Ladies and gentlemen, good day and welcome to the IDFC First Bank Q2 FY 2022 results conference call hosted by ICICI Securities Limited. As a reminder, all participants' lines will be in 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 touch-tone phone. Please note 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, Vikram. Good evening everyone present on the call. This is Kunal Shah from ICICI Securities. Today we have with us Mr. V. Vaidyanathan, our Managing Director and CEO, Mr. Sudhanshu Jain, CFO, and Head of Corporate Center, and Mr. Saptarshi Bapari, Head, Investor Relations from IDFC First Bank to discuss their Q2 FY 2022 and H1 FY 2022 earnings. Yeah. Over to you, sir.
Hello, everyone. I'm Vaidyanathan. I'm very happy to speak to all of you. With me is,
Yeah. Good afternoon, everyone. I'm Sudhanshu Jain. I am the Chief Financial Officer.
Hi. I'm Saptarshi Bapari, the Head of Investor Relations.
Good evening, good day.
Hello. This is the operator. I'm sorry, we are unable to hear you. Ladies and gentlemen, kindly stay connected. We seem to have lost the line of the management. Sir, we are back in the conference. You may now proceed. Thank you.
Hello. Hello, everyone. Good evening. Sorry for the line trip. Now, my name is Vaidyanathan, and I'm happy to speak to all of you. With me is-
Yeah. Good evening, everyone. I am Sudhanshu Jain. I am the CFO of the bank, and I welcome all of you to the call.
Hi. I'm Saptarshi Bapari, the Head of Investor Relations with the bank. You can start now.
Thank you. We are going to try to take you through some brief numbers, and we hope to be able to answer all your questions. Let me just start with a very brief remarks about what we saw this particular quarter. Our loan book at the bank level has now touched INR 1,17,000 crore. The retail assets of the bank is now 67%. The deposits of the bank is INR 83,900 crore. The CASA ratio is 51%. Capital adequacy is 15.6%. NIM is 5.576%. Our gross NPA is 4.27%. It has come down from last quarter of 4.61%. Net NPA is 2.09%.
It has come down from last quarter of 2.32%. Now, while these were the headline items, you know, I'd like to just drill a little deeper and take you, give you some deeper color into the whole thing. Now, in case you have the presentation with you, I'd like to take you straight to page 39, where we start with retail liability trend side. On the retail liability trend side, which is basically the foundation stone to any bank, because we need deposits first to lend and then to make margins and make profits and so on.
As far as deposits are concerned, we are happy to say that our CASA deposits of the bank have continued at INR 46,269 crore this quarter. Because let me say the marginal growth over the last over March, but that's when we reduced our interest rates. I call it marginal because if you see the absolute numbers, it's kind of flattish. The one key thing that's been achieved while in the process, because we dropped you know savings rates from peak rate of 7% to 5%, and really we are very happy to note that the numbers continue and our customer relationships are sticky with us. We think it's because of strong brand we enjoy, really good service we provide to customers.
Interest rates are still attractive. Overall, we think that we have a lot of momentum and the number of new bank accounts being opened at the bank continues to be very strong. All things are good on the liability side. We really don't worry about it anymore. The other thing is the retail deposit rates. We have now dropped it down to really, I guess, among the lowest, as low as any other bank in the system, and as low as any large bank. Therefore, on the cost of funds front, we are quite attractive now, and that actually enables us to start participating in prime home loans as well. Number two, our CASA ratio is 51.28%, which we're quite happy about.
We frankly had expected this to dip a bit when we dropped our interest rates, but well, it's still 50% plus. Number three is our core deposits, what we call the retail CASA, retail term, which is what we call the stickiest form of money. That continues to be strong at INR 64,000 crore. Basically all things good on the liability side. Like I said, if we want more money, we can raise it. At this point of time, our liquidity ratio is 174%.
We'd allowed it to be something like 120%, so clearly we're having like INR 3,000-INR 5,000 crores extra amount of liquidity which is obviously draining our profitability, and we just hope that during the next quarter, we can, you know, drain out some of this excess liquidity. The second thing is about granularization of liability, where we scored some big hits, actually. We are happy to say that, you know, deposits which is above INR 5 crores is now come down to as low as 19% from 72% at the time of merger, which you can really see it's a highly diversified liability base.
Our top 20 depositors, which we should call the concentration risk, was 42%, is now down to 9.4%. You know, all things good on top 10, top 20, everything. I want to move your attention to page 42. Page 42 is an important page. This talks about what is the extent of long-term legacy liabilities the bank still carries. As of September 30th, 2021, we carry INR 27,667 crores of legacy liabilities on which we are paying an interest of 8.67%. The maturity of that is basically going to determine when we get.
Because obviously, we price this at like 4.8% or even less than that. We have close to INR 1,000 crores to be taken out of retail's money, on a pre-tax basis on annual basis. Now, the question is when does it mature? In this financial year, up to FY 2022, INR 2,100 crores will mature. In FY 2023, 650 crores will mature. In FY 2024, INR 5,700 crores will mature. In FY 2025, INR 8,000 crores will mature. That gives you color about when we will get to see the color of that INR 500 crores. That is as far as the liability side is concerned.
On the asset side, let me keep it very quick to share with you that the retail lending business has grown quite well, and our retail lending book has now crossed INR 78,000 crore. Then on page 45, basically you can see what's the breakup of the INR 78,000 crore. The home loan is 16% of the retail book. Loan against property is 20%. SME loans is 14%. Wheels is 13%. Consumer loans, which is basically consumer durables, personal loans and you know two-wheelers and stuff like that. Sorry, wheels is two-wheeler part of wheels. This is just consumer durables and personal loans and such products. That's 19%. JLG and rural business is 9%.
That gives you a quick color about what is the breakup of our retail portfolio. This is the quick breakup of the whole book of business. The next is we'd like to break up the portfolio not just within retail, but we'd like to break this up at a bank level. At a bank level, there are two ways to evaluate this. One is to evaluate this as a percentage of funded and non-funded, and the other one is to evaluate this percentage of funded itself. Let me start with evaluating our book as a percentage of the total book, that is funded plus non-funded.
