Ladies and gentlemen, good day and welcome to AU Small Finance Bank Q1 FY 2023 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 during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aseem Pant, Vice President, Investor Relations. Thank you, and over to you, sir.
Thank you, Faisan. Good day to everyone, and welcome to AU Bank's Earnings C all for Q1 of FY 2023. We thank you for joining the call today, and we hope you are well. For approximately the first 30 minutes of the call, we will have brief remarks by key members of our senior management, followed by 30-45 minutes of Q&A. Firstly, we will have our MD and CEO, Mr. Sanjay Agarwal, share his thoughts on the performance and overall outlook for the bank. He will be followed by our ED, Mr. Uttam Tibrewal, who will share his thoughts on assets and liabilities performance for the quarter. Finally, we will have Mr. Gaurav Jain, head of tech initiatives, who will discuss about our progress in our digital initiatives.
Besides them, we also have few other members of our senior management to answer any questions you might have. For the benefit of everyone, we would humbly request that the number of questions per participant be restricted to a maximum of two and to join back in the queue or mail us in case you have any further questions. With that, I will request our MD and CEO, Mr. Sanjay Agarwal, to share his thoughts on the bank's performance and outlook.
Thank you, Aseem. Good evening, everyone. Namaskar. Thank you for joining in. Hope you are doing well. Q1 of the FY 2023 marks the completion of our 21st quarter of our banking journey. I'm happy to see the progress that we are making as a team. In these five years, we have been strengthening our foundation for building a sustainable and scalable bank. During this time, we established a retail and granular deposit franchise and grew our deposit at a CAGR of 60%. We also have reduced our cost of borrowings and maintained our margins. Our assets grew at CAGR of 35%. We have established new franchise business like business banking and agri banking, developed our digital business and continued to deliver returns and ratios even during the pandemic.
Today, I would like to take you through some key aspects of what makes our business model sustainable and scalable, what are the key focus area for us, and what are the challenges that we envisage. To begin, let me articulate the key principles that makes our business model sustainable and scalable. We as a team have clearly identified target market with differentiated approach of garnering deposits from urban market and lending into core markets, which are primarily semi-urban and rural areas, and we see a large potential in both the markets. Our current market share in the banking system deposits is just 0.3%, and we have a long way to go. Our deposit franchise is becoming more granular by each quarter. Our CASA ratio has now reached 39%, and our retail TD and CASA mix is at 70%.
We have diversified product and geography mix serving customers across individuals, senior citizens, homemakers, driven by specific themes like current account, NRI, TASC, enterprise salary, et cetera. In terms of assets, we have robust franchise built around four SBUs, mainly Wheels, SBL, housing and commercial banking. Each with a vintage of more than a decade. I believe that all our asset SBUs have a great potential in coming 10 years to grow as our total market share is just 0.4%. Individually, our market share is 2% in Wheels, 0.4% in MSME, 0.1% in housing finance, and negligible in commercial banking. Over the years, we have also built a secured retail asset franchise with pristine asset quality. 94% of portfolio is secured, 90% of our book is retail, and 64% is less than INR 25 lakhs.
Lending in rural areas has been mainly for income generation and livelihood purposes, which also gives us opportunity to cater to the priority sector, which is a core objective as a small finance bank. More importantly, our asset quality has remained resilient since the beginning, and we are committed to maintain pristine asset quality. Even with the pandemic cycle, we were able to demonstrate resilience with our detailing, customer connect, and solution-focused approach. I'm proud of my team effort, right from sourcing to underwriting to collection, with ownership at every level. This is the hallmark of AU. The entire book, whether it is a current book, the NPA book, or the restructured book, everything remains well in shape. Existing stress is well provided for with a PCR of 72% and additional provisions for contingency and restructured assets.
It is important to note that over the last five years, despite the pandemic, our NCL has remained in the range of 0.3%-0.4%. What we have able to achieve is fantastic, given the markets we operate in, the customer segment we serve, and the yield we command. I would like to reiterate that our sustainability will be strong because we want to follow the same course. Further, our growth in deposits and asset is supported by expansions of our distribution. We have entered newer markets like South and East India. The immense support and the acceptability in these regions also reflect the recognition of our growing brand. You will hear from Uttam on the progress made in the last quarter in each of these points. Now let me share with you the current focus area for us.
The first one is towards building operational excellence and the formation of SBU structure is a step in this direction. The new structure is now well settled with identified leadership at every level, and each SBU has its own P&L. This brings more ownership and accountability, thereby increasing effectiveness and scalability. Second, to drive sustainable growth from existing segments, we are working on tapping the cross-sell potential of our customers. We are focused on increasing the product per customer metrics. Currently, our cross-sell is a mix of insurance, mutual fund, credit card and personal loans. We are working on building the transaction banking, wealth management, merchant and other digital products. We are also working for building our central data warehouse and analytics capability to support all our businesses with better insights.
To make the most of the opportunity which will be presented by the market in the coming years, we need to raise more capital. In this regard, we have taken an enabling resolution in the current quarter. However, we'll take the call at the right time as our capital adequacy remains north of 19%. Recent credit rating upgrade will make our Tier-2 bonds rated at double A level, and we'll explore tier-two opportunities as well. Further, we continue to invest in building a tech-led ecosystem to ensure that we remain competitive in the future. I'm very happy that our credit card, digital banking, UPI and AU 0101 teams are shaping up to stitch together our tech priorities. I think Gaurav will cover this in further detail. Being in the service sector, human capital is our most valuable asset.
As we manage public goods on the banking platform, we are focused on developing a highly empowered and capable team. Led by the guiding principles of Samjhdari, Zimmedari and Imandari, we have built a strong team and continue to invest in them. We are working towards furthering diversity and formed a committee on diversity and inclusion last year, and it is progressing well. I'm also happy to share that senior management is very stable with an average vintage of 7+ years in the bank. We are becoming an employer of choice, and our ability to attract talent has significantly gone up. Last year, we hired 80+ for senior roles in VP and above positions. Last but not the least, we are working towards strengthening our ESG commitments. To lead our sustainability mission, a senior industry professional has just joined us.
Our 25-years of vintage in core markets and sustainable business model gives a very strong ESG proposition while we work towards making ourselves more inclusive, sustainable and diverse. In terms of challenge, inflation remains a key variable for us, which can impact the interest rate cycle as well as increase our OpEx. In the last quarter, reversal in interest rate cycle led to MTM and treasury losses in our liquidity book. Based on current outlook and our portfolio mix, we believe that major impact of the rate movement has already been absorbed. Our endeavors to manage our cost of funds and NIM around the same level as last year. In quarter one, we were able to pass on the increase of 40 basis in our incremental cost of funds to our asset customers by increasing our lending rate by 50-50 basis.
