Ladies and gentlemen, good day and welcome to the IDFC First Bank Q4 FY22 earnings conference call hosted by ICICI Securities. As a reminder, all participant lines will be in listen only mode. 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 a touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Kunal Shah from ICICI Securities. Thank you and over to you, sir.
Thank you and good evening everyone. This is Kunal Shah from ICICI Securities. Today, we have with us Mr. V. Vaidyanathan, Managing Director and CEO, Mr. Sudhanshu Jain, CFO and Head Corporate Centre, Mr. Saptarshi Bapari, Head Investor Relations from IDFC First Bank to discuss their Q4 and the full year FY22 earnings. Over to you, sir.
Good evening, everybody. It's, thank you very much for joining us for this call this evening. I've got with me Sudhanshu Jain, who is the Chief Financial Officer of the company.
Yeah. Good evening, everyone.
I've got Saptarshi, who heads Investor Relations and many strategic affairs for the company.
Hi. Good evening, everyone.
It's nice to speak to all of you. I'd like to give a few opening remarks and then Sudhanshu is ready with his numbers to share with you. Number one, we'd like to say that, you know, for the last three years or so, you heard us say that we are consolidating the balance sheet and strengthening it. The reason was that we had a very large loan book of over INR 1 lakh crore at the time of merger, but we had only retail deposits of INR 10,400 crore. That was clearly unsustainable. We slowed down the overall loan book for the first three years, and our loan book grew by a CAGR of only 6% from FY 2019 to FY 2022.
The deposits, the retail deposits grew at a CAGR of 72% in the last three years. That clearly shows that we were very focused on first addressing deposit side. I'm happy to share with all of you that that phase of, let me say, consolidating the balance sheet or strengthening the balance sheet, whichever way we put it, that phase is now behind us. We are quite strong. We think that from now on, we will be able to grow the loan book comfortably. That's the point number one.
Number two, you see that, if you were to get a sense of where the loan book will grow from here on for the next few years, we think that, to grow the loan book from now on, overall loan book, retail, wholesale, all put together, to grow that at between 20%-25%, it should be very possible. We will break out of our CAGR growth of 6% and get into the normal growth league with all, let me say, good quality private sector banks are growing or probably a bit faster than that. Number three, for the growth, we also think that we have a very, very strong, lending model. Our incremental lending model by our internal assessment is giving us a return on equity of 20%. That's very strong.
You might ask how. If you notice, even in Capital First, we were posting 15% return on equity on the book itself. Forget the incremental return of equity, which was much higher, maybe 18% or 20%. That itself was 15% on a cost of funds of 9%. Now, on cost of funds of 5%, it certainly you can see how a 15% can easily jump to 20%. You can see that's coming. In case this is despite the fact that we started the prime home loans. All that is factored into the ROE of 20% that I'm talking about. On that kind of a business model, the book is beginning to grow and that is why you will begin to see the profit jar begin to open from here on quite strongly.
My fourth comment or third comment is that all legacy accounts of the bank, which we have often talked about whenever we've had. Now all of those issues are addressed. Either they are straightaway in NPA, like some of the toll accounts we talked about and the power accounts we talked about or they are current. There's very little SMA 0, 1, and 2 that is left in the wholesale book now. Whatever is there, we have provided for it. Please don't have much concern on that front. My number fifth comment is that the incremental quality of wholesale lending for the last three years has been very good. Because earlier it was infrastructure and all of us know it is not that someone did a good job or bad job.
It's just the nature of the beast was like that. Incrementally, we haven't done much of infra. We've actually focused on regular corporate lending, which is a regular cash flow based, a good quality name based, balance sheet based and all that. That book we have sanctioned close to INR 17,500 crores of wholesale loans in the last three years. I'm really happy to share with you that the net NPA even after three years, and it has gone through the stress of COVID, the NPA is zero, so on that book. You should be comfortable now that there is no real issue coming up on this front.
The fifth point is that you might say, listen, if you're going to grow the loan book by 20%-25%, that's on a loan book of INR 1,22,000 crores, which means our loan book should grow by anywhere about 20,000-30,000 crores a year. You might say, "Look, where are you gonna get INR 30,000 crores of deposits from for doing that?" I must say that you know, the last three years alone, we have grown retail deposits by INR 54,820 crores. Now that's retail deposits. So retail CASA, retail term deposits. That really shows that. By the way, last three years we've had every problem, I think, around. We were relatively startup bank. We had COVID. We had, you know, lots of issues, and all that.
Basically despite that, you know, if money could come to us, we can clearly see that we will be in a position to fund ourselves so that sort of a deposit growth, we feel frankly very comfortable on that front. You know, to put it in context, our CASA, for example, is now touching 19%-50% and it's been around that number for now four quarters in a row. We feel quite confident that even next year we will be able to sustain our CASA at 50%, give or take a few basis points here or there.
Now, therefore, to be able to have a strong deposit franchise with CASA at 50%, ability to grow is a tremendous source of comfort for all of us and also gives us a lot of confidence that we can now, you know, so to say press the pedal on the lending side. The next thing to remember is what's happening on the, you know, you might say that, "Look, you might grow the loans by INR 25,000 crore, so what's the quality?" Now, our asset quality, I'm happy to say that the gross and net NPA for the bank for the retail side, and we specifically call out retail because that's the large part of the book as you know.
When we say retail, we mean both retail, personal credit which is the retail-retail and then the commercial financing which is basically business loans, business banking, commercial vehicle this kind of stuff it goes largely to businesses. These are the two categories we track. Now, on the retail side the categories which are defined, the gross NPA has now come down to 2.60%. And the net NPA has come down to 1.15% of gross. It has come down to 1.15%. Now, we have always guided that the gross NPA and the net NPA of the retail side will come down to 2% and 1% respectively, gross 2% and net 1%. We feel quite confident on that front.
For that you should see the trends to give you the comfort. In March 2021 when the COVID-19 hit, let me go back a little more in time. Pre-COVID, like we said December 2019, the gross NPA of retail was 2.26%. In March 2021, which is when the peak of the COVID-19 was there, the gross NPA went up to 4.01%. In June it came to 3.86%. In September it came to 3.45%. In December it came to 2.92%, and in March it has come down to 2.63%. It's not hard to see why this number should come down to 2% as per our guidance. Now let me talk of net NPA.
In December 2019, pre-COVID, our bank's retail side's net NPA was 1.06%. In peak of COVID it went to 1.9%. This is in March 2021. June it came to 1.82%. September it came to 1.66%. December it came down to 1.28%, and March 2022 it has now come down to 1.15%. Like, you know, 1.15 is in touching distance of 1, so hopefully this will be no concern. In fact, our own internal estimates are it will go down below one, rather comfortably. You get the drift about how we think of the asset quality side.
Now, the next point to address, you know, after addressing the profit, after addressing growth, after talking about asset quality is our confidence on the capital front because after all if we want to grow the book at 20% we need to have capital by our side. So on this front our bank is strongly capitalized. We've got, 16.8% is our capital and, you know, we also have significant headroom for Tier two because we haven't raised that much of that. So we can always raise some Tier two and, we have sufficient headroom to go. Now, next thing is about, incremental unit economics.
