tax assets held on the bank's balance sheet at the previously higher tax rate.
In the second quarter, the bank has recognized a one-time tax provision of INR 2,138 crore in this regard, and with that, we have fully incorporated the historical DTA restatement required under the new tax structure. With this incremental tax provision, the bank's net loss for the quarter was INR 112 crore. If we exclude the impact of this DTA-related tax provision, adjusted net profit of the bank would have been INR 2,026 crore, a growth of 157% over the second quarter last year. NII for the quarter was INR 6,102 crore, a growth of 17% YOY. I request you to refer to slide number 15 in this regard.
As you can see here, net interest margin for the quarter improved by 11 basis points QoQ and stood at 3.51%. This compares to a NIM of 3.36% in the second quarter last year and 3.40% in the first quarter of this year. Domestic NIM was up at 3.63%. The bank has introduced new floating rate loans linked to RBI policy repo rates for retail customers and micro and small enterprises, with effect from the first of October 2019. At this point, it is too early to predict the rate and customer behavior impact of this on the industry. During the transition phase, one can expect some margin volatility on this part of the portfolio. However, through the interest rate cycle, we do not expect significant change.
We also expect banks to innovate on product design, both on the asset side and on the liability side, to manage balance sheet impacts. At the beginning of the year, we had indicated that we expect net interest margin for FY 2020 to remain broadly flat compared to last year, with an upward bias. With our H1 performance behind us and given our current liability and capital structure, we believe that the upward bias scenario is more likely to play out. We now expect that our NIM for FY 2020 is likely to be higher than our NIM in FY 2019. Non-interest income for the second quarter grew by 45% year-over-year to INR 3,896 crore. This comprises fee income and trading profit. Fee income grew 11% year-over-year to INR 2,649 crore.
This growth was led by a 16% growth in retail fee income. Within retail, fees from our card business grew strongly at 21% year-on-year. The card business now constitutes 26% of total bank-level fees in this quarter. Corporate credit-related fees grew by 13% year-on-year in the second quarter. Trading profits stood at INR 809 crore during the quarter, primarily driven by gains booked in our G-Sec portfolio. Miscellaneous income for the second quarter stood at INR 438 crore, largely comprising recovery from written-off accounts. Operating expense growth continues to be an area of strength. OpEx growth for the quarter stood at 6% YOY. Cost to assets continues to reduce and stood at 2.06% as of the first half, as compared to 2.13% at the end of FY 2019.
We intend to continue improving our cost efficiency and build cost consciousness across the bank. However, given our branch opening plans, investments we continue to make in areas like digital and the steep improvement in the cost to assets metric in the last few quarters, we expect this metric to now consolidate around current levels before trending towards our medium-term goal of 2.0%.... Let me move now to theme number three, growth, starting with deposit growth. Please refer to Slide six in the presentation. It has been a tough quarter or a tough period in general for deposits, with deposit growth sectorally being around 10%. In this environment, the deposit performance of our, the Axis franchise has remained very strong. As you can see on slide number six, on a quarterly average basis, CASA and retail term deposits together grew 21% year-on-year.
Within this, SA grew 10%, CA grew 6%, and retail term deposits grew by 36% year-on-year on a quarterly average basis. CASA and RTD together form 79% of total deposits. Amitabh mentioned this earlier, in spite of the tough market conditions on deposits, we do believe that we need to strive to improve our CASA growth, and our teams are working hard towards that goal. Slide 23 highlights the strong growth of our wealth management business, Burgundy. We manage one of the largest wealth management businesses in the, in the country, with AUM of INR 1.4 trillion as of the end of September 2019. Let me now discuss loan growth and the trends we are seeing across our key business segments.
Our loan book grew by INR 24,318 crore in this quarter, the highest QOQ growth in the last eight quarters. Domestic loan growth for the quarter was 19% year-over-year. International loans de-grew by 25%. Retail continues to be the key growth driver, growing at 23% YOY. The bank's strategy on retail assets continues to be centered around existing customers of the bank. 85% of retail asset originations in the second quarter were from existing customers, 93% of the bank's credit cards and 88% of personal loan originations in the quarter were from existing customers of the bank. SME loan growth was tepid at 2% YOY. As indicated by Amitabh earlier, we remain a bit cautious on the SME space right now, and that reflects in our growth numbers.
