Good evening. Welcome to IndusInd Bank Limited Q3 FY 2022 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an option 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. Sumant Kathpalia, Managing Director and CEO, IndusInd Bank. Thank you, and over to you, sir.
Good evening, and thank you for joining this call on a Saturday evening. I will start with some macro commentary and then go into the bank-specific details. We will upload this commentary on our website for ease of reference. Economic activities continues to gain strength, helped by a release of pent-up consumer demand during the festival season, a pick-up in general government spending, strong public investments and record exports. This recovery was reflected in the highest quarterly GST collections and improved bank credit growth. The recovery may see some impact due to COVID-19 pandemic resurgence. However, increasing coverage of fully vaccinated population and low hospitalization rates so far have ensured limited restrictions. On the global front, major global central banks have put forth guidance of faster than anticipated monetary tightening over 2022.
While this can disrupt the easy financial condition exerts upward pressure on rates, we expect that the domestic monetary policy to remain supportive to strengthen the recent recovery of pursuing a gradual normalization. The budget for the next fiscal too would be to look to enforce a structural push for the economy by channelizing a greater share of public resources towards investments and further incentivizing our private capital cycle. Coming to Q3 . This quarter, our focus was on addressing the concerns on microfinance. We ensured Bharat Financial Inclusion operations remained smooth and without any impact on customer servicing or collections. We have completed the internal review. In addition, the bank appointed external consulting firm to undertake an independent review, which is underway. The updates of both the reviews, including financial implications, are broadly in line with management expectations. I will share further details subsequently.
Maintaining disbursement traction on non-MFI portfolio. The overall loan book grew 4% quarter-on-quarter. Our vehicle finance disbursements are up 5% quarter-on-quarter. The strong disbursements ensured the vehicle book grew a high 2% quarter-on-quarter, reversing decline in the previous two quarters. The consumer loan book, other than the vehicle and MFI, too grew by 2% quarter-on-quarter. The corporate loan book has maintained its growth trajectory after the last year's consolidation with a quarter-on-quarter growth of 6% driven by SME and small corporates. We were cautious on microfinance disbursements pending reviews during the last quarter, and we have already picked up for this quarter. Continued demand-deposit momentum. Our deposit growth was strong at 19% year-on-year and 3% quarter-on-quarter. We let go of some expensive deposits given our abundant liquidity.
This helped us further reduce the cost of deposits to 4.66% from 4.85% last quarter. Asset quality. Slippages during the quarter, net of upgrade and recovery were at 0.9%. As expected, bulk of the slippages were from the microfinance at 4.4% of MFI book, where slippages. Whereas slippages from the balance 88% of the loan book was contained at 0.3%. Our GNPA have reduced to 2.48% from 2.77%. The restructured book too reduced to 3.3% from 3.6% quarter- on- quarter. We have maintained our PCR at 72% and increased our contingent provisioning to INR 3,328 crores or 1.5% of loans. Maintaining profitability of the franchise.
Our net interest margin improved to 4.1%, helped by falling deposit costs, sorry. The non-interest income continued to remain healthy, growing at 14% year-on-year. Our cost to income increased marginally to 41.6%. This resulted in maintaining a healthy PPOP margin at 5.90% of loans. Digital launches. We launched Indus EasyWheels during the quarter, a portal for used vehicle ecosystem. We scaled up our quarter two launches of Indus Merchant Solutions app, IndusEasy Credit Stack for business and debit card EMI on IndusInd Bank debit cards in quarter two. We went live with updated version of IndusMobile app and enhanced security features and improvements. The mobile app has seen good response with the user base increased by 36% year-on-year.
Overall, we remained on track on digital along with new initiatives on individual and vehicle finance segments planned for launch in the coming quarters. Now coming to individual business. Microfinance. I will start with an update on the reviews followed by business performance during the quarter. As informed earlier, the board of the bank conducted internal review on the anonymous allegations received in Q3 FY 2022. We have completed the internal review. In addition, the bank appointed external consulting firm to undertake an independent review, which is underway. Based on the findings of the internal review and the preliminary status update provided by the external consulting firm, key findings and action initiated by the bank are as follows. A microfinance product was offered to provide liquidity support for customers impacted by the COVID second wave after they cleared existing dues.
However, it was observed cash disbursement and repayments of earlier took place on the same day, which is a procedural lapse. The product was discontinued in September 2021 and prior to the receipt of the anonymous complaint. The standard loans outstanding under this product were INR 179 crore as of December 2021. The bank, as on a prudent basis, fully provided for this exposure during the quarter. All microfinance products require disbursement of loans with a biometric or an OTP consent from the customer. It is confirmed that the disbursement of loans without client consent getting recorded was as a result of a system issue. The standard loans outstanding for such customers were INR 7 crore as of December 2021.
