Ladies and gentlemen, good day, and welcome to IDFC First Bank Q2 FY twenty-five earnings conference call, hosted by ICICI Securities. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. 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. I now hand the conference over to Mr. Jai Mundhra from ICICI Securities. Thank you, and over to you, sir.
Hi, Sudhanshu. Good evening, everyone, and thanks for joining the call. On behalf of ICICI Securities, we welcome you all to Q2 FY twenty-five post earnings conference call of IDFC First Bank. From the management side, we have with us Mr. V. Vaidyanathan, MD CEO, Mr. Sudhanshu Jain, the CFO, and Mr. Saptarshi, Head Investor Relations. I would request MD CEO, sir, to open the call with his opening remarks, post which we will have a Q&A session. Over to you, sir.
Good evening, everyone. Pleasure to speak to all of you this evening. V. Vaidyanathan here. I've got Sudhanshu with me. Sudhanshu?
Good evening, everyone. Thank you for joining.
Saptarshi?
Hi, everyone. Thanks for joining.
So thanks for joining, and good evening again. In you know, this quarter, as you could see, was hurt by, impacted by provisions by two significant items, which was basically the MFI business and one toll road. And we will definitely attend to that because that is the one sore sticking issue about this quarter's results. But before that, let me just share with you the key highlights, which are also significant positives for the bank. Lest we get drowned in the question of provisions, we should just notice the overall picture and then of course, come to the key issue of provisions. Now, one key issue was strength for the bank actually, not issue, strength for the bank is the growth in deposits.
Now, this quarter, again, YOY growth in deposits is 32% for the bank. Now, you know, if you grow deposits, then it gives us license to grow the loans, because we've got to keep credit deposit ratio. In our bank, we like to keep it about 75% on an incremental basis. So it gives you a license to grow loans, and that's a very big thing. So now our deposits are now got a significant traction, now touching INR 218,000 crore. And, like we said earlier, we don't see any problem growing at 30% frankly for our bank. Number two, retail deposits was up 37% year on year, to now reach INR 175,000 crore. And this is despite the fact that we dropped savings account rates to 3%, last to last quarter.
So some, our, customers and markets have accepted it obviously, and still deposits are growing very well. Third thing is that our CASA deposits have grown by 37.5% this quarter. It has now reached INR 1.09 lakh crore. Our CASA ratio is upwards of 48%, and our cost of funds, you know, this quarter was stable at 6.46%. But this 6.46% includes, let me say, the legacy cost that is sitting on, which is the pre-merger IDFC what we carried into the bank. If you exclude that, our cost of funds is 6.37%. It's quite, you know, stable. Now, second thing is loans. Now, on the loans front, we saw a strong growth.
We saw growth of 21.5% year on year. If you remember, this is what we had kind of guided for earlier. Our total loan book has now got reasonable traction at say, you know, 2 lakh 22 thousand crores. Our retail loan book grew by 25% year on year, and later you will see that this 25% is also accompanied with good asset quality, which I will refer to later. Basically, just pull out my gross NPA for the retail book. So, the retail gross NPA is 1.57%, and the net NPA is 0.53%. Now, basically I'm trying to say that, what I'm mentioning is that retail has grown by 25, but asset quality is still very good on this front.
We'll talk about collection efficiency a moment later. Third item to call out is asset quality. Sorry, I want to add one more thing on loans. Basically, our corporate loans, which is the non-infrastructure, but the corporate loans grew 20%. Obviously, initially when the bank was, you know, post-merger, our fingers were scalded by the memories of what had happened in the past, so we were slow on corporate loans, but now we're getting more comfort having experiences. For five years, we've had no NPA, so corporate loan book has grown by 20%. Now, fourth item is asset quality. On the asset quality, the bank level gross NPA is 1.92%, and the net NPA is 0.48%.
The PCR of the bank has now touched 75%. Now, many of you might want to know that if the NPA is holding up at 1.92%, 0.48%, then what is SMA? Because after all, SMA is the feeder to the NPA. The SMA of the retail, rural and MSME book, but excluding MFI. I'll talk about MFI separately, so please bear with me on that front because MFI, we have a problem, and I want to talk about that later. But the SMA one and two of the retail book is 0.87%. Actually, it's reduced over last quarter. It's come down by eight basis points. Now, we also track Bucket Zero, that is early bucket collection efficiency in the urban retail book, it's running at 99.5%.
If you can, if you go to slide or page number 28 in the presentation, you will notice that we have given from Q1 FY2023, that is April, May, June of FY2022 till today, we have described our collection efficiency. It is stable at 99.5%. So this is something important to note, that our collection efficiency on this front is holding up pretty well. Now, now the, so lastly, I'd say, not lastly, so just a couple of more points.
On the rating front, you know, our rating continues to be double A plus, double A plus stable, but on the fixed deposit program, CRISIL has rated us triple A, which to us is a huge, huge, huge arrival moment, because a triple A by CRISIL, even on the FD program, is a huge moment for us. Obviously, they reviewed our capital, they reviewed our, the way we manage our books, the way we, our trend lines are, our utilization of the process, our liquidity, all that, and, you know, we feel good about that. Now I would like to come to provisions. Now, provisions for the Q2 was INR 1,732 crore.
Now, this INR 1,732 crore includes a, you know, a INR 568 crore extra provision we had to take this quarter, and we will describe both of them to you. Maybe Sudhanshu will tell you in detail, but I will just keep it very brief for you. Now, the MFI business, as, you know, we have been pointing maybe for three quarters now, there has been enhanced and increased delinquency, so the bank has taken a conservative contingency provision of INR 315 crores. Basically, what we've done is that we already had a quite a conservative provisioning policy for MFI and a 90 DPD basis. On 90 DPD, we have 80% of the book on a 90 DPD basis is already provided.
Now, what we have done this quarter is, because MFI is an issue and we cannot, you know, we cannot wish it away, because the portfolio is, you know, the MFI business is disturbing in many parts of India. So what we have done is that in the SMA one and SMA two, we have taken provisions, and therefore, with this, almost all of SMA one plus SMA two has been provided for by the bank, like almost 99% of SMA one plus SMA two. That is thirty into sixty, and sixty into ninety, has been provided for by the bank fully. So this is what gave us INR 315 crore. There was a second item of provision this quarter, which was a legacy toll road.
Now, we had called out to you, like, many years ago, like two, three, two, three years ago, saying that, "Listen, we've seen the back of infrastructure." We, the, you know, they were close to, like, there were many, many accounts worth over twelve or thirteen thousand crores, which one by one by one we all just sorted, and we almost told you that, "Look, infrastructure is all broadly done." But, this quarter came as a bit of a surprise to us. It was a shock to us. We were, deeply disturbed ourselves, when the government announced that, the state government announced that, the toll doesn't have to be paid by customers for vehicles.
Now, our client, which was a you know which was an entry point for into Mumbai, we had an exposure of INR 1,100 crore at the time of merger. Now, even though the client went into NPA, we were collecting from that client, so our exposure came down to 500-something crores. Now, suddenly, and we were happy about that because end of the day, we already collected some 700 or 600-odd crores, and we thought even if NPA, the client will keep paying, and life is okay, because toll was getting collected. But now because toll got stopped by this directive, then our client is going to struggle to pay. We thought that we don't want to carry this problem on the books, you know, and keep troubling all of you.
So we've taken 100% provision against this Mumbai Entry Point account. Now, with this, there is no more exposure left in the account. We believe that, the end of the day, the government will pay for this, because, you know, I don't think anybody, any government will really cancel a contract like this and not pay. So eventually, when the government will pay, we will recognize this back to our income. So this is the point that took away close to about 250 crores, this quarter. So these two items did affect our provision item, and that is why this number was INR 568 crore of extra provisions.
Finally, I must say that if you exclude these two accounts and then see the core, that is ex-MFI, and this, of course, is toll account, our credit cost for this quarter was 1.8%. Now, this is very much in line with what we've been talking about, so, you know, we want to mention that. Now, lastly, in terms of profitability. In terms of the profitability, our NII was up 21%, our net interest margin was 6.18%, our core operating profit is up 28%. So it is true that we have disappointed many by this provisions, and even we don't feel very good about this Mumbai Entry Point suddenly coming and, you know, bothering us like this. But, you know, on the most important thing is the core operating profit.
Core operating profit is up 28% YOY. So we feel that sooner or later, when we see the back of this, you know, MFI business, which we will, then you will get to see normalized profit of this bank. So therefore, you know, our capital efficiency, I think, including the benefit of the merger that just happened, it'll probably be CET1 of 14, quite so strong, and CRR, CAR will be 16.6%. So I must say that the key point to call out this quarter was really the provisions item. But I think, you know, like I said, we will want to put it behind us. The other thing is really, you know, a number of employees who might be hearing the program.
I want to say that because the profits are down and down to INR 200 crores, maybe, you know, some of you will maybe might want to think, you know, how could this reduce so sharply? I want to just say to every one of the employee that, frankly, we are really very proud of you. All of you are working very, very hard and brought the bank to this position of strength from where it was. I really want to thank every one of you personally and on this occasion. The bank's, you know, deposits growth, everything is looking very strong. All of you are experiencing what a fantastic technology stack you have.