Funded plus non-funded, if you take it as one block, 29% of that is corporate loans, 10% is infrastructure, 12% is loan against property, 9% is home loans, 10% is consumer durables, 8% is SME loans, two-wheelers is 4%, JLG is 5%. Credit card is 1%. You get a drift of the portfolio of the, I think it's INR 141,000 crores is the total funded plus non-funded book, and this is the numbers I told you. Now, if you take this as a percentage of funded book alone, home loan is 10%, loan against property is 14%, consumer loans is 12%, SME is 10%, and corporate loans is 18%, and infrastructure is 9%.
The short point of these numbers is that now our asset side is really well diversified across, let me say, corporate and even retail is really not one block. Retail, within retail, there is home, there is loan against property, there is consumer durables, there is vehicle loan, there is two-wheeler loan, there is JLG, there is rural. It is a really diversified business clientele that we have. We think that, you know, more as we go ahead, I'll share with you where the growth is coming from. Now, as far as growth is concerned, where really is it growing? Because after all, retail has grown by 30% YOY , so September 2020 to September 2021. That's grown by 30%.
At a bank level, it's grown 10%. Now, where does 30% come from? That question is answered by thinking about home loans. Our home loans has been our biggest growth area. Home loans have grown by 46% year-on-year. Really, we are finding that the check bounces in home loans is really low. We also find that, of course, if customers have enough LTV and, you know, the emotional collateral and all that. We have found that there is a significant demand coming up in home loans. Of course, it also helps the fact that we have entered into the prime home loan segment now, prime-prime, because we brought our cost of funds down. That's a big growth for us, 46% there.
Loan against property has grown by 25%. SME loans have grown by 24% . Wheels, basically the two-wheelers and stuff like that's grown by 12%. Consumer loans have grown by about 25%. These are our key growth areas. On the wholesale side, we had brought down the loan book, as you know, in the initial stages of the bank. Basically, we saw so many red flags and so many accounts were blowing up, and we had just so many problems. Initially, we did bring down the wholesale book. I'm actually happy to share with you that we are now at a particular. In fact, share the numbers with you. On the wholesale side, which is a non-infrastructure corporate loans.
That book is now INR 21,056 crore. The infrastructure financing over and above this corporate loans I talked about is another INR 10,000 crore. If you add INR 10,000 crore and INR 21,000 crore, that's INR 31,000 crore today. Now, what is our wish list? Is it that we want to keep bringing it down? The answer is no. We are frankly quite happy with the way we are now building our wholesale book. You know, we've disbursed fresh loans of close to about INR 7,600 crore, fresh, new to credit, new to bank of INR 7,600 crore in the wholesale side since the time of the merger. I'm happy to say it's like it's as good as there's no delinquency there.
If at all, it's marginal and it's like pristine. Therefore we are quite comfortable with what we're doing. The important thing is that we want to just do this in proportion to our network, and we want to do a good smell test on the customer whom we are boarding so that we don't have any substantial problems. Net-net, we want to still maybe given a choice, we'd like to keep a flat growth. We don't want to de-grow it anymore. Really it'll depend on the opportunity in the marketplace and the risk reward and our ability to stay competitive in wholesale because remember all the big banks are also fighting around in the game and really offering very fine prices and so on.
Now that's on the asset side. Now I'd like to come to asset quality and then I'll move it from there. Now asset quality front, I'm again happy to say that we are witnessing very good trends. First the numbers. Put it the other way. In June 2021, our gross NPA was 4.67%. Now it is 4.27%. Our net NPA was 2.32%. Now it is 2.09%. Now in this, during June 2021, one large toll road account of about INR 860 crore had become NPA because during COVID they could not get collections.
Now that account is in, you know, we feel that in the end that money will all come back. It's NPA, all right, INR 860 crore, but we feel that money will come back because end of the day the client is beginning to start getting revenues. COVID movement has all started, and one second. COVID, sorry, no, some disturbance here. Basically, traffic flow has started up and so on and so forth. Therefore, we feel that that money will come back. If you adjust for that, meaning if you were not to consider it an NPA for a moment, our gross NPA would be 3.47% and net NPA would be 1.42%.
Now let us break up this NPA for you between three categories. One is retail assets, one is wholesale, one is corporate assets, and one is infrastructure assets. On the retail side, pre-COVID, our NPA always used to be like close to eight or nine years now, has been a gross of 2% and net of 1%. At COVID it touched 4% gross. In the peak of COVID it touched 4% gross and 1.9% net. This quarter it has come down to 3.45% and 1.66%. So you can see there is a, you know, dip quarter-over-quarter, two quarters running.
Our own guidance is that we have earlier, you know, a few times guided the market that we will come back to pre-COVID numbers of 2% gross and 1% net. It just has to happen. We felt that and we guided for 2020 to 2023 at some stage. Of late now they're seeing the strong trends on collections that they're seeing. We feel that it will come back earlier than that, maybe three quarters or something. Certainly, in that zone, maybe, we feel that gross will come down to two-ish and that will come down to 1%. Really, seeing the collection numbers, et cetera, we are very happy and we feel very confident of reaching our guidance ahead of time than what we guided earlier.
Once, in fact, this retail NPA coming down back to 2% and 1%, which has been a historical rate, is a huge positive news for us. Not because the numbers itself are good, but more because the fact that even if an extraordinary event like COVID, you know, could only disturb us maybe for a year, and after that we're back to pre numbers, then it kind of, an extraordinary event of a century couldn't really disturb the long-term strength comes back. It gives us the confidence that we are on good track and so on. Now, the second bit I told you was the wholesale. On the wholesale side, the gross NPA now is 2.85% and 0.84%. This is ex-infrastructure.
We're quite happy, I told you, and given a choice, we'd like to keep the book there. We have no intention of de-growing it. If it de-grows, I'd say probably despite our efforts. Third is infrastructure. Our gross NPA on infrastructure is 13.8% and net NPA is 9.8%, but really this is a legacy and the good news is the book is only INR 10,000 crores now. You know, sooner or later, maybe by next two, three years we'll wind this book down once and for all. That's so much quickly I talk to you about the key indicators and the growth and the asset quality. I'd like to stop here and I'd like to request Sudhanshu to take us through the profit and loss that happened during the quarter. Thank you, Sudhanshu.
