Ladies and gentlemen, good day and welcome to IDFC FIRST Bank's Q1 FY 2027 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance in the conference call, please signal an operator by pressing Star then Zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Saptarshi Bapari, Head, Investor Relations and ESG. Thank you, and over to you, Mr. Bapari.
Thanks, Sanju. Thanks a lot. Hi, everyone. Good evening. Thanks for joining the call. We have with us Mr. V. Vaidyanathan, MD and CEO of our bank, and Sudhanshu Jain, our CFO. We'll start with the brief financial update with Sudhanshu, and then we can have some words from Vaidya, and then we can open the forum for Q&A. Okay? I'll hand over to Sudhanshu. Sudhanshu.
Thanks, Saptarshi. Good evening, everyone. First of all, thank you for participating on a Saturday evening. In terms of sequence, I'll start with maybe the business side and then eventually cover the profitability segment. I would say that the business momentum was quite strong during the quarter.
In fact, our customer business, which is your deposits plus your funded assets, that has crossed INR 6 lakh crore during the quarter, and we saw a year-over-year increase almost about 20%, both put together. Individually, if I now talk about loan book, there also, we registered a strong growth of 20.6% on a year-over-year basis, and that book has now crossed INR 3 lakh crore to reach about INR 3.05 lakh crore. This incremental growth on the loan side was primarily driven by mortgage, vehicle, corporate loans, and consumer loans. We have given a fairly detailed breakup on slide 29 of the presentation.
If I talk of the retail segment, Retail, A gri, and the MSME book, that was at INR 2.4 lakh crore, and the wholesale book was at INR 64,000 crore at June quarter. The retail agri and MSME book grew by about 18% on a year-over-year basis, and in wholesale, we continued to power up, and there the growth was even stronger at 30%. Just another data point, the MFI book was at INR 6,700 crore at June 26 end. We saw a marginal increase as against the previous quarter. Another point which I want to put out is that 93% of the book is now covered in MFI through the CGFMU coverage. With respect to credit cards, the cards in ports have now reached 4.8 million during the quarter. The book grew by about 19% on a year-over-year basis and was about INR 9,600 crore.
The spends on the credit card grew at a healthy pace of 22% on a year-over-year basis. Moving on to the wealth management business, there the AUM has now reached almost about INR 64,000 crore, and it grew at 24% on a year-over-year basis. In the same breath, if I now talk of the asset quality, again, on the asset quality, we saw an improving trajectory both across GNPA, NNPA, SMA, and some of those ratios. Just to put out some numbers, the gross NPA of the bank further improved by 10 basis points from 1.61% reported in Q4 to 1.51%. Similarly, on net NPA, we saw an improvement of 4 basis points to 0.44% for the quarter.
If I now give further details around the retail, rural, and MSME segment, there also sequentially, the gross NPA improved by 7 basis points to 1.4%, and similarly, net NPA improved by 4 basis points to 0.52%. Moving on gross slippages, happy to report that here we saw a 2% reduction on a quarter-on-quarter basis, and on net slippages, we saw an improvement about 4%. Gross slippages, if we have to compare on a year-over-year basis, it's almost down by 30%, and net slippages was lower by about 44% on a year-over-year basis. We know that last year, initial quarters, we also had higher slippages coming from MFI. But even if we exclude MFI slippage for both the corresponding quarters, the decline in gross and net slippage was 14% and 28% respectively.
In terms of translation to the overall slippage ratio, that further improved to 2.49% in the current quarter as compared to 2.68% which we saw in the previous quarter. The collection efficiency of the bank continues to be quite stable now for many quarters. It was at 99.5% for the current quarter. Moving on to SMA 1 and 2 numbers. There we continue to see an improving trend. The SMA was at 0.77% in Q1 FY 2027 from 0.78%, which we saw in the previous quarter, and 1.10% in Q1 of last year. We have given a fairly detailed breakup across segments in terms of how SMA and NPA numbers have fared for us. Similarly, in microfinance, I would say things have largely got restored on the asset quality front. Here, the SMA- 1 and SMA-2 normalized to now only 0.71%.
If I now talk of deposits, happy to report again that customer deposits now is just shy of INR 3 lakh crore. It grew by about 16.6% on a year-over-year basis and 5.3% on a quarter-on-quarter basis. If I see a total deposit, which is customer deposits plus certificate of deposits, the growth was about 17.7% on a year-over-year basis and 5.9% on a quarter-on-quarter basis. Within customer deposits, CASA deposits, I would say, grew the fastest. CASA ratio for the quarter as a result improved by 1% to 50.8%, and average CASA ratio stood above the 50% mark at 50.1%. The CASA deposits have now touched INR 1.58 lakh crore. I would say another milestone crossed during the quarter was CASA going beyond INR 150,000 crore. Moving on to now the profitability section.
Happy to report that we have crossed profit of INR 1,000 crores for the first time. The profit for the quarter stands at INR 1,075 crores, which is an improvement of about 132% on a year-over-year basis. During the quarter, all operating metrics continued to demonstrate an improving growth trajectory. For example, NI grew by 21.1% on a year-over-year basis. This in fact improved from 15.7%, which we saw as a year-over-year increase in the previous quarter. As a result, the net interest margin on an AUM improved by 3 basis points to 5.96% from 5.93% in the previous quarter. However, let me point out that the last quarter had a benefit of day count convention of about 8 basis points. In this quarter, we had some benefit on account of interest on income tax refund, which contributed to 6 basis points.