Prior to receipt of the anonymous complaint, the bank had changed the disbursement process, wherein loans are disbursed only for biometric consent, except for one state which is Assam. Few areas of scope for improvement in governance and oversight of the banking correspondent activities of the subsidiary are highlighted. Steps have already been undertaken, including strengthening of process controls, integration of control functions, and formation of an oversight committee, et cetera. The management has evaluated the matter of possible impact on the asset classification, revenue recognition, and provisioning. Further evaluation also included factors which could lead to regulatory issues, and they have been also addressed adequately. The bank will also constitute a committee to assess staff accountability, if any arising of the findings of the review. Now, coming to the business of microfinance during the quarter.
The increasingly broad-based recovery in the economy was also reflected in the microfinance business during quarter three. The COVID-19 third wave too did not affect rural India as much as urban locations. Bharat Financial added 554,000 customers during the quarter. The member acquisition has picked up this month and as business and activities are improving across India. The positive momentum in business activities was also reflected in improvement in collections. Collections efficiency in December 2021 was at 93% on overall book and 98% on standard book, excluding NPAs and restructured book. West Bengal and Kerala continue to pull the overall collections down with collection efficiency of 95% and 91% respectively on standard book. With Q2 incremental NPA customers...
Within Q3 incremental NPA customers, 70% of the customers paid some installment during Q3 , indicating potential for recoveries, even though we have made conservative provisioning. Overall NPA base, 40% of customers paid some amount during Q3 . The restructured book was at INR 1,003 crore against INR 907 crores quarter- on- quarter. Overall, for Bharat Financial, 86% of customers paid all weeks in December, 8% are intermittent payers in December, and 6% are non-paying. Among standard portfolio, only 2% of clients are non-paying. This also reflects in terms of quality of portfolio outstanding, wherein portfolio current on all installments has improved quarter- on- quarter from 83%- 92% of standard portfolio.
Our 0-90 DPD book has reduced quarter-on-quarter from INR 4,436 crores- INR 2,153 crores, of which 60 DPD book is INR 633 crores. The net slippage during the quarter was INR 1,239 crores. The net slippages cumulatively for the nine month Financial Year 2022 was INR 1,851 crores or 6.7% of the book. Looking at the performance of the overdue book as of now and assuming coverage of 80% or 90% of the delinquent book, we remain confident of the credit cost from MFI book for the year to be broadly around 6%-8%, as stated earlier. We continue to scale up our non-microfinance activities.
Merchant acquisition business grew to 437,000 merchants from 320,000 merchants quarter on quarter. The loan book from these customers was at INR 1,463 crore from borrowing customer base of 261,000 merchants with 98.2% collection efficiency. We have also further scaled Bharat Money stores from 91,000- 94,000 during the quarter. Overall, we remain committed to the microfinance business. The Bharat Financial business model has delivered outperformance versus the industry, not just in COVID, but also in disruptions pre-merger. Bharat Financial prides in being a process-driven organization. The focus for this quarter will continue to be on improving field discipline, process tightening, and quality control without impacting customer acquisitions and collections. Vehicle finance.
Our vehicle finance disbursements for the quarter were at INR 8,800 crore, reflecting 5% quarter-on-quarter and 14% year-on-year growth. Similar to the Q2 , the disbursements are also higher than the pre-COVID-19 levels. Within vehicle categories, disbursements are now ahead of the pre-COVID-19 levels for commercial vehicles, cars, utility vehicles and tractors. The three-wheeler and two-wheeler volumes will take a few quarters more for the COVID-19 impact to pass. Strong disbursements in the last two quarters have resulted in the vehicle book growing by 2% sequentially after being stagnant or declining for the past few quarters. We have maintained or gained market share in most of the vehicle categories except two-wheelers. The vehicle finance restructured book remains stable at INR 3,769 crore quarter-on-quarter, with marginal fresh additions during the quarter.
The collection from the restructured book too improved to 87%. Collection efficiency from the rest of the book is back to normalcy. We see continued improvement in rate availability for existing vehicles, along with stability in fuel prices. This has supported the portfolio quality and will also result in new vehicle demand for the coming year. This is also evident in the Q4 so far, with disbursements improving further. We aim to maintain the growth trajectory, distribution reach and work towards improving to pre-pandemic levels in the last quarter as well. On the Vehicle Finance Management Leadership front, Mr. S.V. Parthasarathy has identified A.G. Sriram as his successor. A.G. Sriram has been with the bank for over three decades, running large portfolios including commercial vehicles and construction equipment. A.G. Sriram is being groomed over the last several quarters to take on the leadership role.
Mr. S.V. Parthasarathy has been instrumental in building the vehicle finance domain for the bank and continues to be associated with the bank post-transition as a mentor to A.G. Sriram. Other retail assets. This segment contributes 15% of the overall book and includes non-vehicle, non-MFI products. The loan book grew at 2% quarter-on-quarter, driven by growth in both secured and unsecured products. Credit card spends continue to reach new heights every quarter, with quarterly spends at INR 14,256 crores, growing 28% quarter-on-quarter. The secured asset disbursements were among the best in last several years. The segment, however, is witnessing intense competition, and we have to let go of customers where risk-reward was not favorable. The collection from this customer segment are back to pre-COVID levels, with the net slippages well under 1%. Corporate bank.