Yeah. Thank you, Mr. Vaidyanathan. Starting with the income, the bank's core operating income, which comprises of NI, NFI and other income, and excluding trading gains, it grew by 41% on a YOY basis from INR 2,075 crore to INR 2,930 crore. This included a growth in NI itself from INR 1,784 crore to INR 2,272 crore. As a result, the NIM for the quarter reached 5 to 5.76%, which was 4.91% in Q2 of last year and 5.51% in the preceding quarter. The NIM expansion was driven by gradual improvement in the cost of funds, mainly cost of deposits, as we have been bringing the savings rates lower.
On coming on to the fee front, as we all know that last year, during Q2, there was a COVID lockdown and the economy was stalled. This year, whereas Q1 was quite impacted due to COVID wave two, in Q2, economy has normalized quite a bit. Our disbursements are higher with 70% as compared to Q2 last year, and that has contributed to higher loan processing fees. Further, we have seen a huge traction in transaction with fees and higher fees from distribution of third party products and wealth management. On the third part of the income is trading gains, which for the quarter were lower at INR 122 crores versus INR 335 crores in Q2 of the last year. That's all on income.
I said initially that we had a robust increase in fee total income in core total income which was at 41% on a YOY basis. As the economic activity picked up, the OpEx also increased by 47% from INR 1,610 crore in Q2 last year to INR 235 crore in the current quarter. Again, this increase was linked to higher loan origination and higher collection expenses as the collection activity sort of picked up during the current quarter. We also continued to invest in digital and another other initiatives, and also had opened up a few branches in Asia last year, and hence that increase is also sort of coming in if we compare versus the last year's Q2 quarter.
The combination of all this has led to our core PPOP, excluding trading gains, increasing by 23% on a YOY basis. It has reached INR 571 crores in Q2 of FY 2022, and this was INR 465 crores in Q2 of the last year. On the provision front, provisions for the quarter are lower at INR 475 crores, and this was INR 674 crores in Q2 of last year. This is significantly lower than INR 1,872 crores of provisions which we had taken in Q1 of this year. This quarter we have utilized COVID provision of INR 560 crores.
We were holding COVID provision of INR 725 crores at the beginning of Q2, and after this utilization, we are carrying forward INR 165 crores into the future quarters. As we had indicated earlier that we expect the provisions in H2 to be significantly lower than H1. The profit before tax increased by 72% on a YOY basis to and reached INR 218 crores in Q2. The corresponding number for Q2 last year was INR 126 crores. The profit after tax again has been an increase of 50%, and it was INR 152 crores for the current quarter.
We'd like to stop here and maybe take questions from both. By the way, the way we've written up the investor presentation, we haven't left nothing to imagination. We've given descriptive commentary also. I mean, but still we're happy to take questions.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touch-tone phone now. 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. We will wait for a moment while the question queue assembles. To ask a question, please press star and one on your touch-tone phone now. We have a first question from the line of Manish Dhariwal from Fiducia Capital. Please go ahead.
Yeah. Thank you for this opportunity and this question is from you. Very good evening. See, it's a tall task managing a bank and the conditions that you know one is in right now. I don't understand.
Can you hear me? It's my line's not clear.
Is it better now?
Yes.
'Cause I'm actually, like, talking on my handset. Is it better? Can you hear me?
Yes.
Oh, thank you so much. See, well, you know, we've spoken about the way the liability side has been kind of controlled and excellent work. I basically want to understand that, you know, we are looking at the NIM of 5.76 now, which is very, very fantastic NIM, so long as the NPAs don't rise. You know, we are also, like, focusing on the prime home loans, where a significant amount of our asset book is now developing. How just request your explanation on, you know, how this NIM of 5.76 is happening when the prime home loan cannot be really high, and the corporate book cannot be really high because a big corporate book today cannot happen at a very good NIM. Your,
Let's take one question at a time, it makes the life easier. This prime home loans, so to say segment, it's a segment that we started recently. It has not yet, you know, become a significant part of the book. It has not yet started impacting the NIM. We'll wait for its impact to play out as it becomes a more significant portion of the book. I agree with you, on the corporate side, really good top corporates don't want to pay you anything more than maybe 7% or 8%. 8% is rather rich in today's world and, yeah, you don't get much rates either on the corporate side or on the home loan side. The good thing about home loans is that the operating cost is very low because you get a 20-year loan or a 25-year loan. Therefore you can still manage to make a decent return.
Okay. Given the focus on the prime loans and also, what is your understanding of how the NIM is going to pan out going forward?
It's stabilized from here because end of the day we are also doing. It's not that we're doing only home loans, which is of course relatively low-margin, but we also do our other businesses which are giving us better yields on which we have you know short of using the word master, but I can say specialized for the last maybe 10 years or a stretch. We will continue to do those businesses, our low-risk property and you know SME financing and lease financing and two-wheeler financing. We'll keep doing all of that. Blend will continue to hold a good range, I'd say, right? It is stabilized, so you can't. Just because things moved from four to 5.7 doesn't mean it'll keep climbing. It is stabilized, I guess, probably closer to six or something. It should stabilize.
Oh, at six I think it'll be fantastic. Another thing that I want to understand about was that, amongst the banks, you have a very big focus on the fintech side of it. Like, you know, a way to support the fintech and get business out of that side. If you could just give some idea on that, as you know, how that side of the business is panning out, and what is the cost implication and what is the revenue-giving implication from there?
Well, we like the business a lot because there are two kinds of fintech, as you know. One is of course a set of fintech who are helping you along in the processing journey. For example, if one fintech is there to help you scan bank statement and so, and give you a, you know, processed information about customer balances, et cetera. That's one sort of fintech. The other sort of fintech are people who originate for you. We like both of them. We do have, you know, digital partnerships where they originate and, for us it comes on our books. In those cases, typically the operating costs, et cetera, are quite low and, it's a straightforward, marginally profitable for the bank.