If I exclude these two line items from the individual quarters, the NIM has shown an improvement of 5 basis points, and the adjusted numbers would look like 5.85% going up to 5.9%. This improvement was largely contributed by reduction in cost of fund, which further came down from 6% to 5.96%. Moving on to the fee and other income. Here also, we saw strong growth, I would say backed by disbursements, which almost increased by 25+% on a year-over-year basis in Q1. As a result, the overall fee income increased by 22.9% on a year-over-year basis compared to 21.3% year-over-year, which we saw in Q4. The other streams of fee income, which is your trade and FX, which is your commercial banking, and all these rigid fees also continue to contribute strongly to the fee growth.
As a result of the increase in the NI and the fee, the total income for Q1 on a year-over-year basis was 21.5% higher versus about 17.1%, what we had reported for the previous quarter. During the quarter, we had a good run on the treasury front. Of course, that was helped by softening of the G-Sec yields to some extent. Hence we were able to get a treasury gain of about INR 181 crores in Q1. Moving on to OpEx. The OpEx for the quarter stood at INR 5,729 crores. This grew by 16.4% on a year-over-year basis. The sequential increase in OpEx, if we exclude the impact of the one-off fraud incident in Q4, then it was 2.3%. This increase of 2.3% on a sequential basis, corresponds to an increase in core income by about 4.6% on a sequential basis.
As a result, the Cost-to-income ratio, excluding trading gains, improved by 166 basis points on a sequential basis to 70.7%, by 310 basis points on a year-over-year basis. We have also mentioned in the presentation that the Jaws, which is operating Jaws between the total income and OpEx for Q1 now almost stands at about 500 basis points, which to some extent has also translated into improvement in the Cost-to-income ratio. As a result of all of this, the operating profit of the quarter, excluding trading gains, has increased by 36% on a year-over-year basis. Even sequentially, again, here I would exclude the impact of the fraud incident. The improvement was 10.9% on a sequential basis. For last two quarters in a row now, we are getting an operating profit increase of upwards of 30%. Moving on to provisions.
This reduced by 31.1% from INR 1,659 crore to INR 1,144 crore. On QoQ basis, if you see, it has remained at the same levels. Last quarter, the actual credit cost was about INR 1,143 crore. During the quarter, we had received claim of INR 514.8 crore under the CGFMU scheme against MFI portfolio. Here, I would just want to put a data point that we believe that we applied in this quarter and we got it in this quarter, which was quite fast in that sense. Another point to call with respect to provisions is that we have created a contingency provision of INR 515 crore. This is purely, I would say, voluntary and on a prudent basis, considering the evolving macroeconomic and the geopolitical uncertainties and the monsoon-related factor.
I would again reiterate that the bank's current asset quality performance remains quite healthy across key retail, rural, and SME portfolios, with delinquency indicators largely stable or improving. Hence, this provision is purely, I would say, forward-looking and more prudent in that sense. In terms of credit cost % for the quarter, that further improved from 1.60% to 1.53% during the quarter. Moving on to the last section, which is capital adequacy and liquidity. The capital adequacy ratio stood at 15.05%. At June, with CET1 ratio of 13.33%, we had an impact of about 30 basis points on account of ops risk RWA reset, which typically happens in Q1 on the CET1 ratio. On liquidity, I would say we continue to maintain LCR at stable levels. In fact, average LCR ratio for the quarter was about 116%.
This broadly around our guided range as we have indicated in the earlier calls. With this, I have tried to cover the key numbers. Maybe I'll hand over now to Vaidya for his opening remarks.
Good evening, everybody. Sudhanshu just covered the numbers, so I'll skip the comments on that. The thing is that beyond the numbers, what the bank is really building is what we're trying to build is a really high-quality customer-first bank. This goes core to the culture of the bank. Because when we say a customer-first bank, then it's just not a slogan. Every policy of the bank, every product of the bank, every way of our employees interact with customers, how they give the customers benefit of doubt in the event of a complication or error of opinion or difference of opinion, everything has to reflect that. For example, we hate to put asterisks in our advertisements because we know asterisks, people don't see that, and they just jump into the advertisement and they consume the product. This happens.
For example, even after four or five or seven years of talking about that, even now, sometimes when I go out and meet any of our employees or see some responses from our employees to some customers, I find it may not be customer first. They will have disputed the customer for some small amount and negotiated unnecessarily. I do find such things, but it is a long process. Every product we put, we try to bring that in. We try to see that we do not write fees and charges in such ways as complicated languages customers do not understand. We do not charge fees just because the customer does not notice. Just because you do not notice, I cannot bill you. If you are selling a mutual fund, we do not just pick a mutual fund that gives the highest commission and sell it to customer.
We go and do a deep analysis using AI and find such mutual funds which will give maximum return to the customer. Whether we get 0.7% or 0.8% or 0.9%, 1%, it is all round off numbers. We do not really look and try to maximize that front. This is what I mean by saying that we are trying to really build that, and that is one big part of the bank is building. It will show in due course. To an extent it is showing, I think that it is reflecting in the numbers somewhere, but it will also show in due course. I cannot surely tell that every part of this is helping the bank in terms of P&L. It costs money to build a bank like this, but these are great long-term franchises.