All of you are experiencing what our, how our app is being experienced by our customers, and they're talking to you about it. All of you are experiencing the systems we have given you, the products we have given you. All of you are experiencing that from within, that we're building a good bank. You know, as and when we see this provision through and this microfinance issue, too, you know, the core will continue to emerge strong. Frankly, when you look ahead, I have no doubt in my mind when we look ahead of, we talked of this six lakh crore of deposits by FY 2029. You know, frankly, for us, growing 25% is not an issue. To grow the loan book to the numbers we talked about earlier, honestly, I don't see any, those stories fundamentally change.
And, you know, sooner or later, you will forget this quarter and this MEP and all these things. That's my quick comment for, you know, to all of you. Thank you. You have anything else?
Yes. That's a, yeah. So, to answer you, I'll touch upon a few other key numbers. There might be some repetitions, but I'll try to sort of give some additional data points.
Yeah, go ahead.
Yeah, yeah, yeah. As V.V. spoke about, that the customer deposit growth has been quite robust. It is at 2.18 lakh crores now at September thirtieth, and the YOY growth was 37%. CASA deposits increased by 38% on a YOY basis. In fact, if you see on an average CASA basis, the growth was at 37%. Term deposits also grew at about 27.5% on a YOY basis, with retail term deposits growing at 38%, which means the growth in the wholesale deposits was only 8% on a YOY basis. Our branch count is now at 961 branches. During this half year, we have opened about 17 branches for the year.
As we mentioned on slide 19 of the presentation, the HYPOS legacy borrowing further reduced by INR 2,400 crore during the current quarter. By the end of this year, there will be a few more repayments, and we will be left with just about INR 4,800 crore to be paid off. Credit deposit ratio improved on a sequential basis to 97.7%. The incremental CD ratio during last one year is at about 78%. Moving on, if you see the cost of funds and the cost of deposits, both have remained quite stable during the quarter, and the cost of deposit was at 6.38%.
Broadly, the same number was there in the previous quarter, and cost of funds for the quarter has reduced by one basis point to 6.46%. On the asset side, if I present, as you would have noted, the funded assets registered strong growth of 21.5%. The funded asset book is now at, reached 2.22 lakh crores roughly. The sequential growth was at 6.3%. We have given a detailed product-wise in slide 23 of the presentation. You may further note that retail has grown at 25% on a YOY basis. Within this, the secured book has grown at a faster pace, at roughly about 30-31% on a YOY basis. We have increased our growth in the corporate book.
You could see that sequentially, the book has grown by about 11%. And on a YOY basis, the growth is about 20%. The infrastructure book is now down to about 1.2% of the total funded assets. Another point to note here is our outstanding to one telecom major, that's now almost reduced to zero. On the funded asset side, in fact, the outstanding is zero, and we have a very minuscule exposure to the non-funded exposure. Talking of credit cards, we have now issued more than 3.1 million cards. The gross spends on credit cards increased by 46% on a YOY basis in Q2, and the books now stand at INR 6,332 crore.
Moving on to asset quality, the GNPA increased marginally by about two basis points to about 1.90%, and the net NPA stood at 0.48%. If you exclude the microfinance book, the GNPA in fact improved by 4% on a sequential basis. We have stepped up the provisioning during the current quarter to about, and the PCR now stands at 75.27%. This was primarily contributed by the increase in provision on the Mumbai-based toll account. GNPA in the retail, rural and MSME book stood at 1.57%, and the net NPA stood at 0.53%. If you exclude the microfinance book, then the GNPA stands reduced to 1.50%.
The overall standard restructured book continues to come down and has further reduced to 0.26% of the funded assets. This was 0.26% in the previous quarter. About 95% of the restructured book is secured in nature, and we hold about 19% provision on the same. Moving on to SMA one and SMA two, Rajeev already touched upon, that we have seen a reduction of about eight basis points from the previous quarter. The SMA one and the SMA two book excluding microfinance, it was at 0.87%. Gross slippages for Q2 were INR 2,030 crores, and net slippages were about INR 1,392 crores for the quarter.
Recoveries and upgrades were slightly higher at INR 638 crores in the current quarter against INR 526 crores in Q1 FY 2025. The net slippages in value terms increased by INR 260 crores vis-a-vis the previous quarter, and 40% of it came from microfinance. Balance, I would say, was spread across products. In percentage terms, ex microfinance, the sequential increase in the net slippage ratio was about 20 basis points. Moving on quickly to profitability, NI increased by 21% on a YOY basis to INR 4,788 crores. NIM was broadly stable, I would say, at about 6.18%, which was lower by about four basis points on a sequential basis. Fee increased by 18% in Q2 on a YOY basis.
Now, 92% of the fee is contributed by the retail book, and the fee to total assets was at about 2.05% for the quarter. We had a good, decent quarter on the trading front. The trading gains for Q2 were at INR 105 crores. Operating expenses increased by 18% on a YOY basis, and cost to income was broadly stable at 71% for the current quarter, vis-a-vis 70.5% in the previous quarter. Core operating profits, including trading gains, increased by 30% on a YOY basis, and if we exclude trading gains, then the increase was about 28%.
Provisions, I would skip, they are adequately covered, but just one point to add, that if we exclude the provision which we have taken on the toll account and the additional provision on the MFI business, then for the balance book, ex MFI and toll accounts, the provision was at 180 basis points. This was roughly 170 basis points in the previous quarter, which is to consolidate that we have not seen a much of an increase in the rest of the book. Profit after tax for the quarter was at INR 201 crores, and if we adjust for these additional provisions which we have taken, then the adjusted tax would be INR 626 crores.
Capital adequacy, as Vaidyanathan touched upon, including the benefit which is expected to come in from merger of about twenty-four basis points, our CET1 would be 14.08%. We have also taken an impact on the microfinance book, where the risk weights have been increased from 75% to 125% during the quarter. This had an impact of about 121 basis points on RWA. LCR was broadly stable at 116%, and this is well within the range which we have been guiding over the quarters. With this, I will end my opening remarks, and we can open the floor for any questions.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question, may press star and one on their 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. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Our first question is from the line of Shivang Rahoi from Abu Dhabi Investments. Please go ahead.
Hello, sir. Sir, every quarter there are some surprises coming up in our bank. How should we model for the next three to four quarters? And how are you seeing the environment for the housing finance in the next three quarters?
Housing finance is stable and growing, so I think it's growing for everybody. For us, I think housing finance is growing at 20% but that should be quite stable. Now, to your first question, actually, that we gave a surprise this quarter. Frankly, we're sorry about this, because we really believe that our issues on infrastructure were behind us. They were like. We haven't put out the list, but we wanted to put it on nameless basis. Next time we'll put it. We have INR 14,000 crores of such loans, which we identified, and we have dealt with it over the last five years, INR 14,000 crores.
That, of course, include Vodafone. It's INR 3,244 crores, which eventually did not default, but gave us all quite a scare and fright and, you know, bad news in, you know, news in media and all that stuff. So, but barring that, also, there were, including that, INR 14,000 crores. We dealt with all of them one by one. I must tell you that many of them were very difficult. They were, you know, some of them were in court, some of them were in ARC. They were difficult customers all over. So it really we took it at a great difficulty, and we finally thought we saw the back of it. This transaction by the state government to waive off the fees for toll here was completely out of the blue.
It was just nowhere in the picture, just a wild thing. This is one of the reasons we don't like infrastructure, project infrastructure financing, because we are hostages to, you know, this kind of movements outside of our control. So this was an odd one that came through.
Okay. And the second question is regarding the credit card business. So are we on the break-even? And what are the delinquency, because the RBI is already saying, like, there is a discomfort in the unsecured lending. Yeah, so what's your thought on that?
On credit card, this time we have given a lot more details, so let us open that line on that sheet on credit card. So, while my colleague pulls out the, you know, the number of credit cards, we have actually shown on our presentation the credit cards SMA. SMA for credit cards this quarter was 1.69%, last quarter was 1.80%, and the quarter prior to that was, the March 2024 quarter was 1.74%. So let me come to the other order of specificity. March 2024 was 1.74%, June 2024 was 1.80%, and September 2024 is 1.69%.
So for us, the credit card is behaving well, and really on expected lines on the credit portfolio. And we are of course watching it very closely because we saw the numbers of the other credit card company, which was. It's a monoline in this business, and we saw those numbers, and we saw another bank's numbers and credit cards. We'll be very watchful, but as of now, we are transparently sharing our numbers with you; it's quite stable. And in fact, on page number 38 of the presentation, we have even put out the data about the CIBIL TransUnion data of June 2024. In that, they are seeing that the 30 DPD for June 2024 for the industry, 4.6%, ICICI Bank 30 DPD for June 2024, 3.6%.
For March 2024, industry was at 4.3%, we are at 3.3%. Similarly, there is also ninety DPD data. In the ninety DPD data, the industry is at 1.9%, ICICI is at 1.4%. And, for March, it was 1.7%, for industry was 1.4%. So from these numbers, we conclude that we are doing well on credit card portfolio.