Okay. I get that. Now, one thing is that we hope people to sign, obviously these people will themselves get to write the asset on their books. How will that pan out? Is it gonna be emerging as a big area or big source of growth for the bank with fintechs? Regulating fintechs?
I don't know what is big because big is a rather relative statement. Yeah, I mean, end of the day, the origination through partnerships, et cetera, is part of growth and definitely it'll be important. See, because India is so underserved, under-penetrated and all that, we all know the numbers. We don't have to reach everybody ourselves. If it comes in the ecosystem and partners are originating, we like to partner with them and we do it. I mean, what I'm trying to say is that it'll be important of course for us in the times to come. Important.
The reason why I'm asking you this is that because, like, you know, while our target is to look at a 20%-25% growth, we are still at about 10% YOY. That's where, you know, this question is coming from.
No, no.
The asset growth.
No, no, nothing wrong with the question. I appreciate the question. See, the 10 is, 10 you are not seeing because the wholesale book has degrown, like I told you, not by choice, but it's just happening to grow a bit. So it's a blend, I think 10. But if you're a retailer, I'll say it's going pretty well. I mean, we don't see any problem growing. I mean, we never suggest 30%, but certainly 25% growth, you know, year-on-year for a long period of time. I'm sure it won't be a problem at all. Whether it comes through partnership or whether it comes through partnerships or our models that we've owned for a long time, or a mix of them all, we keep playing all the cards.
Right. That sounds good. My last question is that are there any further plans on capital dilution in terms of further new share issuance?
Not now. We are up. We're still running capital ratio of sort of 15%, so we're not even talking that language yet.
Oh, okay. Maybe like in FY 2023?
We'll have to see. No, I think, you know, this
Okay. Thank you for your answer.
Thank you.
Thank you. We have next question from the line of Ishan Aggarwal from Edelweiss Capital. Please go ahead.
Hi. Good evening, everyone. Thank you for the opportunity. Just a request, if we could get the presentation at least 45 minutes before the call to study and analyze the information.
Yeah, I know it's our mistake this time because, you know, we were racing against time. The board meeting ended, and then we had a press release to issue and significant pressure to hold this meeting, so like we were just, you know, pressed for time. Maybe next time. We'll do better job next time.
Couple of questions. Firstly, what is the current blended yield on the retail loan book that we have? Given that our focus going forward will be growing the home loan portfolio faster than the overall retail book, where do we see yields for the retail book settling, maybe say in FY 2023, 2024?
You know, I think all of that blends back into the net interest margin, actually. You know, we've kind of guided that they should settle down at like 6%-7%.
Actually, I had a question regarding our guidance too. At the time of the merger when the guidance for NIMs was given, that is in December 2018, the bank was netting off the BC Commission from the interest income.
Yeah.
Now, since we are grossing it, ideally our NIM guidance should have been upped in our presentation.
That's correct. You know, we anyway upgraded the guidance. Since you asked a very good question, let me just for the benefit of other viewers explain to them what you asked. It may not strike them. See, basically the expenses that were being booked in the subsidiary company are now being grossed up. It's coming up in the NIM line as well as in the OpEx line. That's the point the gentleman who asked me just now just asked. As a result of it, the impact was about 50-odd basis points. How much? 40? 40.
The impact is about 40 basis points. Therefore, in other words, NIM went up by 40 basis points for this factor alone, and our OpEx also went up to that extent. So that's the point you were making. Now, the quick answer for this is that because this is how the, you know, even our auditors felt it was more appropriate representation, and hence it is done. Now
Hello?
Sir, can you stay connected? We seem to have lost the line of the management. Ladies and gentlemen, please stay connected. Seem to have lost the line of the management. We'll reconnect them. Stay connected. Welcome back on the call, sir. You may please proceed.
Yeah. Let me just continue. Basically because of that one impact, our NIMs went up by about 40 basis points, and our OpEx also went up correspondingly. It appeared a neutral item. Now, to answer your question about guidance, yeah, of course, when we guided, we guided for a NIM of 5%-5.5%. Now we are guiding for 5.5%-6%. You can see these are automatically adjusted.
Okay. The bank's core operating other income has really surprised me positively. I mean, I'm wondering whether there is any one-off component or the entire thing can be assumed to be granular in nature.
Broadly granular. No, I mean, we are not. We are building a core business that is strong on the core. If you see when the loan book grows, automatically the income grows and our cost of funds is only dipping now, but book is growing, naturally the income is going to grow.
When we
Okay. We are trying to build. Just to get the philosophical point out of the way, the way we are trying to build the bank is that everything we do should be, you know, sustainable. Meaning that, you know, we wake up Q2 , Q3 , Q4 , one year, two year, three year, we are trying to build something which will only increase one way. That can come only when we do good quality core businesses.
Right. Okay. Another question that I have is regarding our term deposits. In every presentation in the past we have given, you know, as an extra information that retail grew by this much and wholesale grew by this much and hence our TD was flat. This time I think that information was missing. Can we just know what was the growth in the retail term deposits year-over-year?
No, we are not. If you go and compare the slide, there is no information that's available in the previous slide that's not available this time, so you've got to really check the fact. Everything basically in the same format, we just plugged in new numbers, so I wanna correct you on that. Now, secondly, with regard to our term deposits, the exact numbers we'll share with you. Yeah. You have the numbers? What's he asking?
Yeah. Term deposits have grown on a year-over-year basis. The increase is about INR 5,000 odd crores. The team is just checking, but it should be broadly around that. That continues to grow and even if you see the CASA numbers, that has grown by 50% on a YOY basis.
One second. As I spoke, you know, I referred that particular page. You can see page 41, it's all there. May I know your name, who's speaking? I'm sorry I didn't catch your name.
Ishan Agarwal.
Ishan. Ishan, it's there. The information you're asking is there on page 41. That's why I said nothing has been omitted.
Oh, sorry. Actually, the thing was, the time was pretty less, so, didn't see the presentation. I'm sorry about that.