Second thing, I would say that with governance, I can tell you that even during the most difficult times when we were starting the bank up six or seven years ago, when we were posting loss of three or four quarters in a row for those bad loans, we did not have any PPOP at all. In fact, our PPOP was like 0.5%, 0.6%. Our credit cost used to be 1%, so really that left us with no profit on the core. Even then, we did not find cute solutions around our situations. We went through that boldly and dealt straight. Governance, you will not find us lacking. If something inadvertent happens, I do not know. But no one that I know of in our bank, in our board, among our colleagues, among senior management, anyone would ever talk anything or even suggest something that can go bad on governance.
You should rest assured that it is seven years, and many of you who know me for 25, 30 years would know that we have lived that life like that and we will not go. That should definitely, in good days and bad days, should give you comfort that this bank will deal straight and deal right. The third thing then comes down to, its technology. I can tell you that tech is a big thing and our bank now for many, many years have been making the right moves on technology. It is not really the cost. People think tech just costs money. It is not about costing money.
It is about building the right architecture, having the right quality of people, building a stack inside out, our customer data platforms, our KYC platforms, digital onboarding, payment infrastructure, communications and risk and decisioning engines, API, data streaming, machine learning, artificial intelligence, the whole stack, UI/ UX and everything. We really try to, let me say even customer intelligence, customer data platforms, everything is like we really put an effort in building that. Customers are using the bank services now, whether using our app, using our call center. I'm quite sure they would have seen the experience. In fact, when I often go to conferences, if I have to speak a panel, et cetera, I often ask people to put up their hands, how many of them have customers at the bank? You'll be surprised. I do find quite a few people.
The point is that we are trying our best to stay in the cutting edge of technology and governance and customer service, I told you. The last thing is finally, this has to of course translate to numbers end of the day, because from the market's point of view, you track numbers, and you should. My sense is that whatever numbers we'll post, we believe it's coming strong from the core. It comes strong from the core if it's more sustainable. On that front, let me just say that for the last many years we've been under the pump on this issue of cost-to-income ratio. I don't deny. In fact, in the first thought, I got it wrong because we thought we'll fix it in five years. It's been seven years, we're still dealing with it.
I just realized that the issue was some amount of income got wiped out because we wrote off a lot of bad loans. Along with that, income also went away permanently. Some amount of cost issues also came from the fact that we were really building. While we may have got the cost-to-income issue wrong, which I don't deny, I told you, I admit. There are so many things we got right also, beyond the normal. For example, we said we'll be INR 1 lakh crore of retail loans at the end of five years or five to six years. We were sitting at INR 1.7 lakh crore-INR 1.8 lakh crore at that period. Today, we are INR 2.5 lakh crore. That's like INR 70,000 crore-INR 80,000 crore more than what we talked about. We talked of CASA of 30%. Now we're talking CASA of 50%. It was not planned.
There are many things that, NRI deposits. Now we're talking about INR 25,000 crore of NRI deposits in the bank. Maybe for so many loans that came this way or that way, we didn't. If we didn't factor for certain bad loans, fine, it's our mistake, I don't deny it. The fact is that, starting up a bank, there are just so many expenses on compliance, on setting up the ticketing systems, the CRM systems. It's just an expensive proposition. I must thank you that while in the phase of building the bank, let me say that the market has given us capital. Again, our book value per share has gone up from some 31 or 32 to maybe 56 or 57 now, Sudhanshu? 56 now. I agree that all of it has not come from raising internal profits.
A lot of it has come by raising capital at a premium. Even though our return on equity used to be relatively low those days, 5% or 6% on average, the investors have, all of you, have given us capital at about 1.5 price to book or 1.6 price to book, which has helped us build the network. I don't deny these things. They've all helped us in good measure because, but end of the day, network is network, capital is capital, and book value per share is book value per share. We have it now. Now our job is to grow return on equity. We strengthened the bank through capital raise, I agree. Now it's our job to, now that we got adequate scale, we believe that the cost-income ratio will get fixed definitely.
Actually, if you see our cost-income ratio over the last two or three years, initially, it came down from 95.1%, this is on Q2 FY 2019, it came down to 85% upon merger because Capital First came with 48%, and blend came to 85%. From 85%, it moved on to 72%, right up to 72.8%. In 2025, in 2026, two years in a row, it got stuck at 72.5% or 73.5%. Many people started worrying that, look, maybe they're just stuck and maybe there's no scope for improvement anymore. I think that is not right. It got stuck because even during those days of 2025 and 2026, productivity gains were coming, the income was coming down because the microfinance book, we shrunk it and income went away. After all, what is cost income? It's cost divided by income. Income got stuck.
I mean, got stuck meaning it got reduced because the microfinance book, we reduced it. Maybe say that was a mathematical thing, there were productivity gains coming at that time. It kind of got obscured. Now that the microfinance issue is built in the base case, now we will start seeing improvement in cost-income ratio quarter-on-quarter. Sorry, let me say year-on-year because quarter-on-quarter, I can't say for sure. Sometimes moving parts happen here or there. Let me say year-on-year, you should expect to see, and that phase that for two or three years we got stuck, we believe it will start materially moving down year-on-year now because it's all in the base case now. Just moving on from the tech thing and from there I talked about economics.