Nikhil, just to add, we have not seen an increase in credit cost in Q2 versus Q1.
Thank you, sir. Our next question is from the line of Ishan Agarwal from Nirvana Capital. Please go ahead.
Hello, and thanks for the opportunity.
Yes.
I'll straightaway dive into my questions.
Yes.
Firstly, excluding the prudent extra provisions on microfinance SMA book and the toll account of MEP, you mentioned that the credit cost is 1.8% of the loan book, of the average loan book. Whereas my calculated number comes to 2.15% of the average loan book. Is there something that I'm missing here?
Yeah. So essentially, if you exclude the provisions of the entire MFI.
But why would we do that? Because, the last quarter, when you're comparing with the last quarter of one point. So including MFI, our provision is 2.15%, and last quarter we had reported a provision of 1.92%, including MFI. So the 30 basis points is adding because of the MFI this time, the 30 basis points provision for this quarter?
Yeah. So as I think I had mentioned, that we are seeing 1.8, 1.8%, excluding the MFI book and the additional provision which we have taken in toll, right? This number was 170 basis points in the previous quarter, while the overall credit cost was 190 basis points. If you exclude, similarly, microfinance book in the previous quarter, then the number was 170 basis points. Okay? So just to fill in the reconciliation for you, 170, 180 basis points is ex MFI. We have seen additional provision on account of this toll, and the MFI additional provision which we have taken, that is consumed about 105 basis points, and the rest is coming in the normal course on the MFI book.
Okay. So our provision on the rest of the book has increased from 170 basis points to 180 basis points this quarter, but our SMA movement has actually gone down. So what is leading to this jump? Like which portfolio is actually contributing on the higher for the higher provision this quarter?
Yeah, you see, ten basis points is not a major increase, right? As I said-
And nothing to worry, in the personal loan segment or any other segment as of now?
Small bit of increase would have happened there, right? Because, as I said, that we can say is a normalization of sort, but it's, it's not worrisome. That's why we have given a lot of data points-
But even break it up again, of the incremental slippage that has happened this quarter, how much came from?
Only from credit cost.
Okay.
But the ten basis points increase is, I would say, on the rest of the book, right? And some bit of increase would have come in the personal loan segment, but it's not material. Another comfort which I sort of, I'm again reiterating, is the increase is also not ascribed to credit card. There we are seeing stable credit card cost in Q2 versus Q1.
Okay. So for the remaining two quarters, I think, Mr. Vaidyanathan had mentioned at the end of Q4 that FLDG comes into play from Q3 and Q4. And given that we have provided the SMA microfinance book as on date, how do you see the credit cost numbers shaping up for Q3 and Q4?
Yeah. So while we continue to be cautious, right? Because...
Right.
There's a lot of moving parts, right? But our best estimate as on date is that. I'll split into two or three parts, right? On the MEP toll account and the MFI book, we may come in at about 165-170 basis points, right? Which, if you would notice that it's a slight improvement which we are sort of guiding vis-a-vis what we got in H1 because of some benefits coming from-
So this includes the MFI book completely?
No, no, no, no, no, no, no. I'll again sort of clarify. We are saying I'm splitting this into, one, I would give you a data point on MFI, how do we see the credit cost for the year? Second is an impact which we see on this toll account, right, for the year, and third would be the rest of the book, okay? So on the, let me start with the toll account. The annualized impact for the year could be about 10-11 basis points for the year. For the JLG book or the MFI book, the impact could be about 45-50 basis points for the year, and in terms of credit cost, and for the rest of the book, it could be about 170 basis points.
Okay.
So if you sum it up, it could be somewhere around 225 basis points for the year.
Two twenty-five basis points for the year?
Yeah.
Okay. So the retail would be around two fifteen, and ten basis points is the toll. Now, retail, I'm including the MFI book.
Yeah, that's correct.
But this does not include the prudent provision of the MFI book, or does it? The two twenty-five basis points that you're talking about for the year.
Ladies and gentlemen, the line for the management seems to be disconnected. Please hold as we reconnect. Ladies and gentlemen, thank you for patiently holding. The management is in line with us. Mr. Ishan, I request you to re-repeat your question.
My question was, we are saying that the entire full year credit cost could be 225 basis points, which includes the MFI book, the toll account, and the normal retail provisions of around 165-170 basis points. This 225 basis points also includes the prudent provision that we've made today on the MFI book, right?
Yeah, it subsumes that provision as well.
Okay. Okay, thanks for that. Now, from FY 2026 onwards, the new ECL provisioning norms that come into effect, what could be the steady state provisions we can expect under ECL norms for our bank?
So it's difficult to comment on the timing on the ECL, as far as it's concerned, right? While there have been indications that this might come in, but at the same time, the draft guidelines which came in also suggested the banks will be given a one-year window to prepare in terms of system, to work on the models, recalibrate and all those stuff. My belief is that ECL impact could come in, certainly not in the next year, but could be earliest, maybe 2026.
Whenever that happens, that will lead to a credit cost impact of around, say, ten, twenty basis points or more?
Could be around that, but I'm saying, it's... I'm not guiding that.
Okay. Okay, understood. Yeah.
But it could be roughly that.
So third one is-
Ishan, we request you to return to the question before any follow-up questions.
No, no, but once again on Ishan. Ishan, since you understood the numbers and you split, and Sudhanshu has split it for you properly, the thing is that even at two twenty-five, for other entities with similar business models, on the lending side, I know our cost income ratio is higher, but on the lending side, for similar models, similar yield, you know, two twenty-five, you know, constrained MFIs, they've given and broken our back so hard, still to come back and be in that zone, this would actually count for really good credit in an overall sense to Ishan.
Thank you very much, sir. Our next question is on the line of Piran Engineer from CLSA. Please go ahead.
Yeah. Hi, team. Thanks for taking my question. Just a couple of clarifications. Firstly, the toll road account, was it INR 250 crore account or INR 500 crore account?
500. It was 1,100 crore account initially, then along the way, they paid back 600 crores.
Okay.
In terms of paid back meaning, not one shot, but they kept paying along the way, every quarter, little bit money.
Correct.
We collected a lot. We are left with INR 500 crore. We already had a provision of about. We were already prudent on that account. We were keeping about, like, INR 240-odd crore of provisions or INR 250 crore. So we've taken the balance of INR 250 crore.
Okay. Okay, now I got it. So it was 50% provided earlier, now it's 100% provided?
Forty, forty-
It was about 42% provided earlier, balance we have taken in this quarter, amounting to INR 253 crores.
Understood. Understood. Okay, that explains it. Secondly, just on the microfinance business, could you give us what were the slippages this quarter versus last quarter?
We are not calling out specifically that number. There has been a slight uptick in slippages during the quarter, but
We can take credit cost, no?
Yeah, credit cost-
Okay.
... Yeah, credit cost also fine. Yeah. Thank you. Yeah, credit cost for H1 on the microfinance book is about 6, 6 odd %. Okay. So it's fair to say that 1Q would have been a bit lower and 2Q would have been a bit higher than the 6%? Yes, that's correct. So what would have been Q2, for example? Q1 was roughly about 4.5-5%. And Q2? Q2 is about 7-7.5. So we have seen a slight uptick. Yeah. But, and that's why we have also, on a prudent basis, made that additional provision, which is almost equivalent to 2.5% of the overall microfinance. See, one of the reasons why our... See, we are observing the market.
We've seen all of the numbers. We've spoken to peers in the industry. We were keeping a very high bar in provisioning policy, meaning that, you know, like, close to about 80% of 90 DPD, we were providing for. So imagine anything slips, 80% gone straight to the P&L. So we kept it like that all the while, just to be well-provided in this book. So that is why our credit costs are what they are, and you know, the way to think about it is that, you know, we recognize it early, and you know, eventually when a recovery comes, it comes, we will take it back, as it comes, if it comes. Okay. Okay, that makes sense. Yeah.
Just to add, that's an important point, that intuitively, while these numbers from MFI provisioning them is high, it's because we make a very high provision on the recognition of the stress. That's an important point to be kept in mind. Okay, fair enough. And in MFI, have we moved it to a 125% risk weight, like some of the other banks have done? Or are we still at 75? No, no, we are at 125. And this was done this quarter, is it? Yes. Yeah, and this had an impact of about 21 basis points on CET1. Okay. Okay, fair enough. And just lastly, VV, you mentioned that you had cut our deposit rates to 3% a couple of quarters back. This is for what bucket? Less than one lakh tickets, right?
No, no, we took it straight up to five lakhs. So up to five lakhs. Okay. Yes. And you've not seen any negative impact of that? It's fairly inelastic, the demand. Yes. I mean, no, it's the thing is that we want to raise only as much deposits as we need to have, because as our legacy money keeps getting paid off, our need for money will reduce. So therefore, but to answer your question more directly, I mean, our deposits continue to come very strong, even after we cut it up to five lakhs. We are now realizing more and more that service is a very like unbelievably powerful item. And people who get used to service and relationship managers and the app and the internet and the ID and password and everything.