The market segment that we operate in continues to provide us enough room to pass on any incremental borrowing cost to the customer by increasing our lending rates. Another adverse impact of inflation has been our higher input costs leading to an increase in OpEx. We are taking immediate measures to keep the full year cost-to-income ratio at around 60% or 62%. The impact of inflation on credit demand was not visible in Q1. Rather it remained one of the best quarter in several years. Further, a good monsoon and satisfactory quarter two outlook are likely to support our annual business plans. In the end, personally, I think that we have faced during the pandemic was much more challenging, and we are far more hopeful about the coming times and more confident about our business model delivery and agility.
Our endeavor is to ensure that we continue to deliver over a long period on a sustainable basis. In the end, I am very thankful to all stakeholders, the government, regulators, customers, my team and all our investors for supporting and believing in us. On this note, I now hand over to Uttam to share on the operational details for the quarter. Thank you so much.
Thank you, Sanjay. Namaskar and good evening, everyone. Hope you all are in good health. I feel happy to share that despite of the turbulent environment, AU has stood strong and delivered a strong performance in Q1, and one of the best Q1 s in the past five years, which reflects the resilience strength of our business model, which Sanjay spoke about earlier. We have delivered healthy deposit growth in improving granularity, stable spreads, strong disbursements and collections. Some key operational highlights for the quarter are as follows. We have made further progress on having a pan-India presence and made our debut in Jharkhand and have also forayed in Northeast with a branch in Guwahati. We added 2,000+ employees this quarter, and as on thirtieth June 2022, we were a strong team of 29,883 bankers.
Our deposits grew by 48% year-on-year to close the quarter at INR 54,631 crore. We continued prioritizing retail and CASA-led growth over bulk deposits and achieved CASA growth of 124% year-on-year to reach at a CASA ratio of 79%. Asset AUM crossed a significant milestone of INR 50,000 crore, growing by 37% year-on-year. Collection momentum continued to be positive with over 100% collection efficiency in each of the three months.
Out of total gross advances of INR 49,349 crores, as on June 30 2022, 73% of book has originated after March 2020, and 92% of this book is current, with only 0.48% of GNPA. Of the NPA resolved in Q1 FY 2023, excluding write-off, 62% resolution happened through normal collection efforts and about 38% resolution happened on account of security enforcement and settlements, wherein there was cost loss of across 34%. Similar trends have been observed during FY 2022. This clearly illustrates the secured and small ticket nature of our book, as well as resilience of our borrower base. Furthermore, it makes us confident that our provisioning coverage of 72% is quite robust. Additionally, there is provision of INR 170 crores against standard restructured book.
The bank continues to carry contingency provisions of INR 144 crore. The performance of restructured book has also been quite positive, with slippages remaining at 15%, much lower than our estimates of 30%. Under our flagship Royal product program, we launched Royal versions for current accounts and Royal salary variant for savings accounts. We continue to attract talent across senior management levels with 33 recruitments this quarter of VP and above, including Head of Wealth and Head of Sustainability. I will now briefly cover some key aspects of our liabilities business. We continue to focus on building liabilities through granular, retail, individual and transacting customers, which we denote as GRIT. This is predicated on high quality account acquisitions through better sales efficiency, urban-driven branch expansion, and a priority on cultivating an engaged customer base.
Our increasing vintage brand campaign and digital properties are significantly growing our reach and acceptance in new markets, which is resulting in strong deposit traction in our branches in new states. For enhanced customer engagement and deepening, we offer a large suite of value-added products, and our product per customer has been improving and stands at 1.6 for SA customers and 1.9 for CA customers. Here, I would like to highlight that we sold 1.13 lakh new policies in Q1 covering life, health, motor and home assets of our customers through our bank-insurance partnerships. A 66% year-over-year growth and corresponding premium growth of 60% year-over-year.
Further, our well-regarded and comprehensive AU 0101 super app, as well as attractive running offers on leading platforms and e-com channels, both on our debit and credit cards, have contributed to our transacting base at around 57% in savings and 69% for CA customers. Now coming to our core assets as Wheels. Let me start with the Wheels business. As an industry, vehicle sales for Q1 FY23 have grown by 27% and semiconductor availability seems to be easing, which bodes well. Our average ticket size around is INR 55 lakh on disbursements and 2.7 lakh at AU level, excluding two-wheelers. During the quarter, we disbursed INR 3,351 crore with an IRR of 13.9%, which was an increase of 50 basis points sequentially.
This also illustrates the ability and strength of our business model crunching price with volatility. As of 30 June 2022, the AUM of Wheels stood at INR 13,026 crore through 7.5 lakh loans. This comprises of 53% new vehicles, 36% used, 9% tractors and 2% two-wheelers. Asset quality of our Wheels business was stable in Q1 and Gross NPA stood at 2.4%. Moving to secured business loans. Our agile product is uniquely positioned with low ticket size and lending to organized MSMEs for business purposes. We expanded our agile product in 16 new branches in Q1 FY 2023 and have a widespread network of over 450 branches across 8 states and two union territories.
On the demand side, despite inflation, we continue to witness good demand in segments like FMCG, skill and training skill services, WPRO, household goods traders, agriculture related equipment traders, etc. Agile AUM stood at INR 16,912 crores as on 30 June 2022, across around two lakh loans and the disbursements during Q1 were INR 1,281 crores with an IRR of 14.6%. The book is predominantly tractor sector with average ticket size of INR 10.4 lakhs, LTV at 48%. It remains one of our most stable and yielding products with a gross NPA of 2.7%. With respect to our home loans business, strong momentum expected to continue, supported by rapid urbanization, changing customer behavior, regulatory reforms and waning influence of COVID-19.
At present, we are operating in eight major states with home loans available across 240 branches. Our disbursements in Q1 FY 2023 was INR 430 crore. Total AUM as on 30 June 2022 stood at INR 3,004 crore across approximately 30,000 loans with an average ticket size of around 10 lakh. Our GNPA was stable at 0.45%. Notably, being an affordable housing book, bulk of our book is also eligible for long term refinance from NHB. Finally, on our commercial banking businesses, all of our core products are shaping up well. Commercial banking business saw disbursements of INR 1,811 crore, within which business banking and agri banking accounted for 10%.
We have an enhanced focus on scaling up these two products as they also help us enhance our banking franchise as well as in growing our CASA. As on June 30 2022, asset quality for our commercial banking book remained stable in Q1 with a gross NPA of 0.5%. We have an enhanced focus on scaling up these two products as they also help us provide holistic solutions to business customers.