The corporate book maintains its growth trajectory with quarter-on-quarter growth of 6%. YoY growth was strong at 19%, albeit on a weaker base. We continue to focus on well-rated corporates, with average rating profile of the corporate book improved to 2.67 from 2.76 YoY , that is equivalent to A rating. The growth was driven by demand from NBFC, small corporates and SME. The slippages from the corporate book remained well contained in Q3 , slippages at INR 56 crore. This would be one of the lowest quarterly slippages in the last several years. A part of the corporate book under restructuring will complete one year of satisfactory performance and expected to be upgraded this quarter. We are hopeful about developments in one of the restructured accounts under litigation.
Our exposure to Vodafone Idea was at INR 30 billion as of December 2021, of which funded is INR 10 billion and balance non-funded. The consortium is evaluating the business plan and we will update you at an appropriate time. During the quarter, we sold down one of the IL&FS exposure to an ARC for INR 230 crore cash recovery with an upside participation on future final recovery. The exposures have already been written off and recovery is used to augment the contingent provisions. The gems and jewelry book reduced quarter-on-quarter due to repayments and is maintaining its asset quality with zero NPAs. Overall, the corporate franchise has seen a comfortable turnaround with focus on growth compliance with the underwriting framework. Now coming to deposits.
Deposits grew 19% year-on-year, driven by 24% year-on-year growth in current and savings accounts and retail deposits as per LCR grew by 32% year-on-year. The growth is achieved along with reduction in cost of deposits. Our cost of deposits reduced to 4.66% from 4.85%, showing a decline of 19 basis points during the quarter and 139 basis points cumulatively in seven quarters. We continue to remain surplus on liquidity and let go some of the expensive deposits during the quarter. The certificates of deposits reduced in absolute as well as proportion of deposits during the quarter. The CDs now form 2.2% of the overall deposits. Affluent segment total AUM stood at INR 60,000 crores, showing a YOY growth of 25%.
In the same period, total deposits in the segment grew by 21% and stood at INR 35,000 crore. The growth in deposits is driven by CASA, which grew 37% year-on-year and 4% quarter-on-quarter. Deposits from the NR segment has been holding up well at INR 27,000 crore. The NR market has seen a sharp fall in the fresh inflows of the deposits this year. We have, however, gained market share this year to date and aim to maintain that trajectory. We have maintained our overall LCR at 137% and were running surplus cash balances and excess investment of over INR 60,000 crore. Digital traction. We have been aggressively digital strategy focused on, A, improving efficiency of existing business. B, creating new business, digital business models. C, building digital propositions with a wider ecosystem.
Over the last nine months, we have built a comprehensive stack of digital platforms to serve the needs of retail, individual, and SME clients. These include IndusSmart for investments, IndusForex for reach. We have recently launched IndusEasy Credit for personal loans and credit cards, as well as purchase financing on debit card spends. In the MSME space during the year, we launched Easy Credit for business and Indus Merchant Solutions to meet banking, payments, and lending needs for small entrepreneurs. Consequently, our digital sourcing mix continued to increase during the quarter. Overall, 92% of the transactions happened digitally, and 71% of overall service requests are now processed via digital channels, up from 68% a year ago.
New developments during the quarter include. We opened up IndusEasy Credit stack for credit cards to various channel partners and employees, such as gaining transactions in more than 120 offline channel partners. We also integrated two digital partners and several more in the pipeline. The platform is generating over 300,000 inquiries every month. With the platform launch, our cost for processing per application has come down by 80% as printing, dispatch, scanning, data entries are eliminated. We launched an enhanced version of IndusMobile app with better user experience and security features. The mobile app continues to rate at 4.3 on Play Store and IBL. Mobile and UPI transaction growth almost doubled year-over-year. We enhanced features on WhatsApp banking, including PDF statements, card balances, and bill payments.
We saw good engagement on WhatsApp with 3.6 million user registered base and over 1 million conversations every month. WhatsApp banking user base has increased by 82% year-on-year and transactions are up 2.9 times year-on-year. Indus Merchant Solutions, a one-stop solution app for small merchants, saw a good response in the initial months of launch and garnered an installed base of +10,000 organically, with 60% of the new-to-bank users, indicating wider acceptance of solutions offered by the app. As we start the media campaign from this quarter, we expect the momentum to build in the coming quarters. The bank has launched IndusEasyWheels. The website hosts ancillary services like roadside assistance, mechanic services, insurance, which is the first of its kind in the market.
The portal also hosts the repossessed vehicles of the bank for auction and provides a smooth user experience for anyone looking for pre-owned vehicles. This is the first step in the journey of vehicle discovery, and the future roadmap will include bringing in more inventory from aggregators, dealers, provide customer value-added services on such customer touch points. The vision is to create a wholesome customer journey to complete vehicle ownership cycle and give enhanced user experience, transparency, and value. The channel is expected to bring in niche digital footprint and market recall of vehicle finance. We also continue to build our open banking platform banking strategy, leveraging the bank's API alliances with 260 partners, so that we can extend banking services and by embedding ourselves onto partner platforms. Now coming to the financial performance for the quarter.
