Ladies and gentlemen, good day, and welcome to the Axis Bank conference call to discuss the bank's financial results for the quarter and year ended as on 30th June 2023. Participation in the conference call is by invitation only. Axis Bank reserves the right to block access to any person to whom an invitation has not been sent. Unauthorized dissemination of the conference 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. Rajiv Anand, Deputy Managing Director, 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, Yashashree. Good evening, and welcome, everyone. We have on the call Rajiv Anand, Deputy MD, Puneet Sharma, our CFO, and other members of the leadership team. We have begun the new fiscal year with strong operating performance across segments. The bank's quarter one financial year 2024 profit after tax grew 41%, with consolidated annualized ROE at 19.44%, up 388 basis points year-on-year. We also accelerated our progress in identified areas of discreteness in the digital Bharat banking and customer obsession while working on synergies from acquired 3 businesses. We remain watchful about the emerging macro variables, we are fine-tuning our strategy to continue to deliver a sustainable and predictable performance.
We continue to keep focused on three core areas of execution of our GPS strategy, namely, embedding a performance-driven culture, strengthening the core, and building for the future. Let me now discuss each one of them in further detail. There is visible improvement in the quality of our deposit franchise. We have made significant progress in our journey towards improving the quality, granularity, and premiumization of our deposit franchise over the last year, led by multiple bank-wide transformational initiatives. Please refer to slide 18 and 19 of the investor presentation. The results of these initiatives are evident in the deposit performance. The bank's deposit franchise grew 400 basis points faster than the industry, with improvement in both quality and composition of deposits. Low-cost CASA share is at 45.5%, compounding in 19% for the last three years.
In the last three years, the bank's outflow rates on Basel reporting basis have seen reduction by 460 basis points and are now trending closer to the best in the Indian banking sector. During first quarter of financial 2024, on a quarterly average basis, savings deposits grew 20% year-on-year and 10% quarter-on-quarter, and current accounts grew 17% year-on-year. Total deposits grew by 15% year-on-year and 6% quarter-on-quarter, and term deposits grew 12% year-on-year and 5% quarter-on-quarter on the back of 21% year-on-year and 9% quarter-on-quarter growth in average NPR attributed deposits for the quarter. The micro-market-led strategy is making an impact, with 52% increase in districts with market share gain in the last three years. The granularity, quality, and growth of deposit franchise has improved significantly in the last three years. We will continue to invest disproportionately here.
We've also seen all-round growth across businesses, markets, and market-leading growth in our focus segments. MSME segment continues to remain a key growth driver for the bank. The combined portfolio of mid-corporate SMEs and small businesses grew 32% year-on-year and now constitute 22, 20% of the loan book, up over 600 basis points in the last three years. Profit loans grew 35% year-on-year, led by a healthy pickup from NBFCs, retail trade, groves, telecom services, textiles, et cetera. The disbursement pipeline for Q2 looks healthy. 70% of the pipeline is from term loans and balanced 30% from working capital and trade. On retail, we are driving a balanced growth in portfolio, leveraging our best-in-class retail and data analytics capabilities. The share of unsecured disbursements for the last 4 quarters has been in the 20%-25% range.
As far as strengthening the core is concerned, on wholesale banking, the transformation program that we started 2 years back are delivering planned impact as we strengthen our capabilities in the transaction banking and treasury segments. Our go-to-market traction on Project NEO is strong, with contribution to revenues from transaction banking APIs across payments, collections, and trade, treasury, and CBG segments. The pipeline on cash management and trade APIs continues to remain strong, with 1,000-plus customers in engagement phase, of which 250-plus are in UAT stage. In addition to the strong product market fit, NEO continues to get widely recognized in the market. The bank bagged award for Best Product Innovation for New API Banking Suite at the Infosys Finacle Innovation Awards 2023, and the Best API Project at The Asset Triple A Awards. Building for the future, digital banking performance is strong.
Our Digital Two balance sheet continues to deliver strong growth, with 56% increase in deposits and 60% increase in loans. Axis Two is now roughly 5% of the bank's overall business. We intend to increase contribution by 3 to 4 times by fiscal 2027. We have taken early leadership in leveraging platforms like Account Aggregator, ONDC, CBDC, and OCEN. Please refer to Slide 46 of the investor presentation. Axis was the first bank to go live on the Account Aggregator platform as financial information provider. Since then, the bank has launched a number of use cases as a financial information user. Today, the bank offers personal loans, auto loans, two-wheeler loans, home loans, small business and loans, and credit cards, leveraging the Account Aggregator framework.