Thank you, Uttam. Good evening, everyone. I will now provide an update on our tech initiatives, including credit card and UPI QR. Tech is an area of key focus for the bank, and we are investing across all aspects, digital, digitization, data, infra, and security. We're developing our digital proposition with the objective of growing our deposit franchise, developing unsecured lending capability, and building out our digital distribution. In order to make our digital proposition more exciting for the customers, we added a number of new innovative products and features in this quarter. Highlight was the launch of LIT Credit Card, India's first customizable credit card aimed at millennials and Gen Z.
LIT Card gives customers the power to customize card features as per their spending pattern and maximize the benefits by using only one credit card. For example, a customer who loves travelling could choose airport lounge benefits for the holiday season and switch to the cashback offer benefits for the festival shopping season. Response from the market has been highly encouraging, with over 10,000 cards sourced in the first 20 days of launch. Other notable product additions were launch of corporate credit card, digital personal loan for non-pre-approved customers, and Sachet health insurance policies through AU 0101. For customer engagement, we launched Deal of the Day proposition on AU 0101, where a curated offer valid only for a day is shown to customers on login to the app.
For customer servicing, we enabled video banking service for NRI customers, which together with our AU Royale World product, makes our NRI proposition really powerful. There are a number of other initiatives that our team is working hard on, including digital banking app for merchants with a comprehensive range of features, integration with ONDC, where we are a wave one implementation partner and a stronger wealth and personal finance management proposition. Our mobile app, AU 0101 and video banking continue to gain traction and are scaling well. At the end of Q1, we had 11.9 lakh digital customers with 6.7 lakh monthly active users. 98% of customers' financial transactions and 88% service requests were executed digitally. Our digital products and acquisition channels are helping us expand our distribution capacity.
43% of new customer acquisition in Q1 were through digital channels or products. In this quarter, we added over 55,000 savings accounts, which was 37% of total savings accounts sourced at the bank. We are taking a calibrated approach to focus on quality of acquisition, which is reflected in customers' average balances. We've also added over 80,000 credit cards and over 1.7 lakh UPI QR. We disbursed personal loans of INR 120 crores, 100% of which were sourced digitally. During the quarter, we also expanded our pre-approved offers program with over 20 lakhs pre-approved offers provided to 10 lakh customers across credit card, personal loans and Wheels. Around 1.6 lakh customers have availed these pre-approved offers since the launch of AU 0101 in June 2021, and around 43,000 customers took up the offer in Q1.
Personalized offers like these are an important tool for us to engage our customers and improve customer stickiness over time. Over the last 15 months, monthly transacting customers as a proportion of total active savings account customers has increased from 46% to 57%, and average monthly transactions per transacting customer has increased from 18 to 26, an increase of 44%. Video banking as a service channel continues to improve with the aim of making 0101 plus video banking a complete replacement of a branch from a customer perspective. In Q1, video banking RMs received around 50,000 servicing and engagement calls and increased total relationship value of digitally sourced savings account customers to INR 720 crore. This was an increase from around INR 460 crore in the previous quarter, an increase of 56%.
One of the key metrics we track is the branch visit data for digitally acquired savings account customers. Only 6% of these digitally acquired customers visited branches in the six months to May, compared to 34% for customers sourced through physical channels. Moving over to credit cards. We've issued over 2.4 lakh credit cards and are at a monthly run rate of 30,000 cards, putting us among the top 10 card-issuing banks in India. Of the total cards issued, over 60% were issued to existing bank customers, and around 42% were issued to first-time credit card users. Our key credit card metrics are in line or better than industry average, with 83% of our customers having activated their cards and 51% customers being 30-days purchase active. Now a brief update on our merchant solutions business.
At the end of the quarter, we had 6.6 lakh UPI QR installed at merchants. During the quarter, we installed 1.7 lakh UPI QR, including around 46,000 new customers. With over 1.25 lakh daily transactions, UPI QR continues to help us in engaging and deepening our merchant customers. Average monthly balances in CA have increased by 76% post UPI QR install. We are also cautiously building out our digital unsecured lending program for merchants. Total unsecured loan disbursement to merchants amounted to INR 50 crores in Q1.
We have been investing consistently in order to maintain cutting-edge technology. To further strengthen our technological capabilities, we have taken a number of initiatives this year, such as upgrading our core banking platform to the latest version, cloud migration and application modernization, and implementing data platform to drive business intelligence and analytics.
Cybersecurity remains an area of key focus. We have a comprehensive security framework to ensure that customer data remains safe and secure, and this framework is constantly reviewed and supplemented with new tools and technologies as required. Finally, to execute on all these initiatives, we have a 600+ strong tech team, which we continue to build. We onboarded 250+ lateral hires in last one year and 50 new graduates from pre-premier institutes in the last quarter. To conclude, tech is a top strategic priority for the bank. Our initiatives have shown good initial traction, and we continue to build on the strong foundation that we have created. With this, I will now hand over to Aseem for Q&A.
Sajjan, you can now begin Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. First question is from the line of Sandeep Agarwal from Naredi Investments. Please go ahead.
Hello.
Yeah, hi.
Yeah. Thank you, sir. Congratulations on the good results. I have only one question or comment that we have not seen that any company take two days board meeting to consider our financial results. Just what message you want to give the investor community?
Two days for board meeting for investor results. We haven't seen anyone taking two days. Yeah, Sandeep. I think this is our track record from last five years, and we actually, you know, based out of Jaipur, and so every director has to fly to here, and we want to go lot many agenda items, so which don't get over in one day. That is why from last five years, you know, the way we got listed, you know, the board meetings are generally here for two days in Jaipur. Yeah, and the agenda, Sandeep, if I can add to that, the board meeting, as Sandeep said, is spread across two days, with the agenda divided over two days. The financial discussions as well as the audit discussions happen on the second day.
Accordingly, the results get declared. It's yesterday. Yeah. It's yesterday. Yeah.
Okay. Thank you.
Thank you. Participants, to ask a question, you may press star then one. The next question is from the line of Praful Kumar from Dymon Asia. Please go ahead.
Hi. Good evening, Sanjay and team. Congratulations on great numbers. Sir, just two questions. One, in terms of now universal banking license, what are you thinking, sir? It's been five years. What are the plans today? How is the interaction with RBI, and what's the feedback? That's question one. In terms of the CEO tenure, what's the RBI plan now? When do you apply for an extension for yourself? These are two points, sir. Thank you.
Yeah. I think the first question is difficult to answer because the regulator needs to notify all the rules or the methods where they'll allow SFB to transition to universal bank. Whatever we have discussed that is under discussion with internal RBI and, you know, whenever they will notify it, you know, we will see it and the board and the overall mechanism will take their own course to decide whether, you know, we want to apply or not. But as of now we are very happy the way we are building our franchise. That's aside from the universal. In terms of my tenure, if total is allowed, 12+, so next extension, right? The extension is next extension, right?
I have the approval till next April 2023, right? Then I need to have extension for another three years. In the overall, I have nine years to work with.