Okay. Okay, that, that's fair. Okay, that's it from my end. Thank you, and wish you all the best. Is there any question of yours which I did not answer, just to be, fair on? No, I think, see, the slippages number with the credit, or in MFIs what I wanted, but I think the credit cost also answers that. Credit cost is a good proxy for that. And I'll tell you one important point about what provisioning policy we were following. We were following 75% at 90 DPD and 100% at 120 DPD. For MFI? For MFI. Actually, it's for MFI. So this is like... I, you'll agree with me that this is...
And it's not now. We've been having this for many, many years now, like four, five years. So this is the reason why our, you know, our credit cost appears higher, you know, at this 6.6% odd. It's actually 6.6. 6.6 is not too high yet, but, you know, we'll have to see the rest of the year coming through. Now, a portion of our portfolio is, you know, secured by a CGSMU, which is, you know, in January of this, like, December of 2023, we started noting that the collection center meeting discipline was reducing. We were having to send people to customers' homes to collect, et cetera. And at that time, no one in the industry was talking about this MFI as an issue, but we did.
So in January of 2024, we started, we spotted this, and we started insuring our book, and we also tightened all the screws on the lending side. So our disbursal started coming down. So our disbursal came down from INR 4,250 crores, is what we dispersed in Q2 FY 2024. In Q3, we brought it down to INR 3,800 crores. In Q4, we dispersed INR 2,800 crores. In Q1 FY 2025, we dispersed INR 2,800 crores, and Q2, we dispersed INR 2,000 crores. So basically, we saw this, let me say, ahead, and then we reduced our disbursal. And we did one more thing. We started insuring the book with CGFMU.
So today, because incremental bookings since January 2024 have been insured, so today, 50% of our book is already insured. So on this, coming to provisioning policy again, on this, we have a more relaxed provisioning because we know that at the end of the day, the business is backed by security of a guarantee by CGFMU. So blend, the 75, 24, 75 and 100 policy of earlier and the CGSMU policy, which is more relaxed, blend, we have provided 80% of the book, 90 DPD.
Right. But with CGSMU, how has your experience been in terms of recovery now that it's been almost three quarters? Because another bank had faced some trouble in getting back what they claimed for.
No, another bank may have their, you know, they had their experiences for multiple reasons, and they're out in public domain. You know, in our case, we have started it now. So first of all, the way it works is that we pay them about 1.6% of the loan amount, as think of it like an insurance premium, if you think about it like that. We pay that, and then every year on the principal outstanding of the book, we pay them. Think of it like paying off, paying somebody on the whole book. We do that, and then we give a window of...
I think they have a window of one year or something, in which there's a lag after which they pay. So the key benefit for us will come in FY 2027, because the full aging of this book and, you know, that one-year lag condition will be met. But at least we know for sure that, I mean, we know that when we wake up in FY 2027, for example, you know, in fact, by end of this year itself, by March 2025 itself, 75% of our book will be insured. So by March 2026, it will have lived a full one year.
Correct.
By March twenty-seven, so all of twenty-seven, we will have very low credit cost in MFI because the whole book will be insured and ready to claim it back from them.
Got it. Got it. Okay, this is super useful. Thank you and wish you all the best.
Thank you.
Thank you. Our next question is from the line of Prakash Vasteri from Blue Bull Stock Investment. Please go ahead.
Hello, Mr. Vaidyanathan.
Hi, Prakash.
I am basically not an analyst, I am a shareholder only, so my comments or questions are from that perspective. So first of all, I am worried about, let's say, this continuous provisions. You have talked about it, good, but still, I remember last quarter you said that, "Okay, next quarter results will be subdued, but then onward it will be pretty good." But when you said subdued, I mean, we did not expect this will be subdued. This is number one. Number two, I mean, good that you have cleaned up the books, but if, if you get out of, say, microfinance, we get out of infrastructure, we get out of personal, where do you see this growth items coming next? Or do we just hang around like this only? We should, forget about this as a shareholder. So your comments, please.
Yes, so if you see the composition of the book. First of all, we are not getting out of microfinance. It's an important business for the bank because it is helping us meet many variants of priority sector. And it's an important book because this was... Basically like small and marginal farmer, agriculture, to meet many a weaker section and all that. We are not getting out of this, except that we have of course tighten the norms, get it insured, got it insured on a prudent basis and all that. What I discussed earlier.
Now, with regard to which will be the areas for growth, of course, infrastructure, we announced right at the beginning, five years ago, we won't do it, and we are not doing it. So even this MEP is a, you know, it's a bit of an odd thing that came, like a curveball that came towards the end, but, that's that. Now, so what are we growing? We are growing, 25% is the retail finance book growth. 25%. In September 2023, our retail finance book was one lakh four thousand crores. Today, it is one lakh thirty thousand crores. Our QOQ growth is 4%, annualized is 16%, and YOY is 25%.
Within that also, let me just share that the home loan business is growing by 20%, loan against property is growing by 20%, vehicle financing is growing by 32%, the consumer business is growing by 21%, so, and the gold loan business is growing by 185%, but that, of course, is coming from a very low base. So these are all growth areas for the bank. Now corporate credit is also growing. Corporate credit grew at x, you know, infrastructure grew by 20%. So let me just say that these are all lines of business that are growing and will grow. We don't see any reason why we should not grow by 20% next year also.
When you say vehicle finance or property and such things, you have to bear in mind that there is supposed to be a slowdown going on, and maybe the demand for all these things are likely to come down.
We'll watch it carefully, and I respect your question, but we are finding that this demand is quite strong, and we have. Let me tell you that we have not relaxed any one of our credit criteria. This 20% growth in this business is coming with the current norms itself. We have not relaxed any credit score cutoffs or anything like that.
Mr. V. Vaidyanathan, very simple question. In nineteen, not nineteen, in two thousand eighteen, when the merger with Capital First was announced, our share price was rolling in the range of same, about 60 around, 58 to 60. And most likely on Monday, we will hit that point again after six years of work. So how do you see these shareholders should take it? What word, what do you have, any word of advice or any... What, how we should basically look at it? I know there is a lot of past and there is a lot of this, but it's still six years, and we have done so much of capital raise, which has all gone, let's say, I don't know, so much provisions. How really we see it?
Okay. Now, for that, you, let me just take the number for you so that we are quite clear about this. At the time of merger, if you were holding an IDFC Bank share, the fact is that your, that your share price was INR 37.6. You can please check your numbers. Go and check your records on the eleventh of, maybe twelfth of December of 2018. We know the numbers. We put it out in annual report also. It was so. Now, back to 37, it's now, say, you know, the 60s, mid-60s, and, you know, what it will be on Monday morning or any day, it'll, you know, we'll see the number.
Now, let me just say that in this window, the first four years, please note my comment very carefully, and I understand your question because of your- from your point of view, you're right. You know, your share price has not moved. Actually, it's moved, let me say, from thirty-seven to sixty-five, but still, that's what has grown. Now, let me tell you that banks, as you very well know, since you're a seasoned shareholder, are valued price to book. Now, on a price to book basis, the book value per share at the time of merger was thirty-eight point four three. Book value per share at merger was thirty-eight point four three. Now, after that, who wrote the Dewan Housing loan book? I didn't do it.
Who wrote the Reliance Capital loan book of INR 1,100 crore? I didn't do it. This management didn't do it, which means that this management was not in this chair, and anybody who's running it, anybody would have to provide for it. It's not, it's not us. Who booked the Vodafone loan? We didn't do it. So what I'm trying to say is that because of all these loans, the book value per share came down to 31 rupees by mid-March 2021, from 38 to 31. Let me just tell you that had we not come to the chair and solved those accounts, God knows where would your stock should have been.
From there, from that 31, now the book value per share has come to 53, and we have raised capital all right, but we have raised capital always at a premium to the book, and therefore, the book value per share is 51. So when you, when you lament upon the fact that our share price has not moved adequately, I request you to think what would have been the position of this bank with, with these, you know, 14,000 crores of loans, of which so many thousands crores were charged off, not by our mistake, and there was no CASA of 8.5%, and there was no, you know, book. So where do you think our share price should have been?
So when you point out, I agree that is your expectation, but let me tell you, this is an issue. The bank is an early-stage bank. It goes through these troubles. If you really wanted a stock which has all problems solved, then go and buy a bank which is giving you 18% return on equity, which has already solved its problem for 25 years. This is early-stage bank. Now, my comment is that this bank, with great difficulty, with the work of 40,000 people of this bank, has now come to a position of strength. Our rating is, rating agencies have rated us triple A and double A plus, whether it's FD or for long-term rating. Now, our costs are 47%.
Now, our you know, core operating profit is INR 6,000 crores, growing at 25%. So I'm saying that we have brought the bank to a good position of strength from where it was. So now, from your point of view, has it gone up or not? These are the markets. These are early-stage bank situations. So I do believe bank has made big progress on technology, brand, people, CASA, loan growth, deposits, retailization.