The amount of loans dispersed using this framework grew by 220% in this quarter compared to the same period last year. We launched One View, a multi-bank aggregator feature built into Axis Mobile app that allows users to get a consolidated view of all their balances from different banks, track all transactions, and access statements at one place. It is a unique offering, first of its kind in the banking industry, and has seen more than INR 2.5 lakh registrations in the first eight weeks of its launch. We continue our leadership in partnership and ecosystem models. We have more than 100+ digital partnerships to fuel new customer growth. During the quarter, we partnered with Airtel and Flipkart to offer instant personal loans to their customers in less than 30 seconds.
During the quarter, we also partnered with RBI Innovation Hub and launched 5-minute digital end-to-end KCC loans with instant loan account opening and access to funds. We also launched digital business loans for customers, MSMEs, leveraging RBI Innovation Hub. We are also the first bank to launch a Central Bank Digital Currency merchant app, the first to launch an iOS app, and are the first banks to offer partial interoperability with UPI QRs. On the bank-wide programs to build distinctionness, our big data in Bharat is growing from strength to strength. We have further expanded our distribution footprint to 2,350 that are complemented by 62,000 strong CSC VLE network. The CSC Quarter One asset dispersals grew by 3x on a year-over-year basis. We are leveraging the tech stacks of agritech and fintech companies to serve retail customer in Bharat.
During the quarter, we went live with ITC MAARS, a multi-product partnership offering deposits for rural access, retail access, liabilities, forex across a large network of farmers and farmer producer organizations. Our digital lending platform is live with 6+ partners, we have more products and partners lined up to go live on the platform during this year. Quarter One financial 2024 dispersals grew by 24% year-on-year. New advances are up by 20%, deposits on the Bharat segment grew by 17% year-on-year. Sparsh, our customer obsession program, is making an impact on our customer experience scores, that is now live across 100% of the bank branches and all customer touch points. Over the last year, NPS in retail journey has moved up to 130 and wholesale to 133 over an index baseline of 100.
We have industry's first 6-hour service promise for our priority customers available on our app. Citibank customer consumer business integration, the Citibank is now well integrated, and the customers have seamlessly transitioned to the broader platform in Axis Bank. This is demonstrated through the trends we have seen across credit card spend, our acquisitions, and stronger term deposit mobilization. We are also witnessing synergy benefits coming through. Examples include improvement in monthly disbursements in the vehicle finance business, and the great response we have seen from users migrating to us from the Citi digital label with the Axis group. The ex-Citi committees have welcomed the opportunity to take on larger responsibilities within the bank. Their annual attrition is materially below the trend of the previous two years. In closing, the Indian economy and the banking sector are well placed in context of the global geopolitical macro headwinds.
The emerging trends with shift in global value chain mix, Indian government supported policies and infrastructure, such as MSME, Bharat, and digital, will help the Indian banking sector. We at Axis Bank are well positioned to take advantage of these opportunities and believe that we have significant runway for growth. We remain focused on our retail strategy and our areas of distinctionness in building an all-weather institution that will stand the test of time. I will now request Puneet to take over.
Thank you, Amitabh. Good evening. Thank you for joining us. We continue to make good progress towards building a stronger, consistent, and sustainable franchise. We have strengthened our core businesses and are focused on ensuring our balance sheet is resilient across cycles. Amitabh has discussed the business and transformation projects, the salient features of the financial performance for Q1 FY 2024 across operating performance, capital, and liquidity, growth on our deposit and loan franchise, asset quality, restructuring, and provisioning is as follows: Net interest margin at 4.10%, improving 50 basis points year-on-year, NII at INR 11,959 crores, a year-on-year growth of 27%. Our fee stands at INR 4,488 crores, year-on-year growth of 28%. Granular fees stood at 94% of total fee.
Operating profit at INR 8,814 crores, year-on-year growth of 50%. Cost to assets at 2.32%, increasing 8 basis points year-on-year. Cost to income at 48.29%, improving 417 basis points year-on-year. Net credit cost at 50 basis points, increased 9 basis points year-on-year, largely due to lower recoveries from potentially written-off accounts. Back at INR 5,797 crores, increased 41% on a YoY basis. Our GNPA at 1.96%, declined 80 basis points YoY, and 6 basis points sequentially. Net NPA at 0.41%, declined 23 basis points YoY and flat sequentially. PCR at 80%, improved 233 basis points YoY. Our standard asset coverage ratio, which is all non-NPA provisions by standard assets, stands at 1.39%.
All provisions, which is standard COVID and NPA provisions by GNPA, stands at 145%, improving by 1,134 basis points YoY. Our consolidated ROE stands at 1.83%, improving 35 basis points YoY. Our consolidated ROE stands at 19.44%, improving 388 basis points YoY. It's important to note that we net accreted CET1 in the quarter by 36 basis points. Net interest margins. Yields on interest-earning assets have improved YoY and Q1Q. We, however, saw an increase in funding costs in Q1 FY 2024 by 114 basis points YoY, and 28 basis points Q1Q. As a result, net interest margins improved 50 basis points YoY, and declined 9 basis points Q1Q.