On this front I've already described to you that our retail lending business is giving us 20% return on equity and all we have to do is just keep you know doing that in a safe way in a quality you know keeping a good eye on quality. On quality front I you know if you permit me it'll give you confidence to note you know it's a 10-year track record. Now 10 years is not a quarter or two quarters 10 years is 30 40 quarters and for us to continuously for a long time keep a gross NPA of 2% and net NPA of 1% must give you confidence that we will get there.
If we can do a good return on equity with low gross and low net NPA and a reasonable credit loss, we should be just fine and be able to grow it from here. The next point to note is credit loss percentage. Now, I need to read out some numbers to you that help you. Now, as far as credit loss is concerned if you note, if you remember when the COVID second wave hit us then when we came out with the June 2021 results, we took a big block of provision for COVID second wave. At that time it was a pretty large hit we took a INR 1,872 crore provision.
Not all of it was retail. It had a lot of wholesale infrastructure accounts, et cetera, but still it had retail. Retail was a big component of that. Now, at that time, you know, we had given a clear guidance of what we expect Q2, Q3, Q4 of FY 2022 to look like. At that time if you recall I had publicly said to all of you that our Q2 provisions will be less than Q1, Q3 will be less than Q2 and Q4 will be less than Q3. I'm happy to share the following numbers with you as it turned out. Across our Q2 provisions was INR 475 crore. Q3 provisions are INR 392 crore and Q4 provisions are only INR 369 crore.
The sum total of all these four numbers is INR 3,100 crore. Now our average loan book for the year was INR 1,18,700 crore. If you divide, you'll get a number of 2.5%-2.6%. Now you think, you can think and calculate for yourself that in a COVID-ravaged year, where Q1 was so hard hit. By the way, in Q1 there was lockdowns across the country. I can't say across the country, but across large number of states, practically national lockdown, but there was no moratorium. NPAs were there. Despite such a you know, quarter and a year, our credit loss for the whole year was only 2.5%-2.6%. You can do the math.
It's somewhere there between the two. I think it's 2.6. So for therefore, if a COVID ravaged year, it was 2.6. Really, it's not hard for you to also believe us that next year when we're guiding you to 1.5, we have done our math for that. So if you take annualized, you know, annualized credit loss, then for Q4 our annualized credit loss is only 1.2%. Now, so that's 1.2. We are running to 1.5. So we kept ourselves sufficient cushion to when we say that next year will be 1.5. Therefore, you know, there is enough data by our side that when we were running this, you know, so earlier it was 2.5. Now even the COVID year is 2.5.
Now it is, we're guiding to 1.5%. You get the drift. We believe that we are building pretty much a phenomenal model at our end, where we are able to lend to multiple segments of the market. Also the prime home loans, but also to a two-wheeler customer, also to a consumer durable customer, also to a personal credit customer, also to a credit card customer, also to micro enterprises, also to business loans. You know, we are, you know, spanning a wide range, also for affordable housing. We're doing a spanning a wide range and blend at 1.5%. It's really a good number. We are frankly very happy about it. We're just waiting to.
We just wish to fast-forward time and be able to report one year forward numbers to you. I'm just waiting for such a day when, you know, we'll be able to share, you know, our numbers with you know, a year from now. We are that much phased up internally. Now, coming back to the last thing about the, you know, two more things I want to share with you is the fee income. Now, our fee income is not only from the businesses like your, you know, loans. We have this in, you know, income coming from loans, of course, where we get disbursement income and prepayment income and, you know, all that kind of stuff.
Also, we also get income from, on the liability side, from insurance distribution, mutual funds gives some annuity income. On the wholesale side, we make income in the form of LC/BG, et cetera. Wealth management is growing pretty well for us. You know, the cash management business is faring very well. We've got a really fantastic cash management product. Basically, the list, the span of business are giving us income. It's very good for us. Now, for us, retail fees constitute 84% of the total fee income. If it's retail giving us 84%, we know it's sustainable and simple to next few quarters can only grow from here. Now, I've got only two more points to add to you.
One is that, as a business model, we since we are building it ground up and we don't have a legacy sort of business model to worry about in terms of what we are incrementally building on retail side. Every product of our bank is very much a customer first product. You know, for example, if it's credit card, you tend to think of it like, you know, there are lots and lots of fees and charges and some lack of opacity oftentimes. Everything about our bank is transparent in the way we design the product. Similarly on the loans and all this, on the deposits and all that. That's one thing. Then, my second penultimate point is about the operating profits, and this is very important.
Now, in terms of the operating profit, let me read some numbers off to you. Yes. Now, you can, you should note the following numbers. In FY 2019, December 2018 is when we merged. So we have taken December quarter operating profit, December and the March quarter. Then we have taken them together, and then we have annualized it so that the full benefit of Capital First and IDFC Bank is coming in it. So that number, and then after annualizing it, we find the operating profit of the bank post-merger so that there's a like to like comparison. It's INR 1,105 crore. In FY 2020, this number shot up 60% to INR 1,764 crore. In FY 2021, this number grew by 8% to INR 1,909 crore.
This is a COVID year where obviously income was troubled. In FY22, its operating profit has jumped from INR 1,909 crore to INR 2,753 crore with a growth of 44%. You can clearly see that there is a 3-year CAGR of 36%, including a COVID year. Therefore our big, you know, so to say, happiness is coming from the fact that we, that we operate. You know, all of you might point out that our operating expenses of the bank are quite high, which, frankly, I agree. I think net of that expenses in the bank, our operating profit has jumped by 44%, in last year from INR 1,909 crore to INR 2,750 crore. Now that alone even doesn't tell the full story.
Now you compare this quarter by quarter. If you take quarter by quarter, again, the Q3 FY 2019, the quarter when we merged, our operating profit excluding trading income was basically like a core was INR 276 crore. Now this quarter, this number, the Q4 FY 2022, this number has touched INR 836 crore. Now just think 276 growing to 836 crore despite whatever expenses we may have. We are feeling really very good about our incremental economics of this bank. I am a firm believer that if incremental economics are so strong, all we have to do is just sit and deliver Rahul Dravid style, not play any false shots, no cross-batted, nothing. Then this will jump from here.
Then straight away, if you adjust for a reasonable credit loss, you will get to see strong return on equity. We feel broadly that our bank is headed for a fantastic return on equity, and that game will play out. Many of you have had concerns over the last two, three years because you felt that Rahul is coming and saying this legacy or that legacy. That really was never the intent, but unfortunately it turned out like that. I can safely say that three-year period is behind us. We fixed everything. Now we're just looking forward to growing the bank. Hopefully, if you stay put with us, you will get to see the results from our side. Thank you very much.
That's my quick talk on an overview level. Maybe my friend, Sudhanshu can give you a quick commentary on the specific good quarter numbers.