I think everything is not correct because you are talking only the numbers from the point that the merger happened. You should take it from the point when the merger was announced, and you knew fully well what you are getting into. And from that point onward, if you will see that we have practically actually not made any progress. And 58-60, that share price, I remember, because I have been shareholder from 2013, not today.
Yes, please go and, I would definitely like request you to go and see the numbers. We'll share the screenshot with you. The share price was INR 37.5 in December 2018, at that time the merger has happened. Now, I'm not saying, by the way, so that, that moment of thirty-eight or thirty-seven rupees to fifty-eight is a great job, but it's also a fact that during this window, the banking system did not get re-rated. You can see the, you know, there are many other banks who, if you check the banking index, banking index has not performed since then. Our bank, if you please check the shareholder report, we'll send you.
Since if you leave your details behind with us, we'll share with you exactly what the bank index has moved, how much our share price has moved, and how much the book value per share has moved. Our book value per share has moved up only 20% in five years. That is after the initial collapse that happened up to 31 and now up to 53, it has now gone up by 20%. All other banks have gone up 100%, meaning the book value per share. Now, if we have grown by percent, I'm not saying it's a great job, it's not that. But I'm just saying this was just an issue, whether whoever is there in the chair, this would have been the situation, because this is a past issue.
So, you know, for example, if one bank share price is quoting INR 400, today it's quoting INR 25, then well, it is not because of this management. Someone else has gone and done all whatever they've done. So we got to benchmark somebody from where they take over a position and then move the stock, measure benchmark from there.
Thank you, sir. Our next question is from the line of Aditya Shah, from Vikram Advisory Services. Please go ahead.
One more thing, just to the previous comment, just to tell you, just to finish the answer. Therefore, we have done our best. The bank has made tremendous progress, otherwise the book value share would, could not have been 51 today after the situation we were in. But let me just say that we've got to look ahead. I'm not in the business of looking backwards. This was given for context, since you raised a particular number. When we look ahead, we believe that, you know, this bank at this stage is posting a 10% return on equity on a more normalized basis. Now, 10% has to move to 12%, 12% has to move to 14%, 14% has to move to 16%. Let me tell you a bit of about what the underlying prospect of this bank is.
Now, I leave it to you as a shareholder for you to assess this and get the confidence, and I request for your confidence. What is it? Now, end of the day, the bank is borrowing money at 6.3%. We have brought down the cost of funds from 7.8% to 6.3% in this five years. And we are raising 55,000 crores of money with just 1,000 branches. We're raising 55,000 crores at 6.3%. I would request you to note that this is really good by any bank standards in the country today. Now, we're raising money at 6.3%. We're lending, we're getting a NIM of 6.3%. Now, this is a five-year-old bank.
Now, for a 6.3 NIM, even if you add about 1.5, 1.6% as fees, so that makes it about 6.3, 7.3, about 7.8. Now, this cost income ratio is about 71% today. In due course, this is at a five-year bank, but in due course, when you take a five years, six years, seven years forward or maybe longer, this cost income ratio will touch 50%. That's the way, you know, end of the day, even Capital First is running at only 48%, and we have done that. So it will come to fifties, and then you know that that could be the, you know, operating profit of the bank could be the rate minus 50%, something like 4%.
Even if the credit cost is 1.3% of assets, that would mean a pretty strong return on assets for the bank. So fundamentally, long run, bank is structured superbly in terms of brand plus incremental economics. Now, things do come, regulatory changes do come. Even now, we have given a guidance of five years, but we're always watching out for market changes, guidance changes, regulation, et cetera. Please consider those risks, we also when you're investing in the bank, but if you, this is the early stage, but I think the long term of the bank is really, really very, very good.
Thank you, sir. I request Mr. Aditya to take his question.
Yeah. Yeah, yeah, yeah. So, sir, first of all, congratulations on the last six years of the merger, where you were able to build the bank in terms of deposits and CASA and growth in and changing the matrix of the bank from infra to retail and everything. It just sounds perfect, and it is great job where against all odds, where people were doubting whether you would be able to do it or not and all of that. So that's a great start. But what I would like to point out to you, sir, right now is that it has been a great journey in the last six years for the depositors, for the customers, for every people in the bank, except for investors. I'll tell you why.
I don't care about the share price, but what I care for is the predictable nature of the results. So, in my opinion, sir, till 2018, ICICI Bank never got a great valuation, whatever the reason is, because it's not predictable nature of the results. Whereas HDFC Bank always got good valuations because of the predictable nature. Now, we understand our bank is an early-stage bank, but for how long can this early stage be counted as? Is it six years, 10 years, 15 years? That gives, that will help us, you know, take our valuation calculated. Second point I would like to point out is that when, as a bank, we have even if we have 6% or 6.5% of NIM, 95% of our net interest income goes in our OpEx.
So what do we have left for provisions when such events come up? So, so sir, that is the problem. See, while we understand none of the first four, five years was your fault or anybody, or then banking industry things go up and down, but all I'm asking is: How can we predict the results of the bank going forward? Either we just provide everything in one shot, like INR 10,000 crores, get it done with, raise capital as much as we want, because the arbitrary nature of raising capital is also something that you need to look at, sir. This is all what I want to understand. Thank you.
No, both questions are fair, and let me take them one by one. Okay. Now, when we say predictability of results, first of all, I do agree that it is 100% our intent to make the bank more and more predictable in its results. If you see our operating profit, the operating profit of the bank, has been moving up significantly. You know, why call out on operating profit? That is core operating profit, that's INR 6,600 crores. Now, in this INR 6,600 crores was INR 1,100 crores at the time of merger. Half the post-merger, and by the way, I'm not referring to pre. Post-merger, annualized, was INR 1,100 crore. How does the bank become predictable?
If you don't, if you book treasury profits, now, it can never make it, you know, predictable, so it's 1,100. Now, that 1,100 of core operating profit, NII plus fees minus OpEx, has now touched INR 6,030 crores in FY 2024. Now, even for H1 2024 to H1 2025, it has grown up by 29%. So this is core operating profit, very important, so that we can get predictable income. Number two, in terms of credit cost. Now, in terms of credit cost, let me give you a clear picture. In terms of credit cost, this quarter, this year is normalizing... but next year onwards, it would be normalized.
For those of you who are tracking us for the first time, you please tell me, is there even one year in those eight years, or in fact, till today, in fourteen years, have we ever given you, in the retail side, a shock and said, "Oh, my God! We are doing a one-time cleanup?" There's no such word as one-time cleanup I have used for fourteen years, which means that we have a very good controlled credit underwriting process. It's working. So therefore, predictability will come only when all these kind of, you know, infrastructure loans and, you know, MEP and this, that, etc., we've taken out, I told you, INR 14,000 crores of such loans, but now these are last few left. So predictability appears after that.
Now, therefore, we believe that it will be reasonably predictable from now on for the next five years, because there are no major shocks, but I can tell you, the one shock that we should even now be prepared for is that from the regulations change from time to time. Regulations, they do change from time to time. The signals that come from the regulator may change about what may need to change or not. Market situations may change. We may not want to do a particular line of business because we may consider it risky. So these kind of risks can be there.
Broadly speaking, we should expect some predictability, but we do expect that, you know, maybe 2027 onwards, for the next seven or eight years, we expect that is FY 2027 and onward, we do expect that by that time, whatever had to come and go would have come and gone, and then it becomes a reasonably stable machine. And what was second question? Second question was on the OpEx. You're saying basically if the margin is strong, but a lot of money is going in OpEx. Was there a second question?
No. So the second question was, so sorry, the third question on that was that, let's say if we consider the, this quarter results for, ICICI Bank, though it's not comparable, but what I wanted to give you food for thought is that out of INR 1,700 crores that we provided, let's say we remove this 500 of buffer, we still have INR 1,200 crores of provision on a net interest income of around INR 9,000 crores or INR 8,900 crores. Whereas ICICI Bank has INR 40,000 crores of net interest income and is providing for INR 1,200 crores.
No, no, no. I think let's be very clear. No, no, let's be very clear about this. We are comparing two different models altogether. If you, if because these are models built for twenty-five, thirty years, with, you know, largely mortgage-based, you give us, you know, and if you go back and see the, you know, the same bank of between 2000 to 2005 or 2006, or maybe even earlier period of this, you could see that these banks were going through the period of ups and downs. Finally, a model takes time to stabilize. But let me just tell you this much, that our bank has made massive progress in five years.
Now, at least we are in a position to predict 6,000 crores of operating profit, and we can expect, let's find about 24%-25%, we can expect operating profit increase this year also. The point is, therefore, that early stage banks do have their share of ups and downs. I'm requesting you to please factor it in. But the good news is that when you look ahead, let me say FY 2029, I'm quite confident that by that time, this, all of these things. You ask me how long? Five years, 10 years, 15 years. So I'm telling you that by 2027, 2028, 2029, I am definitely expecting our bank to become very stable in terms of predictability. That's your first question, predictability. On second question on OpEx.