Net interest income grew for Q3 at INR 3,794 crores, grew 11% year-on-year, and operating profits at INR 3,312 crores was up by 12% year-on-year. Our operating profits margin remained healthy at 5.90% of loans. Net interest margin improved during the quarter from 4.07%- 4.10%. The improvement was driven by continued reduction in the cost of deposits from 4.85%- 4.66%. The yield on advances came off from 11.66%- 11.36% due to higher share of corporate loans and with better rating profile and slower MFI disbursement. Other income grew 14% year-on-year. Retail fees contribute 58% of the total fee income.
On the cost side, we resumed investments in our branch network, adding 88 branches during the quarter, taking our branch count to 2,103. We continue to invest on the digital initiatives as well. Our cost-to-income ratio was at 41.6% for the quarter. On the asset quality and the provisioning front, our provisions for the quarter were at INR 1,652 crore. Net slippages for the quarter were at 0.9% of loans. As expected, bulk of this came from microfinance at 4.4% of loans, whereas net slippages from the rest of 88% of the book were contained at 0.3% of loans. Our coverage on microfinance NPA is at 95%.
We also have standard provisions of INR 368 crore towards full coverage on products with procedural lapse and 10% provisions on all 30-90 DPD loans. We also additionally carry significant contingent provision for restructured loans. We are thus well provided on the existing as well as potential NPAs in microfinance. Overall, the GNPA for the bank has moved down to 2.48% from 2.77% quarter-on-quarter, and net NPAs were down to 0.7% from 0.8% quarter-on-quarter, with PCR of 72%. The restructured book reduced from 3.6%- 3.3% quarter-on-quarter.
We have used recovery from IL&FS closure to improve our contingent provision to INR 3,328 crore, amounting to 1.5% of loans. Total loan provision-related provisions are at 3.7% of loans or 144% of gross NPAs. Our SMA-1 and SMA-2 book was at 25 basis points and 59 basis points respectively. Net security receipts were at 85 basis points versus 71 basis points quarter-on-quarter. Profits for the quarter were at INR 1,242 crore, growing at an 8% quarter-on-quarter and 15% year-on-year. Our CRAR, including profits, improved to 19.07% from 18.06%, with CET1 ratio at 16.14%. The CRAR was also boosted by the Tier two issuance of INR 2,800 crore during the quarter.
Overall, I think Q3 was one of the toughest quarters since the first COVID wave and outcomes have been what we have been communicating. We are thus well poised and pivoting to growth as reflected in disbursements as well as collection in the 88% of the non-finance microfinance book have been stable. The book grew 4.3% quarter-on-quarter and with 30 basis points of net slippage. We expect these portfolios to maintain this trajectory. The microfinance portfolio has seen slippages broadly in line with our expectations. The updates from internal as well as external reviews also corroborate our views. The disbursements are now back on track, and we expect loan book to grow hereon. We have conservatively chosen to take the microfinance credit cost through the PNL along with augmenting contingent provisioning.
The contingent provisioning position us well to mitigate future credit cost cycles. The liability franchise continue to scale up with reduction in cost of deposits. We are well positioned for the upward rate cycle as well. We are well on our track on executing our digital strategy. We have so far launched three out of the planned five initiatives: IndusEasy Credit, Indus Merchant Solutions, and Indus EasyWheels. These are being scaled up. The other two, IndusMobile and SME offerings, are planned for the launch in the couple of quarters. The profitability of the franchise remains healthy at 5.90% PPOP margin. ROA and ROE continued the journey towards normalization and should see further improvement as microfinance costs have peaked.
While the COVID remains a risk to watch out for, the implication of the recent wave on our business have been limited. We are thus committed to executing our strategy quarter on quarter. With this, we can open for question and answer.
Thank you very much. We will now begin question and answer session. Anyone who wishes to ask a question may press star and one on their 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 your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Abhishek Murarka from HSBC. Please go ahead.
Yeah. Good evening.
Yeah. [Audio distortion]
My question. So, two quick questions. The first is this audit report. When can we expect it, and has any of the slippage or write-off been precipitated as a result of any finding of the report?
The internal audit report has been presented to the board already and the committee of directors who were reviewing and overseeing the audit have all presented it to the board. I think the external consulting firm's preliminary findings have also been reviewed. A status update has been given to the committee of directors and it has been. I think the external consulting firm's board report should be available very soon. I think they are internally validating the report as well as presenting you know the report to the management for their comments before they present it to the committee of directors. I think it should take a couple of weeks, two- three weeks before it is out. That's what it is.
I think, what we have done, it's not precipitated it. I think we were always, in my first call itself, I had said that we had this provision and we have taken the full provision of this portfolio, which was INR 179 crore on a particular product.
Okay. The INR 368 crores I think you mentioned that you're keeping separately for MFI, which is outside of any-
Yeah.
NPA provisions for MFI.
No, no. These are for MFI. What I've done is we've taken 10% on 30-plus as an extra provision, and we have taken the current book, which was on current of INR 179 crores. This particular product has been taken as 100% book. 179 + 120 or 130 crores on the 30-plus bucket is what we've taken as provision.