The balance 3 basis points decline in NIMs on a sequential quarter basis is attributable to interest on income tax refunds in Q4 FY 2023, with a nil equivalent interest on income tax refund in Q1 FY 2024. The marginal cost of deposits have stabilized over the last few months. We expect cost of deposits to increase further over the remaining part of the financial year, but the pace of deposit growth will most likely moderate. Our progress on structural NIM drivers continue with improvements across variables on a YoY basis. Our balance sheet mix improved. Loans and investments comprised 88% of total assets as at June 2023, improving 113 basis points YoY. INR-denominated loans comprised 95.64% of total advances, improving 324 basis points YoY.
Retail and CBG advances comprised 68% of total advances at June 2023. Low-yielding RIDF bonds declined by INR 11,385 crores on a YoY basis. RIDF bonds comprise 2.29% of our total assets at June 2023, compared to 3.58% of our total assets at June 2022. The composition of liability measured through average CASA ratio improved by 151 basis points YoY. Quality of liabilities measured by outflow rates improved by 460 basis points over the last 2 years. We had strong fee performance in the quarter. Fee income stood at INR 4,488 crores, growing 28% YoY. Total growth- retail fee grew 37% YoY and 1% sequentially. Fees from cards grew 60% YoY and 24% quarter-on-quarter.
Fees on retail forex exchange and remittances grew 33% YoY and 12% sequentially. Our transaction banking fee grew 17% YoY and 4% sequentially. Operating expenses for the quarter stood at INR 8,232 crore, growing 28% YoY and 12% sequentially. It's pertinent to note that there were no Citi BAU expenses in Q1 FY 2023, and only one month Citi expenses in Q4 FY 2023. 21% of the YoY growth and 28% of the quarter-on-quarter growth in rupee terms is attributable to integration expenses. The balance YoY increase in INR crore expenses, other than described above, can be attributed to the following reasons: 4% is linked to volume, 57% is linked to our technology and growth-related investments, and the balance, 39%, is for our BAU operations.
Technology and digital spend grew 19% year-over-year, constituted 8% of our total operating expenses. Staff costs increased by 23% year-over-year. We've added 8,366 people from the same period last year, mainly in our growth businesses and technology teams. Operating expenses to average assets stood at 2.32%, higher by 8 basis points year-over-year and 7 basis points sequentially. The acquired Citi Business is entirely retail, which understandably runs at higher cost and return ratios. The Citi Business will be ROE accretive post-integration. The cost ratios will remain sticky till the Citi integration phase is over. Provisions and contingencies for the quarter were INR 1,035 crore. The bank has not utilized any COVID-19 provisions. This provision is entirely through debt. Annualized gross credit cost at 74 basis points, was lower 5 basis points year-over-year.
Annualized net credit cost is 50 basis points, increased 9 basis points YoY, and 28 basis points QoQ. The sequential increase in net credit cost is attributable to higher seasonal rural slippages and lower recoveries as compared to the previous quarter from potentially written-off accounts, largely from the corporate portfolio. Subsidiaries contributed 3 basis points to the consolidated annualized ROA and 27 basis points to the consolidated annualized ROE. The cumulative non-NPA provisions as at June 30, 2023, stood at INR 11,848 crores, comprising COVID provisions of INR 5,012 crores, restructuring provisions of INR 708 crores. This includes unsecured retail being provided at 100%, and the rest at first bucket NPA rate.
standard asset provision that's higher than regulatory rates of INR 2,296 crores, and weak assets and other provisions of INR 3,832 crores. Our journey to be self-sufficient on capital that we've articulated previously, has been progressing well. Our capital adequacy ratio, including profits, is 17.74%, and our CET1 ratio is 14.38%. We accreted 36 basis points of CET1 during the quarter. The prudent COVID provision translates to a capital cushion of 48 basis points over and above the reported CET1 capital adequacy ratio. The RWA of the bank stands at 67% at June 30, 2023. Growth across our liabilities and loan franchise, please refer slides 18 and 19 for details around the quality of our liability franchise, and slides in the investor presentation for our loan franchise.
Our key highlights are our CASA ratio on an MEB basis is 45.5%, improving 182 basis points YoY. Our CASA ratio on a QAB basis, which is quarterly average balance basis, is 44.2%, improving 151 basis points YoY and 31 basis points Q1Q. Our loan book is granular, well-balanced, with retail advances constituting 58% of overall advances, corporate loans at 32%, and CBG at 10%. 68% of our loans are floating, 42% of our fixed rate loan book matures in the next 12 months. Breakup of the floating rate loan book by benchmark type and MCLR repricing frequency is set out on slide 10 of our investor presentation. Retail advances grew 21% YoY and 2% sequentially. 77% of the book is secured.