On the economics front, the last thing people often say is that, listen, even well-meaning investors, long-term people who think long, they used to often say that, "Look, we like your model, everything is good, still end of the day, until you're posting 1% ROA, really, we can't look at you." That's a base case. Let me just tell you that when we do our maths, we draw up a spreadsheet. We know the income we're making, we know our cost of funds, we know the margin, and we stretch this spreadsheet into the future. Let me just tell you that this is not going to stop at 1% ROA. Even this time's ROA, 1% that we mentioned, that has got some time, let me say, some amount of income tax, some interest income into it. As in the treasury gain.
Treasury gain is also there and some benefit here and there. If you adjust for it, maybe it will come down to about 90 basis points. 90 basis points. It is not 106 as it is looking. Still 90 is 90. It is like touch and go. I remember in a couple of interviews, even with CNBC during the depth of the crisis, I took an interview just to assure people that things are well. That is an interview with Latha Venkatesh, and I was telling her we will be in kissing distance of 1% by end of the year. I am just happy to share with you that we are not taking end of the year. We are already touching kissing distance. We are touching, like 0.9%. It is real. We think that it will move up from here or definitely stabilize from here, probably go up from here.
At least by this year, in fact, not just by the year ending, hopefully for the year itself, we should be able to post 1%, is our belief as far as our eyes can see. That is a bit of an upgrade, and that is coming in our mind because credit cost is better than expected. All I can say is that all of you have been very supportive for us. We are very sincerely thankful to you. We want to thank all our employees who have worked very hard in bringing up this bank from the beginning.
Every one of the shareholders who supported us with capital, I can assure you that things are looking up. For those who think that probably this is a one-quarter thing, I am pretty sure if you wait for one more quarter, you will get the confidence back. Thank you for that.
Thanks, Vaidyanathan. Anju, we can open the forum for the Q&A session now.
Yes, sir. Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Akshay Jain with Autonomous LLP. Please go ahead.
Thank you, sir. Thank you for the opportunity, and congratulations on a good quarter. Sir, my first question is on margins. If I look at cost of funds, that is still improving with additional tailwinds from star rate cuts, if and when it comes. That leaves us with asset mix shift. Is asset mix shift expected to be so severe that your clean margins of 5.9% this quarter will turn into 5.75% for full year? That's my first question.
Yeah, thanks, Akshay, for the question.
Yeah.
Yeah. Should I respond to this, or you want to continue with your other set of questions?
Anything is fine, sir. Maybe you can respond to this and that.
Maybe I'll respond to the margin question first. I do agree in the previous earnings call, we had guided for a 5.75% margin, and we have come at 5.9% if we adjust for income tax refund. Now for the year, our expectation is that we could hit margin closer to 5.8%. In that sense, we now feel that margin could improve from 5.75% to 5.8%. If we see for this quarter, as I said, the margin was 5.9%. We got some benefits because we ran a lower investment book. From here on into the year, we see the margins could still slightly get impacted because of the asset mix change, which we've articulated in the previous call as well. Because we have been growing some segments of business, which could be NIM dilutive, but still make sense from an ROE sense.
Still, it could be a margin impacting factor. Second, we feel the cost of funds could stabilize, could stay very range-bound around the 6% mark. That's the second factor. Some normalization of the investment book, which may happen during the course of the year. We feel that margins could broadly stay around the 5.8% handle now for the full year.
Okay, sir. Any sensitivity have you done for how your margins will move in case of rate hikes? Any numbers you have done?
I have not factored in any rate hike when we are giving these projections. We'll see as it comes by.
Okay. The second question is on credit cost. Again, for 1Q, your credit cost has been around 153 basis points, and 1Q is typically the weakest quarter for the year. If you are beating your guidance of 180 basis points, 190 basis points in 1Q itself. Is there any scope for bringing down the credit cost guidance? Number two is on the prudential provisions. Are you seeing any signs, early warning indicators, turning negative because of the Middle East war or weaker monsoons?
On credit cost, to our surprise, Q1 has fared quite well. In fact, we spoke in the previous quarter, Q4 typically tends to be the much better quarter. Collection momentum is quite strong there. From an asset quality front, we have seen all of this sort of flowing into Q1 as well. We have said that all the asset indicators, which we have put on the presentation, SMA, GNPA, NNPA, all sort of product-wise is trending well. We have, of course, created a contingency provision, which I would say is more on a prudent basis. We all know the uncertainties which we are currently dealing with in terms of the geopolitical factors which could play out.
Monsoon, of course, rains have been improving, but still we felt that it would be prudent on our part to take into account some of these risks which could emerge over the later part of the year. I would say it's purely a prudent provision. Taking all of this into account, I would say, of course, as I said, there could be still some bit of uncertainty here and there. On the credit cost guidance also, while we said 170-180 basis points in the previous earnings call, we feel now we could land up more with 150-160 basis points on credit cost. That is coming on the back of a much-improved Q1 and how we see at least the current quarter and some of these things could play out.