Thanks, Vaidyanathan. I would like to start with an update on the growth of asset, on the asset side of the business. As Vaidyanathan said, we have seen strong business momentum continuing into Q4 FY22. The overall funded assets of the bank grew by 13% during the year to reach INR 1,31,951 crore as of March 31, 2022. This was mainly driven by the growth in retail loans and commercial finance loans, which grew by 28% and 15% respectively on a YOY basis. Disbursements were strong and the retail segment fees were higher by 32% in Q4 FY22 as compared to Q4 FY21. Within the retail segment, the home loan segment registered the fastest growth and the book grew by 52% on a YOY basis.
The bank has seen strong traction on the prime home loan segment since the launch of its attractive interest rates for prime home loan customers. The rural finance book within retail, which includes funding to self-help groups, Kisan credit cards, micro-housing loans and some small enterprise loans. That book grew by 10% on a YOY basis. The bank has maintained its conservative stance towards commercial loans, which include business loans, commercial vehicle loans with strict underwriting norms, and that book grew at 15% on a YOY basis. On the wholesale side, the bank continued to bring down its infrastructure book as per the stated strategy, and it reduced by 36% on a YOY basis and 14% sequentially. The non-infrastructure book remains steady with a growth of 5% on a YOY basis and 9% sequentially.
The top ten borrowers concentration has steadily come down and reduced to 3.7% as of March 31, 2022, as compared to 5.9% in March 31, 2021 and 19% in March 31, 2018 before the merger. The bank plans to grow corporate book going forward based on the right opportunity, pricing and the assessment of risk. Infrastructure book is now just 5.2% of the overall funded assets. We are happy to report that guarantees which were given by the bank for Spectra has now been released. The bank has more than 700,000 credit cards issued so far, mostly to existing customers in the book. Our spends per active cards are higher by 35% as compared to the industry average.
On the liability side, the bank's CASA deposits have grown by 11% on a YOY basis to reach INR 61,170 crore, and the CASA ratio as of March stood at 48.44%. Another point to note is that average CASA for FY22 stood at 49.88% as compared to 41.50% in FY21. Overall customer deposits increased by 13% on a YOY basis to reach INR 93,214 crore. The proportion of current accounts in the overall CASA mix improved to 18.29% as of March 2022, as compared to 11.8% in March last year. The bank has managed to bring down the excess liquidity during this quarter, as the LCR was at 136% as compared to 149% last quarter.
As the business and economic environment evolves going forward, there will be scope for further improving on this metric. This quarter, bank added 42 branches to take the branch count to 641 branches. 70% of the new branches were opened in semi-urban and rural areas. The bank has substantially granularized the liability base since merger and CASA and TD based on CASA crores stood at 85%. In terms of asset quality, Mr. Vaidyanathan has covered that we have seen a substantial progress. Our provision coverage ratio, including technical write-off, has increased to 70% at March 31, 2022, and if you exclude one Mumbai loan account which became NPA in Q1, the provision coverage ratio stood at 77%. Of course, we have seen a sharper improvement in the retail segment.
On the PNL front, very quickly, the bank has seen strong growth in profitability. NII for Q2 increased by 36% on a YOY basis and by 32% on a quarter-on-quarter basis. The net interest margin improved to 6.27% for Q4 FY 2022 from 5.17% in Q4 FY 2021, driven largely by decrease in cost of funds and however, asset yields stayed broadly stable. For the full year, the net interest margin stood at 5.96% as compared to 5.03% in FY 2021. On the fee front, again, there was a healthy increase of 40% on a YOY basis. The fee was INR 841 crore as compared to INR 600 crore in Q4 FY 2021.
For the full year, the fee increase was 66%, and the fee for the full year was INR 2,691 crores. Fee income growth was largely contributed by increase related to loan sourcing, higher transaction fees, and wealth management fees, as Vaidyanathan mentioned. The fee growth was 13% on a sequential basis, which also indicates a strong performance on this front. Core operating income increased by 37% YOY to INR 3,510 crores in Q4 FY 2022 from INR 2,561 crores in Q4 FY 2021. The core operating income of the bank for the full year grew by 38% as compared to FY 2021.
Operating expenses grew by 24% at INR 2,674 crore for Q4 FY22 as compared to INR 2,156 crore for Q4 FY21 on account of increased business activities and lower base due to subdued economic activity due to COVID last year. As a result, the core operating profit of the bank for Q4 increased by 106% to INR 832 crore from INR 405 crore in Q4 FY21. Provisions were lower by 36% on a YOY basis. As Vaidyanathan mentioned, the credit cost for the quarter has come at 120 basis points, and this has come down on a quarter-on-quarter basis. The bank has not utilized any portion of COVID provision this quarter and carries forward COVID provision of INR 165 crore as on March 31, 2022.
As a result of the numbers which I talked about, the profit after tax increased by 168% to INR 343 crore in Q4 FY 2022 from INR 188 crore in Q4 FY 2021. Sequentially, it went up by 22%. Tax for the full year was at INR 145 crore. We had posted a negative tax of INR 630 crore loss in Q1 due to higher provisions of INR 1,872 crore to tackle unprecedented COVID-19 second wave impact. Thereafter, the profitability has improved gradually to INR 152 crore in Q2, to INR 281 crore in Q3, and now INR 343 crore in Q4 2022, driven by gradual improvement in the core, operating profit and sustained credit cost levels.
The bank has maintained strong capital adequacy, and its CAR was at 6.74% as of March 31, 2022, with CET1 ratio of 14.88%. The overall CAR has improved by close to 298 basis points vis-a-vis the last year. The bank also mobilized Tier two of INR 1,500 crores during the quarter in its maiden round from market investors, including LIC, which came with 60% participation. The bank is comfortably placed in terms of capital as compared to the mandatory levels and looks forward to growth going forward. With that, we can hand it over for Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to withdraw 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 will wait for a moment while the question queue assembles. The first question is from the line of Anish Moonka from Astrex Capital. Please go ahead.
Thank you for this opportunity. I had this amazing experience with a pre-approved credit card from IDFC First Bank. It was actually on my app to use seconds after I agreed to the document you sent. The tech stack supporting such functions shouldn't have been as simple to develop as has been the experience, and would definitely entail a good amount of operating leverage as the volumes increase. Other than this, we have also observed increased tech hiring and marketing regarding the same from IDFC's side on platforms like LinkedIn and YouTube. What's the bigger picture, Vaidyanathan, sir, and how should an investor expect this to transform IDFC First Bank's way of doing business three, four years down the line? Thank you.
Thank you for that, for the opportunity to share. Makes our team feel better thanks to that. Now, yes, we have spent the money building all these good stacks and giving our customers a really good experience. The benefit we see is actually lower cost, you know, on an incremental basis. For example, in the credit card business, you know, I don't know you'd be surprised to know we have no DSAs. The entire, as you know, the industry for the last 20, 30 years has been built about giving a few DSAs to originate credit cards to you. We have 7 lakh cards, no DSAs. This ability comes to us because we developed good processes, and then we of course reach out to these marketing channels and we originate loans.
