Ladies and gentlemen, good day, and welcome to the IDFC First Bank Q1 FY 'twenty two Earnings Conference Call hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Kunal Shah from ICICI Securities Limited.
Thank you, and over to you, sir.
Thank you, Faiza and good evening everyone present on the call. 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 of Corporate Center and Mr. Saptarshi Bappari, Head of Investor Relations from IDFC First Bank to discuss their Q1 FY 'twenty two earnings. Over to you, sir.
Okay. Good evening, everybody. It's just a great pleasure for me to speak to all of you today. I haven't had analyst conference call for, like, ten years in a row. In Capital First, we started that at 02/2010, and it got the name of Capital First in 02/2012.
And eight years went by. You know, we were getting out our quarterly results, and then we spoke to television channels, and that was it. After the merger of the bank in 2018 to today, again, we've not had any conference calls. So for me, let me just say, after ten years, it's reentry into this process. Hope I
can
do justice to your expectations. Now, with regard to our bank, I think, we came into being in a new Alpha as IDC First Bank, in February. And at that point of time, we made certain very specific guidance as what we will achieve in five years. The key thing was that at that point of time, Capital First was something like about $2,728,000 crores of, you know, loan book, 30,000 crores of AUM. IDFC Bank was about, like, 75 odd thousand crores of loan book.
And together, it is coming to about 1 lakh odd thousand crores. And at that point of time, our bank had the naturally we were just a start up bank. Two years ago, we had got a license. So really, we did not have much of deposits. We really didn't have a really good picture about how the P and L of the merged entity would roll out to be.
I mean, we had a plan. We had a thought we needed to merge it. But, you know, and as all of us know in life, as we turn out as it turns out over the next four or five years, there could all be lots lots of variances in our plans and thoughts and all that already factored forth. So we didn't have much of a but we had a reasonable picture. So we gave a five year picture with the limited visibility we had.
And that five year picture, I'm happy to say that we are broadly on course on every one of the parameters that we set out at that point of time. And I'm happy to say also that we haven't wayward one bit from the original direction we set for ourselves. Along the way, we never got excited to think, oh my god. I wanna do insurance. So let me do mutual fund.
Let me start doing corporate banking again in a big way. Let me start doing infrastructure. It's very profitable. So, you know, we haven't moved this way or that way. We made a plan.
We announced it to all of you, and we stuck to it. And let me just say that the guidance that we gave at that point of time were broadly on five parameters with the limited visibility we had. Number one, we said that on the we recognized that the key issue the bank had at that point of time was the fact that on the liability side, we had, let me say, 5,200 crores of Kapha deposits. And on the lending side, we had close to INR 1 lakh 3,000 or 4,000 crores. And including other liabilities, probably even bigger.
And therefore, including but on the liability side, I'm saying it was even bigger than 1 lakh it was like 1 lakh 41 lakh 50,000 crores. So this is a very, very low cost of percentage. And the key call we took at that point of time was that we don't, you know, we don't want to grow the loan book. We have to first get the liabilities in order. You know, I've been in banking circles long enough to know that the key issue that that can really put a bank under risk is really not the asset asset side, the liability side.
Is probably even more important than anything. So the first two years, I think in a very single-minded focus way, we focus on liability side. But coming back to the guidance front, we gave a proper guidance that it will be 30% in five years. You know, we've gone past that number now. Second thing is that we said that we'll give we'll put up close to about 800, nine hundred branches in five years.
It is just a number that we thought would be right. It there's no science to it. And, you know, we've come to close to about 600 branches now. We've given $20.25 for 809 branches. I think it should not be difficult if you want to put that many branches at all because along the way, after figuring out, digital is becoming a big play and all that.
Then the third thing that along the way, we figured out that the customer deposits, we just don't want customer deposits because let me again go back in times, it's important. We had closed about, say, 30 odd thousand crores of corporate deposits, about a INR 28,000 crores of certificates of deposits. All of you know that with the with the both of both of these can be brittle if taken in very high measure. And that's when we, like, got to pay pay down these deposits before the crisis strikes, not after suddenly there's a liquidity problem. So one of the things we came up with was that we we do we want a top 20 deposit concentration to come down dramatically because we just don't want to be beholden the top 20 deposit bank who might just call and ask for the money.
So at that point of time of merger, we had 40% of the top 20 depositors. 40% of our deposits came from, you know, 20 depositors. So we at least, I think, a structural strategic sense, we saw this as a big issue. And then we said that we got to bring this down. So we gave a guidance that we want to bring this down to 5% in 2024, '20 '20 '5.
I'm really happy to say that we've come up to 9% already. And really at 9%, we feel very, very safe. And and, of course, in due course, we'll take it out to 5% there. The other thing was the the certificate of deposit. We gave some guidance in that front.
We said that our, you know, certificate of deposit in March was 28,000, not in December. December was 22,000. So we said 28,000 had to bring it down. Now we are, you know, hovering around maybe $65,000 to 6,000 crores. Frankly, we are comfortable even at 10,000 crores.
We just and it's pretty inexpensive. The reason they're not taking it is not because of any reason, just because we don't have a need for it. But anyway, it's already come down. The first is that along the way, we introduced one more requirement in terms of guidance that is in terms of average liquidity ratio because, again, what Daza Bank in is not anything else. It's basically liquidity and diversification or lack of it.
So therefore, the average liquidity ratio, We say we want to be greater than 110%, but really, right now, we are running upwards of 166% last quarter. Then the next sort of guidance we gave, so all that I described to you is on the liability side. Now I move to the asset side. On the asset side, at merger, our our retail book was 36,002 and 36 crores, and we we had guided that we will take this to 1 lakh crore in five years. Frankly, we have to say we're on track because it's only June of twenty one.
It is, two and a half years, and we already got the 72,007 and 66 crores. So a lakh crore is just a hop, skip, and jump. Is is is not even we should count it as achieved practically for all practical purposes. Then the next thing we set for ourselves as a goal as a retail asset percentage of total assets because we really feel that our capabilities clearly are on the retail side in very significant sense. One, because from the network point of view, maybe the big banks like the Big four have net worth of maybe INR 1.5 lakh crore or INR 2 lakh crore or 2.5 lakh crore.
With our network of 20,000 crore, we really didn't could not believe or we could not we did not fancy ourselves being any serious players in the corporate banking side with a relatively mid sized bank network. And it couldn't have been very smart to go head up against them or try to take them on in terms of pricing and things like that. So that is not we we didn't call that a strength. We said that we will do it in an opportunistic way, but, really, it is not the a big game for us. So we said that, okay.
We but but but on the on it's on retail side, practically 20,000 plus billion dollar of capital, and we we could we could really achieve big things. The second thing, of course, is very, diversified. I've personally done this for, like, close to about twenty five, twenty eight years, and I just find that that with all my experience, I just find that you have an odd cycle here or there. But in the longer run, these are end net net, these are end of the day individuals are borrowing. Individuals bother about the credit bureau.
Individuals bother you know, they don't have a tower or a shell of a company which can have some limited liability and they cannot, you know, they don't have to skip those escape routes. They have the personal, you know, in terms of the size of the relationship, you know, the it's it's always in I mean, the strength of the relationship with the individual customer is much stronger. So for many reasons, we wanted to retain. So so therefore, that we set as a target of about 30 at that time, we were at 35% at merger. Premerger, stand alone bank was some 39% because of the merger's capital first, which was, like, 90% retail.