Now, on the OpEx front. Now, if you see, and it's well known, I don't want to spend too much time expanding on it in the interest of time, but in the last five years, we have grown our branch network. We have launched. If you see this in the presentation, the number of products launched by the bank. Just open that page, the products launched by the bank. So the bank has launched not less than 20 products. You know, the bank has launched a prime home loan, tractor loan, education loan, new car loan, gold loan, commercial vehicle, farmer loan, KCC, Kisan credit card, you know, micro credit loan, wealth management business, FASTag, Forex solutions, credit card. I mean, every product has its cost to start with.
Branch network, there's, you know, a huge branch network coming up here, so, people and technology. All this has happened in the last five years. Therefore, early stage has to go through the OpEx. The next generation of people running this bank between say, two thousand and thirty to two thousand and thirty-five, will find all of these things to be amortized. In the other bank I was running into between two thousand to two thousand and nine, we were struggling with all these kind of things, but today it's all an amortized book, and, you know, each of the branches are, you know, having 300 crores of deposits and all amortized, and look the money, how the bank is printing money.
So everything has a life stage, and the people who go through the initial stage of building a bank are Karma Yogis, and you have to go through Karma Yogi. Someone has to do the job of Karma Yogi for the future generation to print money.
Thank you, sir. Our next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah, hi. So, just to get into, you know, a few specific numbers for the quarter, and maybe would be great if we can get the absolute numbers. So firstly, on MFI, is it correct to assume that we would have done the provisioning in total of INR 500 crores, including 350-odd crores of contingency, and the last quarter it would have been 120-150 odd crores? Just want to reconfirm those numbers.
No, so, Kunal, as I mentioned, that for half year, the credit cost on this book is about six odd %, right? So-
No, absolute number, if you can just, how much is?
... coming to that, right? And I further sort of gave a breakup that in Q1, the credit cost was about 4.5-5%, and in Q2, that has inched up to about 7%. Okay? If you, and our average MFI book is about 10,000 odd crores, right? So if you apply these percentages, you would realize that the credit cost which has come through is about 400 crores. On top of that, we have made this additional provision of 315 crores, right? So, those are the numbers in the MFI front. Of course, we have done some, I would say, advanced provisioning. So, and hence I said, while in the full year guidance credit cost, this additional provision is also subsumed.
Okay. So 7.5% on 13,000, or maybe 7%-8% on 13,000 crore or 20,000 crore, that would be like 250 odd crore, on a quarterly basis. 7.5% is the annualized number.
Yeah, broadly.
Okay. So 250 plus almost 315 odd crore, so that, that's the broader number. And when we look at it in terms of the last quarter, if I take the same as a 4% number, that would have been closer to, like, 130 odd crores.
No, that would be higher. So on a INR 12,000 crore, right, if you apply 4.5%-5%, right? Then-
Yeah, that's again an annualized number. Yeah.
It comes to about INR 150 odd crores. That, you're right.
Yeah, yeah, that's what. So yeah, one, one.
Basically, think of it that this quarter, we have taken provision of this, INR 320 crores on the SMA one and two, portfolio.
Yeah, yeah, yeah. Clearly, yeah.
No-
So that's as of this 2.5%. Yeah.
You see, some of this money obviously will flip to, you know, ninety DPD, and what is ninety DPD will slip to one twenty DPD in normal course. So when the slippage will happen, this time, since it's pre-provided, the impact in Q3, Q4, at least on the JLG line, will not be that much.
Yeah.
Got it. And when we were guiding for the full year number, 40-50 basis points of impact on MFI, so that comes to broadly like 1,100-1,200 odd crores. So, particularly coming from MFI for entire year, FY 2025. So considering what has been provided, there is still maybe something more which can come in, okay? And that's to the extent of 300 odd crores.
Yeah. So number for the year, yeah, math is broadly correct. Could be about-
Okay.
1,000-1,100 crores, right?
Perfect.
But again, to note, right, provisioning policy is very stringent, right? As Vaidyanathan said that we end up providing 75% in 90 days, and 100% in 120 days, right? For other institutions, the provisioning policies could be very different, right? So while for us it looks high, I think that picture also needs to be kept in mind, that we are doing a lot of early recognition.
We do early recognition. We don't touch the books.
Got it.
We don't give the customer extra benefits or benefits to pay us back. We just keep the books clean. It's just the way we work. That's the way we dealt with the prior issues at the time of merger. We did what we did. We are dealing with the same way. I can tell you, investors, that nobody can ever point a finger on our bank in terms of how we run our books, how we manage our accounts. We keep it super clean, and
Yeah
... our practices are clean. So we do that. And to your earlier question, you know, we were talking about, you know, our SMA, we have actually given out the data of SMA for every product. By the way, is this on the SMA sheet?
Yeah.
So, you know, if you go to page 32, it's a very important-
Yeah
... slide we introduced this time. We have, you know, banks do disclose NPA. Now, we disclose SMA, but this time we-
Yeah
... carried transparency to another level. We have disclosed SMA by product.
Yeah.
Then we have disclosed SMA by product for three quarters at a stretch.
Wow!
You can see that you don't have to take our word for it, numbers can talk. If you see the first column of mortgages, it is 0.4, 0.39, 0.39. We know that mortgages are stable. We don't have to expect a problem next year, I mean, at these numbers. You see vehicles, 0.96, 1.22, 1.07, it's stable. Similarly, MSME is stable. You are at 1.26. Consumer durables is stable-
Yeah, most of the product segments are stable. Yeah.
We are clearly calling out only one product that's bothering us. Other than that, every product is fine.
And Kunal, another disclosure which we made in terms of our exposure to top five states, and this is performance. This is the industry.
Yeah, yeah, yeah.
That we are broadly there, except Kerala, where we are slightly higher.
Okay.
There also, we reduced the booking in last one year or so by 30%.
But let me tell you one more thing for shareholders, and a few shareholders spoke before, and as well as analysts. Let me just keep it simple for everybody. I feel that people who would be looking at this quarter's results and just look at one MFI, you know, book and thinking that there's a problem, et cetera, that with the data we have disclosed in page number 32. But let me just say that, you know, looking at one data point or one MEP or this one, people who take...
Come to conclusions of the bank will make a mistake, because you cannot underestimate the power of a bank that is borrowing money at 6.3% and lending it out to get a NIM of 6.3%, with controlled credit cost. Controlled credit cost. It's like even now, if you compare it to other banks with similar models, this credit cost, including MFI, including that, is still quite low. So the power of a bank running at 47% CASA, clean governance, a good incremental return on equity at the bank, incremental return on equity of the bank, which is the, you can compute it, and, you know, a growth model running at 25%?
You know, it's something that you will make a huge mistake if you, in my opinion, I mean, you, it's very, very clear call, but I think people who, you know, bet against this call would be, I would say that this is a really great bank in the making, really great bank. After five years, you would have forgotten this quarter, but you would have seen a eleven lakh crore business bank, which would be 6%-
Yeah.
of deposits and maybe INR 5 lakh crore of loans. I think it's a really good bank coming up, even at a 2% ROA or 1 point, you know, or a 1 point eight ROA, 1.7 ROA, that would still be a lot of money.
Yeah.
Yeah.
And so on this MFI, just to add, this all along, this book was not giving us that kind of a pain, right? The cost was range bound, except COVID, if you take out, right? It was about 1.5%-2%, right? We know, all know that some over-leveraging has happened, right? While-
Yes.
We also, I can confirm, we also gave only one loan to borrower at the time, right? It's only. Our problem started with Tamil Nadu, where unfortunately we had a slightly higher concentration. We had an impact coming out of floods, and then we know the heat wave and all those. So it accentuated the problem, right? We were proactive enough to slow down the book, right? We have kept stringent provisioning policy. We are allowing the loss to sort of come through. As a management, we have been quite proactive in recognition of the risk, while credit costs are high in this year, but we expect it to sort of cool off into Q1, Q2, and so on.
Next year, it may be still higher than the normalized levels of 2%, which we've seen earlier, but we feel that the provision, which is about two twenty-five basis points guided for this year, that would come off to a normalized level into the next year, right? We have also done a lot of policy interventions. That's why you are seeing that apart from JLG, we are not seeing that kind of an increase, whether it's SMA one and two. So, what I can comfort to the shareholders and investors is that we have done a lot of policy intervention. That's why you are seeing some of these numbers. I spoke of that in credit cards, we have been very cautious. The stress is not increasing similarly in other product classes.
So there have been one or two topical things which have come in, and that needs to be taken into account.
I'd like to give one important clarification, not clarification, a way to think about a credit cost, okay? Now, as to how could you... What is the credit cost for next year? For example, if this is the question in your mind, let me help you think this through. We think that every business has its own nature. Like home loans, it hardly gives any credit cost. Loan against property gives very low, maybe call it twenty-five, thirty basis points. So you assume if you have a twenty-five thousand crore book, you multiply that by ten basis points in home loans, maybe twenty-five thousand crore LAP into thirty basis points or thirty-five basis points for loan against property. Then you, you know, take consumer book, and then you multiply that.