We believe it will pay back, you know, in terms of operating leverage in the years to come. That's one of the reasons why we are very bullish about ourselves, which you can't see today because you're seeing the numbers today and probably happy or unhappy about some of our numbers. We internally feel happy because we know that you fast-forward this story one year forward or two year forward, straightaway the income will rise, rather a bit disproportionately.
Makes sense. Sir, what is the top and mid-level management attrition rate for FY22, and how do they fare compared to the industry? How does the company continue to keep the credit underwriting culture intact if you are growing at 25%+ rate continuously as so many new people enter the business? Thank you.
It's a great question. For now, attrition, we've not put any public numbers, but I can tell you briefly that our attrition at senior management, let me say at top two, three levels of management is very, very low. I mean, we rarely come across a case only once in an odd while. It's quite low, very stable. Now, attrition is more in the bottom of the pyramid, really when people join for the first job, work for two, three years, find a higher compensation somewhere, go away or move for personal reasons or whatever. Attrition is typically more on the lower end of the hierarchy chain.
Now, with regard to credit, that's an easy one to answer because we think that our credit will hold up with scale, and that's something that we feel very, very confident of. That's because, you know, the whole credit architecture of this bank we have built ground up, you know, so we know every bit and every moving part of this place. We meaning not I mean the whole team. We understand what we built, we understand the stacks, we understand the credit criteria. We know how each of these evolved. You know, we know what we did in 2011 and 2012 and 2013 and 2014 and, you know, 2020 and 2021, 2022. Every time this scorecard has evolved by with the learning.
We've been through this process, basically, you know, we're inside out of it. The second thing is that, you know, within due course, underwriting capabilities in this country have only improved, because of more availability of data and ability to scrape data from multiple sources, et cetera. What we do is actually not just believe in these numbers or these processes alone. We even track ourselves by certain outputs. There are certain number of things we track. You know, we track to monitor whether it's performing well. For example, we track of the loans we booked what is the number of customers who return the check next month itself. We call it first EMI.
The check bounce is only metaphor, normally you know NACH. We say that first EMI check bounce is X percentage of what it was. I'll give you one number. For example, pre-COVID, if indexed, if the index was one of check bounces, today on the first EMI bounce basis for the definition I said earlier, check bounce is 0.7. Check bounces are 70%, only 70% of what it was pre-COVID. We track similarly bucket one, bucket two, bucket three. We check SME, we check the interest analysis, we check recovery. We track many fronts like these.
Frankly, we are very, very cautious about this because we, the last thing we want is to have a permanent credit loss on our books maybe, you know, a few years from now. That won't smell right for us. Very conscious about it. We have the right tools, the right technology. We feel confident.
Just a final question from my end. As per our aspirations, we want to become a world-class bank, and our today's balance sheet is nearly at INR 1.9 lakh crore and the plan is not to stop until the numbers become much, much larger. What are the current biggest weaknesses that stop us from becoming one, and the ones that you are focusing to resolve over the next five, seven years?
The truth is that when we say world-class bank and, you know, the thing is it's not, the size alone doesn't make anybody a world-class bank, and maybe there are some amazing institutions that are also large and also world-class. That's also true. In our case, you know, our loans book is only INR 1.2 lakh crore. For us, even if it grew at 25%, you know, at 25% you can double your balance sheet in three and a half years. You double it again at three and a half years. For us, it's not difficult for you to imagine that this INR 1.2 lakh crore bank will become say INR 2.4 lakh crore loan book maybe three, four years from now.
Another maybe three to four years from then, maybe INR 5 lakh crore book, and from there, hopefully another INR 10 lakh crore book. This story will never stop at all. Just not stop because the lending is running by a machine here. It's running by a set of formula and a set of credit underwriting processes, and there is underserved credit in the country. You see, you know, large amazing banks like ICICI Bank, you know, 20 years ago, they were just a INR 200 crore loan book. Who would have imagined they'll become a INR 6 lakh crore retail book today? It just compounds. That's it, over a period of time. Look at HDFC Bank, look at Kotak Bank, look at the other banks. They're all great banks.
For us to keep compounding from here the loan book and play a steady straight game for next 15, 20 years, really I don't see a problem.
Thank you so much, Vaidyanathan sir. The answers were very helpful.
Thank you.
Thank you. The next question is from the line of Lalit Deo from Equirus. Please go ahead.
To understand on the margins trajectory. In this quarter it was like about 6.27%. Was there any one-off in the quarter? Because as we see like net core NIMs have improved by about 28 basis points and it continues to do so.
Yeah, Lalit, there was no one-off as such during the quarter. This is a steady increase which has happened on a quarter-on-quarter basis.
Okay. Thank you. Another data point, can you tell us the gross slippages and net slippages during the quarter?
Yeah. Gross slippages for the quarter was about INR 1,400 crore and net slippages were about INR 700 crore. We saw strong recovery during the quarter. There was one, you know, corporate account of about INR 250 crore that slipped during this quarter. It was a legacy corporate account. If you net that out, the numbers look quite comfortable.
Sure, sir. Thank you.
Thank you. The next question is from the line of Ishan Agarwal from Irvine Capital LLP. Please go ahead.
Hi. Thank you for the opportunity. First of all, congratulations on a superb performance on all fronts. The team has again surpassed my expectations in terms of the execution.
Thank you.
First question is that given the levers that we have for increasing NIMS from here on, even at 6.27%, if I have to name a few, we are booking retail loans at 14.5%-15%. We are replacing INR 26,000 crore of high cost deposits over the next three years. Our LCR drag is there, right now on our balance sheet, and our incremental cost of funds is 5%. Then why are we saying that NIMS should taper off, from here on? Won't these levers push the NIMS to a higher trajectory of, say, 6.6%-6.8%?
Yes. Yes. It could still rise from here.
It could still rise from here. What will be your guidance on the OpEx front for FY23? Will it be in line with your overall loan growth or will it be lower?
Lower, because that's where the operating leverage comes in. Because if you remember the first speaker, Anish, spoke, I think Anish, if I'm not mistaken, he talked about that experience. It's.
If the loan book grows by, say, 22%-23%, OpEx should grow at a lower pace is what we are expecting.
Think about it as what the NII plus income, fee income will grow at.
Okay.
Think of the OpEx. OpEx should grow lower. More than the percentage is, what is important is, the fact that. Remember the NII, give me the P&L. The NII plus, fee income, they tend to grow on a larger base.
Right.
A larger base growing at a greater percentage, vis-a-vis our OpEx growing slower but on a lower base, that is what actually explains the P&L so sharply.
Okay. My last question,
give you a number. I just got some numbers here, so I'll explain. Let us look at the income line for the bank for financial year FY 2022. Our NII plus fee income, without trading gains, okay, straightforward, only income, core income, that was INR 12,397 crore. Obviously OpEx is much lower. Just think that. Last year this income has grown by 38%.
Right.
If you take the quarter-on-quarter, this number has grown by 37%. That is Q4 FY22 divided by Q4 FY21. That's 37%.
Right.
The income or the OpEx line has grown by only 24% on a lower base.
Right.