Got it, sir. All the best, sir. Thank you so much.
Yeah. Sure.
Thank you. The next question is from the line of Mayank from InCred Capital. Please go ahead.
Yeah. Hi, sir. Hi. Thanks for the opportunity. First request from my, you know, whenever we schedule a call, any-
Sorry to interrupt you, Mr. Mayank. The audio is not clear from your line. Please use the handset mode.
Okay. Is it better now?
Yes.
Hello. Yeah. Yeah. First request is to avoid, please avoid our call with other banks. Currently this one also is at the same time. It will be, you know, very troublesome for the analyst to, you know, manage both the calls and....
Look, yeah, Mayank. Again, you'll appreciate that so many banks have to announce their results within two to three weeks. There is likelihood that some calls will clash. Yeah, when we make the announcement and when we make the decision, because you'd realize that the board member schedules is blocked, pre-blocked months in advance because as Sanjay said earlier, they all travel down to Jaipur. Honestly, it's kind of difficult to, you know, reach out to other banks. Yeah, we'll try and do our best.
My question is basically, what I am trying to understand is on the technology front, we are trying to provide the services as the big banks are providing, which are basically 10x to 15x larger than us on both the payments and balance sheet front. How are we planning strategically on the OpEx front? Because, you know, our OpEx would definitely be more driven towards the technology we are trying to get in. How we try to manage that?
Why don't you answer this? Yeah, sure. I think, I mean, I can't compare about the other banks, but I'll talk about sort of what we are trying to do, right? We, I think one thing is, you know, we are highly focused on what we are trying to accomplish through the digital initiatives, right? As I mentioned, you know, the number one priority is to grow our deposit franchise through that, right? We are sort of very calibrated in terms of where our investment dollars are going and what kind of outcome we are expecting, right? Just to, you know, sort of reiterate as an example, right?
We have invested money in UPI QR and the benefit that we are seeing there helps us our you know in our liability franchise because the customers where we have invested where we have installed the UPI QR have ended up increasing you know balances significantly to us, right? That's how we are stitching it together. In terms of overall investments, right? We do take into account the overall budgets and stuff, right? And the sort of return targets and then calibrate sort of where the investment goes to the highest priority items within digital.
Just to add on that, because I don't think that there is a choice to us that whether we want to invest or not because if you don't become a tech-led bank or you don't create a tech-led ecosystem internally, I think after 10 years we won't able to survive, right? It's not more about cost, it's about the capabilities of vendors, your own internal team, your purpose, how you want to really design everything. I think there we have done a decent job because the kind of reception we have got on our AU 0101 app, the kind of credit card performance is coming. You know, our video banking is doing very well and internal digitization, the kind of data analytics we want to do. We are making ourselves future ready. I think any investment to do all those things is worth doing that.
Right. Really appreciable. My one final question, if I can ask. What kind of change in the-
Sorry to interrupt you, Mr. Mayank. Your audio is not clear from your line.
Hello. Is it audible now?
Yes, sir.
Okay. Last question from my side. What kind of change in AUM we are expecting in next three years? Because we are, you know, currently focusing on all our non-traditional products.
You know, no, I think we are not projecting any change in our asset mix. You know, we are very well on course to build our Wheels, SBL, housing. These remain our part of retail story. Next year also all three will command around 70% of our total asset, you know, and followed by commercial banking around 20%-25%. Unsecured should be around 5%-10% range, right? I think largely we are saying that, you know, we will be on course of our very traditional product and the way we have performed last five years, you know, that is the testimony that we won't change in future also.
Thanks. That's all from my side. Thank you very much. Thank you.
Thank you. The next question is from the line of Hiral Desai from Anand Rathi. Please go ahead.
Hi, Sanjay. Thanks for the opportunity.
Yes.
I just had one question. If I look at the repayment number for this quarter. You know, in Q4, our AUM was about INR 48,000 crore. We've disbursed about INR 8,500 crore in this quarter, and the AUM is still at about 50,000 crore, right? The repayment rate seems to be like almost 50% in this quarter. Is that, you know, some kind of idiosyncrasy in this quarter which is causing that? On a long-term basis, what should the repayment number be? Given that, you know, most of the secured businesses are, you know, let's say about three years or thereabout. Mortgages would be slightly longer. Just wanted to get that.
Hiral, hi, this is Rishi Dhariwal here.
Hi.
I don't think the repayment pattern per se has changed. We generally see a runoff of about 40% every year, right? That continued and that will continue in this year as well. What has happened was last year we had, because of the entire liquidity scenario in the country, we had some surplus liquidity available on the balance sheet at a very lower cost. To that extent, we had deployed in certain short-term, you know, products on the lending side, which actually had two impacts. As you saw last year our incremental yields were also down a bit because these were very clearly tactically deployed short-term liquidity on which we are making a spread.
Right.
As we move into a higher interest rate regime, we have kind of slowed down on some of these assets, and that's why you would see, even though the traditional assets have done well in terms of disbursements, the AUM hasn't really gone up that much. Going forward, because those assets have run off or we are running them down, we start seeing the normalized increase in terms of AUM.
Generally on the MSME side, you know, some of the stressed sectors which were there earlier, you know, things like school, retail, apparel and those kind of businesses, how are they coming back? Have we started fresh lending to some of these businesses?
Hiral, we have our Head of Collections, Vikrant, on the call.
Yeah.
Yeah. Hiral, Vikrant here. As far as repayment of the education sector is concerned, we have seen normalcy resuming in the sector and even with regards to the vehicle business, when we had a portfolio of school buses, where also the repayments have been pretty normal. Yeah. Hiral largely, both the sector has recovered well and the tourism, the school related activities, the school buses and everything has become as good as pre-COVID level. We have also started doing new funding, but with lot of credit underwriting standards reinforced around it. It's not that freewheeling way to do that. But yes, if there is some merit in business, we are doing that.
Got it. Sanjay, just lastly on the OpEx, obviously, you know, the number is a bit elevated since we are investing in the digital capabilities.
Yeah.
just wanted to understand, so let's say post this year, which is FY 2023, is there an absolute number that you're looking at, you know, as we go along into FY 2024, FY 2025? Because the cost to income gets a bit difficult to assess. Is there like an absolute growth number post FY 2023 in OpEx?
Hiral, to be very honest, very difficult to predict, two years from here. What I can tell you is just that, and we have shown in our presentation also that all our assets, you know, the cost to income ratio is below 50%, right?
Right. Correct.
Where we are investing is only a branch banking. You know that it takes some more time to stabilize that. We are investing in our digital capabilities. Maybe from here next two years, you will see credit cards coming up and making money for us. You will see UPI QR code making money for us. Digital banking become profitable for us. I think in the longer run, if you ask me as a CEO, you know, I would say that our costs won't be so high. To give a number around it is difficult, you know, in this kind of environment. I'm pretty sure that the whole investment we are doing, we are doing with lot of sense around it, you know. Every penny we are spending, you know, is well thought out.