The numbers are there on the book, so I don't want to expand on it, but let me say that, a seven thousand crore book into, say, four hundred basis points, and then you take a credit card book, you multiply that by five hundred basis points, let's pick a number, and then you take a and so on. You apply, we say it's a used car, say two fifty basis points, maybe personal loan, two fifty basis points. You, what you do is that simply take the book, multiply that by the well-known industry numbers. You through a sigma, through some product of that, you will get a number of about 1.85% for our bank.
So in one quarter, one month, something may be up, something may be down, but blend, blend, our bank is heading for about one eighty-five. And if, for this yield that we are getting, one eighty-five is a good number, stable number coming for 15 years. We don't doubt our model, because it's working. So, if you do this, you'll get a fair number. You can predict the number for the, for many, many years to come. Now, if an odd thing, like a JLG happened or toll happened, then, you know, the odd things change. But in general, we are running a stable credit book. We are running a stable yield, you know, 6% plus. We don't expect credit with this one, and then only cost to income ratio has to come down. That's it.
We don't have a problem fundamentally on numbers and credit quality. We don't have a problem in the yield. We have our cost income is an issue, and that's not an issue as in not an issue, as in we're running a bad bank. It's just that we, it's a new age bank, and we're building all the expenses. I told you all the products we launched. It will come off in due course. And once the cost income comes off, this bank will be making like sixteen, seventeen, eighteen ROE comfortably without skipping a beat.
Sorry, the second question is on cost of funds. So when we look at it, we indicated that cost of funds should see the benefit of twelve to thirteen basis points as and when there is rundown in the legacy borrowing. But maybe this quarter, there was almost like INR 3,000 crores rundown. Now, we still have, like, 6,000 odd crores left, but still cost of funds staying put. So, should we assume that maybe broadly that benefit could be lower as the repricing is also continuing? How should we look at the overall cost of funds? Because that benefit is still not getting reflected with the repayments having been done.
Little bit, little bit. Like, you think of it like six point, if not six point three six, think of it like six point three eight, somewhere in that zone.
Okay. Okay. Got it.
Yeah.
Yeah, thanks. So Kunal, if you see, cost of deposits has been quite stable, right? That's not going up for us, right? And of course, we do certain borrowings and so on. There is an impact which is coming as this book has come down significantly, right? Now, still there's a ten basis points gap which could be still filled in, but at least the cost is not going up for us. And
Yeah.
into the coming quarters, into the next year, we expect this to come down further, right?... So directionally, we feel that cost of funds for the bank would reduce from the current levels.
See, we feel quite, you know, to one of the earlier shareholders' question, we feel that, you know, honestly, we feel that like at, like at 27, 28, 29, 30 should be a reasonably upward trend of operating profits. Credit costs should stabilize about 1.85% for the, for the math I told you. You can do the math also on a spreadsheet. You'll if you do some product of the book into that, the known behavior of this product, you'll get that number. If you... So we feel that with, with that kind of yield and this kind of credit cost, and cost income ratio coming down, we do expect that our 27, 28, 29, 30 should be reasonably strong uptrend.
You take this comment with the usual caveats about, you know, market, industry, regulatory, et cetera. If you have done just anything, there might be price, you know, there might be its share of its own little bit of issues that can happen to any bank at any stage, but that's how to think about it, but on a long-term basis, we feel quite confident where the bank is headed.
Yeah. Okay. Okay, yeah.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, please limit your questions to one per participant. Our next question is from the line of Hardik Shah from Goldman Sachs. Please go ahead.
Thank you for the opportunity, sir. My first question is a housekeeping one. Can you tell us what is the total contingency provisions on the book, and what is the restructured book that you have right now?
Yeah, so the contingency provision is the one which we have created during the quarter of about INR 315 crores. And the restructured book, as I said, that book is now only 0.23% in value terms, that it's about INR 500 crores of restructured book which we have. And the predominant part of it is the mortgage book, which is sitting there. On this, we are carrying a provision of about 90-odd%.
Okay, that is super clear. And the second question is on the write-off policy, sir. What would be your write-off policy for microfinance and other unsecured products?
We cannot give a specific product-wise policy or a number out there, but we follow, I would say, a conservative or a faster write-off on the pool, right? I would say we go product by product, see the nature of the product and so on, and that's how we sort of define a policy at the bank.
Thank you, sir. Our next question is from the line of Nitin Agarwal from Motilal Oswal Financial Services. Please go ahead.
Yeah, hi. Good evening, everyone. Sir, I'll say that while the journey over the past five years wasn't smooth, as one would have liked it to be, but there were many bright spots which we appreciate. And deposit growth, which has been impressive, the technology stack that the bank has built, RBI approval more recently, and the ICRA also upgrading the deposit program rating to triple A, are all, like, highlighting the progress that the bank has made. The investors would also like to see the improvement in profitability, which is one metric where the bank still has to catch up, even when compared to Guidance one point zero. My questions now are more in that context to assess the profitability output better.
The first, if you look at the earlier guidance was like 1.4%-1.6% ROA by FY 2025, and now reaching this number may take us, like, another 2-3 years if things, like, go on well from here. You think that further expansion in ROA to 1.9%-2% ROA by FY 2029 is doable after you reach this initial milestone, or will you want to revisit it at some point?
See, we'll have to. As of now, we are when we drew up this model at that point of time, see, basically what did we do to come to the guidance? We assumed a certain continuation of the lending yield and lending income, and the cost of funds being continuing to where it was, and then we modeled it, and then we came to the numbers, and we shared it. Now, along the way, so our model directionally is very much valid. Now, the important caveat to note on this is that along the way, we are seeing changes. For example, there is a message, let me say, in the system to reduce the yield on microfinance business.
You know, because of the issues going on in the industry and also maybe that's a more vulnerable segment of society and so on. Now, if you touch that, yes, there is an impact on the income line. Similarly, if there's any other, you know, situational changes that come at us, for example, we are told that in the insurance industry, now there is a message to say that insurance, you know, the commissions that a bank gets will have to amortize over the contract. Now, you might find that next year, you know, the number that we were expecting to post, we might not be able to post it because we'll have to amortize it into 2027, which...
or what we'd have normally booked in 2026. So these kind of things do change along the way, but we have to be very focused on building a long-term bank, which has a fundamentals are in place. So when the fundamentals are in place, then it could be a year this side, a year that side. But I think that, I have no doubt in my mind that if you borrow money at six and a half, and you get a book yield where it gives a minimum of six point three, it just has to make a lot of money. It's just plain mathematics. I mean, whether it comes in 2029 or 2030, I'm not saying that I'm stretching it because it's too early for me to, you know, look at the numbers again.
But I'm trying to tell you that directionally, the bank has to get there. There's no doubt in my mind.
Thank you, sir. Our next question is on the line of Gao Shiwan from Schonfeld. Please go ahead.
... Hey, sir, thank you for the opportunity. So just on the excluding MFI and total credit cost of 180 basis points, just want to understand, you know, as you kindly provided the SMA data, other segment data seems to be stable, but back in, you know, March 2024, we are guiding for FY 2025 credit cost of 165 basis points. But even excluding MFI, we are running at 180 basis points. So, you know, what's the- which segments that is kind of deviating from your earlier expectation, and how should we think about it going forward? Because our guidance is, for now, you know, second half for the ex-MFI book should be better than the 180 basis points.
Just want to understand, you know, how confident are we on this guidance, you know, in this very challenging kind of, evolving macro environment, situation?
I think Sudhanshu pointed out, our expectation for the credit cost for, you know, microfinance business. And he also pointed out, and he stacked it up to going to 225, isn't it? 225. Now, it has three components, like Sudhanshu pointed out. One is the microfinance, but that we discussed before, and we have factored it in. Number two is this, one account of this INR 250 crores we had to take for that, you know, toll that we talked about. So that's also factored. Now, for the rest of the business, like we have shown in the numbers, our data is saying that it's reasonably under control. Not reasonably, it is quite under control. You can see the numbers out there. Even now, if you exclude these two, 180 is not a bad number.
You can see the numbers in the market. So we feel that it is reasonably under control. And, basically, the way to think about it, that compared to last year to this year, our credit cost is going up because of normalization, but looks like accentuated because of this MFI and the toll and all that. The short answer is that we feel reasonably, for this two twenty-five, reasonably in control of this. We understand that in the industry, the numbers have gone up. In the personal loans, we saw some data of other banks and credit cards. We have not seen it in our books as of now. We have seen data on personal loans for other banks. We've not seen it in our books as of now.
You know, home loans is, like, absolutely spick and span. There is absolutely no credit cost at all there. It's, like, as good as nil. Loan against property is doing very well. So netted other products are doing well. The numbers are out there. SMA product-wise, NPA product-wise, you know, everything is out there in the presentation.
Got it. Just a quick one on the thinking on the next capital raise, because the, you know, the industry challenges is kind of hitting profitability, and the capital consumption, if we continue to grow at, you know, 20%, seems to be a bit higher than expected. So how should we think about the timing of the capital raise and also the CET1 level that we're comfortable holding?
See, we are a growth bank. We are a growth bank, and because of growth, only our ROA, ROE also started getting addressed, and it gets fixed before. Now, but at this point of time, since our, you know, core CET1 is also at 14, including the benefit of the merger, and otherwise it's 16.8?