Thank you, sir. On ECL, any numbers on one-time transition and steady-state credit cost?
On this, again, I think we have discussed this question also quite a number of times in the previous calls, but the position continues to be the same. Of course, the final guidelines have come in. We are fine-tuning some of the numbers, but our preliminary sense is that from a capital point of view on transition there will be two impacts. Of course, we will be required to keep more capital aside for ECL, but there would be also benefits which would come from a reduced RW application, both on credit risk and operational risk. In a combination of both, we feel that the impact on capital could be quite neutral at the time of transition. That is our current sense as far as ECL is concerned.
Understood. The last question, if I may, on FCNR. If you can share some targets or what is the current mobilization and how are FCNR costs compared to normal TD costs?
FCNR, we also see this as a very good opportunity, and we want to capitalize to the extent possible. If you would have noted, we have given our NRI deposit book, which is about INR 25,000 crore. If you go and check, the system is about INR 1.65 trillion, which means that our share is about 1.7% currently in the NRI deposit market. Of course, this is a book which we have started growing more so in last two to three years and growing at a much healthy space. With respect to FCNR, we feel that through a combination of leverage and the SBLC structures, we are hopeful of garnering a share of about 2.5% or so. That is how we are looking at it.
You would have noted that on FCNR deposits, we have announced a rate of 6.75%, which is quite competitive, and we feel that is a very good opportunity which we want to capitalize.
Understood, sir. Thank you. Those are my questions.
Thank you.
The next question comes from the line of Param Subramanian with Investec. Please go ahead.
Hi, good evening. Thanks for taking my question and congrats on the quarter. It's really a strong bounce back from the issues we had in February, and it's happened so quickly. Congrats, really exciting on that. The first question is on the OpEx. Our guidance is 13%-14% for the full year. I understand business is coming back strongly. Are we still sticking to that sort of guidance, 13%-14% OpEx growth through the year?
Param, thanks for the question. I would want to state here that the business momentum continues to be very strong as we see now. Of course, we are cautious of the macro factors which could play out. Our endeavor would be to maintain that OpEx leverage, which is that 500 basis points delta which we were able to achieve in Q1. It all depends on the business momentum, what we see from here, but we are quite hopeful of maintaining this Jaws, even into the rest of the quarters. That's how we are seeing it. There could be, I would say, a change in both the income side as well as the OpEx side, but we would want to still maintain this 500 basis points at the minimum.
Okay, fair enough, Sudhanshu. The main drivers of our, say, ROA improved guidance is the 20 basis points upgrade you gave on credit cost guidance and on NIM, you said 5 basis points higher. Those are the main positive deltas you're talking about.
Yeah, broadly.
Okay. Going into FY 2028, I know it's very early days, Vaidya sir mentioned 1% is not where we stop. How to think about, say, how the ROA progress is going into next year.
Should increase naturally, no? Should increase naturally because next year it will be. This thing what Sudhanshu pointed out. If you remember, we had talked about 13%-14% increase in OpEx with an 18%-18.5% increase in income. Right, Param?
Yeah.
Yeah. If you see a transcript of the last call also, you'll see that.
Yes.
Now if this 18.5 is not 18.5, is 20 or 20.5, correspondingly it could have some increase in OpEx also because the market opportunities are growing. We don't want to be missing out on them and just stick to one line item. Definitely we feel like Sudhanshu said that, what Sudha mentioned. That's not the point. The point is that it is this 450-500 basis point different Jaws. If you cut paste it into next year also, which we believe it will happen. Next year meaning 2028 also. Straightaway it is a cost income reduction of about 350 basis points. Just from these numbers. When you do the maths of it, you'll find it's quite meaningful to the P&L.
Yes, absolutely, sir. I get that. Yeah. Perfect. Sir, one last question, if I may. The fraud incident, are we beginning to see any recoveries from that? If so, going ahead, where will we be booking that in the P&L, if and when?
Param, there continues to be, I would say, a progress on this front. If you go by the public news and so on. A few more arrests have been made. ED has been actively looking into the case. They filed a charge sheet and so on, indicated some amount which could be a potential recovery. All of this takes a long time, right? I'm saying there is a proper process which needs to be followed in terms of, for example, going to the PMLA court, filing our claim, then these claims will be assessed whether it's due to us in the right sense and so on. There is a lot of work that will have to be done. This is totally, I would say, a legal process, court process. Difficult to sort of put out a timeline for this, but at least we are seeing
movement on the ground, right? It will be difficult for us to sort of commit to a timeline in terms of what recovery could finally emerge from here. We continue to be quite engaged on this front.
Fair enough, Sudhanshu. Yeah, very clear. Is there anything at all in the P&L in this quarter as a recovery event?
No, nothing as of now.
Okay. Perfectly clear. Thank you so much, and congrats once again on the quarter to the entire team.
Thanks.
The next question comes from the line of Ankit Bihani with Nomura. Please go ahead.
Hi, good evening, everyone, and congrats on the quarter. Most of my questions have been answered. I have a question on our tech investment priorities over the next two to three years. Basically, how is the bank leveraging AI and GenAI capabilities across functions, and how do you see technology investment increasing from here? If we look at IT expense as a percentage of overall OpEx, it has come down a bit from 11% odd to 9% odd now. Even the large banks are operating at these levels. Could you please elaborate on this? Thank you.