I think I would just want to assure everybody on this call that OpEx little bit high for this quarter. The reason is just that we had a NPA loss, so which has also elevated our cost of operations. Overall it has just passed our comfort level cost test for our comfort level. We will see that in our overall year we remain around 50%-62%. In long run of course, we need to maintain it below 60%.
Got it. Fair enough. Thanks a lot.
Yeah. Yeah. Thank you.
All the best.
Thank you, Hiral Desai. Thank you.
The next question is from the line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Can you just talk about the experience on the recoveries and upgradations during the last quarter, Q1 ? How are we seeing it evolve during the second quarter?
What's the question? Ashlesh, you said you asked about the upgrade during the last quarter, right?
Yeah. Recoveries and upgrades. Yeah. How was the experience there? Which segments are we seeing recoveries coming from?
Upgrades. I think we had mentioned that in the page that, you know, the recoveries that we have seen during the quarter, 65% of them have been normal resolution. You know, primarily through customer coming and settling down or repaying their debt obligation. Whereas, the balance, 30%, have gone through the, you know, the asset reinforcement route. But if you ask specific segments, I think Vikrant can probably answer that.
Segments. Is it broadly or if it's both these segments?
Broadly it has been same for both Wheels and SBL segments.
Okay. Got it. Can you just break up the reductions into write-offs, recoveries, and upgrades?
We've not given that data. Ashlesh Sonje will get back to you. Write-offs, we've written off around INR 34 crore during the quarter. In terms of recoveries and upgrades, I'll get back to you with that data point. Yeah, yeah. Sorry, yeah. See, I guess I have details in the time. Reduction during the quarter was INR 64 crore only across all the products. As this total, INR 34 crore is in technical write-off and INR 10 crore is due to all principal rundown due to repayment. This is the total amount.
Okay. Got it. My second question is on the slippages. Can you give us some color on it? Specifically how much of the slippages are coming from the restructured book? Outside of restructured, which segments are contributing to slippages?
From the restructured book, the slippages were around INR 80 crore out of the total slippages of 260 crores. Ashlesh?
Yeah. Okay. Perfect. Thank you.
Thank you.
Thank you.
The next question is from the line of Ankit Bihani from JM Financial. Please go ahead.
Hi, sir. Congrats on a good set of numbers. I have only one question. What explains the decline in net interest margin by 40 basis points quarter-on-quarter? Because we are seeing the net interest income grow by 4% QoQ, but we see the NIM declined by 40 basis points. Could you please explain?
Yeah. Ankit, that's generally quarter-on-quarter NIM is not really comparable, you know, because there is seasonality factor on Q4 and Q1. Generally, you realize that we do a lot of business in Q4, and to that extent, the base impact comes into play. Seasonally, if you see, Q1 would always be lower than Q4. As we have said that, for the full year, we are looking to maintain our margin similar to full year FY 2022.
When I calculate, back calculate, the net interest income has grown 4% QoQ. On that, if I calculate the average interest earning asset, that has grown by 12% QoQ. Could you please explain that?
Interest earning assets have grown, right?
Yeah, 12% QoQ, which is.
Yes. That has kind of subdued the margin.
Yes.
That's what I mentioned, that typically what happens is when you do a lot of business in March, if you go back and see Q4, generally the disbursements are very, very high. To that extent, last quarter was very good for us. To that extent, the interest, the denominator grew much faster as compared to the numerator. It's seasonally not being comparable historically. Even last year, if you see, our Q4 margins had come at about 6%, whereas our overall, for the year margins were about 5.7%.
Okay. Thank you. Okay.
Thank you.
Thank you. The next question is from the line of Ronak Jain from Chitwan Advisors. Please go ahead.
Sir, I just want to ask you regarding the revenue plan, your plan for future, next five years to increase your revenue like. Are you going to open the branches?
Branches opening, next five-year plan for branches.
Sorry, he's asking five years.
He's asking them what's the plan for growing the revenue for next five years. Is it by opening more branches? Or
Yeah. I think it's business as usual, to be very honest. You know, if we need to grow ourselves, we need to have more states, more geographies, more branches, you know. Of course, the digital will also play a very important role there. I think that strategy remain very, very solid or, you know, very straightforward that for deposits we want to grow in urban markets and that we are planning here. For the lending, we want to really focus more on the core market, so existing states more deeper and deeper. Of course, digital allows us to expand entire country, you know, without much CapEx around it. I think we have sorted our strategy of growth very well, and we want to be on that path only.
Okay. Okay. Yeah.
Thank you. The next question is from the line of Bhavik Dave from Nippon India Mutual Fund. Please go ahead.
Yeah. Good evening, sir. Thank you for your opportunity. A couple of questions. One is very granular, but you started to disburse digital personal loans at INR 122 crore that you mentioned in the presentation. Who are these customers? Like, are these the liability customers or what exactly? What are the ticket size? How do we source like? Sorry. What are the yields that we charge here? How does this book work, and how is the experience been? Because you just started, just want to understand how we are going about it.
Yeah, Bhavik, Gaurav will answer this.
Hi. Hi, Bhavik Hathi. This....
Oh, sorry. Sorry.
This INR 122 crore book, right? This is 100% to existing liability customers, right? We have only you know personal loans for our existing true franchise customers, right, and mostly around deposit customers. The average ticket size is just north of INR 1 lakh, and the yield would be around sort of you know 18-odd%, right? In terms of the customer profile, that reflects largely the profile of our sort of deposit franchise, right?
Mm-hmm.
Which obviously, as you know, you know, most of the money is from the urban market. In terms of the customer split, it's 50/50 between rural and urban, right? It reflects sort of that split.
All right.
Finally, right, so in terms of asset quality, it's, you know, it's been very, very strong so far.
Got it. Second is on the deposits. Just want to understand, sir, you're already offering a reasonably high interest rate on the savings account. Is there any thought of maybe going up further from here to garner deposits or we are comfortable with the kind of deposit growth that we have considering our asset quality is reasonably strong?
Yeah. Hi, Bhavik. Rishi here.
Yeah.
The branch network that we have added in the last couple of years and we've given some detail urban and core markets in the presentation this time where the urban market branches have almost doubled over a period of two years.
Yes.
We have gone to new geographies as we have been updating earlier also. We are getting good traction in those markets and the addition of branches will largely keep pace with the requirements of the asset business. I mean, you know, the growth of branches will not really be very linear because video banking adds to our ability to grow our footprint significantly. Yes, this year also we should be able to add a few more branches given the footprint that we have so far established in, you know, UP South and East. A few branches will come in those markets.