Our Q1 FY 2024 disbursements for LAP grew 35% YoY. Small business banking disbursements grew 8% YoY, and P&L disbursements grew 26% YoY. Cards and P&L portfolio grew 91% YoY and 21% YoY, respectively. The credit card spends for Q1 FY 2024 grew 78% YoY and 28% sequentially. We are progressing well on an endeavor to build a profitable and sustainable corporate bank. Details of rating composition, incremental sanction quality is set out on slide 35. Domestic corporate loans grew 36% YoY and 4% sequentially. The offshore wholesale advances are largely trade finance-related and primarily driven by our Gift City branch. 96% of the overseas corporate loan book in Gift City branch is India-linked, and 91% is rated A minus and above. Commercial banking. The commercial banking book grew by 24% YoY.
The quality of the CBG franchise we are building is strong and is established through the following parameters: Our CBG CA deposits on a daily average balances grew 13% on a year-over-year basis. 88% of our CBG loan book is PSL compliant. As our customers grow, we migrated 3.6% of the CBG book at 31st March 2023 to our CRG business. This will be a routine feature going forward. Coming to the performance of our subsidiaries. The detailed performance of our subsidiaries is set out on slide 68-74 of our presentation. The subsidiaries reported a total Q1 FY 2024 net profit of INR 303 crores, growing 16% year-over-year. The return on investment on domestic subsidiaries was 45%. Axis Finance delivered strong growth as a full-service, customer-focused franchise, offering retail as well as wholesale lending solutions.
Overall, AUM for Axis Finance grew 28% YoY, retail book grew 1.5x and now stands at 43% of total loans. Q1 FY 2024 PAT grew 29% YoY to INR 123 crores, and the capital adequacy ratio is healthy at 18.6%. Strong asset quality with a net NPA of 0.38% and negligible restructuring, reflects the strength of the balance sheet of Axis Finance. Axis AMC, overall AUM grew 13% YoY to INR 2,52,203 crores. Q1 FY 2024 PAT grew 4% YoY to INR 91 crores. Axis Securities broking revenues for Q1 FY 2024 grew 24% YoY. PAT grew 14% YoY to INR 45 crores. Asset quality, provisioning and restructuring. Asset quality continues to improve, with declining gross NPA and largely flat net NPA.
Slippages, GNPA, NNPA and PCR ratios for the bank and segmentally for retail, CBG and corporate, are provided on slide 59. Q1 FY 2024 gross slippage ratio annualized stands at 1.87%, declining 18 basis points YoY. Gross slippages for the quarter was INR 3,990 crores, higher by 8% YoY, mainly relating to the retail book. Our CBG and CRG slippages are contained or improving, both on a YoY and Q1Q basis. Further, for the quarter, 38% of the gross slippages are attributable to linked accounts of the borrowers, which were standard when classified or have been upgraded in the same quarter. Net slippages for the quarter were INR 1,685 crores, of which retail was INR 2,028 crores, CBG was INR 64 crores, and wholesale was a INR -407 crores.
Recoveries from written-off accounts in the quarter was INR 554 crore. Net slippages in the quarter, adjusted for recoveries from written-off accounts, was INR 1,131 crore, of which retail was INR 1,639 crore, CBG was INR -10 crore, and wholesale was INR -498 crore. To summarize, Axis Bank is progressing well to be a stronger, consistent and sustainable franchise. Our franchise is strong and resilient and getting more sustainable, visible through organic access, driven CET1 accretion in the quarter of 36 basis points. Our COVID provision buffer of 48 basis points of CET1 capital, overall coverage of 145% of GNPA, and limited restructuring at 0.21% of our gross customer assets. Our consolidated ROE at 19.44% improved 388 basis points YoY.
We have now consistently delivered an ROE in excess of 18% over the last four quarters through disciplined execution. We have laid a good foundation for our liability franchise. The improvement journey is progressing well. Our Q1 FY 2024 QAB and MEB CASA ratios stood at 44.2% and 45.5%, improving 151 basis points and 182 basis points respectively on a YoY basis. Outflow rates have declined by 480 basis points, showing the significant improvement in the quality of the liability franchise. Improvements planned over the next seven to eight quarters should deliver results with some inter-quarter fluctuations, which are normal for a business our scale and size. We are well placed in the current macro environment.
We continue to focus closely on the geopolitical environment, inflation, liquidity, and cost of funds, and the impact on our business. We would be happy to take 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 1 on their touchtone telephone. An operator will take your name and announce your turn in the question queue. Participants are requested to only use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Mahrukh Adajania from Nuvama. Please go ahead.
Hi, good evening. My first question is on OpEx. You clarified on the integration expenses, and last time also, you had called out a number for integration expenses. If you add both, then the integration expenses work out to roughly INR 350- INR 380 crore per quarter. Is that the run rate we continue to expect in the next few quarters?