That is suddenly the operating leverage. Suddenly, otherwise you might wonder, how did the income, the core, what we call the core operating profit, how did it jump from INR 400-something crores to INR 800 crores? This is the reason, and this is what makes us feel good about next year also. Hopefully when we talk, say, one year from now, you would see that the income would have grown further and OpEx would have grown at a lower pace.
Okay, great. My final question is, you've achieved two of our primary, three goals that we had set at the time of the merger in terms of, the liability issue being sorted, the asset quality issue being sorted. On profitability, when do you see the bank reporting double-digit ROE?
Soon.
How soon?
Soon meaning definitely I think by our own internal estimates are that by fourth quarter of next year we should be getting there.
Fourth quarter of FY23?
Yes. You know the trajectory. Remember, we're coming from zero.
Right.
We already touched 6%, and next year if we can touch 10%, then you can imagine what the next year's eighth quarter will look like. We are like any other good bank in the mid-teens%. Actually our own belief is that we will not be mid-teens% bank, we'll be a little higher than mid-teens% banks when this story stabilizes.
Do we have any capital raise plans for FY23, given we already are envisioning a 25% loan growth? Tier one capital I'm talking about.
No, no.
Okay. Okay. Thank you. That is helpful.
Thank you. The next question is from the line of Rohan Mandora from Equirus Securities. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, just want to understand, can you help us understand in terms of the OpEx expenses, between, say, fixed OpEx, business-linked variable, and future capacity building, what is the split? In the last two years, how have each of these line items grown?
Well, we don't have any of these numbers ready for you, unfortunately. Maybe we'll try next time. Let me just say that, we definitely, you know, a portion of our expenses are towards building the future. You know, there are two types of expenses we are having. One is, of course, run the bank as usual. Second is remediation of any of the existing systems. For example, there's a tech stack, and many of the parts of the tech stack require remediation because some parts may not be right. Maybe the core systems, maybe the enterprise service bus, maybe the channel-facing tech systems, maybe the CRM. So some of these things often require, or maybe some systems doesn't talk to each other or they can't tell each other.
Those kind of things, the remediation work is always there. The third set of expenses, of course, investing for the future, which is basically building a really future-ready tech stack, and we are very focused on that, to build those kind of capabilities where customers can get, you know, instant solutions. For example, we have launched a mobile app, but we're going to launch upgraded version of mobile app, where customers should be able to purchase mutual funds, et cetera, you know, on the fly. On the fly meaning not just buying a mutual fund.
Actually, they can. We've done API connect with all the mutual fund companies and therefore, through an integrator, whereby customers can come there. Customers can do a query of the highest performing mutual funds, either the Morningstar or something, and then they can click the fund they want to buy. Then they can see the categories of companies, the categories of investment companies. They can see the companies underneath this mutual funds. They can click, click, and buy what they want to buy. These kind of capabilities we're building in the bank, and I think all of these will add value to the bank in the longer run.
You may not be able to see it in the P&L this quarter, next quarter, but we are building a bank for the long run, so they will all add up.
Right, sir. Sir, any ballpark range where we are operating in terms of these expenses towards future technology addition?
No, we don't have specific numbers on this one.
Sir, what was the total OpEx towards, say, the DSA distributor pay out in FY22?
I don't have the number offhand. We don't say that, those specific numbers.
Sure, sir. Sir, employee count as of March 2022? Where do you see employee per branch trending in, say, next three years?
Well,
Because it has come down from 50 or to 40, from say 19 to 21. Where do you see that trajectory in the next three years?
We think that for most of our regular businesses, like, you know, home loans, car loans, personal credit, et cetera, we don't need people anymore. I mean, we don't need to expand the team at all. They're very much the existing team that we built should be able to just have a higher disbursal of about 25% straightforward just because of the way the economy lifts and the way people become more productive over time. For maybe new businesses that we launch, our hiring, if any, will only be for that. There's nothing we need for existing businesses.
Sure, sir. Just, employee count as of March 2022?
That's one of the reason we would be operating leverage, you know. Supposing we have X number of employees doing all the loan businesses and the same team, supposing loan book is just make it up, say INR 90,000 crore. How much is the loan book right now, Ritu?
INR 93 thousand.
INR 93,000 crores. Supposing INR 93,000 goes to, say, INR 120,000 crores or something, and out of that we add more people. You get the drift. You fairly see what it will do to profitability. That's how operating leverage plays out. We will need people only for newer bank branches we open where we need to hire people, maybe add some in wealth management, maybe add something in gold loan, maybe add something in some businesses where we have to be in private sector, like. Those types of things we add people, but not really for regular businesses.
Sure, sir. Thanks a lot.
Thank you. The next question is from the line of Bhavin Gala from Marine Capital. Please go ahead.
Hi, Bhavin.
Hi. Thank you, sir, for the opportunity, and I really congratulate the entire team of IDFC First Bank for doing the heavy lifting and pulling the bank across last many years. I have few pointed questions. First is on the retail banking operations. The recent earnings do suggest that the retail banking operations have turned around. They have posted a PAT of INR 400 crore plus. So what explains this turnaround? Was there a one-off or the entire contribution has come from recurring activities in terms of from the revenue stream? The second question is, though in the PPT you have mentioned entire Spectrum related business have been repaid, so if you could help us in terms of specific numbers on the exposure of Vodafone right now. Yeah, that's about. That's from my side, sir. Thank you.
Yeah. On the retail front, definitely, there has been a turnaround. We have seen lower provisions during this quarter, and hence what we see in external segment bank or retail banking, there is a profit of INR 230 crores. There is no burn-off itself. This has come to lower provisions and robust growth in the retail asset book.
On the telecom front, about INR 2,100 crores of guarantees were released. This was towards guarantees given to Vodafone and Bharti. On Vodafone now we have an outstanding of about INR 500 crores. This exposure used to be about INR 3,200 crores at one point of time.
Thank you. One last question. If I heard correctly during the call, the blended growth for the asset book for FY13 is in the vicinity of 20%-25%, right? We are not referring only to the retail book. The 25% of loan asset book is on the blended book.
That's right. That's right.
Correct. Thank you very much and all the best for the future.
Thank you.
Thank you.
Thank you. The next question is from the line of Sahil Sharma from SS Capital. Please go ahead.
Hi, sir. Congratulations on a good set of results. My first question is to understand our CASA strategy. If you look at the CASA book, its growth has been slightly lower than our loan book growth in Q4 and also FY22. The liability franchise is the backbone of any modern retail bank. What I'm wondering is what is our strategy on the CASA side? And whether it is possible for us to improve our CASA ratio even from here beyond 50%. Related to that, I think what was mentioned is that current accounts are 15-
Hold on. Let's take one question at a time. It'll make our life easier. This, the CASA we want to handle. You see, last year we were running LCR of 150%. That's a lot of money excess, you know, lying either with RBI or in repo or somewhere or reverse repo, we're not getting enough return. This year onwards, we want to grow the loan book. We will press the accelerator on deposits, we will get it. We really don't see any concern. You know, I mentioned in opening remarks how we raised about INR 25,000 crore even in a COVID year. I'm telling you, maybe you are.