Term loans and working capital loans grew by 4% and 1% YOY here, respectively. 79% of SME loan book is working capital. 86% of the non-NPA outstanding here is to clients rated SME 3 or better. In the corporate book, domestic loan growth stood at 18% and the international book de-grew at 32% YOY. Let's move now to theme number 4, digital and payments, where our strengths and leadership position continue. Let's start with Slide 31 on credit cards. The bank has nearly 6.6 million credit cards in force at the end of the second quarter, making us the 4th largest credit card issuer in the country. In the second quarter, over INR 55,000 crore of card spends went through the Axis Bank network across our issuing and acquiring businesses. We launched our premium credit card offering, Magnus, during this quarter.
Slide 34 highlights the rising contribution of digital channels to business growth. As you can see, 58% of all savings accounts opened in the second quarter was through Tab Banking, and 43% of personal loan disbursements in the second quarter were through digital channels. Slide 35 highlights our strong position in the UPI or Unified Payments Interface space. During this quarter, we saw 320 million UPI transactions, with total transaction value growing over 3x YOY to INR 39,340 crore. We have a registered UPI base of over 56 million and a market share of 12% in terms of transaction volumes in, through UPI for the quarter. During Q2, Axis Bank customers undertook transactions worth INR 1.36 trillion on the Axis Bank mobile app, a YOY growth of 60% in transaction value.
The Axis Bank mobile app continues to feature among the highest ranked banking apps, with a user rating of 4.7 on Google Play Store and 4.6 on Apple Store. Moving on to theme number 5, the bank's capital position. Please refer to slide number 57 in the presentation. The bank's CET1 ratio at the end of Q2, including profits for the first half, was 13.04%, with a Tier One capital adequacy ratio of 15.25%. CET1 ratio increased by 236 basis points during the quarter and 277 basis points during the half year. Equity capital raise of INR 12,500 crore during the quarter helped boost the capital adequacy by 225 basis points.
Regulatory changes in the second quarter pertaining to lowering of risk weights in personal loans drove a further 26 basis points of CET1 benefit. Book value per share as of thirtieth September 2019 increased to INR 298 rupees from INR 272 rupees as on thirtieth June. The increase was primarily on account of the bank's capital raise during the quarter. Additionally, INR 535 crore of other provisions that we spoke about relating to land parcels further got released, and we provided the same, as we provided the same through P&L. A very quick look now at our subsidiaries. Axis Finance, our NBFC business, now has a loan book of INR 7,360 crore.
The business continues to deliver great returns with an ROE of 12.8% and a net interest margin of 4.9% for the second quarter. The gross NPA ratio of the business stands at 0.4%. Axis Capital, the institutional equities and investment banking franchise of the bank, has been the leader in equity and equity-linked deals over the past decade. During the quarter, Axis Capital executed 6 transactions. Axis AMC, our mutual fund business, continues to perform very well, with a 20% YOY growth in average AUM over $1 trillion or INR 1 trillion for the second quarter of FY 2020, led by 33% YOY rise in the number of client folios... equity and hybrid businesses comprise 57% of the AUM.
Invoicemart, the bank's digital invoice discounting platform, continues to do very well and enjoys a market share of 42% among all TReDS platforms. We currently have more than 3,500 participants on the platform and have clocked more than INR 4,800 crore in finance throughput by e-discounting over 3.3 lakh invoices. Freecharge, the quarterly active user base of Freecharge was approximately 11 million at the end of the second quarter. We've started to gain strong traction on our strategy of selling the bank's financial services products on the Freecharge platform to a new base of young, digitally intuitive clients. This platform is likely to be an increasingly significant part of the bank's digital strategy going forward. Finally, let me quickly reiterate our outlook for the rest of the year.
We expect our loan growth to be 5.7%, to 5%-7% faster than the industry. We expect cost to assets to consolidate around current levels, and over the medium term, we expect to reach cost to assets of 2%. We now expect net interest margin for financial year 2020 to be higher than net interest margin in financial year 2019. We reiterate our medium-term range of 3.5%-3.8% on net interest margin. On credit cost, a lot will continue to hinge on large recoveries currently in the IBC pipeline as we look at H2 credit cost numbers. As we close, let me re-summarize the key themes for the quarter.