The blend blend became 35. And then we said it'll be 70% in five years, but we already touched the 68% as we speak today, including the PSL book and the PSL buyout book. So it is as good as on track. The first thing is we said is on the wholesale side. We said we want to bring ourselves down below INR 40,000 crores because we I don't fancy ourselves, like I said, being a very large corporate banker.
So I mean, we'll be still relevant to the customers we want to serve, in the size and proportion as relevant to our network. Our target at that point of time, we said, was less than INR 40,000 crores. I'm happy to say we're already at 32,000 crores. Then on the wholesale side, we also said that our top 10 borrowers, as a percentage of total funded assets, we wanted it to be at that time, was the 12.8%, Really, to give 13% of our top 10 borrowers are going to have 13%, fourteen % of our funded assets, it doesn't feel very comfortable. So we wanted to bring it down to the 5%, already reached 5.8%.
We gave certain guidance on gross and net NPA. We said that our, you know, our wish list is to keep our gross NPA around 2% to 2.5%. Net NPA is 1% to 1.2%. As of now, as we speak, the gross NPA is 4.61% and net is 2.32%. But really, 2024, '20 '20 '5 is long way away.
I have no doubt in my mind that we will get better to to the numbers of 2% growth and 1% that we talked about. Then then the next thing was so all the stuff, the second set of stuff I talked about was all about assets. The third set of things we talked about is earnings. Now, again, you know, we were at a merger situation. The earnings on capital first, the yield on the book was close to about 16.5%, cost of funds or something like about nine ish or percent, maybe a little less than that.
And we had networks all put together. We're making a NIM of like 88.5%, nine %. And they're making a return on equity of about 15%. But 15% is on stock. But if you go to the last page of the presentation, if you got an opportunity to flip through go through the presentation, basically, quarter on quarter on quarter for close to about five years at a stretch, our return on equity was growing on the whole book, which means that the incremental return on equity we were getting, not the return on equity of 15%, by itself, was not bad.
But the incremental return on equity we were getting every quarter on our book was upwards of like 18% to 20%, which means the incremental capital consumed and the incremental profit we were making out of that incremental capital. So we were frankly very, very happy that, look, if Capital Corp has been a standalone entity and, theoretically, if it has got a bank license or something, then you would just keep, you know, pressing the same lever again and again and keep, know, pushing yourself towards that sort of ROE. And that would have been a kind of a desired ROE where we feel that it's an annuity annuity institution by itself, and you can raise some capital from time to time, but you really don't have to depend on it program. So that is a broad plan. But anyway, that is on one side.
On the other side of equation on IDFC Bank side, the it was a good institution, and I'm quite proud that the institution we merged with and all things good in terms of brand and the governance and all that. But on the earnings front, I think it was a big challenge because it was infrastructure DFI. And the DFI, by definition, actually borrows at high rates. For example, you know, it's like, you know, some eight and a half, 8.75% was was common to borrow. And and there's the infrastructure loans to it.
Infrastructure you know, if it's good infrastructure, it gets repriced itself downwards quickly with a difficult asset. It stays on your books forever. Nobody buys it from you. And then, you know, set up cost of a new bank, which was incurred by the bank. So there were a few set of challenges that the bank had at that point of time because it was also a new bank setting up, set up cost and all that.
So blend blend, you know, there's a slight summary slide, but there's a blend blend of the half year merged pro form a financials of the two institutions shown somewhere, but it wasn't very pretty on merger. It it was kind of negative. Then the so and from that situation, we said, okay. What does the story look like? So from that situation, we gave a pretty clear guidance that we will touch 15% in five years.
I'm not I know most of you are quite concerned or maybe are concerned about our return on equity because, you know, the numbers terms of earnings have not kept pace in terms of the preprocessing operating profit. But of course, as we've seen in yesterday, we started from. But still, I think we may have a concern and talk to me about it today. But but at that point, time with the limited visibility, we gave guidance of 15%. I'm happy to say that broadly, we are very much on track on that.
And later in the time, if we get an opportunity, we'll describe to you how. So this is it. Basically, these were the five or six, not five, actually, to be very precise. They're about maybe 15 odd guidance that we've given, but they belong to four categories, which is liabilities, assets, earnings, diversification. And, of course, a fifth one that we haven't talked about, which is important, is capital.
There are two things that we did not give any specific guidance in capital. Maybe it didn't it didn't occur to us at at that point of time. I can't recollect. But basically, when we look when we look ahead from here on, we can make some very specific guidance on on the capital front also. Right now, our capital is 20,170 crores.
Our capital adequacy is 15.56% as we speak. The guidance we'd like to give, of course, is that our capital adequacy will not go below 13%. That that would be our broad guidance and wish the way we run a bank. And and and therefore, if you see that our capital is dipping below the level, you you can know that they're coming to the market for capital. So this is the broad stuff of that.
You can think of it like a guidance deal now, not then, but you can track it from here for for the rest of the three years that are left into 2025. So, you know, that is a very quick brief I'd like to give you about what has progressed during the last during the last few years, let me say, two and a half years. And and, really, in two and a half years, I I really think we've come, you know, really ahead of a long way. I really don't think that any anybody really guess that we'll get to 50% kappa in in two and a half years. That too for a large bank to to get there.
So we are that's how we are playing a card. We we're very straight about how we do our business. In in fact, you may recall that the first four six quart five quarters after the merger, not one, not two, five full straight quarters, every quarter, we discovered a problem. One quarter, it'll be one housing, another quarter, Reliance Capital, another quarter, is, you know, a telecom company, another quarter, it was, you know, a DPA that that has got really reworked, and another quarter, was an infrastructure company. But, really, I I and I tell you, it's not an easy job for any CEO to come out there and say, look.
Okay. This man this quarter, we didn't you know, we we made a lock. It's just not a pleasant thing to do at all. But no matter what the pressure was, we just looked straight into the eye, straight into the camera and said, this is what the numbers are. It's it's it's it's most of it, I guess, came from legacy, but that's not the point here.
So we we we do play straight, and we want to play straight going forward also. And and and I think it has given us a lot of confidence in the way we do our business. With the way we look at our incremental economics, I really personally don't get so rattled about what the current economics of any institution are. I didn't get rattled even on this capital first when it was lost again for three years even after I had touched it. So, basically, the I always look at incremental earnings.
It's very important because end of the day, the incremental earnings become the book when you grow it faster than than the rest of the book. So incremental earnings for a bank, we feel are pretty strong. You know, we have our incremental cost of funds is now coming down below five. Our lending on the retail side is pretty strong. We'll talk about it.
And incremental return on equity is, according to me, really very good. So when that incremental becomes the book, then you know that this bank is headed for a really good, let me say, into a good space. So I'd like to really, with that very quick brief, I'd like to stop here, and I'd like to, you know, open it up for any discussion. Thank you, friends, and nice to meet all of you. I got with me Sudhanshu.
Sudanshu is the CFO and the Head Corporate Center for the bank. And I've got Saptarishi, who many of you may have interacted with. He's the Head of Investor Relations with us. Sudanshu, might want to say hello.
Yes. Good evening, everyone. Thank you for joining this call. It's a pleasure taking this call and having this conversation with all of
session. The first question is from the line of Pritesh from Prabhupadashi Ladar. Please go ahead. Hello.
Hello, Preeti.
Hi. Hi. Good evening. Sir, I had a couple of questions. First is I wanted to ask what will be our average start rate now?
If you can give the same for last year and last quarter as well, if you can share that number.
You mean interest rate?
Yeah. I mean, the interest rate is obviously there on the website, but the average rate, salary for us right now will be what on the book?