Mahrukh, thank you for the question. Slide 13 of the investor presentation clearly calls out integration expenses for the quarter. It is INR 385 crores. We have said that we expect to incur integration expenses over a period of 18 months, aggregating to INR 2,000 crores pre-tax, INR 1,500 crores post-tax. That number stands. You may see some inter-quarter fluctuations, but we stand by the gross number of INR 2,000 crores, and for the quarter, it is INR 385 crores.
Okay. That run rate should broadly continue, right? I thought INR 500 crore of that INR 2,000 crore will be upfronted sooner than the INR 1,500 crore.
Mahrukh, like I said, I think we said we will, we will upfront some of the INR 2,000 crore in the early four quarters. We are working to ensure that integration is smooth and is done in the fastest possible time. Directionally, yes, it's likely to be upfronted than backended. Your conclusion there qualitatively is correct. The INR 2,000 crore number stands, the INR 385 crore number for the quarter stands.
Okay, thanks. My next question is on deposit mobilization through the rest of the year, right? Some banks still have excess liquidity. A lot of banks have not grown deposits this quarter, but it intensifies from next quarter. How do you view your deposit mobilization in the context of your margins from next quarter onwards? Also, is the bulk of past repricing over now? Assuming no more rate changes, can we assume that margins have bottomed now?
Thank you, Mahrukh. This is Ravi. As far as the growth in deposits is concerned, it continues to be an effort across the banking sector, no doubt about it. We continue to stay focused on what we have picked up as some of the elements of, you know, execution over the last few months, which is primarily focused on sweating the franchise and the distribution. We have been, as mentioned by Puneet and Amitabh, we have been looking at a district-level approach, where we are seeing that how do we ensure that district by district, we are focused on increasing our market share in deposits. At the same time, we are working towards the composition and quality of our franchise.
We are not taking our eyes off that, and we continue to ensure that at all points in time, it is a relationship approach that we are taking, so that, we continue to focus on the customer behind the account, and therefore, create sustainability of the relationship as well as the liability. Overall, as we see, the focus is on sweating the distribution that we have and continue to focus on how every resource can participate and contribute. As far as the cost of funds is concerned, I'll hand it over to Puneet.
Thank you, Ravi. Mahrukh, as you're aware, we don't offer net interest margin guidance. Therefore, to your comment on whether margins will be at this level for the rest of the year, we can't offer a constructive comment. Qualitatively on cost of deposits, the marginal cost of deposits have stabilized for the last few months. We expect deposit costs to further increase over the remaining part of the financial year, but the pace of growth of deposit cost is most likely to moderate. If you recollect, in the Axis context, we had a deposit cost increase take place in quarter four of last year, followed by a deposit cost or a cost of funds increase in quarter one of the current year. We are saying the pace of growth is likely to moderate for the rest of the financial year.
Okay, thanks a lot. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to answer queries from all participants, please restrict your questions to two at a time. You may join back the queue for follow-up questions. We'll take our next question from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah. A couple of questions. Firstly, with respect to the excess SLR. We have drawn down.
I'm sorry, can you use your handset mode, please?
The question was on excess SLR, wherein we have utilized almost INR 89,000 crore. You said, like, larger part of it could be utilized over the next 6 months. From INR 57,000 odd crore, how would be the utilization of that? The second question is on the employee side, in terms of the increase which has been there on a quarter-on-quarter basis, how much could have been on account of the one-off due to the incentives which you have highlighted here?
Thank you, Kunal, for the question. Let me start with your second question first, on staff cost increase. Since you've asked the question on a sequential quarter basis, there are three elements that are playing through on a sequential quarter staff cost increase. One, you would appreciate that we purchased the Citibank business effective 1st March, so the employee cost of all Citi employees in Q4 of FY 2023 is for 1 month. For Q1 of FY 2024 is for 3 months. In some sense, it's not an equitable comparison. That has contributed to staff cost growth at 1 level. The second element that has contributed to staff cost growth is we've offered increments to our employees in Q1, as we do annually, and the increments are in line with industry numbers. Therefore, that's a contributor to staff cost increase.
The third element is we've added incremental staff in our growth businesses and technology teams, so therefore, there is an annualization impact of last year's, specifically quarter four hires and incremental hires in quarter one. That is contributing to the balance staff cost. There is a marginal impact of gratuity that has played through, given where interest rates have moved. Those would be the four broad components on basis of which staff cost has increased. Now, on excess SLR, you made one comment and asked one question. My request is, I do not believe that between Amitabh or me, we said we will run through our excess SLR over the next six months. I would just caveat your comment on the timeframe.
Our LCR numbers are 123%, gives us enough flexibility to grow our loan book as long as we get constructive opportunity. As we reduce our LCR, excess LCR will run off. We do not have a targeted guidance to running down excess SLR as a metric. Kunal, I hope that covers both your questions, if there is something, happy to take, a follow-up.