No, that's our mistake. The term deposits has been flat if you take a YOY number. Not flat, it's like minus 4%. The reason why this is happening is that as I told you, even at the current deposit rates, we are finding that our liquidity is like rather high. Like, high meaning quite high. Therefore we are dropping rates. I don't know if any of you heard the AGM speech also, and even our public commentary on this issue, that we are going to stall the growth of deposits for a while because this is just too much cash and it's a significant drag for us. Even next quarter, don't expect to see any growth in deposits, because if, you know, if deposits keep coming like this then, it's all going to drag us down on profitability.
Right.
So
Last question from my front.
For one or two quarters, expect that our growth, that our deposits will stay where they are. It's planned that way, and we want to use up this cash in disbursements and then we'll start growing again. Frankly, we can grow deposits any time we want. That we're very confident in.
Right. Thanks. Last question from my front, sir. Anything that we've heard from the management of the telecom company or any communication from the DoT regarding the bank guarantee?
Nothing apart from what's public. Nothing that is not publicly known.
Okay. Thank you.
Thank you. We have next question from the line of Yuxuan Gao from Point72. Please go ahead.
Hey, sir. Am I audible?
Yes, you are. You can please go ahead.
Yeah. Thanks so much for the opportunity. Just a couple of questions. Quickly just a data keeping question. On the, do you mind provide us with the gross slippages this quarter and also the write-off numbers?
Sorry, can you repeat the question?
Do you mind providing us with the gross slippages this quarter and also the write-off number for this quarter?
Gross slippage you said.
Gross slippage for the quarter was about INR 1,600 crore, and this was 40% lower than Q1, the previous quarter. On a net slippage basis, the slippage was INR 900 crore, which was about 50% lower than Q1. Write-offs during the quarter was about INR 1,000 crore, and that also was about 50% lower than the previous quarter.
We give a little more color than what Sudhanshu left you with, what Sudhanshu shared. Let me give you two data points that will help you understand our SMA book better. When you say slippage, obviously it comes into SMA. It depends on the state of the bucket. In our total SMA zero plus one plus two as of 31st , March 2021 was INR 5,016 crore. Our SMA of zero plus one plus two as of 30th, June 2021 was INR 12,398 crore. You could see clearly that when the wave two happened, that is in April, May, June 2021, then basically there was no moratorium, but there was, you know, field collection didn't happen. INR 5,016 crore grew to INR 12,398 crore.
We are rather happy among ourselves that this INR 12,398 crore as of 30th September has come down sharply to INR 7,956 crore. That's a steep reduction. Our own projection, internal projection for December is that it's going to come down sharply again. We feel that this is the basis under which we are beginning to guide, that our gross will become 2% and it'll become 1% and credit loss will become 2%. Let me give you one more color to all of you. Even if unsolicited, let me share some information with you. Now, let me break up this SMA zero plus one plus two between urban and rural.
In rural it's where we saw the biggest impact. In rural, as of 31st March, SMA book zero plus one plus two was INR 528 crore. As of 30th June, it increased to INR 6,258 crore. Just, you know, like almost like an en masse movement of the MFI book happened between 31st, March to 30th, June. Now, as of September, that number has come down to INR 3,690 crore. So basically, the point is that the big impact was seen in the rural business. Now let me tell you the urban business. In the urban business, as of 31st, March, our SMA book, SMA that is zero plus one plus two was INR 4,488 crore. As of 30th, September, it's already come down to INR 4,267 crore.
Our short summary, why I shared the numbers with you, was to just tell you that when wave two happened, the whole impact or let me say the big impact was on the rural side. Urban book is like it's come back to pre-wave two levels already, in fact better than pre-wave two levels, right?
Mm-hmm.
I just let that color help you understand what happened in our book actually.
Yeah, thank you so much. That's very helpful. Next one is on the OpEx front. I understand we are investing for growth right now, but it'll be very helpful if you can give us some guidance on the H2. We got about INR 33.6 billion OpEx this quarter. How should we think about the run rate for the H2?
Can you repeat the question? We couldn't hear you very clearly.
Sorry, am I audible now?
Much better.
Just want to get some guidance on the H2 OpEx run rate. You know, because this quarter will be about INR 33 billion-INR 34 billion. Quite a sharp increase but understand that we're investing right now. Hopefully you can share some guidance on the H2 OpEx.
Yeah, our OpEx, I imagine that we'll, I guess quarter-over-quarter will go up a bit, but maybe not at the same pace. This quarter OpEx went up or compared to the Q1 because the economy. You know, in Q1, as you know, there was very less economic activity. There was no disbursements. So disbursement related fees, et cetera, need not be paid. Suddenly this quarter disbursements came back so strong, so we had to incur the cost, origination costs. Similarly, in collections in Q1, very little collections. Few field collections, so the billings was lesser. This quarter, collections came back strongly and that's why you saw the SMA numbers. I told you how SMA has come down so sharply. So we had to pay for collections. Let me just say that basically economic activity revived, business improved, so the expenses came with it related to that.
Yeah. Thank you so much. Last one is. Sorry, go ahead.
No. When we look ahead therefore, we feel that, you know, with of course the increased business, you know, ours is such a business where there is a certain amount of costs that are incurred with the origination itself because to the extent we resource the direct marketing associates, et cetera, you simply pay. Similarly, to the extent collection agencies collect, you pay. To that extent, there's some variability involved in it. Things should stabilize from here because as you start doing more of digital and all that.
Right. Got it. Thanks. That's very clear. Last one from me is on the COVID buffer write-backs. I'm a little bit surprised that, you know, we, if I'm not wrong, we wrote back INR 560 crore this quarter. That's more than I think INR 250 crore we built in the last quarter. I'm a bit surprised 'cause none of the other peers seems to be writing back provisions or not at least at this extent. I guess there might be some risk play over there. Just want to get your, you know, rationale and also thinking about the provision write-back part.