Frankly, like I said before, it's not about how much you invest. It's about where you invest them. I agree, we are like 9% there. The thing is that we have built a really good architecture, a good stack, a modern stack, cloud, API-first integration, cloud-native principles, event-driven platforms, and microservices architecture. We are hollowing out the core as much as possible. We have real-time data streaming. It's all being built. I can only tell you that, for example, what people can't see, I think, generally speaking, is that people can see ROE, but they can measure us today, but they don't know the quality that has been built. What your eyes can't see, that's below the ground. On that front, I'm making my comment to you that is truly, really fantastic modern architecture is coming about in the bank.
Now, what is our approach to that? In terms of, this is a big enabler of many of our businesses that we are doing, many of the services we are providing to our customers, and naturally, there's a payback in terms of revenue and robustness at which the bank will be able to grow. Which means that, I don't think this bank will stop, when even say three years or four years from now, even we are INR 6 lakh crore sort of say in deposits, INR 5 lakh crore in loans. We can continue to grow on this platform. Once platform is strong, our foundation is strong, we can grow 20%, 20% more. Who knows? Of course, we'll put out the numbers at that point of time. As far as I can see, the platform is strong means the bank can grow for a long, long time.
Okay, sure. Just on the FCNR front, did we highlight we'll potentially capture 2.5% of the overall market share, right?
Yeah. On the FCNR, I know there are different numbers which are sort of floating around, but assuming, say $60 billion- $70 billion come in, we are hopeful of getting about 2.5% of that pool.
Okay. Till now, if you would like to give out any number, how much we have mobilized?
It has just started and is gaining steam.
It doesn't explain.
Yeah. Maybe we can give an update next time.
Okay, great. Congrats on the quarter again.
Thanks.
Thank you.
The next question comes from the line of Jai Mundra with ICICI Securities. Please go ahead.
Yeah, hi, good evening, and congratulations on a strong quarter, sir.
Thank you.
Sir, first question on MFI slippages. I believe, we have not given separately, but if you can quantify how much was the MFI slippages, and how much was the MFI disbursement in this quarter?
MFI slippages was quite low in this quarter, and same was actually the case in the previous quarter as well. Hence, as I said that all the SMA and all these numbers are indicating sort of back to normalcy when collection efficiency continues to be around that 99.5%, which we are seeing in the overall portfolio as well. That's on MFI. Sorry, Jai, what was the second question?
The disbursement, MFI disbursement.
Yeah. Disbursement, if I sort of see the numbers from last year Q1, we have seen almost doubling of disbursements as far as MFI is concerned. We are hopeful while the book has not grown that very much in last one or two quarters, at least the decline has been arrested. Through the course of the year, we feel that now since the disbursements are picking up and we're hopeful of a quarter-on-quarter increase here, we feel that we could end up on a target of book increase of 15% on a year-over-year basis.
Sure. It's helpful. Secondly, Sudhanshu, I see that 15.6 basis points of IT refund, this would translate to roughly around INR 60 crores. Where do you book it to? Does it go to income interest on advances, or does it come on interest on balance with RBI and others? Sorry.
It would be the other line item. Certainly doesn't come in advances, it would be-
Okay
the NI line item.
Okay. Sure. Because the other is only INR 76 crore or something, right? Within which there is INR 60 crore of IT refund.
Yeah. Number is slightly lower than, but round about that number.
Okay, sure. Secondly, on Customer deposit or CASA. If I can get the number separately for CA and separately for SA, Overall deposits has bounced back and within which CASA has also rebounded by 7%-8% QoQ. If you can qualify, sort of give more color as to how we have got the traction in SA, especially maybe granular and maybe the high-ticket SA post that incident. Just wanted to try to understand. We have done reasonably well ahead of your guidance of 5% QoQ deposit growth, within which if you can sort of highlight the granularity and maybe the high-ticket business.
Both have been growing quite well. If you see the average CA deposits, that has grown by about 30% on a YoY basis, and SA has grown about 25% or so. Of course, SA is a major component in the CASA. The CASA deposit itself has grown about 8% on a sequential basis. You can assume that bulk of the growth has come in SA, which has given this kind of a lift.
Correct. Safe to say that it would have been broadly similar to granular and maybe high ticket. The entire episode is now clearly past this. You have had increase in balance in both these buckets.
Yes. Our deposits on the SA front are also quite granular in that sense. It's granular deposits which have sort of come in even during the current quarter.
Right. Sure. Last question, sir, just on this ROA. Just to reconfirm, we are now saying that what we were earlier saying, we have now accelerated that full year we should be able to achieve around 1% ROA. That is correct if I hear it correctly.
Yeah. That's what we are gunning for.
The reason why it is higher because of, A, experience in credit cost, which is much lower, and ideally it should stay that way. Then the NIM should incrementally also be stable. The OpEx thing anyway continues. This is right understanding, right?
That's right. Mainly it's the credit cost.
Sure
On the NI front, I know all of you as analysts track that closely by the basis points. Roughly we'll be in zone.
Sure. Thank you and all the very best.
Thank you.
The next question comes from the line of Jayant Kharote with Axis Capital. Please go ahead.