Yeah. About, let me say, 4.8%.
Four point eight? And the same point
8%. Yeah. And that
And the same for last quarter will be?
We reduced rates by about hundred basis points, you know, last quarter. So think about, like, 5.8.
Fair enough. Can you also give a breakup of client side, if possible?
Yes, you can.
Or I can take it later from the first maybe.
No, no, no problem. So then what's the platform in the right time? Yeah. Casa ratio is is Not ratio. Casa.
An absolute.
Yes. Can I break up, sir? Sorry.
Sorry. You you're asking about cash and deposit?
No. I have the cash and deposit, the breakup of between current account and savings account. The the breakup of
6,000 odd crores.
6 thousand crores is the stock?
Yeah.
Okay. And, sir, just as a strategy, just wanted to ask. In the presentation, I could see the corporate book is growing. We've seen some of the segments growing by about 20% year on year or quarter on quarter, there's some growth. What is the strategy there now?
I mean, we've reduced we've been reducing exposures there. Now from here, you see that at least the non infra wholesale book growing, or you see still you you feel it is cautious. You made some comments on it, but can you just little bit give high end how you how you think about it?
See, in the corporate side, like I said, you know, corporate banking belongs to someone who really has very low cost of funds straightforward. And, you know, the big banks like ICS, HTSC, Axis, they are naturals into it because they pay 3% up to 50 lakhs and 3.5% above that. So they really sit on very low cost of rate. I mean, cost of funds and then, you know, large corporate really ask for really fine prices. So it kind of naturally belongs to the, let me say, the big folks.
So as far as we are concerned, we like corporate banking. We but like I said, in proportion to our network, a. And secondly, with regard to our ability to get a reasonable risk reward, We really are very sensitive very sensitive not to have a a a blow up of corporate banking on our hands. Now I can tell you I'm very sensitive with that. It's so you you it it it would be a very fair estimate if you were to think that, you know, there would be I mean, let me just say that we're very careful about it.
And therefore, we do do corporate corporate loans, but we feel that fundamentally, there is a good risk available, good risk meaning that we feel comfortable with the risk and it's coming at a reasonable price. We don't want to be priced out of the market, but at a price that is appropriate to our cost of funds. So that's one thing. Secondly, by the way, in Corporate Banking, we are also pretty strong in we have really fantastic Corporate Banking solutions in terms of technology. We are good in cash management solutions.
We provide fantastic trade facilities across the country. And because we are a universal bank, we get fee income from ForEx, transaction banking fees. There are we like the business for its wholesomeness. But like I said, we want to do it in the proportion to our size and network.
Sure. And lastly, yes.
And think and the last comment on Corporate Banking, to go to give a specific guidance on how the book will evolve, our given a choice, we'd like to maintain the book. We don't want to run it down any further. That's not our wish list. So if you tell us that would you
like to keep it 35,000 crores for for a while?
Yeah. Of course, we like
to keep it. This is not a rundown book like infrastructure book is. We like it, and we like the team, and we like everything. If you're not able to do it, you can think of it like more like lack of often our inability to spot a deal which meets a risk reward and network criteria. But we'll probably keep it there.
Great. Last question. Just wanted number on slippages, if you can provide that as well. The slippages or for the quarter?
Yeah. Yeah.
Yeah. Slippages for the quarter was about 2,800 crores. This included one large lumpy exposure on a closed account where this the slippage was INR $8.50 odd crores. This account was already part of our identified standard list, and unfortunately, it has slipped into NPA during the current quarter. We see payments happening on this account, but a bit delayed.
We expect a recovery to happen on this account in due course. On the retail front, out of this INR 2,800 crores, the scripages worth about INR 1,800 odd crores. At the same time, we had recoveries and upgrades during the quarter, which was roughly about one third of this number. And so net scriptages is about 1.5, one point six percent in detail.
Thank you, sir. That was great. Thank you. All the best.
Thank you.
Thank you. The next question is from the line of Rohit Jain from Tata Capital Partners. Please go ahead.
Hi. Am I audible? Very good, Rohit.
Yes. Hi. Thanks for doing the call. Much appreciated and much needed. Just one question on asset quality.
I see that your retail gross NPA and net NPA actually came down sequentially. Now in a quarter where the best of NBFC like Vadar Finance, Chola, everybody reported decent sequential jump and so did the best of banks. I'm just a bit intrigued as to how our retail R and K in the retail segments are coming down sequentially. So can you please throw some light there?
Basically, see provisions and write off, they go off the balance sheet. So that's how this comes down. In reality, we've had provisions to take through the P and L. Basically, the provision doesn't go up, but write off goes off the balance sheet. So we had write offs to take this quarter.
So can you please help us understand how to that how much were the write offs?
Yes. Write offs on retail was about INR 1,400 crores during the quarter.
Okay. So basically, had slippage of about INR 1,800 crores, recoveries of about INR 600 crores and write offs of about INR 1,400 crores in the retail segment.
Yes, that's correct. Got it.
And another related question on retailers. I know we haven't done too much of a restructuring as yet, but is there anything in the pipeline? So what's the outlook there? And b, we envision any further write offs in the current quarter?
Sorry, on your restructuring, so we have disclosed that number in the press release that we have restructured outstanding standard pool of 1.8 on retail. And so and this was about 0.9% in the previous quarter. So incremental is about 1% during the quarter.
Okay. And is there anything more in the pipeline?
Not significant. The restructuring we expect in Q2.
And as far as the first question on write offs are concerned, the best way to assess the quality of our portfolio, I guess, of any portfolio for that matter, is to see three numbers together, the gross NPA, the net NPA and the provisions because all of you are seasoned bankers, so seasoned people, you'd know that if you if a bank were to take provisions, to that extent, the net NPA comes down. So having a low end gross and net is not a measure of success. It is the measure of success what provisions we take. So our guidance is for this year is as follows. We think that our estimates are that credit loss, including the write off that has happened in the first quarter, the credit loss for this financial year, we are targeting at 2.5%.
And if and for our kind of healthy yields, we have you know, frankly, point 5% will be quite comfortable. I must tell you that even pre merger with the bank, Capital Perce always had closed about 2.75% of credit losses. And the yields, as long as yields will commensurate and this 2.7% is consistent, life was fine. So as of now, for this financial year, we're targeting 2.5%. For next financial year, we are guiding for 2%.
So if you can get that number, then at a gross and net NPA or whatever you're seeing, I think it's a pretty comfortable number. Okay. Thanks. And one last
question on Nims. Given that you have already reduced your savings account rates and the rates market wise have sort of bottomed out, do we expect the NIMs to keep inching up from here? Or is 5.5% a level where we think we are comfortable from a risk reward metric?
It will here, it could it still interrupt from here because basically the incremental economics of the bank are earning us greater than more NIM than 5.5%, actually from the retail side. Basically, the incremental lending rate borrowing rates are like something like under 5%, and the incremental lending rate are currently upwards of 14%. So we are getting incremental of it's pretty strong compared to the mass versus. So therefore but this is still in the retail side. The wholesale, of course, doesn't give this kind of NIM.
But when it could still insert from here. Okay. I'll come back in
the queue with further questions. Thanks.
Thank you. The next question is from the line of Prakhar Agarwal from Edelweiss. Please go ahead.
Yes. Hi, sir. A few questions from my side. First, can you help me understand where this INR 1,800 crores slippage is in retail coming from? Which segment are we seeing this sort of number?