There is actually as far as collections are concerned, there are certain benchmarks we use for us to understand what the next quarter's provisions will be. They are basically three. One is how many of our customers are bouncing their checks. That is check bounce. When we say check, we mean check, mandate, everything. Number two, we check of those bounces, how many of them we are able to collect on them within the same month. We call it collection efficiency. Third, we check that of the accounts that we have provided for in the past, how much are we able to recover. We call it recovery. Somehow we're finding in all of these three fronts things are getting better, even better than pre-COVID.
You know, note what I'm saying. I hope you noted that. Better than pre-COVID. Not that COVID has affected our life. I'm telling you better. Therefore, when we do our own modeling internally and project what our numbers for Q3 and Q4 will be, we can already see that our requirements for provisions for Q4, Q3 is going to be sharp, maybe lesser than Q2. Provisions for Q4 is going to be, like, sharply lesser than Q3. When we see those projections like that, we just felt there's no need for these COVID provisions to keep and also to take back.
Got it. Sorry.
I hope it return to be. I mean, I believe we'll be right, but you wait for Q3 results and wait for Q4 results, you'll see for yourself. We are quite confident about that.
No, thank you so much. Just if I may squeeze in last one on the Idea provision, the provision on the Idea account. Are we writing that back? I think we got 15% coverage, right? Are we writing that back in the H2 at all?
That is, it is 15% or 25%, depending on whether you see it with the non-funded, without or only funded. Depending on how you calculate that. But yeah, at this point of time, you've seen the public news, you heard about the fact that they are bringing in funds. You heard about Vodafone bringing in funds. You heard about the fact that government is supportive and government doesn't want to make this country a duopoly country. You heard all the right. I mean, we are encouraged with what we heard. As of now, you know, we believe that. I mean, let me just say that we believe that our provisions are appropriate. Now, we got to finally wait and see when on the due dates. We deal with it on the issues. Like I said, we dealt with so many things, we deal with it also.
Got it. Thank you so much.
Thank you. We have next question from the line of Manav Vijay from Deep Financial. Please go ahead.
Yes. Thank you very much, sir. Am I audible?
Yes, you are.
Okay. Perfect. Thank you. Sir, I have three questions actually. The first is actually on the loan book growth, second is on actually cost to income, and third is on CASA. The first on loan book growth. You have been guiding for last few quarters that you will try and grow your retail book by around INR 3,000-INR 4,000 crore every quarter, and that much kind of a de-growth we will have on the wholesale book side. Now, in this quarter, you are saying that you are getting comfortable as far as the wholesale side is concerned, with the size of the book that you have, and you will try and basically increase that book as well. Now, retail book will continue to grow 20%-25%.
Maybe the pace at which it was growing. Now, does that mean that on the overall book, the growth could be slightly higher, maybe let's say 20%-25% at the overall book instead of just at the retail book?
See, the wholesale is not a strategy to de-grow, because like I said, we're getting comfortable with the kind of book size we have, like INR 31,000 crore. It's kind of stabilized. We don't claim that we're not saying that we'll de-grow it from here in any aggressive manner. That's. I want to make that clear. We are happy with the quality of the book we have on the wholesale side because whatever all the problems that had to be accounted for has been accounted for in the last four, five years. Therefore, we expect this to stabilize from here.
I don't say that we'll grow it from here because, you know, in the wholesale book to even keep it flat at this point of time, if you see the Indian economy's wholesale rated book is not exactly growing either. It's kind of flat only. There is intense competition in this business from the large banks, like crazy. For our bank to even keep flat will probably be an achievement. We don't intend to grow it from here. Rest remains retail. Retail, like I told you, about 25%.
By the way, it doesn't mean that the book will necessarily not be flat, because remember, there's an infrastructure book of INR 10,000 crore that we have no intention to grow, so that will wind down. The non-infrastructure book of INR 21,000 crores, well, it's a hard climb for it to even sustain itself at 30,000 in the sense that to replace the infrastructure book.
Of course.
All I meant to say is that we don't want to run it down. We want to. Given a choice, we'd like to keep it flat. The rest we'll have to see how the market behaves.
Okay. My second question is actually on the cost to income side. So now, for FY 2020, you were close to 74% cost to income. At 2021, again, you are almost at similar number. You have done slightly better as far as this H1 is concerned. Now, considering the way you are now, I mean, growing your retail book aggressively, the cost of funds are coming down, is it possible for you to guide us for FY 2023 and for 2024, what kind of cost to income is possible?
We've not put out a public number about how much it'll come down to, but definitely you can take it that this will come down. You know, as to what extent it comes down, I don't think we put out a number, but maybe we'll try to. The thing is that, if you just do one favor and go to page 20 of experience we've had on this front, you know, even in Capital First, when the business was being set up, you know, a lot of people misunderstand this thing of cost to income.
They look at our cost income, say, oh my God, we're running at 80%, other banks are running at, whatever, maybe 40% or 50%. They say, oh my God, you have too high a cost to income. They're all missing the point. We are a new bank. We're not just a new bank. We're a new bank with starting up loan book of INR 75,000 crores of IDFC and some INR 25,000 crores of Capital First. New bank, INR 1 lakh crore on loan book, no CASA. What does a bank do? That too with very low NIMs. You know, the NIM pre-merger was 1.56%. Even if you adjust back for that 40 basis points for the previous regime, it's only 1.9%. Fine.
What do you do with 1.9%, such a large loan book and no CASA and no retail liability? What does a CEO then do? You go out and put the expenses, put the branches, put the network, do whatever you have to do. That comes with an OpEx. Our opex cost income today in the early stage of a bank, infrastructure bank converting to this one cannot be compared with some bank who's been there for 25 years and already amortized all its OpEx. This is the key point to note. What is the guidance? Guidance as follows. I want to take you back in time just to remind you not for anything else. Those of you who are investing Capital First, please, at that time in 2009-2010, cost income was 128%.
When we started building retail, for four years it was 80%. It didn't come down. It kept going up, actually. It went to 72% to 74% to 78% to 80% for four years. When the scale started building up from there on, yes, 80% came down to 71% in 2014, 59% in 2015, 51% in 2016, 51% in 2017 and 48% in 2019. The point I'm trying to say is that there's no shortcuts in life. This is the way it is. Initially, when the bank is built, the cost income is high, but I'm very sure that now onwards when the scale will build, cost income will come down. You will see our bank touching 50% kind of cost income in due course. There's no doubt about that. It's just the way the model is.
Sir, I appreciate your point completely, and I'm sure that, yes, you will hit 50%. Just that I would say the way you have built the bank in last couple of years, as far as the liability side of the bank is concerned, you have taken care of that absolutely well. Now, as far as the asset side is concerned, you have taken very well. As far as the wholesale book is concerned, retail is actually now starting to fire up. What I'm basically trying to understand is, as far as the operating jaws are concerned, when can we expect them to open? Maybe 2023, 2024, 2025?
No. Next, you will see the operating jaw expand in 2022, 2023 itself. By the way, you don't have to wait that long. Basically think of it that this year in 2021, 2022, think of it that you'll probably be here where we are. Like, you know, if you take out the treasury income and think of the core income and core OpEx without any, you know, these kind of incomes like treasury and all which, you know, disturb the equation. If you look at the core to core, it'll probably be 80% right now. Maybe for the next one or two quarters, we'll probably be here. I mean, I can't give you more happier kind of expectations from that because I really it won't happen.
That's the way the model is built. I'm not disappointed either. When you wake up in 2022, 2023, which is not very far from now, just six months from now, so when you say 2022, 2023, we expect the gap to open positively, definitely. We feel the cost income will come down. 2023, 2024 and 2025, basically next three years, you can see that the cost income will come down. You can see that our ROA will expand. You can see that our ROE will expand. It is just gonna happen. It doesn't matter what happens to that one telecom account. We'll deal with it by the law of the land. It doesn't matter. This is the key thing. Basically, the groundwork, let me say, has been done over the last three years. It's been established.
Now is the time to scale up and cost income to come down. You'll see it happen. You just have to, I mean, many of your investors have been patient with us for two, three years now. Now you watch the game for the next three years.
Okay. My next question would actually be on CASA side. The kind of job that you have done on CASA is actually really commendable. 51%, I think you are second highest after I believe Kotak. And now you have reduced rates because the liquidity that you have, you're finding it difficult to deploy. Now let's say whatever that we see changes in your in your balance sheet, whatever advances and growth that you are having, you are basically trying to just keep the borrowing stable and you are growing the advances side, when let's say whatever your the deposit growth was happening.
Now for next, maybe around, let's say one year or so, with, let's say, CASA being stable at this 51%-50% kind of a number, do you think that you have enough cash because of the LCR, plus, extra deposits to grow the advances book without, let's say, again, increasing rates on CASA to attract higher deposits?
I'll take that question. Again, as you rightly said, it would be a function of liquidity. Currently, we are sitting on handful actually. LCR is at 174%. If you see the numbers, we have consciously also slowed down the deposit growth, right? We brought down the rates. Plus recently, a month back, we also brought down rates on the FD front. Having said that, right, as sort of growth sort of comes back in H2, which we are very confident of, right, we would want that some of this liquidity which we are carrying excess normalizes. The regulatory requirement for LCR is 100%, but internally, we will definitely keep a good cushion over that. Certainly, 174% is a very high level at present, right?
It also has a drag on our NI. We will continue to sort of accordingly pace our deposit growth and to meet our asset requirements. If you see our balance sheet numbers, our borrowings have also increased by INR 2,000 crores over last couple of quarters. That is because we have raised alternative money in the form of refinance where the rates were very attractive, and it also gave us long-term money. We're balancing between deposits and borrowings, and we will pace it according to our asset needs. To your question about whether we'll increase interest rates, I mean, we have no plans to at this point of time, but we never want to take fixed position on these things. We'll see. You know, suppose three quarters from now our growth is strong and we need the profits, who knows what we'll do.
Thank you. We have next question from the line of V.P. Rajesh from Banyan Capital. Please go ahead.
Hi. Thanks for the opportunity and, congratulations on a good set of numbers. Most of my questions have been answered, but just one question regarding the letter that you received from IDFC Limited. I was just wondering if there was any board discussion on that and, you know, what are you thinking in terms of the reversal also with the IDFC Limited, if at all?
As I can only tell you what's already public. The rest what is not public, I can, when we inform the exchanges then we'll inform you. As of now, the only facts are that they have written to us saying that, you know, please let us know how you think about it. Because we are, we meaning IDFC Limited, have said that we are planning to exit our positions in the companies we have and we look forward to talking to you. That's their position. We discussed this at a board naturally because it's come to a bank and it had to be discussed with the board. We'll be responding to them. Whatever we come up, whatever we respond to them, we'll make it public.
Okay. All right. Thank you.
Thank you. We have next question from the line of Sagar Shah from SK Analytics. Please go ahead.
Yeah, this is Sagar Shah. First of all, congratulations, sir, for excellent set of numbers.
Thank you, Sagar.
Yeah, I just had one question actually. Regarding our, as you said about our corporate loan book, about you in the future you ought to maintain the corporate loan book as in where it is right now, around maybe 30% as you have guided earlier. We know-
We wish.
Okay.
We wish to.
Okay. Basically, I just wanted to know that in the corporate loan book, which areas are you exactly targeting actually? Because in the past we have had severe burns regarding our loan book actually, and you can say the previous lending of IDFC has had something like ill effects. For the future, which measures have you taken or what underwriting skills are you planning to take for better corporate loan book quality?
We understand your concern, and I think it's a legitimate concern you have. Even, you know, your comment about the erstwhile management, whatever they booked, it's not that they did anything bad. I mean, just that maybe the economy went south and the infrastructure cycle went bad. Maybe it's not. I don't think they did.
Understood.
I don't think they did anything intentionally. Coming back to the point, we have actually instituted many controls in being able to handle the corporate book, whatever we have booked post-merger. We have put many, like I'll tell you some examples if that gives you color. We say that any entity that comes, we say that the smell should feel good because there are so many entities where the numbers may be good, but you know, people just don't say right things about them when you touch around. We actually tell every relationship manager that you've got to attach your own personal assessment of what you think of the group on the basis of what your substance smelt about in the market.