Thank you for the opportunity and congrats on a great set of results. First question, sir, is on ECL. Maybe I missed this, so sorry about this. Have you quantified the impact of steady state credit cost after the ECL transition?
Thanks, Jayant, for the question. Of course, to the previous participant, we did talk about the impact which could come on transition as far as ECL impact is concerned, where we said we would require to maintain more amount for ECL, but at the same time, we may get some RW benefits through the operational risk RW reduction and credit risk, and hence, in combination of both of these, the impact on capital on transition could be broadly neutral. With respect to the run rate impact, there would definitely be some more requirement for provision, but at the same time, we could get benefit because of the EIR implementation, because both the sourcing OpEx as the processing fees will be amortized when the ECL is implemented.
We feel net of these two, which is your slightly higher provision requirement minus the EIR benefits which would come in, the impact could be quite manageable. Since the guidelines have come in, we are still fine-tuning the numbers. I don't want to put out a specific number here currently, but this is the broad sense.
You don't think the ROA expansion journey should be sort of prolonged because of this turn?
Yeah. Not as such.
Great. Secondly, sorry to harp on the margin question again. Given that our corporate book is growing very healthily, again, at this size, it makes sense it's also bringing a lot of discipline to the credit cost band. Again, looking out next two, three years, how does this play into our NIMs and our ROA ambitions?
The NIM of the corporate banking is a little lower than retail. The more we book corporate, it will have its share of impact on the overall NIM. That's why Sudhanshu said that as a bank, it will have some impact. Really, we should see it in totality because the quality of the franchise and credit costs should come down over the years when you wake up in 2028 or 2029 or 2030 or 2031. Frankly, we don't think of it like a guidance, but we don't think of a bank as wanting to be running at 1.5 credit cost at that point of time. That's not our vision statement. Becoming a larger and larger bank, we cannot be sitting at 2% credit cost, even if it's very attractive and NIM attractive and all that.
We are planning to move in a direction where the bank's ROA, again, don't take it like a guidance for a specific date or something, but we think that our bank is structurally built for a ROA of more like 1.7%, 1.8% as it builds out.
That kind of a number can be achieved even at a lower credit cost, even with more of corporate loans. I can tell you-
Absolutely
It's been seven years now. It's been seven years. There has been no mishap in the corporate loans. Seven is a long time to prove out our governance and our underwriting capabilities and the amount of diligence we do on corporate loans, and our ability to get the business, get the kind of proposals. We're quite happy with that, the way it's coming.
Great, sir. That's very reassuring. Again, congrats for a great set of quarter. Thanks.
Thank you. Thank you very much.
Thanks.
Welcome, Jayant.
The next question comes from the line of Anand Dama with Nuvama. Please go ahead.
Hey. Hi, guys. Congratulations again, sir.
Hi, Anand.
Yeah. One, is it possible for you to share how has our institutional deposits moved past the episode that we had? Were there any more withdrawals from any other government or basically it is holding up well and it is growing? We need to know about that because that will give a better comfort.
Yeah. Deposit coming very strong. Frankly, the way deposits came back into the bank, not just came back, I'd say, frankly, we didn't lose deposits in the first place in any material way. Frankly, we had a flat quarter. We didn't lose money. The way it's come back very strong. Let me just directly at my level, let me assure you, there is absolutely no problem on deposits. In fact, we are flying actually.
Yeah. Institutional deposit was also quite stable.
Oh, that's very comforting. Secondly, we had
Our
Yeah.
Frankly in deposits, we do continue to do more of the retail deposits than the institutional deposits. That's been a strategy anyway, it's not a new strategy. As you know, it's been seven years of practicing this strategy. In a sense, that will be our intent, and we will get there. I can tell you, everyone hearing this call, that money is coming thick and fast into IDFC, it's coming very strong, and relationships are strong. The way customers responded to us for so much of bad news all over Twitter and YouTube and all over the place, even then, money just stayed. We're happy about the way customers believed us during the crisis. Of course, we came out in the open, we took our interviews, we spoke publicly about it, and the public thankfully supported us on that.
Sure. Secondly, I think during the call you said margins around 5.8% or 5.9%. I couldn't hear that clearly. This quarter, if you look at our core margins are somewhere about 5.9%, if you take out the interest on IT refund. It should remain stable around these levels or where should it settle maybe over the next two, three quarters?
Yeah. In margin, as we rightly said, if we strip out that interest on income, it was more around 5.9%. I also alluded to that we also continue to get some benefit from a lower investment book during the current quarter. Some of it could normalize as we sort of move into the ensuing quarters. We feel that margins, which we had earlier guided for 5.75% for the full year, now could more look like 5.8%. The change I would say from, say, 5.9% adjusted for the investment book, the asset mix changes which continue to happen. We need to see how this FCNR plays out as far as the margin is concerned. All of this in combination, we feel the margins could still be around 5.8% for the year.
Okay. Which means that on a quarter-on-quarter basis, there could be some contraction that we should see from 5.9%.
Yeah.
Okay. Then I think you talked about the operating Jaws opening up. What kind of cost-to-income ratio should we look at in FY 2027, given that this quarter we have got some benefit on the other OpEx front, I think that was sequentially primarily because of the IPL expenses being not there in this quarter, right?