So if I analyze that number, probably 10% of run rate on slippage on retail, that is quite a lot. Where is this segment which segment of retail is this coming from?
We have seen three segments actually, which have contributed more to this. One is the wheels segment, basically vehicles. And let me say, two wheeler business had more slippages. Second was the commercial vehicle business, the used car business, basically the vehicles category of stock. And second was the JLG business, which is a microfinance book that we have in our rural areas.
Okay. And when I look at write offs, 1,400 crores is a significant number. What is the thought process behind writing this asset stock by and and this segment, is it 1,400 coming from predominantly JLT business or or VUS and JLT combined?
All all put together. And even on the other businesses, which are supposedly secured businesses, we've had slippages. But, you know, whether it's frankly for that matter, all of these are secured only. And in due course, you do see, I think that we in due course, of course, we'll be hoping to collect the money. I think one very, very important thing, I think, all of us should kind of note is as follows.
How do how do we take provisions? Our provisions are very formula based. We say, look at 19 equity, we got to take so much percentage. At one twenty, we take off so much, and we had one eighty, we take off one twenty, one 15 and so on so forth. There's a provision policy.
Now this is a quarter when throughout, let me say, April and May, country was in lockdown. Tax collectors could not go, customers are doing no business and they were not earning income. So at that point of time, when that situation occurs, then the whole portfolio, I mean, not the whole, but except the people who play their checks, the people who return their checks, that sort of portfolio tends to slide one bucket forward. A bucket meaning a state, is zero to thirty, thirty, 60, I'm calling each one of those a bucket. So it moves one bucket forward.
When that happens, we have a formula. We we and then we take it through the P and L. Now this is a pretty straightforward approach, and that's one of the reasons you see that, you know, you see that our provisions are high. But I want to point one very important thing to you. Just because the customer has moved over the ninety day period and we have to take the 33% provision does not mean the customer not I mean, doesn't mean we're really lose 33%.
No. It's just the customer move to their bucket. Now if the customer also had a COVID problem, just like we had a COVID problem. So when the business recovers, customer will pay, and that money will come back. That is the reason we are guiding for this year.
If you see this, 1,400 by itself looks like a large number. But see the guidance we're giving for the full year. It's only it's only 2.5% of credit average book. Why? Because these customers who go into the bucket continue to pay subsequent to sitting in the bucket.
So we are definitely believing that these customers that we for whom we are taking charge off to the p and l on a conservative business today, a lot of them will pay in due course.
Sure, sir. That that I understand. That's why I'm saying what is the rationale for write off. If they're so confident that they will be repaying, what was the rationale of writing it off at the first place?
You know, it's a very good question. Again, write off is a formula for us. We have a defined formula that, you know, we write off something and say, let me pick a date, say, three sixty days or two forty days. There are some different products depending on ticket size, etcetera, have a different formula. So it's a formula.
The formula doesn't distinguish you had a problem because of COVID or because of you know, that a customer is is is because of COVID or because of any reason the customer couldn't pay, whatever the reason is. Formula is a formula is a formula. We just take it as a pain, and we we that's the end of the matter. But the important thing to note during the COVID situation is that customers are delayed, but they will pay. Somebody move to say fourth bucket.
Fourth bucket is 90% to 120%. We take 30%. But customers stay that bucket, will continue to pay us maybe for three months, five months, seven months. Some of them will pay two EMIs and come back to 31 to 60. Some of them will pay two EMIs and come down to maybe zero to 50.
So this is a accounting item. And for now, taken in a pretty straightforward manner, customer will still pay, and we will recover this back to the P and L. And it is very possible that what we charge off to the P and L today will come back to us, say, two quarters, three quarters, four quarters. Now remember, there's a customer there's a real customer sitting out there. There's a real customer.
There is a bureau. There is a rule of law. There are the customer has dues payable to us. But the customer moment customer cash flow comes, customer pay us. So this COVID related provisions and COVID related delinquency has to be treated a bit different than, you know, what was going on in pre COVID times.
Okay. So just a couple of more questions. First, on your stress book that we have highlighted. Now when I look at your stress book, the three effects, which is one, wind power and one logistic company and third one is solar project. There is no movement at all in these these sort of projects.
And in two of them, we are only carrying on in solar project, are not carrying any provisions. And on wind power, we are only carrying 25 provisions. So why is why is there, first, no repayments in there? And are we comfortable with this sort of provisioning in in given the fact that there's no repayment at all?
No. As you speak, we gotta pull out the piece of paper so that we can have have give you a more straight answer. Just give me ten seconds. Are you are you referring to
the stress test that you put out over and above the NPS?
Yeah. Stress test that we put out. So I was just comparing your last quarter number and this quarter number, and there was no movement in the exposure for these three assets. And within these three, we are not for two of them, we are not getting any offer.
Yes. Now if you think the stress asset page, we haven't named the client, but we kind of described the the the, you know, the given some clues or given given some name given some description. Now without getting the specific name, because maybe Sudhansh can head to the specific question, let me just say that overall, if you see, this number is $1.03 $7.01 crore. And, again, $1.03 $7.01 crore, that is the just for the benefit of others in hearing the program, let me explain the question to them, otherwise they'll be confused. One is an NPA and PA.
That is what we disclosed. We have taken our provisions and all that. Over and above what is disclosed in Q at the bank, we and as in given and paid 100, I think, in the the report. We we also have not hundred. Sorry.
In page 48, we also define the comp entities, which is on our books where we see stress, where we have taken provision that is not yet NPA. So that's what the gentleman here is referring to. So let me say that on that front, our our outstanding exposure is $1,003.71 crore. Our provision is already 915 crore. So that's like only INR 400 crores uncovered on a exposure of INR $13.71 crore.
We feel overall pretty good about that. Now let me just add one more input, and then that will tell you the direction we are headed. In February, our identified stressed assets, I. E, over and above declared NPA, identified stress asset was INR 4,138 crore. See the direction.
Today, that number is only INR $13.71 crore. And at that time, the provision was INR $9.57 crore on INR 4,000 crore, that has a provision cover of 23%. Today, on $13.70 crores provision of INR $9.15 crores. So the short point is that notwithstanding the specific account you flagged because we've got to think we'll understand the account a little better. But overall, let me say that whatever is outstanding, we'll provide it.
No, sir. The only point in asking this question was that even if there is a timing difference and couple of these projects wherein we have not provided to an extent of 67% looks good from an overall perspective, But when I look at two, three assets wherein there had not been any repayments, that coverage over there is essentially next to nothing. So there could be a quarter or so wherein if this this stress continues No.
As we speak no. We got the question. As as we speak, are you referring to the account that has shown outstanding exposure of $12.51 crores?
No. So wind power, which is showing an outstanding of $1.57 crores, and solar project, which is showing a outstanding of 83 crores. Now if I look at provisions, wind power has 25% provision, and solar project has nothing in in sort of PCR that we have created for that particular Okay.
So short answer is that for this one, on the solar project, we though we have put in the stressed list because the group is stressed, the fact is that projects are performing well, and we are they're servicing the debt regularly.
Thank you. Thank you.
The sponsor is undergoing a resolution process. We put it as a stress. But as we are concerned, we're getting paid on the
rate of three crore.
Similarly, on the wind power $1.57 crore you're talking about, this account servicing was earlier delayed, but now they're showing improved financials. They are servicing debt from cash flow of the project. So if if this was truly a stressed account where they were not servicing the cash flow and they were troubled and all that, we'd probably taken more provision, but it's not so. It is a pain. Thank you, Mr.
And at 51%, fifty eighty three. Yes.
Thank you. Mr. Agarwal, may we request that you return to the question queue for follow-up questions. Thank you. The next question is from the line of Seshadri Sen from LKME Capital.
Please go ahead.
Hi, Radhana. Hi. Great to have you on a call. It's good practice to start. Three questions I had.
First is on asset quality.
The
road project which has become an NPA, if I get it right, I think you had 18% coverage on that according to your last quarter's presentation. Was there any incremental provisioning on it when it slipped into NPLs?
No, we did not take any incremental provisions.
Understood. So the, 1,800 provisioning was largely on your retail book because of COVID. Is that a is my broad understanding right? Or
No, no, no. We also this includes some advanced COVID advanced provisions you've taken for possible you know,
Understood. Understood. So that's about 300 crores.
Yeah. Yeah. So it's not all of it is not retail. To your earlier question, on on the on the $8.74 or $8.54 crore account, you can see that that is now displaying the NPA. Let me just tell you what that account is so you'll get some comfort.
Frankly, we feel that we will get they'll know there'll not be any material loss on it as of today. That $8.50 crores is showing as NPA. Yeah. Technically, it is an NPA. It is an NPA.
But that account for for the last many years, like, ever since the merger happened and even even prior to pre merger days, this account has always been delayed between the I don't know it's SME two. And this is a operating, you know, road toll project in in Mumbai, and they have cash flow, and they have been servicing, like, for two and half years now. So therefore, we believe that even if it is NPA, so be it, it's a timing issue. I mean,
not so be it, because I
wish it not happened. But but the fact is that that this money will come back to us. This is academically an NPA, technically an NPA. But eventually, when we wake up many few years from now, all this money will come back because it's a real cash flow for the project.
And you had an 18% provisioning on that going into the first at the end of the fourth quarter?
Nothing to worry. Eventually, the money will come back.
And the large telecom exposure that you have, is that something that could be guided for 2.5%? So if something happened to that, I presume then that is risk beyond the two point five percent or that you're expecting this year.
Which one? The Vodafone? The telecom company. Yeah. That telecom company,
we didn't we didn't refer
to two point. Because this this 2.5, we're referring to normal course of business. So if you take the total provisions we take we take last year and then you divide with the last year's average book, and then you take total provisions we're expecting to take this year. We've already taken INR 1,800 crores, and then we're planning to our own internal guess is probably somewhere like about INR 2,900 crores to 3,000 crores is the total provision for this year, which means that, let me just say that $20.18 crores is, let me say, we've already taken it a substantial portion in the first quarter. So but if you take the number and divide by this year's average book, you will get the number at 2.5%.
Next year, our expected based on how the book is behaving, our indicators are showing, we take that and then we divide that by next year's average book. We believe that next year will come to 2% or so or maybe a little below that. So our broad philosophy is that, you know, we've taken quite a few hits in our lives in the last two years. It's not the first one. You know, we've taken the one, Reliance Capital, you know, there's a large infrastructure, you know, you name it, you know, the same unfortunate incident of the case in Bangalore.
We have powered through with a core model. You know, it is very important to think about like that. That that, you know, you have some issues in the side, you deal with issue, then they go away in time. You know, they they they become small objects in the rear mirror. But the core incremental business model is very important.
And if you can grow the bank from here on 20% year on year on year and then get the incremental economics, the way I'm saying on the retail side, then it solves I mean, it will according to us, will become turned out to be a terrific bank. I
appreciate that, and I appreciate that you recognize everything upfront for us and kick the can down the door. Switching tracks, I saw that your CASA in absolute amounts quarter on quarter has been has not grown. Is that an impact of your cutting your savings bank rates? And do you think that's a short term thing? And over a little bit of time, customer base will get accustomed to this lower rate?
Has there been a slight when you initially cut rates? Just some color on how your CASA base responded to your cuts? And would that slow down your growth over the rest of the year? Or you think it will come back later?
No, it's a good question and relevant to the situation. Now we on on we frankly have a fantastic franchise on the liability side. And I I do think that customers stay with us and stick with us for our service. You know, we have a very genuine approach towards this customer first. We're insanely fittest about that.
We are and all that has actually helped us grow our top and of course, on a very attractive interest rate we've paid, all that combined to grow our top up, I think, quite fast over the last three years. Now we when we started the year when we started the quarter, we just had a lot of cash and all of that cash was lying, you know, earning us pretty low rates in reverse repo and all that. So we actually took a call that even if some deposit comes off as a result of the rate cut, it's probably a good thing in the short run because we wanted not short run, but we wanted some amount of deposits to flow out because that kind of liquidity excess liquidity was bothering us. So we planned it well, and that's so this was very much factored for. So our belief is that, you know, factored for me, it's not come down, by the way.
It's still grown from INR45000 crores to INR46000 crores. It's like it's still up, but marginally up. Now going forward so the short point is it doesn't bother us because it was planned. Now going forward, we feel this will start growing again. Maybe in the next quarter, again, we don't need very much because we still have just too much of cash, which is deployed at very low rates.
And therefore, even if it grows marginally next in the quarter, I. E, July, August, September, we're quite happy with that. But after that, this machine will grow again. There's no doubt. I mean, it will grow again grow enough to feed our asset needs.
Your growth aspirations. Thanks for that. And if I could squeeze in a third question on costs and your cost, I don't know how you look at costs, whether it's cost to income, cost to assets or just simple of FX growth. I know you're investing in technology in a very big way. So if you can give some color as to both in FY 2022 and February out how your costs will shape up?
Because that said, your cost income is much higher than your peers, which is in part an opportunity as well,
be useful to understand how you think
about it both in the short and the medium term.
Cost is important. The way we think about it is a cost to income ratio actually, to give you a simple answer. And as far as cost is concerned, cost to our cost is concerned, it is basically, as you can well imagine, you know, our bank started just maybe five years ago, and, you know, it's been just since two years since the merger. So if you start at the 5,000 crore cost and you're staring at the liability build earlier, like 1 lakh 50 or 2,000 odd crores, I mean, you're the CEO of a bank, I don't know what you'll do. You'll really run for the door and just quickly get the money in.
So our so our strategy is very simple. At that point of time, we said expense or no expense, just go and put the branches here and now, get the money in, and retire the retire the bulk of the profits, like, here and now. This was a broad thinking. So we in the first two years, we went and set out we put out our 350 odd branches. Yes.
Something like that. So 350 odd branches, and they're all costing us money. Of course, we can also invest in technology. It costs us money. And any new startup bank any new startup bank, I'd imagine, starts first with expenses and, you know, income comes in due course.
So or, actually, let me say any business for that matter. So so we would so our expenses are kind of loaded because front loaded because of the ex you know, we had to put out the branches and all that. And in due course, as the branches have become profitable, this cost to income will start looking better. And that's why when we're guiding for when we gave a five year plan, we said we'll come bring it down to 55%. I think it will happen.
A quick clarification as to your cost structures. Because your loan book is also high yielding, I have found that some of this that also becomes a high variable cost business. So when your growth is very high, you see a slight pressure on your cost. When your growth slows down, you get some benefit. Has that also played out?
Or in your context, branch costs are so high that, that really doesn't matter?
No, no, you're bang on. It absolutely plays out because you see, imagine you're doing a business like, say, two wheeler financing. Well, it's these are all very expensive businesses because, you know, you got this salesperson out there. You pay some commission to the dealer. These are all you know, this all come with their own variable expenses as well.