There are concerns about our bank that you might have had about the profits and all in the past, but I hope you'll agree with me that our bank really is a respected brand. We get deposits, huge deposits from retail, not the bulk deposit clients. When we just want to press the pedal on the liabilities, it just comes pouring in.
I see. Can we expect it to grow roughly at the rate of the loan book so that the CASA ratio is maintained roughly?
Yes. We'll grow a little bit faster because we think that 50% is no problem for us to maintain.
Related to that, my question was, I think our current accounts are around 15%-18% of CASA right now. I wanted to understand what kind of initiatives we are taking to grow the current accounts book and whether there is an opportunity to cross-sell our current accounts to our MSME retail borrowers.
Great. Great question. It's a good observation also that our current account is as a proportion of CASA, so to say, it's not good enough and we need to improve on that. For us, pressing the button on savings account is easy one. We just pressed it and we got it. We will start working on current accounts a little more because that requires, as you know, you know, I've built this even in my previous organization, that it takes time to build it because you need to build good technology, good ecosystem, capture the flow of money from end to end, from business to business. Then add multiple solutions to customers which are not just banking related, you know.
It could be, accounting solutions and HR solutions, legal solutions. We're gonna build all those capabilities. We're building this up right now and we are quite confident that we will make a mark in that space also.
Okay.
Just to add, the portion of CAR in the overall CASA improved from 11% to 18% and our endeavor would be to take it to 30% in due course like other good banks.
Okay. Okay. Thank you, sir. Last question from my side. We had launched an amazing credit card product and the rate of interest here is sort of dependent on the customer credit profile. I think the idea here was that it might encourage some of our customer base to revolve credit, the ones that are comfortable revolving credit. Have we seen that actually pick up? And like, can you share any kind of data on what percentage of our credit card customer base is actually revolving their credit and how this compares to industry?
By the way, there's a lot of disturbance on your line. If you don't mind, just go on mute mode. It'll just help others. As far as credit card is concerned, you know, we are in the first. If you don't mind, just go on mute mode. You are disturbing, you know, just.
Yes, I've muted the line.
Yeah, yeah. Hurting the ear. Back to you. On the credit card front, typically the business takes time to start getting about 50% of the loan book to start having interest income. Typically you can think of it like about 25% of the book could be revolver, about 25% of the outstanding could be installment based. You know, where the customer is not revolving, but customer is choosing to convert the transaction to an installment. And balance 50% are straightforward transactions. They just pay up on time. We'd say we are a little behind the industry at this point of time because we are still a newer player.
We're just, you know, one year into the business. As this plays out for the next one or two years, we will definitely get better. Our good thing about our bank is that our customer complaints are really very low. Customers, you know, by the way, we are a new bank. It's not that people knew our credit cards compared to other banks who have 15, 20 million cards each, or maybe 15 million, and we just have maybe 600,000-700,000 today. Despite being a new player, the spends on our cards is really good and the delinquency is very low on this business for us.
All this is coming because right in the beginning when we launched the card, we didn't try to gain the customer figuring out, you know, if you price it like this, I'll make more money, less money. We straightforward made a really good product for the customer. We didn't say that if you spend so much, I'll waive your fees. If you do that, we straightaway said it's free for life or, you know, no AMC. We straightaway said good reward points. We straightaway said that reward points can be redeemed for the next purchase, something that really nobody does, you know, in our knowledge. Everybody wants to give some catalog or gift. Though we are planning to introduce a fee structure for redemption reward point, but I guess it'll be nominal.
Customers will have already been notified. Basically, we have put a really simple product and really customer-friendly product. I think it'll pay back in due course. Maybe a little slow, but it'll pay back very well and pay back in a sustainable manner to us.
Thank you. We'll move to the next question from the line of Ashutosh Mishra from Ashika Stock Broking. Please go ahead. Ashutosh Mishra, the line has been unmuted. Please.
Hello?
Yes, please proceed.
Yeah. My question is, sir, to understand the long-term evolution of the NIMs, especially from a three-year perspective, you know, keeping in mind where do you see your composition of retail and commercial finance books, you know, going ahead from here? We have launched prime home loans also. How you see the NIMs, you know, getting between the advantage which we have on the paying of the high-cost borrowings and the change in the retail and commercial loan book going forward from here?
Thanks. I'll take this. See, the thing is that, you know, when we started the whole, you know, post-merger, we put out a number that retail will be a percentage of the book, you know, 20% all that. Now, you know, we're past that stage, so we don't want to put any more guidelines as to what percentage it will be. We want to, you know, we ideally would like no business to have more than 15% of our total book. So we have this only business. We have credit cards. We've got personal loans. We've got, you know, commercial vehicle, car loans or home loans, loan against property. We've got rural financing and, you know, we've got wholesale credit.
The way now we're thinking is not in terms of, you know, 20, 30, 80, 20. We don't have any of those benchmarks now. We are beyond that stage. Now we are focusing on saying that we launch so many businesses, everything stays below 15, except for mortgages and loan against property, where we like them to be, where we like the cap to be about 20% each. In the corporate side, we don't have a lower limit, but we think that about a upper cap would probably be 30%. We are more worried the upper caps, not the lower caps anymore.
Okay.
We don't take a number that wholesale will be 30 or 20 or 10, nothing like that. Whatever gives us good returns, whatever is very diversified, whatever where we are very, where our credit underwriting standards are well proven and we feel confident to grow, whatever is very diversified, whatever we and wherever we have our own strengths. Whatever grows, as long as it doesn't bust a particular limit, we like to grow it. That's it.
Gotcha. We can expect the NIM to remain about 6% or 5.5%, if I see from a 2.5-year down the line, roughly? Yeah.
Yes. Yes. Yes.
Okay. My second question is again same way on the fee income front. 80% of our, you know, the core fee income comes from the retail front. Do you see the growth to remain in line with the growth of our retail loan book or do you see some changes or some, you know, because we are hearing a lot of, you know, technological product may impact the retail fee income growth of the bank in general. Your view on that, sir.
I'll take that. If you see on the fee income, the total income is about 22% as a ratio. Again, we feel that we have a lot of opportunity to increase in there. Of course, some part of the fees comes through lending, right? But there is a huge opportunity to earn fees through non-capital consumption linked revenue sources, like your trade, like your tool, like your credit card and so on, and also selling third-party products, right? We feel that we will be able to register strong growth going forward as well. There is a huge opportunity to increase.
Okay. On OpEx front, does bank have any internal cost to income ratio target, and how do you see that panning out over the next three year?
Very clearly, you know, we should not take a startup bank first year, first two, three year cost and try and think that this is going to be the eventual cost structure of this bank. It won't be. We are finding that cost-income will begin to come down with simply by scale and operating leverage. Of course, I'll give you a color on the incremental, one of the things we track internally, this is not a number we release to the market or anything like that. One of the things we track internally is incremental cost-income ratio.