Okay. Understood. The second question really is on growth. Now, at the current rate of growth, we may undershoot our guidance of 20% growth this year. What is your view for the following year? You're saying disbursements are picking back up. What is your view for 2023?
If you look at this quarter too, I think if you would have just seen our growth outside the microfinance was 4.6%. We are back to 18%-20% growth year-on-year. It's not that. If we get our microfinance growth back, which will be 5% quarter-on-quarter, 6% quarter-on-quarter, at any cost, we will be delivering 5.5% growth. In my view, our growth is in the early 20s and we'll continue to believe because we have to make up for the lost time which we have done. I think our growth will be in the range of 12%-13% this year, and we'll go to early 20s in the next year to make up to 16%-18% CAGR in the planning cycle five on the two-year period.
Okay. Finally, on MFI, just a few questions. So you're saying what is the disbursement last quarter and what have you done in January to get a sense of the kind of-
January number, I think it's incorrect. December, for December it was INR 7,300 crores, approximately. We do an average of INR 8,500-INR 9,500 crores of disbursement.
We should be back up to those levels in this quarter, let's say.
Yes.
And just [Crosstalk]
I'm talking only about the member business. Yes, I'm talking about the member business. There will be another INR 300 crore-INR 400 crore of disbursements which will happen in the merchant acquiring business.
Okay. Sure. Yeah. This average ticket size that you have shared, this is on AUM, right? What will it be on disbursements?
It's exactly the- [Crosstalk]
Disbursement will be slightly higher, I think, INR 32,000.
32,000. Not much of a difference.
It's a one-year book. It runs down and, you know.
Okay. Just so you know, you're giving anyway quite a bit of data on MFI, on paying disbursements, et cetera. Just a request, if you can put it in a slide, it just helps us compare because a lot of people give that data, and it would be useful to have, you know, at least the basic data about MFI separately. Just a request there.
Okay.
Thanks. Those are my questions.
Thank you. Appreciate.
Thank you.
Thank you. The next question is from the line of Sameer Bhise from JM Financial Services. Please go ahead.
Yeah. Hi. Just one question on how does one tie up the number of sales to ARP, which says INR 740 crore in the presentation and around INR 2,480 crore in the QAT release?
If you look at it.
Yeah. INR 7,487 crore is the gross amount which is sold to the ARC during the quarter. Within that INR 750 crore is the corporate NPL IL&FS exposure, which was already written off, and the balance is the loans which are sold during the quarter, which are the retail and other assets. The 750, as you know, is a fully provided and written off exposure. For the balance 1,737, there were already provisions sitting on the books, so the net amount is 1,213, as disclosed in the SEBI disclosure. That 1,213, we received a consideration of 740. That 740 is in the investor presentation. 740 is further the usual, whatever the cash and haircut book costs you receive against that.
That's how the 7487 flows into the SR book and investor presentation no notes.
Okay. I'll probably break this down once again offline.
Yeah, yeah.
Second, just wanted to get your sense on the corporate book. How is the growth shaping up and from what kind of sectors?
Our corporate book grew by 6%. I think on the large corporates, we are seeing growth in the NBFC segment, which has done very well for us and we continue to believe that that we have about 4.5% of our book there, and we believe that that's a very good business which we are in. I think we've also added to the real estate sector. Two deals were done and we did that. Smaller amounts, but very good deals which we get. On the mid corporates and in the smaller corporate, we saw growth. We saw the growth specifically in the smaller corporate at about 10%-12%.
Okay. You expect these-
The RE loan disbursements were for existing projects which were for existing projects. They were not new entrants into the new customers which are acquired. They are disbursed over a period of time.
Okay. And do you expect kind of 19 number to sustain on the corporate side?
I believe so. I think the budget will throw up very good opportunities in the corporate. I think the CapEx cycle is reviving, and I believe that we will continue to grow on the corporate side. Like I said, our mix will be 45-55 or and I think we are in that range on the corporate and retail side. I think we'll also see the retail side shaping up. On the retail side, the vehicle is coming from a very low, you know, cyclical downturn, and I think the vehicle side of the business will do very well. Microfinance, there's always a demand, and you will see us growing that microfinance. On non-vehicle asset business, you will see the growth momentum picking up. I think all the three businesses are well-positioned for growth now.
Okay. Thank you and all the best.
Thank you. The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.
Firstly with respect to the OpEx. Overall, the OpEx has been quite contained that we have seen increase across the board. Do we see maybe investing further and specifically OpEx or we still feel like costing is being managed at this level quite comfortably?
No, no. I think what you will see is we will continue to invest in OpEx. I think OpEx is a very important component, specifically on technology and people we are investing. Our branches, we are growing the distribution, we are investing in technology, and we will invest in people. I think OpEx will continue. Please understand, the revenues will also grow. The nature of our business is such that we will continue to grow the revenue. I've always said our OpEx will be in the range of 41%-43%, and it is consistent within that percentage. So to say that the OpEx will not grow, absolute numbers of OpEx will grow, but I think the revenue will also grow to take care of the OpEx.