Yeah. Thank you.
Thank you. We have our next question from the line of Saurabh from JP Morgan. Please go ahead.
Just two questions. One is basically on this NIM slide 10. Last quarter, you had a 6 basis point impact because of the excess liquidity. Fair to say that the cumulative decline this quarter, including the 6 basis points of excess liquidity, that number should be about 15 basis points? That's one. The second is, on this attrition rate, I mean, would we expect the staff cost number to persistently remain high now because of the attrition rates are going back at the bank? Thank you.
Saurabh, thank you for the question. Yes, there's been a 5% moderation in LCR. I'm not clear on how that translates to the 15 basis points that, of normalized reduction that you're coming to. On a reported basis, we have declined net interest margins by 12 basis points. 9 basis points of the 12 basis points is DAU, which is cost of deposits being offset by increase in yield on investments and advances. 3 basis points in the last quarter was a one-off item, which is interest on income tax refund, which doesn't repeat itself in quarter one. The break for the 12 is the 9 + 3.
On attrition, let me make a couple of points first. There are only very few banks who report attrition numbers on a regular basis. Secondly, I think you are assuming that everyone is reporting attrition on exactly the same basis, and so the attrition numbers are comparable? I do not think so. We have done our analysis, and some people are excluding some of their workforces when they report how the, how the pace, you know, the how much time they spend in the organization before they report the attrition numbers, point number two. Point number three, our attrition rate has remained in the same zone for quite some time, so I don't know when you say that attrition rate has gone up. Yes, it went up last year. It is reflected in our overall staff costs.
All the institutions, at least the ones we compete with, are used to this kind of attrition rate, they've been operating quite well through that period without seeing a large jump in staff costs because the attrition rates are high. Frankly, if the attrition rates are high, sometimes it can lead to a lower staff cost because you might replace the individuals who are leaving you with someone who comes in at a lower cost. I think to attribute a high attrition rate to high staff costs might not necessarily be right all the time. In nutshell, we do not expect our staff costs to go up because of a slight movement in attrition number, either up or down. I hope I've answered your question. Thank you.
Thank you. We have our next question from the line of Abhishek M from HSBC. Please go ahead.
Hi, good evening, thanks for taking my question. 2 questions. 1 on growth. If you could offer some comments on, you know, housing and LAP. There's been a little, you know, the growth has been a little moderate there for 2 quarters. Is there something in terms of demand that you're seeing which is leading to this kind of moderation? Also on the CBG part, where there's a decline, this quarter on a QoQ basis, what would be driving this? That's my 1st question. I can come back for the 2nd.
Hi, good evening, Abhishek. This is Sumit here. Last year, we had started on a improvement of NIM journey, and as part of that, we had taken some initiatives to rationalize costs. Once now our NIMs are where we want them to be, so we will be growing our home loan book. We've already put in place initiatives to grow that book, and that will be visible in Q2, Q3 onwards. Our net of home loan, every other product is doing well. Home loan, we have a plan in place to grow the book.
Q4 over Q1 drop is, you would have seen that last year as well. You'll find that the overall growth on a YoY basis continues to be, you know, quite strong. This is a business that we like.
It is granular, it is sectorally dispersed, very profitable, and this is a piece that we are looking to grow and grow quite strongly. We are not very concerned about the small drop that you've seen on a Q1Q basis.
My second question was.
Abhishek?
Yeah.
Does that answer your question?
That was the first. I've got one more.
Please go ahead.
Thank you. The second question is on cards. First, can you give a rough mix of revolver, EMI, and whether that would have gone down post the Citi merger? Also, would it be fair to assume that Magnus would have led to, let's say, 15%-20% of net card additions and also spends, and now after, you know, the devaluation, there would be an impact on both of these? Thanks. Thanks.
There's actually three questions there. I'll just sort of take them one by one. Trend-wise, across the industry, the revolver percentage is coming down, but I obviously can't share specific numbers on trend or EMI. EMI is a trend which is increasing. What we are noticing, and you will have seen this in the RBI numbers as well, is that our overall spend, which is a reported number, is growing quite well and in fact growing much ahead of the industry. That's the first part. On the Magnus, no, certainly it would not. We have not seen any attrition, and it will certainly not lead to any meaningful number in terms of attrition, even if it were to come through.
The third part is I wouldn't refer to the changes in the Magnus or the devaluation, because if you look at it holistically, we have actually introduced a product which is tied in with our wealth management proposition for our Burgundy customer, which is actually, we believe, even more powerful than the earlier Magnus was. We are certainly not looking at it as a devaluation. We are looking at it as a segmentation of our product line, more aligned to the high spenders. For that segment, which spends above a particular threshold, we know with the math we've done, that it is still the most powerful card in the market for that segment of customers. I certainly wouldn't attribute any meaningful number on attrition to it.