Number two, we say that every RM has to sign off when you make a recommendation so that your name is on the file forever, and that you recommend this case on the basis of your strength. Number three, we look at the cash flow, and then we want to convince ourselves that the cash flow is good. Number four, we look at leverage ratios. Number four, we say that we ask ourselves this question, that if this person will raise equity, will this person be the sort of person who will get equity in the marketplace if they were to raise and if they wanted to get the necessary funds or equity or even debt for that matter? Do we, do you think other people will lend to this person if we were to, if they were to go out in the market?
Of course we check about security, you know, and so on. Basically, whether it is financials, the leverage, cash flow, smell, references, we do all the checks and finally we have kept a pretty low threshold to go to the credit committee because we feel that more eyes are better than one. We feel we don't take it emotionally if some member of the credit committee feels I'm not comfortable, I'm gonna drop it. Okay, drop it. I mean, basically we feel unless we feel strongly about a proposal. What I'm trying to say is that we just put a set of things about the way we think about this. We actually made a grid around it, and we got to necessarily fill up every part of the grid to feel comfortable.
We've done all that, and frankly, it's paid off very well and we thought this through pretty early in the game, around very early in 2019. I'm happy to say, like, we've done over 120 accounts. Not a single one of any material size has blown up between three years.
Basically, in your experience of last three years, are you targeting any sector or have you something like shortlisted some few sectors which are actually of your interest to lend in the future?
It's more about what we don't want to do because we do, you know, corporate sector is pretty wide area. We like
Exactly, yeah.
Yeah. I mean, it's very hard to pick a finger and say that we want to do only three or four because we're not exactly the only lenders in the market to be so choosy. We are in the market.
Writing down the infrastructure loan books, obviously.
Yeah. Like, for example, say that.
Part of that will be targeted some other.
Exactly. Exactly, because we don't have to do in infrastructure, for example. Yeah, it's a no-no. Or you say that, listen, if there's some particular industry itself has a pretty gloomy future, then you say no to that. Basically it's more the exception. Otherwise, we're okay. We do. Even if an NBFC came to us and we felt comfortable with an NBFC, we'll do it. I mean, we're happy to do it. It's basically our comfort based on those criteria, and these are pretty written down criteria. It's not purely to anybody's judgment.
Okay. Thank you so much, sir. All the best for the future. Thank you very much.
Thank you. We take the last question from the line of Shashank Sharma from Axis Capital. Please go ahead.
Hi, sir. I had a couple of bookkeeping questions. First, from that toll account. Is the ongoing, I mean, apart from the three, four month delay that has already happened and which caused it to slip, are the monthly collections today 100% on that account? The forthcoming collections.
I'll answer that question. Sudhanshu here. Definitely collections are improving as sort of the economic activity is picking up. But having said that, it's still not back to sort of pre-COVID levels for that entity. Even into this quarter, however, we continue to see repayments. Like if you see the numbers, the principal outstanding has come down further by INR 16 crore during the current quarter and where it slipped into NPA into the last quarter. We feel that we have a provision of 15% on this account. We don't foresee any economic loss in this account. We are hopeful that sort of as the toll collection picks up further, this account condition should improve and
Shashank. Before you go to the next question, let me just say that our guidance, you know, on this bit about having 2.5% credit loss with average book for the year, what we said last quarter or so, that completely stays. Even after wave two, it stays. We don't have a problem with that. But the only important thing to note is that we want to get this idea correctly, is that number is under normal business operations including COVID. It doesn't take care of that one telecom account where our funded exposure is INR 2,000 crore and our provisions are about INR 480 crore. If that account were not to pay, that's an extra, let me say, impact on us. That's not part of the storyline of 2%-2.5%.
Hopefully next time when you're on the call that problem would be solved for us, that's for sure.
For India's sake.
Because I think the repayments are scheduled in that manner. Let's see on that. I have one more question for-
For India's sake, because if it doesn't pay then there is a law of the land. For India's sake, we hope it doesn't go there.
Right. Sir, one question. If you can give the breakup of the write-offs that have been taken in the H1, asset-wise, you know, the asset class-wise, if you can throw some light there, that will be great.
As I mentioned, yeah, earlier, that write-off during the quarter was about INR 1,000-odd crore and this was 50% lower than the previous quarter.
Right. Sir, asset mix, can we get something as in, as a rural book, in percentage terms, if you don't want to give absolute numbers or on a broad basis, so we understand LAP and housing would be limited, but apart from that, some color there would be great.
No. We haven't called out that number, but.
Okay.
These are the target numbers.
No issue, sir.
Asset.
No issue.
Very well. Okay.
One last question. Apart from this, 2.9% restructuring.
By the way, one comment on the write-off that you know I earlier mentioned to you that every month now, every quarter now we're getting a recovery from the past.
Right.
What was provided is a provision as a formula. You know, you said so much in 90, 80, 120, 150, 180, 360, whatever, and then we take certain provisions. But that doesn't mean client doesn't owe you the money. We are getting recovery against the past dues. I just want to let you know that that's one good thing in retail that even if the customer is behind schedule, you can hope to get many of them do pay back. Back to you.
Perfect. Sir, one last question from my side. Apart from this 2.9% restructuring, is there any additional restructuring under RBI MSME scheme sector that we have?
That's part of this number.
Okay. Thanks a lot. Thank you, sir. Wish you all the best. Thank you.
Thank you. Frankly, all of you were very engaged and asked really good, insightful questions. We want to thank you for being here with us today and asking us whatever you did.
Thank you very much, sir. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Kunal Shah for closing comments. Over to you, sir.
Yeah, thanks, Vaidyanathan, sir, for patiently answering all the questions and laying out the strategy as well as the guidance in terms of how we would be moving. Wishing everyone Happy Diwali in advance, yeah. Thanks.
Happy Diwali to all of you, friends. Thank you.
Thank you, Kunal, and thank you, everyone.
Thank you. Yeah.
Thanks Kunal . Bye-bye.
Yeah, yeah.
Thank you very much, sir. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. Thank you for joining with us and you may now disconnect your line.