Asset quality metrics largely stable, decline in stress pools, strong operating profit performance, healthy growth metrics across both advances and deposits, continued leadership across digital products, and finally, much stronger capital position in the wake of our recent capital raise. With that, we come to the end of our comments. We'd be glad to take your questions now.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Anyone who would like to ask a question, please press star and one at this time. 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 IDFC. Please go ahead.
Yeah, hi. My first question is on your exposure to 8 stress groups. How has that moved during the quarter?
Mahrukh, thanks for your question. We have stayed away from talking about those eight stress groups. Again, what I would emphasize is that of these stress groups, we have seen some significant movement in terms of slippages, et cetera, and that has coming through from our slippage numbers. Also, the overall exposures have reduced noticeably. So we are not disclosing specific numbers on that sector, on those eight groups this quarter. I'll say that all the groups, all the individual entities there that we are concerned about in terms of their, in terms of their asset quality position, are all part of our B B portfolio, either in fund-based, non-fund based, or our investment book.
Okay. And, just in terms of, the investments associated with B B, so you need to add that figure, right? And what would be the comparable figure last quarter?
just a little bit more than this. This, we have disclosed INR 1,760 crore now, and it was about INR 2,500 crore last quarter.
Okay, and what was the MTM this quarter on investments?
INR 65 crores.
Okay. Got it. Oh, okay, and just one more question on life insurance. Any further discussions with RBI on taking a stake in life insurance companies?
No, nothing that we are in a position to disclose at this point, Mahrukh. We are continuing to have conversations. We'll let you know if there's anything worth talking about.
Okay. Thank you.
Thank you. The next question is from the line of Vishal Goyal from UBS Securities. Please go ahead.
Hi, thanks for taking my question. So my question actually is on the margin and cost of fund progression. So we've seen decline in cost of funds in this particular quarter, despite slight increase in cost of deposits, you know, as highlighted on your slide 14. So is it because you are borrowing, which have declined almost 30%-40% sequentially? Is that the reason for cost of fund decline?
That is the main reason. Also, the fact borrowing have been refinanced at slightly lower levels than what was held in the book. What fell off for refinance.
Yeah. So any sense on, on, like, what would be cost of borrowing for us? What's the cost of, like, let's say, deposits?
Uh-
It will not be very different. I mean, it could be...
Yeah. No, cost of borrowings will be a little bit higher than cost of deposits, about a percentage point higher.
Okay. So I think with the capital raise, you know, behind us, I mean, I'm sure, you know, even if you look at your ... Like, mathematically, your margins would be higher, right? Like, so should we not expect 20 basis points kind of improvement in margin YOY? I mean, any reason why they're refraining from, you know, any pointed guidance?
No, I mean, we have said that directionally, we expect. I mean, we did change our guidance just now. We, instead of saying that we are going to be roughly in the same range as last year, we are now saying that we'll be higher than last year. Exactly how much higher? I mean, we can all do the math. Let's let the next second half play out. Yes, your math is right with the capital position and the overall liability stack right now. Margins should be higher, but we'll also need to see, importantly, how the government and RBI push banks in terms of use on an ongoing basis.
It's not something we want to extend ourselves too much on right away in terms of how much improvement we might expect. Yes, directionally, it will be better than where we are at right now.
Sure. And just one last question, if I may ask, especially on asset quality, and, I'm sorry, I'll be asking about eight group, because that reference is there in everybody's mind among investors. So this investment book, which we are like now showing both the slippage and the outstanding number, that was part of the eight groups, right? Like, we gave a INR 20 billion kind of a number last time.
Overlap, yes.
So, is it an overlap or that entire amount would be already reflected here?
Almost entirely. It is not exact, but almost entirely. And from that, from that original sort of investment book, some stuff slipped during the course of the quarter, and what is remaining right now is the, is the INR 1,750 crore that we disclosed.
Right. And also, I think in both in your B B and below, there would have been a little bit of repayment as well. But even in the eight groups, you know, if you give us some broad sense of whatever, you know, percentage also, like repayment, et cetera, would have happened, that'll help us, you know?
I know, but it's, you know, it's a conversation I really don't want to get into.
I mean, boss, we've been very, very transparent with our numbers now. You know, don't beat us up with the transparency so much that you basically want every number out there. I think basically the message is, the stock is coming down. All of it is broadly captured. We have given you as much details as we can and are comfortable with, and the overall exposure to these so-called eight groups is also coming down.
Okay, sir. All the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Kunal Shah from Edelweiss. Please go ahead.
Yeah, so just in terms of the moment in the B B and below, how would that have been maybe in terms of the upgrades, downgrades, and the slippage? So slippage is more or less known in terms of, the corporate. We have highlighted how much is coming from the loan book, but any upgrades-
Yeah.
Downgrades within the B B and below book?
Sure. We added, on a fund, fund-based, basis, let me just do that math, and the rest of the math is actually not, the rest of the numbers haven't moved very much. It's the funded base, funded book that has moved a lot. INR 1,100 crores, roughly, of additions, roughly INR 1,700 crores of slippages, and the rest is balance movement.
Sorry, how much of the upgraded? INR 100 crore?
Balance. No, no, balance.
Eleven-
We didn't... I didn't talk about upgrades separately. I'm saying slippage into NPA was about INR 1,600 crore.
Yeah.
Yeah, INR 1,600 crore and INR 1,100 crore of addition.
Okay.
So INR 1,100 crore got added, INR 1,600 crore went away-
Got it.
and the rest was balance reduction in existing accounts.
Got it. Perfect.
Okay.
Secondly, in terms of the arrangement with Bajaj for say this entire life insurance tie-up, so how different would it be as compared to that of the arrangement which is there with Max at this point?
Well, it's the beginning of a relationship. Let's see how that progresses. We will get to learn and know each other and how to work well with each other. Over time, we will get to see how much the business progresses, et cetera. We'll keep you informed. Right now, there's not much to talk about that.
But any key differentiation in the arrangement between Max and, Bajaj and so on?
We are not disclosing terms, et cetera.
Okay, no issues. Yeah, thanks a lot.
Thank you.
Thank you. The next question is from the line of Krishnan ASV from SBICAP Securities. Please go ahead.
Yeah, I may. Thanks. So my question is to do with how you're reconfiguring your book, especially on the loan side. Just in terms of the mix between SME and retail, there is a certain element of narrative that the mid-corporate segment, the SME segment, you have become extremely cautious in terms of shedding even, I mean, even what marginal business, which would have been non-GST compliant, et cetera, and tighter controls in place in the SME space and far higher risk appetite on the retail space. So just wanted to understand what kind of changes have you made to the SME book, purely in terms of your risk controls?
So the way I frame this is, go back to what Amitabh and I have been talking about for the last two or three quarters, which is not being fussed about a particular target in state in terms of what the book mix needs to be, but rather be opportunistic in terms of where the best or highest rate of opportunities lie in any given quarter. As it happens, right now, the best risk-adjusted return is not available in SME. Either the risks are a little bit more uncertain than what we are comfortable with, or we are not able to get the kind of rates that we would need to do that business.
So this, the last couple of quarters, you have seen us go slow on that, on that business, but there is no great sort of grand design here in terms of, where we want to go. If tomorrow, the risk-adjusted return, metric moves or our expectation moves, and that we are perfectly happy to go do that, do that as well. So don't think of this as part of a grand strategy, but rather a sort of tactical choices being made on a quarter-on-quarter basis.
... Right. Just on the retail bit, I mean, there has been a fair amount of acceleration that we have seen this quarter, especially in light of how the rest of the book has moved. I think the 23% growth in retail-
If you see our retail book, I mean, it has broadly been growing at this level for a long, long time. Actually, if you see one of our slides, slide 21, you will see that over the last six years, we have grown the retail book consistently at about 25% CAGR. So there is nothing sort of particularly different about this quarter. You know, we have been growing at 20+% very, very consistently for long periods of time, and we continue to see retail as a space in which demand continues to be stronger than supply, and you will continue to see us participate.
As I said, if at any point of time in any given product, we find that the risk-adjusted return expectation is worsening, you will see us go a little bit, a little bit slow on that, on, on that, whether it is, let's say, in today's environment, maybe something like commercial vehicles or something like that, but, but in general, we are quite happy with the businesses we are in.
Right. So my only point was, given the shape of growth in the various businesses, is it fair to assume that you are seeing opportunities for comfortable risk-based pricing in retail? Because-
Absolutely.
That seems to be one of... Yeah, yeah. Okay. Okay.
Absolutely right. Yeah.
Thank you.
Thank you. The next question is from the line of Adarsh Parasrampuria from Nomura. Please go ahead.
Hi, Amit, I'm Jairam. Question on, again, retail growth. One, mortgages growth has kind of picked up in the last few quarters for us. So is there any buyouts or this is organic self-origination?
All organic, Adarsh.
Okay. In autos, just, while I agree that the market share would be low in respective segments, OEM numbers have been down pretty significantly. System growth's been coming off sharply. In that context, can you explain market share gains product-wise in terms of what's happening on the auto loan side?
A couple of things to note. One is that our auto business continues to be focused, like most of our retail lending businesses, on internal, deposit customers of the bank. So we are continuing to see sort of a decent penetration among... In all our branches, we are able to sell quite well. You, that's point number one. Point number two is starting point in terms of how large our market share is. As you rightly mentioned, our market share was low to begin with, so, you know, growth continues to be robust there.
Number three is the used car business, where we have done some good work, and we didn't have a used car business a few years ago, and now we are starting to build some capabilities there and getting to about 10% contribution from that in our incremental business. So that's, you know, that's helping as well. Also, because our existing book size is small, and let's call it the incumbency effect or the lack of incumbency effect, because our existing book is not that large, in absolute rupee growth terms, the runoff we see is actually not that large.
From a disbursement basis, the largest player in the market might have 30+% of incremental disbursement, but still their book size in auto might not grow. But for us, with 15% of the market disbursements, our book size will grow quite a bit. That is the math that you're seeing in play.
Understood. And,
As a smaller side, we've also started some of the other businesses that are related to the wheels side. Example, two-wheeler. We have started to do some of those businesses as well, and you'll hear more about it in the quarters to come.
One small clarification when you were mentioning about your B B and below book, and, you know, the overlap with that top eight accounts. You did make a statement that whatever one could consider to be stressed or difficult in terms of, you know, the progression of those accounts is broadly reflecting in the B B and below book. Is that, like, is that understanding of that statement clear? What I mean is-
Absolutely.
Uh-
Absolutely. Not broadly, entirely. Everything, at the account level, all the accounts within those eight groups or any other groups that we thought are problematic, are all part of our B B book, either in the funded, non-funded or investment portfolio.
So, so how should one look at it, right? When I look at the pool of problem accounts in the last quarter, and when I just take the top eight exposures that you gave, and, you know, with, with all the net-offs that you provided, and now when I look at the book with, with the slippages, it, it seems to be a large drop, which means there are some accounts where versus last quarter, you feel more comfortable now, or how should one read into those? And, you know, I would--I want to specifics, one would be a funded media exposure, the other would be a non-funded telecom exposure. So, you know, this would be the two large elements there. So I, I just want to understand, how should one look?
Because it's a material drop if one considers that any, any name which one considers stressful is already accounted for in the B B and Below pool.
The two comments I'd make, one is that there is a significant amount of slippages that have happened from those eight groups which happened in the second quarter. So those eight groups overall, their total exposure there, kind of advances, you know, non-funded investments, et cetera, have come down something like 25%, because a lot of slippages has actually happened there into NPA, so not much is left. The second piece that I... In the two specific situations that you mentioned, those two situations, nothing much has changed in them in the second quarter.
...Perfect. Yeah. Thanks a lot.
Thanks, Adarsh.
Thank you. The next question is from the line of Nilang Mehta from HSBC Global Asset Management. Please go ahead.
Hello. Yeah. Hi, thanks for taking my question. I just wanted to get some sense on the credit cost guidance which you have been giving. If I recollect, the expectations earlier were that by second half, we should be normalizing to our long-term averages. But, Jairam, in your comment, you have said that, you will, that's the expectation, but, you can't, guide for this year. So is our credit cost guidance getting pushed, normalization getting pushed back?
Not offered any credit cost guidance for this on an annual basis at all. We have only been talking about credit cost over the medium term, which we've defined as FY 2022.
Because this medium term is going on for the last few years.
FY 2022. FY 2022. We've been very precise on that.
It's not been going on forever. I do want to correct you there. We, in, when we announced in January, we said 22, it will be below 1%. So please don't say that, you know, it's been going on for a long period of time. Very, very specifically, we have given it.
So you're saying by-
Because you're asking a specific question, I want to, you know, I want to register that with you. Please don't say that, that we are being very casual about what we are saying.
In general, the short term, for the short term, on an annual basis, we have not offered a credit cost guidance for FY 2020. And the only thing that I'll sort of point out is what is there on slide 54, which is that in the first half of last year, the credit cost was roughly 225 basis points. In the first half of this year, credit cost is about 195 basis points. I'll sort of leave it there, and not go any further in terms of offering specific guidance for this year.
Sure. And in terms of key HR changes, while the team is in place, is there any been any changes in the one downs below that, which are relevant to be known to the market?
Well, we'll let the market know whenever those changes are happening. I mean, you know, if we believe we are ready and we need to announce some of those changes, we'll be the first ones to let you know. And because we have not made any announcement, that means that this is not the right time to talk about them. But I think, as I said in the opening remarks, that almost all the management team members at N minus 1 and N minus 2 levels are in their positions, and hopefully, you will see stability from here on. There are one or two positions where we might make some additions.
There are one or two positions where we might have to make some changes, but that's, you know, part of any, you know, normalcy which you'll see happen in any large institution of this kind. For example, we have added a very senior resource in Axis Finance. You know, we keep adding people here and there, depending on where the requirement is.
Sure. And then last question is on group ex-, on NBFC exposure. So some of the NBFCs which are currently in, stress in public domain, do we have, included them in the stress that will be kind of a pool, but because they are rated, public ratings are pretty high right now. So if we have exposures to them, have you already included in them in our stress group?
Let me put it this way. There are some NBFC exposures in our investment book, which are in our B B portfolio. So that does include. I'm not sure of all the names you might be thinking of, but I can totally confirm that there are some NBFC exposures in our-
Currently, the market is worried about, you know, some NBFCs which try to merge with a bank. So our exposure to them would be in the B B book, or?
I can't talk specific, you know, account level stuff, Neelam.
Okay, no, because just what I wanted to get comfort, because when management is saying that they have looked at all the stress and disclosed it, so just wanted to understand how conservative are we in this assessment?
Yeah. So we have tried our best to be as realistic as possible in terms of looking forward for where slippages might come from. And we'll keep updating it as we get kind of newer and fresher information. Remember, the B B is a live book. Every quarter you see an update to this book and as conditions keep sort of moving up and down, as we saw with the last quarter, we thought the environment was getting worse, so we increased our B B book and downgraded a lot of accounts. This quarter, we downgraded a little bit, but not as much. So we'll keep doing that based on how the environment progresses.
Okay. Thank you so much.
Thank you, Neelam.
Thank you. The next question is from the line of Jai Mundhra from B&K Securities. Please go ahead.
Yeah, hi, sir. Thanks for the opportunity. A few clarifications, sir. One is, this INR 26 billion of outstanding contingent provision, this would include the land-related provisioning or this is separate?
No, the land-related provisioning is not part of this.
Sure. And the second, sir, is this INR 11 billion of addition to BB and Below. This is comparable with INR 22 billion that we did last quarter, right?
Correct.
Sure. Sir, secondly, if you can provide the NFB outstanding to already NPL account. I believe it was some INR 2,800 crore last quarter.
It is INR 2,500 crore now.
Twenty-five?
Yeah.
Sure, sir. And one more thing, sir. This media and entertainment, now it has gone out of top four, sectoral, exposure in B B and Below. Does it mean that it has actually gone out of stress or for either slippages or recovery, or is it just that it does not figure in the top four?
There's also slippages as a third possibility.
Yeah.... Okay.
That's it, I'm not saying anymore.
Okay, and so just last, a small clarification: we have this INR 2,600 of contingent provision. Could we not have utilized this in this quarter? Or, I mean, is there something which stops us from utilizing this contingent provisioning? And so, I mean, we have of course taken a call that not to use this contingent provision and showing a net loss. But I'm just trying to understand: was there any sort of compulsion in utilizing that thing?
No compulsion, just just internal policy stuff. We want to be fairly predictable and formulaic about how we do some of these provisions for various contingencies, and don't want to on an ad hoc basis, depending on need in any given quarter, sort of, you know, use it or create it. So we've, we have tried to be as formulaic as possible, in that, and, if that means that, we don't have a ton of flexibility in actually using it in a particular quarter just to get over optical, sort of issues or whatever, so be it. We are perfectly comfortable with it.