Which expenses were not there?
Am I reading right? Quarter-on-quarter, if you look at the other OpEx actually has come down. Is it more to do with the business seasonality or were there some lumpy expenses in fourth quarter which were not there in this quarter?
No, in fourth quarter, we had this incident on fraud, right? Where we had taken it to the OpEx line item, right? If you take out that, then the OpEx increase is about 2.3% sequentially. In terms of cost-to-income translation, even on a sequential basis, C/ has improved by about 166 basis points. On a YoY, that's more around 310 basis points. We feel that Q1 cost-to-income, which has come at 70.7%, our endeavor would be to take into below 70 during the course of the year. That is what it could look like.
Okay. What kind of ROA that we're looking at for the full year in FY 2027? Should we get closer to 1%?
That's what we sort of answered on the previous call, that we are gunning for reaching an ROA of about 1% for the year.
Looks like it for now. Last time, of course, like I said, we used to say fourth quarter, we used to say kissing distance, but looks like full year we'll get there.
That's great to hear. Any more CGFMU recovery should we expect during the year? Any more claims that we have put out, or this is for all now?
No, procedurally, it comes only once in a year. For the year.
Okay
it's done, actually.
Okay.
We could get some similarly into the next year.
Next year we'll get it. That's very helpful. Thanks a lot.
Not of this amount.
Yeah, not of this amount. The amounts could be much lower.
Sure, sir.
The next question comes from the line of Pritesh with DAM Capital Advisors. Please go ahead.
Hi, sir. Good evening and good set of numbers.
Thank you.
Just two questions. One is on channel sourcing. You give the breakup of OpEx. We've seen it going down. What is the thought on that in the sense, are we insourcing more, the outsourcing is slightly lower than what it was, and that is also one of the elements of OpEx getting down. Anything on that?
No. Channel sourcing expense is about 20% odd , and it has been quite range-bound if you see the few quarters. Of course, it also depends on, I would say, the seasonality aspect of it. Q4 typically we see is a much stronger quarter in terms of disbursements and so on. However, Q1 has also remained quite strong. To your question on capabilities, yeah, we continue to work on these capabilities of insourcing and product by product wherever it's applicable. We feel that benefit also bit by bit is translating somewhere into these ratios. To a great extent, you can assume this would generally grow in line with the volume growth.
Sir, just to follow up on that. I think some years back or a few quarters back, we were mentioning that to generate a lot of loans, we also incurred a lot of expenses in and around the customer. With AI, do you see that the expenses which were required for a customer origination and then, of course, a lot of customer rejection also happened. Has that changed for us in terms of OpEx?
See, there are two AIs. Okay. People get surprised by one. One is the AI that was the classical AI, which was happening even before the arrival of generative AI. That is a big one. For example, all our consumer durables and two-wheelers and small ticket loans and frankly, loans that we give to kiranas and chemists and salons, and we have developed scorecards for all of that, and these are all machine learning models. That is also AI. That has been going on for maybe seven or eight years for now. We started the journey of using scorecards 15 years ago, and it's been evolving newer and newer technologies since then. We've been using AI in that sense. That way, of course, it will continue to do.
In terms of how much the generative AI is going to use, everybody knows that every part of the bank and every part of every organization will get affected. We are also putting our efforts in that front. At the end of the day, from your point of view as investors, the reason why it's not figured prominently in any of the notes, et cetera, is from your investors' point of view, whatever we say in terms of AI, it has to show in the numbers. We are focusing more on the outcomes in that sense. At the bank level, we're putting our efforts for that.
Right. Last question from my side is on PSLC. The annual report is no doubt, but what will have been done in terms of the Agri PSL norms and how much PSLC we will have bought in for last year and this quarter?
Yeah, we bought and we lost some money in the sense that it's still a negative drag for us. We are still not a bank which is originating its entire PSL on its own organically. As you know, we started from a DFI and we've not yet fully caught up with the requirements. Because we started from zero base on building a PSL franchise. We are still buying PSL, we are short, and there is a negative, like last year was INR 250 crores, wasn't it?
I'm saying even the rates had shot up in the market and-
Overall last year we lost how much?
Yeah. About 250, 260.
Last year we lost about 50 odd, probably. It depends on how the rates will be for this year. We'll take the numbers as it comes. We're going to be short, we're going to buy. Our attempt is to start build more and more of this organically. We made good headway. Imagine we have INR 1 lakh crore of PSL in the bank today, probably a little more than about close to INR 1 lakh crore. INR 1.2 lakh crore of PSL. Okay? Didn't exist two years ago. We're making good headway, but we are still short.
Sure.
Net, we're losing money on PSL purchase. Yeah.
Sure. Got it. Thank you, sir. All the best.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today.
Thank you.
I now hand the conference over to Mr. Vaidyanathan for closing comments.
Yeah. Thank you very much. Thanks, Sudhanshu and Saptarshi and everybody, and for everybody who took this call. We look forward to continuing our work like this, and certainly after two or three quarters, even those of you who are on the fence will get confidence in us. Thank you.
Thank you everyone for joining.
Thanks everyone for joining. Have a nice weekend. Thanks.
Thank you. On behalf of IDFC FIRST Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.