Sure. Okay. Maybe the way there has been surprise all across, that we are not seeing any further deterioration in GNPA, credit card should be one component of it. Apart from that, I don't think there are
We have a very small card base.
Yeah.
Of 1.6 million clients. People have invested a lot during the festival season because of the large base. I think our investment will be INR 8 crores-INR 10 crores, which hasn't moved the needle.
Sure. Sorry, I don't know if you covered it earlier, but the write-offs primarily were pertaining to the MFIs, almost like INR 1,470 million.
I think let me give you the number. I think we did a write-off of INR 1,662 crores. INR 281 crores were from vehicle finance. Secured retail was INR 41 crores. Unsecured retail was INR 217 crores. MFI was INR 928 crores. Corporate was INR 194 crores.
MFI was nine?
INR 928 crores.
INR 928 crore. Almost like 4% of your book, FMC, which would have been written off.
Yes.
Okay. Overall, what was the pain if we have to look at it in terms of the entire restructuring plus slippages over past several quarters and the write-offs which have happened. Finally, on that book, what is the kind of pain which we had seen over last five odd quarters?
On the MFIs?
On MFIs. Yeah, on MFIs.
INR 1,850 crores is the overall slippages over the year on the book. If you look at it, I think we are at the peak, and I think you will only see improvements. I think at quarter one we will be on VAU. There may be an elevated provisioning in this quarter of about INR 400-INR 500 crores, but I see that going down to about 250-300. That is a normal course of the business which will happen in that business. It has actually gone down dramatically, and that is reflected in the X Plus book or the. That's what I'm giving you the data, and if you read my commentary, I've disclosed it's almost 50% down.
Next quarter we'll see INR 400 million, then thereafter getting INR 30 crore-INR 50 crore odd, normalize something.
I'm saying that you will have to see the numbers. I'm just giving you. I think it's on its way down, and I think the normalization should happen from next quarter. I think it may be elevated in the VAU next quarter, but overall from quarter one it will be VAU. This is because I'm not taking any hits to the PNL, to the contingent provisioning, and I'm taking it to the PNL. I could have reduced the cost by reducing it through the contingent provision, and I could have reduced my PNL costs if I on the book. I'm not using my contingent provisioning right now. Even the excess which I received from the sale of an asset or a recovery, I made a contingent provisioning. I'm not using that provisioning at all.
Okay. Thanks, and all the best. Yeah.
Thank you. The next question is from the line of Shagun Verma from Goldman Sachs. Please go ahead.
Hi, Sumant and team, this is Rahul here. Just a couple of questions. Just wanted to understand the behavior on the ECLGS portfolio. We understand, and correct me if my numbers are wrong, but INR 4,500 crore was possibly the amount. How has the behavior been? And, did you have any microfinance sitting in the, I mean, the exposure that they have.
Let me tell you what is our ECLGS portfolio. I think our total overall portfolio is INR 5,878 crore-
Yeah.
as of now. How is the portfolio performing, Rahul?
We've had very marginal, very small slippages in loan against property and others where claims are being made. It's not been anything material as of date. The repayments have started because the twelve-month moratorium had ended for some of the early loans which we had given in 2020, but second half of the year. We continue to monitor it. Nothing material or any flags which have come up on this portfolio. We haven't seen much traction on disbursements of recent times.
On the MFI portfolio which you asked on the product in which we have booked the ECLGS, there is an 88%-89%.
89% collection. [Crosstalk]
89% collection efficiency.
Sorry, the 89% collection efficiency is on the MFI book.
On the ECLGS portfolio.
Yeah. We have a ECLGS program for MFI clients, which is, I think, about 89%.
Yeah. 89%. [Crosstalk]
89% collection.
Yeah.
Okay. The full recognition of this book will happen in which quarter?
It goes on for three years and four years, right? The term of the proposal is one-year moratorium.
No, I meant moratorium. Yeah. When does the moratorium for the entire book end?
We will see it. Some of it will end by early next year. Yeah. Next year. Because we were disbursed up to last December, right? Because of ECLGS 3.0 Also came in for- [Crosstalk]
MFI ends in March, in my opinion, and the others may end up by end of.
Three months later.
Another three months or six months later. [Crosstalk]
The bulk of our disbursements happened last year, so many of them have already ended. That's why the-
We can give you the data. We don't have that real data with us, so I will send you that data into the investor presentation.
Thank you. Thank you so much. That's it. The other question was on the two-wheeler and loan portfolio. Over the last 2-3 quarters, that book is you know running down. When do we see the run down sort of start to you know stopping or the disbursement in those portfolios?
Rahul-
Will it be a conscious decision?
No, no, no. Rahul, the issue is there is a decline in the two-wheeler industry. We have to accept it, 30%-40% decline. That's why while we are maintaining our market share, increasing our market share, the issue is the number of scooters sold is decreasing. That is why the book is running down. However, we've seen that turning cycle now, and I think for the first time we saw a little bit increase. Yes, you're right, the book is running down, and we should start seeing an increase this quarter, but it will be a marginal increase of INR 30 crore-INR 50 crore because the runoff is also very high. Overall, we will start seeing progressively greater disbursement happening.