In fact, we have seen the spends going up, as I mentioned, on the card portfolio in general, and we certainly wouldn't call it a devaluation of the Magnus product.
Got it. Thanks so much and all the best. Thank you.
Thank you. We have our next question from the line of Adarsh from CLSA. Please go ahead.
Hi, Amitabh and team. Most of the questions were answered. I just wanted to check if you think about the cost base adjusted for the integration cost. I am sure there is some amount of cost that banks are incurring now to spend when the going is good. Just want to understand what is the trajectory, and you guided to it earlier as well, but when should one expect this to moderate, right? What I am trying to understand is, will it last till the going is good, or specifically think that there should be a turning point here?
Adish, thank you for the question. The environment allows us to continue to make investments today. We have previously demonstrated our ability to pull back costs when we need to. Therefore, if you are directly asking me, will we have an ability to manage our cost to assets ratio on a go-forward basis post the integration expenses falling away? If the environment were to deteriorate, yes, we do believe that we have levers to manage costs at that point in time. As we stand today, we are constructive about the environment that we operate in, and therefore, would like to continue to invest in the branches.
That medium-term guidance on cost to asset ex integration is something you don't want to still put on a timeline to?
Adish, what we have said previously, we've reiterated that on slide 13 of our investor presentation, we have set out around 2% cost to assets on an FY 2025 exit basis. You see the update that we have provided, we've continued to hold that guidance of around 2% FY 2025 exit basis, excluding the Citi Business. Please appreciate the reason for the exclusion is the Citi Business operates at higher revenue and higher costs. We had called out the impact of Citi costs on the univariate cost to assets ratio last quarter. The guidance that we had offered previously stands as originally intended, so we are not walking away from that guidance.
Perfect. That's it, then.
Thank you. We have our next question from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Yeah, hi, good evening, everyone. I have two questions. One is around the Tier I. We have seen a good improvement in Tier I this quarter, despite rise in RWA to total asset ratio. Mainly driven this is one-off or do you think that this is going to sustainably improve over the coming quarters? In view of this, what will also be the plans that we have on the capital raise?
Thank you for your question, Nitin. Let me take the capital raise plan first and then come back to your one-off question on capital. Our current CET1 stands at 14.38%, well above our philosophical leverage level, well above what we need to protect our domestic triple A rating. Sufficient headroom for us to grow at 400-600 basis points higher than industry credit that we've indicated we would like to grow at. Therefore, we do not have any plans currently to raise capital for the growth outlook that we have for financial year 2024. To your second question on is there a one-off in the net capital accretion that you have seen of 36 basis points? No. Capital accretion is roughly about 66 basis points, if I take you to slide 15 of our presentation.
About 66 basis points of accretion is on account of profits for the quarter. Across operations, risk, and growth, we've consumed 30 basis points. The 36 basis points is core organic accretion that we have delivered in the current quarter.
Okay. Second question is on the branch expansion plan. While we have a guidance around cost to asset, how are we looking at the branch expansion over FY 2024 to 2025? Related to the branch expansion on the liabilities, because CD ratio has been, like, hitting close to 90 now. How are we looking at the liability progression, and what will be our comfort level on the CD ratio?
Thank you. On the branch expansion plan, as we have said earlier, too, we continue to look at white spaces across the country, both in Bharat and the urban markets. Current financial year, we are looking at around 400 branches incrementally for the year. We will keep ourselves open for any kind of opportunity which further comes up. Similar numbers would be where we are looking for even possibly as we go along. In terms of the job between the loans and the liability, that continues to be something that is playing out for the industry.
We have our eyes closely hooked on to the CD ratio, and we continue to make all efforts to ensure that that is something that is always under control, and see how we can bring it up as we go along. Between the push towards increasing distribution, as well as ensuring that the existing franchise is completely sweated out, we continue to be extremely positive about the deposit growth that we have.
Thank you very much for all this.
Thank you. We have our next question from the line of Param Subramanian from Nomura. Please go ahead.
Yeah, hi, good evening, and thanks for taking my question. On slide 12, you're showing this, the retail cards and payments, within the retail fee make. I just wanted to understand, would most of the Citi fee be sitting within this retail cards and payments? If so, it looks like the Citi business would have generated about INR 150- INR 200 crore of fees this quarter. Is that ballpark number correct?
Thank you, Param, for the question. I'm not going to call out or ratify the amount that you've calculated. We've categorically said we are one bank, one number reported. It is an integrated Axis franchise, therefore, the Citi fee is not being called out separately. To your first point out that if Citi fee is being reported, part of the Citi fee is being reported in retail cards and payment. There will be fees that will come in third-party products, as well as CTCs appear in retail liabilities. The recharacterization of the fees is in line with how Axis used to consistently characterize its fee profile, therefore there is consistency in this reporting.