Sure, sir. Thanks. Thanks so much.
Thank you.
Thank you. The next question is from the line of Bhavik Dave from Nippon India Mutual Fund. Please go ahead.
Hi, sir. Sir, my question is regarding your retail term deposits, which have been growing quite well over the last three, four quarters, and I've been talking about it. Just wanted to understand, are we getting new customers, or are the existing savings account customers being converted into term deposit customers?
There's a little bit of both. In any large bank with a very large network, when the entire network starts working on selling a product like FD, you can't be super precise about saying, you know, target this person, but not that other person. So you will see some internal customers whose money might have been lying in star, for example, that gets converted into FD, at least in part. But there is a lot of new customer acquisition, particularly from PSU banks as well, where price sensitivity on the FD side is quite high, and giving us good rates about 50 basis points higher than PSU banks, you know, gets us there. Rajiv, do you want something to add?
Yeah, so there's one more nuance. There is money coming from existing customers, money coming from new customers, and also money coming from existing customers who move money from one, some other bank into this account and then convert it into a, into an FD as well. And we see that happening quite a lot, where money is moved from, let's say, a public sector bank, stays in our savings account for a few days and then converts into, into an FD as well.
Right. And, my second question is regarding your, insurance tie-up that you've done recently. Does this, and we're incrementally adding, added a new, large player. So, does this mean that our, ambition of, increasing stake in one of the existing players, has, been shot down by RBI? Or, we are just expanding or, increasing our revenue pool from, via Bajaj Finserv?
The latter.
Okay. So the first one remains as is, right? We're still in conversation with the RBI, and as and when things improve, we'll get into it.
As and when we have anything to say in that, on that matter, we'll make a, we'll make a public declaration on it. Right now, we, there's nothing to talk about.
All right. Thank you, sir. Thank you. Thank you.
Thank you.
Thank you. We'll take one last question from the line of Roshan Chutkey from ICICI Prudential Asset Management. Please go ahead.
Yeah. Thanks so much for taking my question. I just wanted to understand the movement in the BB and Below book. Hello, am I audible?
Yes, yes, we can hear you. Movement of the BB book. Yes.
Movement in B B and Below book. So we have about INR 1,917 crore of slippages from the BB and below book, right? Now, if I... So what is the upgrade from the, from below, and what is the negative play and positive play into the BB and Below book what I am not understanding?
We have disclosed all that we want to disclose on this matter. You know, take the total slippages on the corporate book, 97% of that has come from B B and Below clients between fund-based, non-fund-based and investments. So that gives you a number of how much slippages came from B B and Below. You know, where we started, and as I mentioned, we have downgraded about INR 1,100 crore on a funded basis to B B and Below. The rest of your math should broadly work out. It's a fairly simple story that downgrades have been lower, much lower compared to last quarter, more like normalized levels.
Downgrade to B B have been closer to normalized levels, about INR 1,000 crore a quarter, is what sort of we would deem as normal. That's what happened in this quarter. The entire delta that you see, the reduction that you see across funded, non-funded and investments, all the delta is because the downgrade is smaller than the slippages into NPA, and a little bit of upgrades have happened out of B B as well.
Okay, just one more question. Last time, last quarter, you mentioned the total potential stress book could be about INR 20,000 crore, right? Including the interest accounts. Why, what does that number look like now?
We, we didn't disclose any such number. We gave all the component numbers exactly as we've given in this quarter. I, I don't know which one you're adding to get to 20,000. I think you can just add those same numbers for this quarter's disclosures and come to whatever number it comes to. We'll reiterate that for the corporate book, the key portfolio to watch is B B and Below, funded, non-funded, and investments. We have given all three numbers on, on a single slide. And, so essentially, if you just look at, at that slide, slide number 50, 50, that should give you all that you need to know in terms of what we are talking about, in terms of key pool to watch within our corporate book.
Sure. And is there any MSME dispensation you have taken this time around?
No.
Thank you so much. That's all from my side.
Thank you.
Thank you.
Thank you, ladies and gentlemen. That was the last question for today. I now hand the conference over to Jairam Sridharan for closing comments.
Thank you very much, Margaret. Thank you very much, everybody, for participating actively in this call. We wish you a good evening and a very happy Diwali. Thank you.