We did INR 260 crore of disbursement last month, but the issue is that the runoff is also high. We have to touch INR 350 crore-INR 400 crore, and you will see the growth happening from this quarter onwards.
Got it. Thanks. Just last question on this employee expense. In the last two quarters, the run rate has gone up to INR 860 crore from, you know, INR 600 crore thereabout. Is it how the run rate is gonna be now or there is any one-off thing in there?
Well, it will be similar. We've added new people in Bharat Financial. I think we are adding resources. The cost of our resources in technology and digital have gone up. We made a bonus provision which is a little bit higher because of the retention of people. We've also given an increment in January to our people at the lower level. I think, all around we've done that. I don't think it's going to be at that level for some time because it's all the cost which has been added up to that level. But we continue to believe we will be between 41% and 43% efficiently of our business.
Correct. Thanks, Sumant, and Bishu and your team over there. Good luck for the future.
Thank you. The next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Yeah. Hi, thanks for the opportunity. Like, when you guide for a loan growth of +30% next year to make up from the slackness this year, how confident you are to grow the liabilities at a commensurate pace? Because the mix of retail deposits has been sticky around 40%. Would you not be forced to grow this like, mix of retail deposits at a different manner going ahead?
See, we continue to believe that we can press the accelerator on deposits at any point of time. The issue was in this, because of the excess liquidity which we had, we actually run off a little bit of our mature term deposits also. I think it is only a matter of time that you will see this coming back. We did lose certain deposits because of our rates getting dropped. Not to say that we did not drop the rate. We dropped the rate on savings account. We dropped the rate on this. I think it will come back up. I've always said our liability growth will be higher than our asset growth, and we are going to continue to maintain that. We have given a 48%-52% CASA plus LCR, and we will continue to stick to that plan.
Okay. Secondly, we have a quite strong treasury gains during the quarter. If you can provide some color on it and how do you see this playing in the wake of hiking rate environment?
No, no. There are two things in that. If you look at the other income, there are two things. One is the ECL guidelines which have been modified and INR 250 crores of income which came in into the other income and then there is a treasury income which comes in. The treasury income is around INR 250 crore. Then the other income is about INR 150- INR 150 crores which have come in there.
Okay. Lastly, like on the corporate yield, while we have talked about the improvement in the credit given the significant decline, I mean, but it's still pretty sharp. I would ask about-
What has happened? See the MCLR. We've been dropping our MCLR. A, the MCLR impact had to come in at some stage, and it has come in. Number two, please understand that a lot of repricing happened because we were losing clients. The market rate on corporate banking is anywhere between 5.5%-6%. We were. So what do you-
I hear you.
How do you manage your clients? We had to give a little bit of a reflection on a yield, otherwise we would have lost a very good loan book, specifically in the SME side and in the BBG side.
You have got higher-rated clients.
Of course, there is a higher-rated paper which has come in. Most of our disbursements is happening in the higher-rated paper, and we are moving towards working capital also in a large way.
Okay. Sure. Thanks so much, Suman. Bishu, all the best.
Thank you. The next question is from the line of Anand Dama from Emkay Global Financial Services. Please go ahead. Anand Dama, may I request you to unmute your line from your side and proceed with the question, please? There is no response. We move to the next participant. The next question is from the line of Yash Mehta from Edelweiss Securities. Please go ahead.
The first question is again going back to the IRTC. Once again, we see gross value is around INR 1,440. This is a nine-month number. It is not Q3 .
This is a Q3 number. [Crosstalk]
This is a Q3 number. Okay. The gross value of the loans that you sold is around INR 2,500. The net value is around INR 1,200. The provisions that you had made on this book is INR 1,277. That is the consideration. How is this entire provision consideration risk based on the shortfall being accounted in the reports?
No. I'll repeat the numbers again. So o ut of the INR 2,487 crores of sale to ARC, 1,737 crores is the sale related to retail MFI, all the books. Seven fifty crores is regarding the IL&FS exposure. Now, within this, seven fifty crore was fully provided. Like this, the provisions include provisions till date, not just in the last quarter. The net value of CNT is zero. The net value after provisions of other loans is around 1,213. That is the number reflected in the disclosure. Against this 1,213 of net exposure that we have sold, the consideration for that was INR 980 crores. Within that INR 980 crores, INR 240 crores is for the IL&FS asset and 740 is for the rest of the book.
Because this, the IL&FS exposure was written off already, that INR 740 crore is a recovery and it does not get reflected in the GNPA movement. The INR 740 crore is the number that is seen in the NPA movement. That INR 740 crore number then goes into the SR book for which we are carrying provisions.
Okay. This INR 740 crore would be a part of the recovery from written off accounts?
Yes, it's a recovery from written off accounts.
It's a part of other income?
Yeah.
Okay. The shortfall between the 740 and 1213, INR 500 crores, so that is the negative, that is the security receipts that you would issue, right?
No, that goes to the PNL. Whatever is the PNL.
Whatever is the loss on the sale to ARC flows from the PNL in the credit cost for the full year.