16.6, including.
16.6, including CET1, you know, T2. So as of now, we are comfortable. We are not thinking of, we're not talking. Even internally, we're not talking capital at this point of time.
Thank you, sir.
Our next question is from the line of Pritesh Bumb from DAM Capital Advisors. Please go ahead.
Hi, sir, good evening. Just, one question from my side, on the credit card business. So just wanted to check, basically, when you scrub the data and do detailed analytics and, see what kind of a customer profile is, if you can highlight, two, three issues, what is happening suddenly in the industry for last, say, one, one and a half quarter, two quarters, in terms of, what has changed? And if you can also highlight how we have been immune in terms of, you know, any one or two regions where we have been cautious for, in terms of the credit card business.
In the credit card business, we have been very, very cautious right from the beginning. Frankly, in every business, we are cautious. That's where our credit costs are low. Low, meaning except the microfinance, where we had the issue. But other than that, in other businesses, our credit card credit cost is quite low, and you can compare them with the market, and hope you'll agree. Now, in the credit card business, the way we did it is that largely, initially, we started giving only to our own savings account customers, and built a big part of the book like that. We have no DSAs.
I don't know if you're aware or not, but we do only direct source, sourcing broadly, you know, most of it, actually, all of it, we do direct sourcing. And therefore, built a unique model without having to pay DSA fees, and so on. So therefore, in our segment that we have lent to, with initially, like we said, our own customers, and later, we also started taking direct customers from direct origination or direct acquisition customers from the open market as well. So we are, I shared the numbers earlier, so I, I'd not like to repeat it, but I just told you that please go to page 38.
We have put our CIBIL TransUnion data of the industry for thirty DPD and for us. At every point, June 2023, September 2023, December 2023, March 2024, June 2024, and September 2024, we are at distinctly sixty basis points or seventy basis points below the industry thirty DPD. Similarly, ninety DPD, we are below, so I think our scorecards are working and so on.
And just to add, even in H2, I mean, given the interventions which we have done, for us at least, we feel that credit costs could marginally come down.
Come down. So we are, honestly, we are not going to give you any surprise or shocks on credit cards because the book is behaving well. Our issue was, our issue was one product, we have called it out. Frankly, other than one product, I think all are behaving well, and the numbers are out there for you.
Thank you, sir. Our next question is from the line of Rohit Jain, from Tara Capital Partners. Please go ahead.
Yeah, hi. Am I audible?
Yes, yes. Hi, I heard.
Yeah, hi. So, sorry, my question is a continuation of the last question. Now, you know, in general, in the credit card segment, we have seen stress across layers, you know, whether it's NBFC players, monoline NBFC players, whether it's the likes of Kotak also, or, you know, I'm not even talking about SBI Cards, the monoline player. And in your case, I see that, you know, credit card, which is a business that has grown recently, you know, there the slippages are going down, and we are seeing that the credit costs are gonna be lower.
I mean, I understand that you have your own filters and your own sources of confidence, but when there is so much issue in an industry that even the best of the breed are sort of showing stress, it sort of beggars belief. You know, so I just wanted to understand how is it that we are going to escape unscathed from this turmoil in the credit card segment, when almost every single player has highlighted stress there?
First of all, the question is very fair. Saying that how is it that our credit cost can be so low when the market is not, market is higher? Frankly, people ask this question of us in the other businesses as well, because frankly, except microfinance, in every business, our credit cost is doing well as compared to similar bank, similar players with similar industry. So credit card is just one more of such products. Now, in credit card, one reason could be that if you again go by the CIBIL data that we put out in page 38, in the prime segment and above, the industry data, I'm just reading out the CIBIL class data, okay?
So the correctness of it is for that you have to check with CIBIL. But I'm just reading out the exact data, we put it on page 38. The prime and above for the industry is 74%. For IDFC, it is 92.1%. It is probably just the way we've acquired our customers. Even on the liability side, for some reason, the way the brand is built, and it is a, according to me, a strategic source of how we built the bank. On the liabilities also, our bank is getting a customer base which is slightly premium-ish customer base, with higher balances with us. Our average balances when opening our household savings account, et cetera, is something like about INR 350,000.
I don't think any bank is getting, you know, INR 3.5 lakhs in the household accounts in their opening. So our bank is just attracting, let me say, customer base with a slightly higher income on the liability side, and then we lend credit cards to them. By definition, we end up slightly, maybe we are getting a slightly better credit, you know, credit profile. I can guess that from the data that is coming from CIBIL. It's there on page 38. So this can be a really good reason, in my opinion, as I speak. But really, on the other products, let me say home loan, it's we just hardly have a credit cost. So that's true for the industry, I assume.
For every business of credit costs, you know, at one eighty-five also, I'd imagine that, you know, ex JLG and ex that toll account, I hope you'll agree with me that, you know, one eighty-five is good in these conditions, probably better than other institutions in similar lines of business. I mean, I'm sure of that, actually.
Thank you, sir. Our next question is from the line of Jay Mundra from ICICI Securities. Please go ahead.
Hi, sir. Just two data points, sir. One, if you can share the movement of NPA, so I think the slippages you mentioned that, you know, two sixty crores is the addition. But if you can just say absolute amount of slippages and write-offs for this quarter?
Yeah. So, slippages, gross slippages were about 2,030 crores in the current quarter, versus INR 1,647 crores in the previous quarter. And the net slippages went up from 1,132 crores to 1,392 crores in Q2, right? Which means that delta of 260 crores, which I sort of topped off, right? Out of that, about 40% was contributed by microfinance, and which would be about 100-odd crores. That leaves about 160 crores as the balance, right? And this, I said, is broad-based across products, right? And in terms of percentages, the net slippage increase, if you exclude the microfinance, is about 20-odd basis points. So, yeah, sure, things have slightly inched up, but it's primarily, I would say, because of microfinance.
Yeah. And secondly, and lastly, sir, we have effected the merger effective October first week. What is the change in the net worth? I mean, not on the number of shares that are visible, but have we accreted some cash, or is there any impact on the net worth of the bank?
Yeah, net worth accretion would be about INR 618 crores at September end, and this benefit would flow into Q3. In terms of capital adequacy benefit, this would give us about 24 basis points of relief, right? This will come in Q3.
... So this 618 crore is the cash that you would have received, or this is something else that comes to net worth?
Yeah, it will be combination of cash, certain investments, and so on. But and so net worth accretion would be INR 618 crores.
Sure. Sure. Thank you, sir.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to Mr. Jay Mundra from ICICI Securities for closing comments.
Yeah, hi. No, sir, thanks, thanks a lot, everyone, for joining the call. Vaidyanathan sir, if you would like to give any closing remarks?
Yes. First of all, I want to thank every one of you for being with us for this long. You spent over an hour and a half with us. I thank you for your interest and your confidence in us, and for supporting us for the last four, five years. The bank had its share of, yeah, issues in terms of of its core profitability. Many people think that there were bad loans that we had to charge off, and that's the problem. But that's a bit of a naive view. I have known institutions which have had strong operating profit, and they have a credit cost, they charge it off, and next quarter, they can smile again.
But in our case, our issue was no low operating profit. It was just 0.32% of assets was our operating profit. So that means that we have to fundamentally change the business model, where operating profit comes to 2.5%. That was very, very, very hard for us to build a core operating profit. So let me just say that the hard work of doing that has been a good part has been put behind, and now our core operating profit is 2.5%, so this 2.5% of assets. Now, if our credit cost is 1.3% of assets, I want to just clarify, when you said 1.85, 1.85% loans, but then you take it off assets, 1.3.
You have 2.5, and then you have credit cost of 1.3, then you know you're at least looking at about 1.3% of PBT and post-tax, maybe one. Therefore, our bank on a stable state basis, ROA is reaching about one-ish, which literally zero base. I say the bank has made big progress on profit. To the shareholder, you know, who spoke earlier, if I came across, you know, explaining the past numbers, and you know, I want to just clarify that it, I didn't mean to be, you know, rough or anything like that. It is just that, I just want to explain.
So coming back to the point, so like you're coming to one, one-ish. Now, we have no doubt in our mind that a model that has brought us from zero to one in five and a half years can also take us from one to two, because you've got to pull the model through in the spreadsheet and pull it for long, you will get there. So this is a long-term model of the bank is definitely looking good. And we feel that we should have the patience, we meaning we as management. I shouldn't hurry things.
Build it in a stable way with good foundation, with good products, then in good products, good governance, not cutting corners, not taking, doing cheap tricks to manage the profit of the quarter, you know, say things as they are, present the numbers as they are, and build a core model. Then in the long run, we can expect to build a really fantastic bank. If I do shortcuts, then wrong things will happen, and no one will be happy with that. So we are building a bank for the long run, and we request you to... You know, and we're building it strong. Just see the numbers, and it will play out in the times to come. Thank you, everybody.
Thank you, everyone, and best wishes for the festival.
Best wishes for the festival to every one of you, and Happy Diwali to every one of you.
On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.