The branch expansion will depend really on the asset growth required and therefore, you know, whatever, you know, the retail deposits that we need to mobilize for the bank.
Sure. My question was more regarding the savings account rate. Do you feel the need to increase that rate even further if need be for growth or even only branch addition is good enough for so meeting the advances growth requirement?
I think the savings rate is fairly optimized. You know that, you know, we offer different rates across different buckets-
Right.
Which then helps us to optimize our overall savings rate at around 5.5%.
Right.
We don't think that we will need to revise this, at any point of time.
Okay.
We don't need to sort of, you know, change the savings rate at this point of time.
Sure. Sir, one related question to liabilities is like I see your video KYC, and I see the numbers of average balances that you have there is reasonably good, right? Like INR 35,000- 40,000 average CA balance is what I see in the numbers, which is very, very healthy. What's your take on this, right? Like we are able to like capture like. Sorry. Get customers. Hello? Can you hear me?
Cutting the line.
Hello? Hello?
Mr. Dave, please go ahead.
Yeah. Am I audible?
Yes.
Hello.
Yeah, Bhavik, go ahead.
Yeah, sorry. I was trying to understand, like the video KYC. I see your average savings balances are quite healthy at INR 35,000- 40,000 odd rupees, which is, very, very healthy. Just want to understand what's leading to this and, are incremental customer addition totally digital and, via this video KYC route?
Bhavik, in terms of you know the healthy sort of average balances, that's a reflection of our acquisition strategy where we've been you know highly focused on acquiring only quality customers and especially sort of you know the channels, the digital marketing channels through which we acquire those customers. That's reflecting in that average ticket size. The profile is again sort of I think we've given out like you know on that on slide 34.
Sure.
It's largely sort of I think 80% is urban, around 50% is salaried and around three-quarters is sort of young between 20 to 35 years of age.
Right. Understood. Sir, last question is on PSLC. This time around, the PSLC fees have been a little muted. What's your outlook on this? Because I think the growth in the system was quite strong, so I thought requirement of PSLC would be reasonably high. What, how do you think about it? Like the number is quite small versus even last year Q1 .
So, PSLC, you know that we have seasonality factor, right? We have excess portfolio available. Last year Q1 also it was around INR 18 crore.
Yeah.
This quarter we have INR 13 crore. This quarter we feel that premiums were subdued and demand was also subdued.
Okay.
We'll time ourselves and maybe next quarter we will see the position in premium. Accordingly, we will figure out our PSLC.
Perfect. That's very helpful. Thank you so much.
Thank you, Bhavik.
Thank you. The next question is from the line of Shibani Kurian from Kotak Mutual Fund. Please go ahead.
Yeah. Hi. Good evening. My question is that was asked earlier in terms of margins. Again, just delving a little deeper in terms of the margin trajectory, just wanted to understand what is the share of floating rate loans and fixed rate loans in our mix. Related to that, if you look at our loan growth, our loan growth has been extremely healthy, and that has been matched by deposit growth. Incrementally for us, again this is possibly a repetition of the earlier question, do we see the need for interest rate hikes, especially where deposit mobilization on the retail side is concerned? On the CASA, are we at optimal CASA levels or do we have scope for CASA to move up from here on?
Okay. I'm Shantanu Prasad here, Head of Treasury from Bombay. With regard to the pricing of deposits, and if you see that, we had taken about a 90 basis increase in our deposit rates from February onwards. In the last hike we took was 15 basis and our present deposit rate is about 6.90, which is standing good as against the peer competition. As what Rishi also mentioned around the CASA that we have 7% as a peak rate, and we don't intend to change. Our cost of funds, which was about 5.95% last year. As we have mentioned in the slide, we endeavor to remain around those levels in this year. We are aware that rates are on the rise, but our deposit accretion is largely driven by the CASA growth.
As you will see that last year-on-year our CASA was 26%, which has jumped to about 39%. Major incremental growth is around in the deposit around the CASA balance. We are also driving the CASA now with a very focused approach and I think with this overall cost of money should be under control.
Do we envisage further improvement in CASA ratio in the current interest rate environment, or do we think that CASA would remain largely stable at the present levels?
If you actually look at the kind of customer who saves yield deposits and the customers who have transacting accounts, like what Uttam had mentioned that we acquire what we call a GRIT customer, which is granular retail individual and transacting customers. What we have seen is that the customer who saves deposits is a slightly different segment than the customer who actually open a savings account with you. Likewise for, you know, current accounts, we've mentioned that there are small traders and merchants who love to bank with us, and that's a white space that we understand is there in the market. Now we are very comfortable in our ability to drive our teams to source specific types of business.
If I want to drive CASA, I will drive CASA. If I want to drive deposits because the volume of money required is more, then I drive deposits. In the current SA environment, our priority is to ensure that our cost of deposits is maintained and therefore our drive will be to push more of CASA and therefore we should see, I mean we do see a lot of headroom to, I mean that will automatically lead to increase in the CASA ratio. The incremental growth in deposits should largely happen through CASA is what we would strive for.
Sure.
Shibani Kurian, Shantanu Prasad.
Oh, hi, Shantanu.
Yeah, hi. I think your first question that our fixed book is around 72% and our variable book is around 26%. Last quarter there is around 90 basis points in repo rate change, which has affected us by cost of funds even going up by six basis points. You know our start rate was around 6.66, which is now 5.66, which are now down to 5.70. We are acknowledging that, you know, there might be 100 basis points more repo rate going up in next six to seven months.
That also has been accounted and we strongly believe that by building more CASA, which Rishi was explaining and you know it depends on our whole competitiveness around the other banks and the peer banks, how they perform. I think our CASA rates are absolutely on track. I think we need to play around with our FDR rates, which Shantanu just spoke. Largely we will be able to manage our cost of money to the last year level. In our asset side, you know only 25% book, we have already increased the rates as we move forward. Incrementally also we have increased our rates by 50, 60 basis points, right?
I think in the near term, I think that's the sense that there will be a level where the asset rate will start going up and our cost of money will get stabilized at around 5.85%-5.9%. We'll protect our margin.
Sure. Thank you, Sanjay. That's really helpful. The other question, if I may, one more question is, of course, your loan growth so far has been extremely strong and you've exhibited your ability to grow faster than the industry. In the medium term, do we continue to expect similar sort of a loan growth trajectory? Of course, given the fact that you have new product lines that you have added, so, this kind of loan growth trajectory is possible for us at least for the next few years?
Our stated growth rate is around 30% YoY, and we really want to be on that course. Some years it happens more than that because of certain reasons, but I strongly believe that we need to protect our margins. Idea is to really build an asset at a decent IRR, right?
Mm-hmm.
We don't want to build on a book where we don't have a decent IRR or decent yield. I think we will play our you know balancing play where we have a higher AUM and we can manage because of our higher cost. I think what I would say 30% here and there you know is there.
Sure. Thank you very much, Sanjay Agarwal and team. Wish you all the best.
Yeah.
Thank you.
Yes.
Thank you. The next question is from the line of Naman Garg from WestBridge Capital. Please go ahead.
Hi. I just wanted to understand two things. First is I wanted to understand the breakup of our OpEx, maybe four, five line items and in terms of percentages and how they evolve probably year-over-year. That'll be very helpful to understand to get a deeper sense on OpEx.
I would give you some breakdown of this quarter. We have Vimal here this side. We have around INR 741 crore OpEx for this quarter. Out of that, INR 41 crore is depreciation. INR 100 crore is around investment on our initiatives. 400 crore all is around employee cost. INR 200 crore is around the other expense, which includes travel and other things, right? This ratio remains pretty same for last maybe last three to four quarters because we started investing on our digital properties in last one or maybe last 18 months only. I think the ratio mix is similar, right? I would say so digital, as I told you, is a investment for the future, and we want to continue that.
In terms of the other OpEx, which is close to INR 200 crore, you know, there is an impact of inflation there. It might have, you know, maybe a 10% impact there because of inflation. The travel has gone up. The rent has gone up. The other consumables has gone up. That has impacted this year too. Overall, of course, we are a retail organization, so we need not many people on the ground to manage our whole activity. The pay bill is little high, but that is there, right? This is overall our OpEx commentary for the last quarter. If you need more detail around it, then you can be in touch with the IR team for any kind of data around the previous years, right?
Understood. Okay. That, that's helpful. Second, wanted to understand a bit about the treasury income. It has been decreasing over past four, five quarters. What's our commentary around that?
Yes. Sanjay, you can even-
Yeah.
Yeah.
I am Shantanu again here.
Thank you.
You see that normally in Q1 , treasury has the opportunity to book one-time gains on SLR portfolio. That is what we did last year. As you would appreciate that this year has been different, where we have seen that there has been increasing repo rates and this has a consequent impact on the market gains and hence we did not have that opportunity to book that one-time gains. Now on the mark-to-market, I would just want to give you a wider perspective as to how do we kind of manage this is that as a bank we structurally have we maintain a sufficient liquidity cushion and that is generally parked in our SLR and non-SLR instruments, which is obviously the AFS category.
The endeavor here is to have an optimal mix which will give us a better return and a positive carry. Now our investment in the SLR generally is in G-Secs and SDLs. In non-SLR we are very, I would say, emphasize on the quality and hence we invest in just AA A, A A rated corporate bonds, TDs and CPs. The liquidity cushion that we mainly manage obviously is out of experience that we are in a new era of five years and we have also witnessed a lot of shocks in terms of the NBFC, the bank crisis, et cetera. In Q1 we saw that the repo rate was hiked by 50 and 40 basis points and CRR rate was also hiked and that really led to yields spiking up.
Now as a result of this, we had this loss of INR 55 crore broken into INR 24 crore of crystallized loss and INR 31 crore of MTM. Now when this action happened, obviously we were, as a prudent strategy, we liquidated whatever it was a thin position in our SLR and booked our loss and we also booked some non-SLR losses. Now Q1 and what we see is that now the portfolio is fairly now okay. SLR we do not have any mark to market instruments. On the non-SLR we do have, but we believe that the frontloading of the rate hikes has happened and going forward with our duration of the portfolio just being around one, we do see that this book will progressively run down and the future impact of MTM would be limited from here on.
Got it. Thank you. Thank you very much.
No, I'm going to share some data points. Our overall trending is now more than our cost structure.
Got it.
Does that answer your question?
Yes. Yes. Thank you.
Thank you. The next question is from the line of Pratap Agarwal from Edelweiss. Please go ahead.
Yeah. Just to follow up on the previous question. Could you give a breakup in terms of what is the quantum in AFS and HTM book? Related question to that is that have you made a one-time transfer this quarter from AFS to HTM or vice versa, which is allowed once a year. Third, related to this gain is that on one hand, we are saying that probably we are anticipating a further 100 basis points rise in repo. In that sense, if there are mark-to-market losses left in corporate bond, even if the duration is one year, then also there could be some mark-to-market which is going to be affected.
There is a system coming from the shareholders. Please help me generate.
Yeah. On the SLR part, you see most of our holdings are in HTM, and you would be aware that RBI does permit a sizable holding in HTM, and we are investing in HTM, which is at a good yield right these days. On the AFS, as obviously the interest rate view is slightly heavy, we do not know which way it is going to go up. I think our holding is mostly in the non-mark-to-market treasury bills, so there would be no mark-to-market risk there. On the non-SLR side, we do have a mix of non-mark-to-market and mark-to-market instruments. We have been on the cautious mode in the line that the yields were likely to rise. Our purchases have been mostly in non-mark-to-market for a significant period of time.
However, our existing book of corporate bond, which is mark-to-market, is there, and we have done some amount of work in terms of assessment, and we believe that, most of the rate hikes are already there, priced in. Any incremental increase because the book will automatically run down, the impact on that portfolio will not be that significant.
Thank you. Mr. Agarwal, may we request that you-
Well, because just to add, we have not done any transfer from HTM to AFS or AFS to HTM this quarter. Totally we have around INR 18,000 crore kind of, SLR and non-SLR books, including regulatory requirement. Out of that, non-SLR book is around INR 2,000 crore having bonds, which we keep normally for liquidity. What Sanjay Agarwal mentioned that our duration is maximum one for that book. We feel that rate hike has already seen, so we don't anticipate much impact there.
Thank you. Mr. Agarwal, may we request that you return to the question queue for follow-up questions. Ladies and gentlemen, please limit your questions to one per participant. Should you have a follow-up question, we would request you to rejoin the question queue. Next question is from the line of Renish from ICICI Securities. Please go ahead.
Yeah. Hi, sir, and congrats on a great set of numbers.
Thank you.
Just one clarification on the incremental AUM, which Uttam sir has shared some insights on it. I just missed some numbers. Uttam has said that 73% of the AUM is sort of originated post March 2021. And I missed the subsequent numbers. Can you please repeat that?
The NPA, you are asking about the NPA number, Renish?
No. I think sir has said that 73% of the AUM was originated post March 2020. 62% of the book was current and there was some other numbers. I just missed those numbers.
Sounds correct. The NPA number on the book which was originated post March 2020 is 0.48 and 92% of the book is current. The overall contribution to our book is 70%.
Got it, sir. That's it, sir. Thank you.
Thank you. The next question is from the line of Nilesh Jethani from BOI Mutual Fund. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. My question was on the competition side. Last two, three years with competition focusing on the secured asset and now more comfortable in giving out loans to unsecured or probably the high-yielding assets, which is Wheels, SME, et cetera. How are we as competition shaping up for us and how are we confident to continue to keep growing our book at similar run rates for next, say, two to three year perspective?
My friend, I have already commented in my opening remarks that all our four SBUs, be it Wheels, SBL, housing and commercial banking, you know, are absolutely, we are running it for last more than one decade and the overall market share is just 0.4%, you know. There is enough runway available for next 10 years also to build this book. If you go by the individual market share, we're just 2%. MSME financing is just 0.4%. Housing is just 0.1%. Commercial banking, you know, we have just started from last five years. There is very negligible market share. The kind of bank we operate now, the 1% of the customers will take loans from banks only.
The kind of rates we have, the kind of brand awareness that AU has gotten, you know, I strongly believe that AU will become one of the most exciting retail franchise for the core market in coming years.
Got it. That was my only question. Thank you so much.
Thank you. The next question is from the line of Nidhesh Jain from Investec. Please go ahead.
Just one question: is this INR 100 crore investment impact that you have mentioned? What is the nature of this investment? Is it customer acquisition cost? Is it employee cost? Branding? What is the nature of the investment that you are doing, if you can sum it up again? What was the number last year?
It was investment.
You want the detail of INR 100 crore?
I want to know, sir, what is the nature of the investment? It is employee cost, it is a branding cost or customer acquisition cost. Where actually we are investing this INR 100 crores?
Nidhesh.
Yeah.
Nidhesh from Investec. On slide 15, what we have said is there is INR 103 crore of total investment that we did undertook, and these are the investments which are outside of our normal business. Right? Typically, we have given that 48% of that has been towards credit cards, QR codes, video banking. 44% towards distribution, and the rest is towards the brand campaign. Now, when we say that, it's towards credit cards, QR codes, video banking, it basically involves manpower, the infrastructure costs, as well as, you know, any kind of, say, for example, in credit card, there are acquisition costs as well. So all of that is kind of day one.
This is the cost which is appropriated to these businesses, which is likely to generate a return in the future, at some point in time.
Sure. Understood. What is the number last year, full year?
24. Around 20. Last full year was about INR 250 crores. INR 250 crores that we had given last quarter. Last year, same quarter, I think it was about INR 25 odd crores.
Sure. Thank you. Thank you.
Thank you. The next question is from the line of Pankaj Agarwal from Ambit Capital. Please go ahead.
Yeah. Hello, sir. Am I audible?
Yes. Hello.
Yeah. How has been your experience on asset quality in new markets compared to your core markets?
New markets.
Right.
I mean, you know, we have, I have commented this earlier also that the comparison with Rajasthan is not good for us because Rajasthan remains a very strong market over the years. If you compare the non-Rajasthan states, we feel the same. Be it in comparison between Gujarat, Maharashtra, MP, Chhattisgarh, Delhi, Punjab, you know, largely remain same. You know. Newer geographies on a bank platform is even better. That's our bank.
Okay. Like your growth is roughly 30%, 35% YoY plus, you are growing in new markets plus new products, right? Given that backdrop, do you think you can maintain asset quality the way you maintained over the last decade?
Of course, because we have moved on from Rajasthan in 2008 onwards. It's now good 14 years that we are working in non-Rajasthan states, and we are able to build this kind of asset quality throughout the years and throughout the book and throughout the seasons. That's why I said, you know, that the complete ownership at every level is the hallmark of AU.
Okay. Basically you are saying that next decade in terms of asset quality should not be different from what you've delivered over the last
Very honestly, you know, next decade, I cannot comment it but.
Maybe a mix three, four years also.
The last 10 years shows that.
Okay, sir. Thank you.
Last 10 years gives us that comfort that the team should manage next year and 10 year also.
Okay. Fair enough, sir. Thank you.
Yeah.
Thank you. The next question is from the line of Madhu Gupta from Quantum AMC. Please go ahead.
Thank you. First of all, congratulations for a good set of numbers. I have two questions. The first question is that you said that in branch banking, the cost-income ratio is still more than 100%, still not profitable. What is the tenure for the branch banking to become profitable? That is my first question. The second question is, you have a lot of large players increasingly targeting commercial banking, rural banking. For example, HDFC Bank wants to now add 1,500 branches every year, and so they are targeting that segment. Do you think that the competition would intensify in that segment? And in that scenario, how have you prepared yourself, you know, to counter that competition? Those are my two questions.
Yeah. Rishi, you want to answer the first one?
Hi, Rishi here. Basically, you know, branch banking should typically take, you know, if I look at any one operating level breakeven that should in an urban market typically happen 24-26 months. But if you have to look at a fully baked in breakeven, that would typically take four to five years for urban and core market would be slightly more. But then we're not adding too many branches in core markets over the last few years now.
Okay.
I mean, you know, the branch banking, the branches become profitable branch banking business, right? I think what Rishi is talking about the branches, right? The older you are become profitable, right? You know, branch banking typically is very, very different subject. You know, generally when we calculate the profitability, we don't see the whole size and the importance of the customer acquisition, right? It is the transfer pricing is done on the basis of the acquisition, right? Rather than it's holistic way. If you want to price the whole life cycle of a customer, then it's a very different game altogether, right?
I think branch banking may not become profitable at all in your journey of banking, right? Branch is good, the customer is good, and the other asset class, the cross-sell opportunity, you know, will help us to build a very holistic bank, right? Branch banking is so important, you know, to acquire customers and to give them the life cycle kind of services to really become a banking franchise, right? That's our sense. I think profitability around that is only one sense, you know? We need to see very holistically around that piece. Second, even commercial banking says, you know, I think the brand doesn't work. Your availability, your product, and how you deliver, you know, is more important.
Over the years, we have built our Wheels, SBL, housing in those markets, and we are a well-known name in those markets, right? Our team knows how to acquire, how to deliver, how to maintain, right? I think that's our USP over the years, and we will continue on our USP. India is so huge, you know. The opportunity is so huge. One bank coming or we coming alone won't take market, very competitive, you know? We need to play around our strengths. I believe the kind of size we are in our commercial banking, you know, for next 10 years, you know, we don't have to think much around our competition. We have to think much about our own product range, our team, our delivery, you know, our management around customer service, you know.
That is a more priority for us, for next, five to seven years to build a decent asset franchise in those markets.
Okay. Thank you. Best of luck.
Yeah. Thank you.
Thank you.
Ladies and gentlemen, that was the last question. Management for closing comments.
Thanks, Faisan, and thanks everyone for joining us and your support. Please reach out to the IR team in case you have any further questions. Thank you.
Thank you so much.
Thank you. Ladies and gentlemen, on behalf of AU Small Finance Bank, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.