Okay. Now the second question is on the what is the outstanding quantum of security receipts still on the balance sheet?
Yeah.
Mm-hmm.
Net security receipts, as provided in the opening remarks, was 0.85% for the quarter against 0.71% last quarter.
Okay. Last question is on the margin front. While obviously throughout Q3, we are seeing that the growth is picking up in some of the larger corporate segments, you know, especially in the core quarter, and which is likely to continue at least for next one or two quarters, what's your outlook on margins or your view on volume versus the margins? How are you looking at this situation?
Which margins are you talking about?
The overall net interest margin I'm talking about.
Our net interest margin guidance has always been between 4.15%-4.25%. We are not in line right now. We are lower by five basis points at 4.10%. I think as the microfinance business picks up, we should be there.
Even though you are planning, you may grow the large corporate book, but your margin should remain intact within that 4.15%.
The mix of the book will also undergo a change at certain point of time. That is where the mix, if it moves a little bit towards microfinance and credit card business picks up, you will create more margin.
The last question, out of the total slippages, what are the slippages related to the MFI portfolios?
Our total slippages in Q3 was INR 2,598 crore. INR 1,341 crore is from the MFI book.
The first two quarters would be?
Quarter 2 was about.
1079.
INR 1,070 crore. Gross slippages. Net slippages was about INR 1,259 crore in quarter three.
Yeah.
Quarter one, if I remember, was around INR 100 crore.
Okay. The slippage, during the call if you get this number handy, what is the gross number of MFI slippage and the net number of MFI slippage, that would be very useful if you have it.
We'll try and-
That's what I'm talking about.
We'll try and get it before the call ends.
Okay. Thank you so much, and all the best.
Thank you. The next question is on the line of Mr. Dhawan from Edelweiss Financial Services. Please go ahead.
Yeah, Hi Sir. Just a follow-up on banks as well. This time around, you said INR 980 crore is the write-off from MFI.
Mm-hmm.
What would be the cumulative number for nine months? How much have you written off cumulatively from MFI business?
Gave you that number. 1,800-something. Not write-off.
Write-off.
Write-off would be very less.
Write-off, last quarter was INR 433.
No, no. Write-off INR 430-
Write-off 430 - no. [Crosstalk]
1,060.
33 + 9.
No, no. 433
We'll call it. We'll get you that number. Nine-month number is not handy. I think we have disclosed every quarter what is our write-offs. We can give you Q2 and Q3 , but we don't have the Q1 number.
Sure, sir. If during the post-press call you could provide that number. Second is in terms of platform exposure, has there been any change in that platform exposure? Has it been repaid or some of that?
INR 458 crores of guarantees were repaid. We're expecting another INR 300 crores to go off, and then we are expecting another INR 300 crores to go off in quarter one or so. That's something which we expect. I think the R-Two guarantees, the decision has to be taken by the government, and we expect that decision to come through. Should be another INR 500-INR 800 crores going off.
Nothing on this side has probably got reduced this quarter.
We've already reduced to 58, like I told, and we should only get another INR 250-300 crores reversed this quarter.
Perfect. Just last thing on this, provision, the continuing provision you're carrying, what is the plan to utilize it? How are you thinking of that?
We will see. There was an opportunity to utilize. I was tempted to do it this quarter, but I think we think that we should keep it, and that's why we added to it also. I think we should keep it and use it at an appropriate time. We will evaluate it next quarter because we want to come at a credit cost of 1%. Today, if you look at it.
My credit guidance was 190 basis points of credit cost and +50- 760 basis points on the Vodafone Idea. We're already at 190 today and 40 basis points on the Vodafone Idea. If I have to maintain the guidance of 190-200 basis points, I will see whether I have to use the contingent provision. I may not have to use it much, but I may have to use INR 200 crore, INR 300 crore. We will see whether we have to use it or we will pass our credit cost guidance. We will evaluate it at a certain point of time, at appropriate time.
What would be your credit guidance for FY 2023?
Not right now. We will come to it later because we've always said that our credit cost should now go down between 125-150 basis points. I'm not giving a guidance. I want to see how COVID plays out.
Sure. That is it from my end. Thank you.
Thank you very much. Ladies and gentlemen, we'll now hand the conference over to Mr. Sumant Kathpalia for closing comments.
Thank you for being on the call on a Saturday evening. I just wanna tell you thank you for being patient with us. The whistleblowing was not an easy for people who had confidence in us and lost confidence. I think I want to tell you that the bank continues to remain strong and we are very confident of the recovery phase, and we don't see any issue in what we said. Our microfinance business is strong and I continue to believe that we will continue to grow the business and we'll continue to have a growth which we all anticipated. We would have achieved our growth target this quarter also except for the microfinance. We are well on our way to achieving our growth target. Thank you so much for your.
Me and Arun Khurana are available for any clarification, any doubts we have. We've not answered certain questions. We will make sure that that's uploaded in the investor deck. Thank you so much.
Thank you very much. On behalf of Induslnd, we thank you and close this conference. Thank you for joining us. You may now disconnect your lines. Thank you.