So you're right, it's both. It's we can't it's not only branches, even the way our lending side has grown. You might have seen the numbers. At merger, we have just INR 36,000 crores of loan book, today we have INR 73,000 crores. Imagine that the disburse has probably doubled since the time we merged.
So all that, you pay the DSA, you pay the market, you you have more variable costs and all that stuff. But the point is that, so you have the variable cost of setting up the not not setting, even running a or growing a lending business, it happens. It's also cost of branches. All that is bunched together when it's come come right now the last two years. But the the fact is that as we look ahead, let me say, one year, two year, three year from now, the same cost structure tends to get leveraged on a much larger base.
And, know, it's let me make an example. If there's a branch that we set up and today, the running cost of the branches, let me make it up, say, INR3 crores a year. And suppose the deposit of the branch is, say, INR50 crores, then your OpEx is INR3 crores and INR50 crores. Now tomorrow, the same INR50 crores becomes INR200 crores because there's a passage of time and more customers coming out. But the deposit the cost doesn't go from three to three to three or maybe marginally more.
So that's how the operating expenses play out. The last thing why our cost income ratio will come down, actually, last, is that let me say that suppose this is head office where I'm right now sitting and talking to you. The cost is the cost of the cost. So the balance sheet was INR 1 lakh crore or INR 2 lakh crore or 3 lakh crore, the cost is the same cost. So there are certain fixed costs that get leveraged over a much larger book, you'll see the percentage going.
And I called the second last because the last item is still on digitization because we are doing our significant efforts on digitizing the bank and removing all the useless processes that come with making things to stay through journeys, doing imaging and doing all that stuff. So it helps cut costs as well.
Thank you. Mr. Singh, maybe request that you return to the question queue for follow-up questions. The next question is from the line of Anand Bamlani from White Oak Capital.
Sir, just first to confirm the number, if I heard it well. Of the Tata, six thousand is star, and then 40,000 would be star. Is that what I heard?
Other way around. Other way around.
Yeah. Okay. Fine. And so 40,000 is fine, 6,000 is fine. And, sir, in terms of capital adequacy, you mentioned the opening amount you have to you may keep it about 13.
You are currently 15. So it seems like mathematically, you would need to raise money. So any guidance? Like, I presume by the end of the financial day, you would be in the market. Is that the right expectation?
No.
Maybe eighteen, twenty four months, maybe eighteen months. We haven't it doesn't look like we'll we'll have that much need for capital that soon because we have still a lot of headroom to raise tier two if we really wanted to. I can't say wanted to, you know, if we could've what's the price and all that, but we can. And, also, there is headroom yet.
Sure. Sure. And, sir, terms of, utilizing the book, given the experience during the two years of COVID, how do you see the, you know, relative proportion of different segments, the JLG, Nicholson, and Home Loans? Going forward, how would you want this to take up the trend? And if you can give us some sense, maybe two, three years out, how would you want these sub segments of retail to be in various proportion?
See, the way we think about it is that there are a certain set of businesses where we have very natural advantages and a good ten year track record and the scale and all that. So and and let me say our natural capabilities. Those business are, let me say, two wheeler finance, a consumer durable financing, let me say, against property, even affordable home loan, business loans, and so on and so forth. So these kind of businesses, you know, we we we have we it's a pattern of ten years have gone by by our side. And we know that if you do the business, at least at our kind of underwriting we were doing in capital first, we knew that it was predictably giving us 2.75% as a credit loss, give or take a little bit here and there.
So because you play in those waters, you have the kind of losses. It just goes as part of that trade. And you had the yields to support it. And as long as this 2.7% serves a stable number, we were always happy. You'll end at 16%, you have OpEx of the 6%, you have rate loss of 2.7% or 3%, then you have ROA of 3% odd, and you have multiply by seven times and you make 18 ROE.
So that is how that gets played. Now and, of course, I've got that piece. I've got that. Now as we become a bank, what we have started doing is this is this is this is such a change in our strategy. The core model and the intellectual property we built on those businesses, that continues.
Yeah. I mean, we we we developed it ten years. We're not gonna let go just because we were buying. But what we have started doing is that we have started playing more in the safer segments, like the traditionally safer segment, like the prime home loans. So in the prime home loans, for example, now because our cost of funds has come down so much, we are also right out there in the prime home loan market lending at 6.9%.
So in this segment, the credit loss of they don't get much yield, but they don't have much credit loss at all. In fact, I'd say that hardly anything at all. So therefore, the blend to blend of this book, which was giving 2.75% credit loss in capital first, more because of the fact that we are more price competitive, we are playing the safer part of the respective businesses we do, our blended credit loss should now come down to 2%. I hope that explains to you why we believe two will come down to 2% and it is not just a number we are giving as guidance without thinking through. We thought it through, we've done our mathematics, we've done our analytics, we've done analysis.
We've seen our checkbox data. We've seen our vintage analysis. So we have enough data points to quadrangulate and come to the conclusion that we are comfortably headed to below 2% in credit loss. In fact, below, I should say.
And, sir, is the implicit then assumption here is that we will no longer ever be going back to the cost saving rate that you're in from here on. Like, that that's history for our in rates will incrementally either be a dealer or they will in terms of the desire to garner is now no longer at the cost of the rates. Right?
See, I I I don't think any any leader will ever try to box themselves in a position that they will never do this and never do that. You know, they always play to the occasion. Being on the merit of the ball, we play our shots. But the directionally, if you ask me, which is the way I'd like to take the bank to, yeah, the chances are that they'll not like to go there.
Sure, sir. Thank you.
I'll come back in the queue.
Thank you. The next question is from the line of Rohit Jain from Tata Capital Partners. Please go ahead.
Yes, hi. Thanks for taking my questions again. Just wanted to get back to the write off discussion that we had earlier in the call. Now I understand you said that you're confident that you'll recover the money eventually. And at the same time, you said that the write offs happen in a formulaic manner when, let's say, somebody is two forty or three hundred days past due.
So my question is that, you know, the COVID second wave maybe impacted someone for sixty days, but a customer who had already been delinquent for about two hundred days, what difference does it make? I mean, so, the fact that you've taken a write off, it's it's not something that, you know, automatically we can assume that it will come back because the customer was even if we leave aside COVID, we have to anyways, delinquent for about two hundred days, which is
a long period of time. Absolutely. No doubt. We're not saying every customer is gonna pay you back, but we are talking of that of a timing issue. You know, customers who are always traditionally good customers, you know, for for three years or two years have been paying you.
Suddenly, you know, just because of COVID, they moved to bucket 30 to 60, think, to 90 or 90 to 20, they'll pay. Customers are already sitting on maybe 180 dpd and moved to now one to 110. Well, this is a pretty low chance that the customer will pay.
No. No. So so let me clarify. I was not talking about the other GMP. I was talking about the discussion on the write offs.
And the customers who are getting written up are not sitting in the thirty, sixty, ninety days past due bucket. They are, as you said, sitting in the two hundred to forty days past due bucket. So those are so I am specifically talking about that side of 1,500 odd crores that you have taken. I mean, from where I see the the chances of recovering anything from them should be absolutely removed because they were, even before the COVID times, you know, completely, let's say, the traffic was not satisfactory at all.
No. It's a good question. The thing is that the the both first of all, our write off policy is more conservative. If you see a provisioning ratio, it's 50%.
And
and and it's not today. If you go back in time, like, any time for ten years, there's some disturbance in somebody's line, non speakers can go on mute, it be great. So if you think of our provisioning ratio has always been like 50%, fifty % because our growth is always two and net was always one. Now what does it mean? Basically, means that our write off policy has been conservative for extended periods of time and the earnings in the business are strong enough to make a neat return on equity.
That was a that's a broad thinking. Now here also, for our right now, our both our purchasing policy as well as write off policy is quite conservative. So it's not that these customers are all sitting at one three sixty d p d or 400 d p d. Many of these customers are even earlier buckets. Second thing is that when we when we talk of charge off, I just want to make one thing very I I wanna make it I wanna simplify it to you for you.
If you think of when I say that we expect 2.5% of the average book to be charged off to the P and L, what does it mean? It means that, that portion of the portfolio, we have has slipped to 9090% plus or 120% plus or 150 It slipped into those respective buckets, and we have taken provisions of that amount. It's the provisions effectively that hits the P and L, and that asset divided by average book becomes. So our provisions, let me just say, start very early. No, no.
Understand. Therefore, to correlate the whole thing, the write off is not correct. Think correlated to to provision. And the provisions can't really our own experiences, by the way, not just not just in the COVID, we believe COVID money that we're providing today, good portion of it will come back. And I I I can't say good portion to be fair to my responsibilities.
I can't say I would like to edit it to say that a reasonable proportion. But let me just step back from COVID. Even before COVID, continuously, what we charge off, a portion of that keeps coming back. Our experience has been typically about 1% to 1.5% of the return of pool keeps coming back every month, even in normal days.
No. So Mr. Vedanta, what I wanted to ask is, this quarter, the credit cost was INR1800 crores. And when you say that for the overall year, it's going be around INR2900 odd crores. Now surely that does not include write offs because, I mean, if you include write offs, I mean, that would itself become 3,200 and write offs anyways will all part of the
Include write off. So,
I mean, no. No. I am not getting it. So the provision of 1,800 that we have, it includes 1,400 write off. So the net incremental provision except for the accounts written off is only 400 crores in this quarter.
Yes. Rohit, I'll I'll I'll answer that. So write off is generally followed by a provisioning first. Right? So when there is a % provisioning done on done on an account, then it goes into a write off mode after certain specified days.
Right? So and then you write off an account, it gets charged to PNL. At the same time, your provision gets released because there is no incremental impact in the subsequent quarter. So
No. I
Roy, I think I think we're really confusing a lot of, you know, 200 odd odd people on on a simple basis. Okay. Enough. So dynamic is can check, but I'll just keep it simple because I don't control everybody at the same time. Let me just keep it very give you a simple answer.
When a customer or when a customer goes to, say, 90 dpd and supposing the provisioning policy of that customer base is, say, 25%. So that 25% and that DPD is taken to the provisioning line. Similarly, when the same customer goes to, say, 120 or 190 to 150 or 180,000,000 there's a certain provisioning policy. We take it to the P and L. That's a formula, end of matter.
So that is what hits the P and L. Now out of that money, subsequent to what's being provided, maybe few months from then, it comes for write off. So write off comes from the provisioning pool. So don't come don't double count it, and I fear it will confuse everybody. So just leave it there.
If you have any specific doubt, you can check what I've explained to the best I could be in a quickest sort of way.
Think of it I'll take it offline. Yeah.
Yeah. Take it. So think of it like a provision divided average book is what we call, you know, in a in a simple sort of way, I can say, the provision divided average book is what is a credit loss. Think of it like that. Yeah.
Perfumerous credit loss.
If if I can just make a last point, as you said that the return off is only on account with us % provided, which means that the 1,800 incremental that we are providing
Wait. Can we stay the limit, right, on this one technical item? Hard to solve it on a
Yeah. Last question is a strategic question, more on the strategy of growing in retail. What I wanted to understand is a lot of banks are incrementally focusing on retail. We have a lot of fintechs who are targeting spaces, which were earlier targeted by NBFC. Then a lot of NBFC themselves are trying to become fintech.
So in the backdrop of all this, I mean, I just want to understand, what is the consumer base that, let's say, still remains attractive? How far do you think we have headroom to grow our retail book in a manner which is going to keep our yields where they are? So just wanted to understand strategically where do you see retail heading given the on let's say, onslaught of fintechs and also the fact that some of these bigger banks are now focusing on the retail segment?
See, first of all, we are also a reasonably, you know, let me say, digital company. We work ahead. Secondly, let me just say that that the businesses we're building are, like, can go on and on beyond my life and your life, it's never gonna end. This is as of now, you know, for us, our own the the feeling is that for us to grow at 25% year on year on year on year, like, for for for a long time is is is not a problem at all. Basically, there are two big deals being paid out in India.
One is the extent of, you know, formalization of the economy is happening. So people who are not borrowing from the formal market are now coming to the formal market and taking from the market. And secondly, set of people who don't take credit at all are also coming and taking credit because of, you know, they they they're coming of age or they're coming to the working pool or whatever. So this is this game is not gonna stop. So we don't at at least at for our bank, I can put that to rest.
I think we can go at 25%, like, really for a long time. You think of a, you know, really good bank like, you know, an ICICI bank or HDFC bank or, you know, think of any other good bank in India. And, you know, look at look at them. They are, like, 5 lakh crores as ICSI Bank retail book or little more than that, and it's still growing at 20%. You look at FBI, maybe 30 lakh crores, still growing.
So, I mean, we are only, I mean, from Chinese standard, 70,000 crores is nothing. That's the start of the game.
Fair enough. And this growth, I'm assuming, is purely, let's say, driven by your own gains and not so dependent on GDP growth? Or is there also an element of 25% being contingent on growth being over, let's say, 7% or something like that?
It depends on how big you are. If you are really India's largest bank with some that sort of a market share of having that size of a book, then you say, look, I depend on economy. But when you're coming on a really small book, I call 70,000 really small, by the way. It's nothing. So when it's coming off this book, for you to grow at 25%, thirty % is nothing.
You see the large NBF in India, which is probably 1.5 lakh crores. They're also growing. So it depends on the size. We are still very small. For for us, growth is not the issue.
Our bigger thing to watch out for is to to make sure that our credit quality is consistent. You know, we've had a long track record of having very stable asset quality of gross NPA of two and net NPA of one. It's, like, ten years. It is our point. Our wish is to hold it at, again, back, except when the COVID they go through, to bring it back two and one and sustain it back for, like, ever and ever.
That would be a wish to credit quality, the credit bureau watch out for. The second thing is to for us to to watch out for in this game is to is to keep our unit operation operating cost economics in a in a way that it could basically generate return on equity of, let me say, high teens, like eighteen, twenty ish, actually from the retail side, on lending side. So those two kind of things and, of course, those kind of things. But really, growth is not the issue for us.
Sure, thanks a lot. Appreciate it.
Thank you. The next question is from the line of Anand Dhama from MK Global. Please go ahead.
Yes, sir. Thank you for the opportunity. Sir, on your retail portfolio, so when we really look at our retail portfolio at this point of time, seems to be listed on a higher risk side as well as, you know, it is giving
us good margins as well.
I understand that, basically, we are getting some benefit on the first half one side. So how do you see the portfolio mix changing going forward in terms of products going forward? We already launched cards, and we are also doing PL, but not in a big way at this point of time. So how will this really portfolio product mix will look like over the next two to three years? If you can just talk about that, that will be great, particularly now that we have the experience of COVID as well.
See, the way we think about it that our big, big growth area definitely be home loans. And see, home loans, even before we were bank, we were very good at affordable housing, a pretty good, pretty low NPA even just because affordable doesn't mean it's high doesn't mean it's high NPA and all that. It's not true. We had a pretty low NPA, low gross, low net, not much credit loss, etcetera, affordable. So that was what we were doing.
But now that moment we started entering into the prime home loan market, we are finding fantastic response. Really, that made us very, very happy. So the core home loan will continue to grow. You know, the other businesses, of course, if you ask us
to pick which would be
the fastest growing, I'd say, yeah, home loan would be the fastest growing. Second fastest growing probably will be our SME loans and SME, meaning business installment loans, maybe loan against property, these kind of loans. Our rural business is a big growth area. We are, again, I must say, are really small. We are probably just about 13% of our book of our 95,000 crore book is rural.
And imagine the size of rural. So rural is going to be a big area for us. We are short of PSL, and we hope to grow rural to meet our PSL requirements. Short of PSL meaning we're buying PSL in the market. We are not self sufficient.
So to that extent, we will grow rural Sorry. That that that should grow a little bit faster than our rest of the book. Our credit card book, of course, a newly launched book, so it could grow. So these are few business that could grow ahead of ahead of the rest. And, of course, rest of the business will continue to grow.
Sir, is there any top yeah.
Let us say mix mix sense will be more home loan and home loan biased, if you say.
But will your home loan be somewhere about 3040% above?
Yes. Eventually, in the long run, definitely. I think we'll become a 40% home loan bank in the long run. That's because, you know, home loan has a tendency let me say mortgages, if you want to be more safer than that, home loan and Yep. Lab, etcetera, put together.
But comfortably, we'll be 40%, and maybe 60% will be others. Because I think the the the the key thing or dynamic about mortgage is that it tends to stay on your books for long because it's a long term loan, and others have a pretty short runoff. So you got to run work harder and harder to grow the other books, and mortgage tends to just grow linearly.
Yes. Sure. And so in that case, basically, there will be a trade off in terms of margins because now we have, you know, the peak margin that we are seeing at this point of time. So where do you think these margins will actually settle in next two to three years?
No. You know, this it is a double it's a it's a trade off both sides, actually. So definitely, you're right. In in a margin sense, it's a it's it's a trade off where you have a lesser margin in home, but it also have a operating cost. Do you see the other business that we run?
That is the two wheelers and consumer durables and credit cards and all the other business that they, you know, they tend to, of course, give you good yield, but the operating cost of the business is, like, pretty high, six to 8% depending on business we're in. Home loan office could could be very low. Look at HDFC's h HDFC's home loan book when it's fully evolved. Cost income of 17%. Can you beat beat that?
So you have a benefit, of course, in terms of a negative trade off as far as yield is concerned, but there's a positive trade off in OpEx to average book.
Okay. Sure. Yeah. So secondly, in terms of your retail portfolio, you know, you do give basically the in YouTube bank customers and those kind of data. Is it possible for you to give more qualitative and granular details in terms of your retail customers, be it customer scores as such?
Because, you know, every I think all of us, typically, we have concern about the portfolio that we bring on our book, particularly on the retail front end. We are seeing higher write offs coming through. So if you can give some comfort in terms of the customers that we have at this point of time, what kind of portfolio that you that we have actually built over the past two to three years, how it is going to really look like going forward, that will be very helpful. Okay. The if if that's helpful, I'll give
you ready made answers because the slide is in front of me. So let me just put it like that. You let me take you directionally where we're headed. Now think Capital First is born, let me say, in 02/2010 or '12, and think that the borrowing cost is 14%. Mhmm.
And what do you do to lend to to make a living? What do you do? You lend at twenty
four? You lend at yeah.
You lend at twenty four. Now who's borrowed 24 from you?
Yeah. Certainly, they they did the customer.
Exactly. So at that point of time, when we took when we started the business, at that point of time in fact, remember, we're starting from a INR 94 crore rupee book. You know? So obviously, we were lending to everybody. Almost everybody we were lending to were probably people who did not have any bill score, and that's where we learned a trade, let me say, by playing in those waters.
Now as the cost of funds kept down coming down to $12.11 and so on, we started we started the ability to play in the safer segment. I mean, safer compared to everything is relative, so SAFR compared to what it was in 2010, '20 '11, '20 '12, '13. And then we started lending about 25% of our book was new to credit, that is around 2017, '18 or so, I mean, approximately maybe a year here. In January to June 2019, '17 percent of our book was new to credit. In June December '20 '19, '16 percent of our customers are new to book.
In January 2021 to June 2021, '10 percent of our customers are new to credit. So if you see the headline, you can clearly see that as our cost of goods are getting better and we can be more competitive, we are doing more we're taking lesser of new to credit customers. And anyway, at the bank, I'd say that it's expected of us to be a little more banking license as a safer thing. And we got to it feels more comfortable moving to safer and safer credits. But directionally, you could see where the number is headed from the 20s to the 10.
The second thing that gives you helps you color in that is the set number of customers whose bureau score is greater than 700. So even as recently as Jan nineteenth to June 19, '60 '1 percent of our customers had a bureau score of greater than 700, and 39% had a Bureau score of less than 700. And by the way, even that is a good portfolio priced for itself. It's not that it's a bad portfolio. It's just that the economics I described to how it worked.
When we're talking in Jan to June 2021, as in the latest six months that have gone by, 83% of our customers is now greater than 700 score. This is I'm talking all Urbana, by the way. So 61% to 83% in two years. So you can see that we are moving as the cost of funds getting better. We are moving to safer credit.
That doesn't mean, you know, we lose our economics of ROE goes away. It's just that our cost of funds come down, yield is lower, credit cost is lesser. It just it just it just the way it is. But I I hope that that gave you color about what we're doing.
Yep. Yeah. Certainly. But then, basically, if if this basically customers, you know, who are there even existing to credit, you know, if they are remaining somewhere around 90% of interest in credit to credit. But if these customers are often weak profile, then certainly the tendency of them to turn into into, you know, default is is very high.
Right? So if you can put out some data in presentation and which can be tracked, I think, over a period of time, that will be very, very helpful,
I believe. No. No. It's already there, by the way, in page number 12. You already described the numbers what I've told you right now.
It's already of scores, if you can.
So the way you basically put out the scores, you know, for 700 and above, that that kind of data can be captured at Google.
No. No. I'm saying it's there. You if you see the page 12, you'll find it. The 6183% customers having score greater than 700 is there in the data.
So I will present the data going forward also. The short point is that our as the years are rolling by, we are, of course, becoming a little more if you were to put it so, if that's an appropriate word, we're getting a little more conservative. I I think it's a good thing for the bank in the longer run. But that doesn't mean we want to let go of our capabilities built on ten years, but we we wanna do it in moderation.
Sure. And, sir, lastly, if you can help us in terms of note, we had this recently where the whole call and the, you know, subsidiary can be merged. So any update on that front, how it will take forward?
So, basically, if your question is, Avi, with regard to the holdco and
the
RBI Yeah. Trying trying to come out and if that's the question, there's there's absolutely no discussion at this point of time.
Even at the hold call level? No.
I would now like to hand the conference over to Mr. Kunalcha for closing comments.
Thanks, Mr. Vijayanathan and the entire senior management team of IDFC FirstBank for such a comprehensive and exhaustive explanation to all the questions on results as well as strategy. And thanks all the participants for being there on the call. Thank you, everyone.
It was nice speaking to all of you. Thanks,
sir. Thank you, everyone. Have a good weekend.
Yes. Thanks. Have a nice weekend. Yes.
Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and
you
may now disconnect your lines.