How this incremental cost income ratio works is that the year goes by, we know the bank has generated a certain amount of income, and the bank has incurred a certain amount of costs this year. That becomes the incremental, and that number for us is trending down pretty quickly and will trend down next year also. Finally, incremental cost income becomes the cost income eventually as the book scales. To give you an idea, this year in this quarter in Q4 FY22, I'm sorry, let me take you back to FY Q2 FY22. At that time our OpEx growth was 47% and income growth was 41%. Obviously it's not a great cost income ratio.
You come to Q3 FY 2022, so our expense growth was 30% and income growth was 34%. Now you come to Q4 FY 2022, our expense growth is 24%, but income growth is 27%.
Yes.
You see how the valve's opening. It should not surprise you at all if you wake up next year after that to see the incremental cost income coming down for the bank. It will come down.
Okay.
I'll tell you another very big factor which many people are missing when they're evaluating our bank. You think of today's cost income as X percentage, let me say 70% or something like 76% if you take into account. When we say 76, actually not, you know, we strip out all kind of treasury income and everything. We just mean core to core, which we can measure quarter-on-quarter. So that's somewhere there. Now you think that there are three businesses that is dragging this down. You know the three, let's just call them out. One is credit card. In the credit card business our expense is more than our income by close to about INR 320 crore.
Yes.
Okay? That's been basically the loss of the year. Now that plus a bit of credit cost. Now, obviously we're not gonna be incurring INR 324 crore of, you know, gap between our credit income forever. It's just the speed of building it. Let's say that make it up that next year it comes down to INR 100 crore. Year after that it breaks even and frankly it becomes positive in our opinion. That's one item. Just keep it there. Number two on the retail liability side. We told you that already. It's incurring a loss of about INR 325 crore per quarter for us.
You multiply that by four, you know, that put 12-13 hundred, INR 1,300 crore we're losing in that business because these are branches, ATMs, everything we set up to build a partner.
Yes.
Let's park the number there. Now, the legacy item of that, what we talked about, INR 27,000 crore at 8.8% year-on-year rate. You add these three numbers. Now simply add back because you know we're gonna fix this for sure. Certainly we're not gonna run the bank like this forever. You just add back those three items back to our income line, which is where it will help for sure. Then you will see our cost income has already come down to 64%. Already, even today, just add back these three numbers.
Okay.
Which means that if you did nothing, just fix these three items and don't do any more operating leverage, we'll be 64. Then on top of it, we add our operating leverage, so it'll come down to 50. I can clearly see that this bank is getting to a 50% cost income ratio. It's only a matter of time. You, you're there, I'm there. You can see the numbers also play out.
Sure. Sir, a last question I have to on credit card. The RBI has come out with the new regulations on that. What's your view and how do you see, you know, our bank is doing in this? Because your product is really good. Last, in the last con call, you have asked one of the analysts to, you know, take this, and I have taken that, and I really find very good product. What's your view on RBI regulation first, and how do you see the bank's, you know, long-term strategy on the credit card?
We like it. We are very proud about the product we launched. I'm also happy, like the first gentleman who spoke, that you also had a good experience. Thank you for sharing. With a good product, we think this book will now begin to continue to grow for us. I told you credit quality is excellent. Customers are happy. We hardly have complaints. Basically we think we'll keep doing this. There is a lot of profit to be made in this business. Right now, with all this conversation of cost to income and adjusting ROE, et cetera, I'm merely talking about matching expense income. Eventually there's not going to be a matching thing.
This is gonna make, in our opinion, maybe 3-4 years from now, our income estimate will make a PAT of not less than INR 500-600 crores on credit cards alone.
Okay.
That's the kind of picture we are seeing on this business. With regard to your second question, frankly, those norms are good norms. The inactive cards will get weeded out. Anyway we're a new bank, so it doesn't, we don't have much to lose on the losing base. We don't have co-brand yet, so even the co-brand issue doesn't apply to us.
Okay. Got it.
Thank you.
Thank you.
Thank you. The next question is from the line of Jai Mundhra from B&K Securities. Please go ahead.
Yeah. Hi, sir. Good evening, and thanks for the opportunity. Sir, question is on your savings mobilization. I just wanted to get some more quantitative aspects here. Clearly, the savings mobilization savings story has been phenomenal without opening too many branches as well. If you can help us, you know, to understand the granularity of the savings portfolio. Clearly your LCR disclosure shows, as per the last quarter that it is fairly granular in terms of if I do the retail regulatory retail breakup, is probably in line with some of the larger peers.
I just wanted to understand if you can further break that into maybe into ticket size, whichever you feel appropriate, maybe INR 2 lakhs, INR 5 lakhs, or maybe even INR 10 lakhs, as to how much is, you know, between certain ticket sizes. If you also have the break-up for individual, wholesale, government, trust, et cetera.
If you really think about it, that yes, I think from the savings account front, I think, yes, we've done a good job. Actually quite a good job. I think on the current account front, we've done a okay job, I think, because our current account business should grow faster. In fact, it should outstrip the growth of savings account for us to get a decent balance, mix of CAR and the SAR. We'll work on that. You know, India is open, opportunities are open. We have a really good bank and really good product. We will definitely address the issues as this goes along.
With regard to the balance per account, on which as we speak, maybe you can ask the next question and I'll take the answer another time. You know, per account how much balance you get, et cetera. I don't have the number offhand.
Sure. Okay.
I think Saptarshi will have the answer.
Sure. No, I don't mean the average number. I actually wanted if you have the breakup, maybe by ticket sizes, maybe by HNI or maybe by ultra HNI or maybe by, you know, salaried retail or maybe a normal, let's say 50, 50.
I'll tell you, as a bank, generally speaking, we are, if you're trying to get a sense of segment, we are attracting a slightly upper middle class income segment kind of, or HNI kind of segment, which is naturally kind of gravitating to us. That's because of the kind of branches we put up. I don't know if you've been to any of our branches. They are really high quality branches, spacious, and very, so they're really good branches. Employees are really up to speed. So our branches are like that. Our products are also such that there is a match. Our brand is also such that people are going to believe that we have good products and so on. Our wealth management offering is really good.
Last time I told someone to take a credit card, now I'm going to request you to take our wealth management business. Try, try, just try our operation, you'll understand what really is good platform we built. Our wealth management business is really good. Our interest rate is such that it tends to attract HNI customers more. Let me just say that we get a upper income customer base to our bank. Largely, we also get the people who open savings accounts, but we get more the upper end.
Right. Similarly, sir, if I were to see how much of your asset side customer you know what could be the proportion of savings account which is coming from your existing asset side customer? Or is it that the asset or the SAR acquisition strategy is slightly different from asset side of customers?
Basically, on the asset side, we have two kinds of customers. One is the consumer durable and two-wheeler kind of, you know, asset where it puts a certain income profile. That income profile doesn't leave much balances actually. If at all they take, they probably take an INR 10,000, 10K product of the bank. But there's not much of a penetration we have in that segment. We'd love to. I mean, we like every segment and, but we haven't made much of a penetration there. Our segments are more, like I said, are people who are having a home loan from us or people who have a business loan from us, who then also tend to have a bank account with us.
Like I said, we are a little slightly upper middle class kind of income segment.
Any number, sir, that you want to put to that? How much of your SAR would be funded?