Okay, okay, got that. You know, the last number we got for, you know, the Citi business, was as of CY 2020, when, you know, you had given out a, you know, broad P&L. I just wanted to understand if the P&L trend, say, in the NII and fee line are, you know, broadly similar, you know, on an accretion basis? Yeah.
Param, thanks for the follow-up. What we also set out in that pro forma disclosure was an ROE number, which was 19%+ . We do believe that that number is deliverable post full integration. Therefore, the business should be ROE accretive for us. Without commenting on specific lines of income and expense growth, we stay committed and stay true to our comments that this business is ROE accretive post-integration period.
Okay, thanks for that. Yeah. Thanks, Puneet. All the best.
Thank you. We have our next question from the line of Rakesh Kumar from B&K Securities. Please go ahead.
Yeah, thanks a lot, sir. Sir, firstly, question was on, you know, the outflow rate, you know, for the LCR calculation, you know, there is an improvement of 4-6 bits. That, you know, improvement is being utilized in the, you know, lower surplus liquidity, so improving the asset yield. Just wanted to understand what is the longevity like? You know, how much more we can, you know, improve the, you know, the deposit profile and, you know, use that to, you know, improve the overall, margin profile. How much, what is the, you know, in the degree, out the degree of that, you know, if you can, elaborate on that?
Thank you for the question. As you would see on slide 18 of our presentation, we've called out a June 2023 outflow rate of 23.7%. If you look at broadly our peer bank set, we've reached the range that we have historically operated in and continue to operate in. The efficiency there would be at the margin, because we've seen a significant improvement in the last 24 months. That lever of main improvement is getting optimized, and we have limited to no scope of improvement on a go-forward basis.
Just secondly, on the, you know, you mentioned that, you know, there is a seasonality in this rural shapes number and, you know, the recovery number, you know, kind of has come down. Recovery number, we can understand, but the seasonality of this rural shapes number, can we see this number in any other quarter, Q3 or Q4, or like, or it will happen just in Q1, if you can help there?
Thanks again for that question. Typically, rural NPS is a May-November cycle, so you will see a quarter one, quarter three impact of the rural cycle. The other products typically don't have the seasonality that comes through the rural portfolio.
Thank you. Thank you, sir.
Mr. Rakesh Kumar?
Yeah, I'm done. Thanks a lot.
Okay, thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone now. We'll take our next question from the line of Aravind R from Sundaram Alternates. Please go ahead.
Hi, sir, thank you for the opportunity. Once a branch, new branch is open, like, how much time, like, it usually takes to, you know, to reach the desired metrics in terms of, in your loans and deposits? That is my first question. If you can give me, some color on, like, what is, like, the average yield on credit cards? Yeah, those are two of my questions.
Thanks. On an average, we are now looking at the branches becoming fully profitable in the ballpark of 2 years. Obviously, there will be outliers. Some of them may come in faster, some of them may go beyond, but on a broad basis, 2 years is where we look at the customer base kicking in and a granular kind of approach in terms of getting the profitability.
Thanks.
On the cards, I'll have Arjun or Puneet look at it.
Thanks for the question. As you're aware, we don't give product-wide yields out. I do indeed allude to how the market has moved on revolve plus, cards loans. We do not have any particular yield call-out on the cards portfolio that we can disclose to you.
If I can just ask one question, like, especially on fixed rate loans or especially in consumer segment, you know, banks have not been able to, you know, pass on the interest rate that much. I'm just trying to get your view on, like, you know, how do you see, you know, like, passing on the rates to, you know, the customers in the retail segment, especially fixed rate book, like, you know, Personal Loans and other products?
Thank you for the question. Like I said earlier, we've seen an improvement on our yield on advances. We are also seeing improvement on yields on disbursements, which is why we've been able to offset the 31 basis points cost of funds increase. That's visible in the numbers that we are reporting. Having said that, the market is competitive. We operate in a competitive market space, and consequently, there will be pulls and pressure on pricing for the customer profile that we would like to have. I think it's a market dynamic. We are a large and active participant. We have meaningful distribution strength as one axis, so we feel comfortable in competing and winning in this space.
On your fixed rate loan profile, I had earlier called out that 42% of our fixed rate loans mature over the next 12 months. That should give you an indication of the repricing frequency of that book.
Thank you, sir. Thank you.
Thank you. I now hand the conference over to Mr. Puneet Sharma for closing comments. Thank you, and over to you, sir.
Thank you, Yashashree . Thank you, everybody, for your time this evening. We'd be very happy to take any questions that remain unanswered, subsequently. Please feel free to reach out to Abhijit, and we'd be happy to take on a follow-on question or engage with you. Thank you very much. Have a good evening.
Thank you, sir. On behalf of Axis Bank, thank you for joining us, and you may now disconnect your lines.