We'll come better prepared next time on this question.
Sure. No worries, sir. On your number of employees, sir, if you can give that number and maybe because you have clearly higher yields and you are, you know, you are arguably sort of dealing with on the asset side, slightly, let's say, self-employed SME sort of customers. If you can also help us, what could be the number of employees which are engaged in recovery/collection/monitoring? Is that proportion slightly higher than other banks? Or, there is something else which is driving, you know, such a better, let's say, such a quality performance?
See, basically, asset quality is from quality of underwriting and the skills developed in them. You know, it's got some correlation to yield, but not really a lot. For example, basically these days even everything's getting digitized, even collection sides are all getting, you know, just like sales. We not put out any specific division-wise numbers in the market. I have no intention of sharing that. I can just say that, I mean, I don't, I would not like not to, not that I have it on my hand, but we don't share it anyways. We don't put out division-wise. That's not the data which we have in the next presentation.
Generally speaking, we are actually finding that the number of employees per se over a year is only coming down, although the book is going up. That's because, you know, more and more work is happening digitally. To give you one idea, for example, let me say even a year ago or two years ago, if X number of customers returned a check unpaid and, you know, a certain percentage, let me pick a number, say x percentage of them, x percentage of that Y was going to visit the customer. Now, it's not x% because now we're sending a UPI link to the customer is paying through UPI. No need to go to the customer's home.
You get a sense about the entire activity of somebody going to the customer's home, picking up the check, et cetera, has come down. That's why these. That's where all these, you know, operating costs also comes down and you get the bit.
Right.
Thank you.
Right.
Sir, I would request you to please come back if you have any other questions.
Sure. Thank you.
Thank you. Due to time constraints.
Yes.
We will take the last question from the line of Aditya Shah from Vikram Advisory Services. Please go ahead.
Congratulations, sir, on the wonderful set of numbers. I've been looking at the improvement over the last three, four years as you've mentioned. My question is, what should we expect as a steady state NIMs for the next two to three years?
I know many people ask this question, actually, but we'd like to play it, you know, along. There are some reasons why we feel it'll go up, there are some reasons why we feel it'll come down. We've got to, you know, take as it comes. You know, if you're doing more home loans, yield should NIM should compress. We're also doing the other businesses that are doing very well with good credit quality. That should increase the NIM. We don't know where it will settle, but let me just say that it could inch up from here.
Right.
Mm-hmm.
That is for this year, but overall, on a 2-3-year basis.
Correct.
Should we expect anywhere between 6% and 7%?
Yes, yes. That's our internal estimate also. Probably not, we're not pegging at 7%, but certainly should stay in the 6%+, 6-ish%+ league.
All right, sir. My next question is, why is there a sudden change in the savings bank interest rates in the last one year? First we were at 7%, we came down to 6%, then to 5%, and then again to 6%. Probably from first May, we are doing it for balances above.
I'll tell you.
INR 10 lakh.
I'll tell you why we did that. It's a very simple answer. See, last year, you know, there was just too much of excess cash. For us, the way we had I told you that in the COVID year of 2021, you know, I said this number to you earlier, we got 25, 26 thousand crores of cash, you know, pouring into the bank at that rate. Now, we couldn't take that because we were not doing the loan book. What do we do with another 25 thousand crores lying stuck? We had to reduce the rate at that point of time. As you could see now, then we slowed down the growth of deposits and we were still very liquid. We're still sitting at 130-140%, even today for that matter.
This year onwards, we are seeing strong growth and, that's why we have, you know, parked it. Except that we're doing in a progressive basis this time. We're not paying from the first rupee. So, that way it doesn't add to the cost also much. But yeah, just, of course, we're paying 6% and other banks are paying 3% or 4%. So see it's going to be a higher cost for us. But really, like I said, it's more a measure of how much money we need. I've always told people that I am not going to take a position that we will never raise it, we will never drop it. I don't say any of those things. I'm playing cricket. I could go front foot, I could go back foot.
I could do anything. Whatever the ball deserves, I will do.
No, but it's just that it's quite sudden. That is why in a year's time from moving 3% down, 2% down to moving 1% up, that's why.
Yes.
that is why this question because it doesn't give stability in terms of the customers who are your savings bank customers because the expectation changes pretty fast in two to three months or six months.
No, no, I appreciate the question and I appreciate the comment also. You're absolutely right. The thing is that, you know, for a whole year we've kept it at 5% and so it's not like we changed in 2-3 months. For a whole year we kept it there. Even now as we speak, really like as we speak, you know, we don't need money at 6%, really. We're preparing for the whole year. We are seeing a strong demand coming up. We want to be just prepared for it.
All right, sir. My last question is regarding the reverse merger with the IDFC Limited. Since their AMC has been sold, when do we expect any announcements on that front?
Really, I'm not able to make any comment about that at this stage.
Okay. Should we say six months to three months or somewhere around that time? Because probably things will get sorted by then.
No, I understand the question, but I'm not going to comment because, you know, we did inform our interest to take the merger process forward, which we still maintain. You know, so there's no doubt or there's no, absolutely no issue about intention from our side. I think to put a time to it is difficult because you don't know, there are so many points to close before you get to that point. There's no intention issue. Definitely intention is on, but things have to work out correctly.
All right, sir. Thank you so much for your answer.
Thank you so much. You know, earlier someone asked a question about our return on equity, and the half concept. I mean, the answer is kind of now you see this quarter's profit, you know, INR 340 crores, and then you multiply that by four and you know that, and then you annualize it, and then you divide by our equity. You know, we are already now looking, you know, pretty much better than what it was before. Not that we are a great benchmark in the past, especially low, but at least it's becoming healthy respectable now. It's still lesser than respectable, let's say. You add the, you know, we are for three businesses, the ones that I named earlier, credit card, retail liabilities, and logistical liabilities.
These three alone, if they were to just break even, forget being profitable, if they were just break even, we will add on a PAT basis, post-tax basis, INR 500 crores per quarter. You add the INR 500 crores to the INR 340 crores, that takes us to about INR 840 crores. You annualize INR 840 crores into four, that's INR 3,400 crores. You divide INR 3,400 crores to INR 20,000 crores, you know, INR 21,000 crores. You get to see that you're already touching a ROE of 15% plus. Therefore it should not surprise you at all when we touch a 15 ROE because all we have to do is just press three buttons and zero SMS from last meeting.
See, if any of you have any concerns about our return equity, I'm telling you we are already there. Only we've got to work on those three items and that should increase. Don't at all be surprised when our ROE touches 15 and it'll definitely happen. Then you can imagine what a good well-governed bank with a good ROE growing at 25%, technologically very enabled, what we should be valued at, and you can do the math for yourself. That's all. That's all because closing comment is, but anyway, I'll just say thank you to all of you who are on the call and for talking to us.
Thank you everyone for joining. Have a great weekend.
Yeah. Thanks, Mr. Vaidyanathan, and thanks, Sudhanshu for patiently answering all the questions and all the best for the future. Thank you all the participants for participating on the call. Thank you, and have a good weekend.
Thank you everyone. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines.