Ladies and gentlemen, good day, and welcome to IndusInd Bank Limited Q2 FY 2025 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 this 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. Economic activity remained stable during quarter two, financial year twenty-five, as fundamental domestic growth drivers of private consumption and investment demand remained resilient. The momentum was supported by a rebounding of government consumption spending and CapEx after a contraction in quarter one. On the policy front, RBI shifted the stance to neutral while keeping the repo rate unchanged, signaling that the rates may be reduced going forward as confidence increases on the last mile of disinflation towards the 4% target. Looking ahead, India's growth story remains intact. Prospects of private consumption look bright on the back of improved agricultural outlook and rural demand, while sustained buoyancy in services continue to support urban demand.
Investment activity would benefit from consumers and business optimism, government's continuous support thrust on CapEx, and healthy balance sheets of banks and corporates. Coming to the quarter-specific developments, the key highlights of the quarter are: healthy retail deposit accretion. Retail deposit mobilization picked up pace during the quarter with 4% quarter-on-quarter and 16% year-on-year growth. We incrementally added INR 7,700 crore of retail deposits, and consequently, the share of retail deposits as per LCR improved to 44.1 versus 43.7 quarter-on-quarter. Overall, we maintained healthy deposit growth momentum with 15% year-on-year and 3% quarter-on-quarter growth. Cautious loan growth trajectory. Our sequential loan growth picked up from 1% to 3% quarter-on-quarter. The YOY growth was at 13%.
We have been watchful of developments in the unsecured products and have slowed down our business consistently for the last few quarters. Last quarter, too, microfinance and credit card growth has been subdued. We, however, remain comfortable and continue to grow our secured lending and corporate franchise. Vehicle finance outperforms the industry volumes. Diamond business, too, has resumed growth in the last two quarters, while other retail loans maintain steady growth. Progress on new initiatives. Traction on our digital banking offering, INDIE, remains healthy, and we now have more than 1.4 million accounts cumulatively opened on the INDIE app. Existing liability initiatives of affluent and NRI banking are scaling up well, growing at 19% and 37% year-on-year, respectively. Our home loan book crossed 3,000 crores and grew up by 28% quarter-on-quarter.
Loan book under the merchant acquiring business grew to 7,579 crores, up 18% year-on-year. Asset quality. We maintain our focus on collections during the quarter. Our net slippages increased by 222 crores quarter-on-quarter, largely from microfinance business. Our GNPA was at 2.11% and net NPA at 0.64% with a PCR of 70%. Our restructured book continues to run down at 0.29% compared to 0.34% quarter-on-quarter. Strengthening of the balance sheet. During the quarter, we prioritized long-term sustainability over short-term earnings. We progressed on deposit mobilization despite slower retail asset growth, contributing partly to our NIM dilution. We also increased our contingent provision buffer from 1,000 crores to 1,525 crores during the quarter, purely as a prudence measure.
Our credit cost for the H1, outside the increase in contingent provision, was at 131 basis points, close to our stated expectation of the year at 110-130 basis points. The ROA thus contracted to 1.0, which we believe is a transitory impact. We should get back to a steady rate ROA once we resume growth in microfinance. Now, coming to individual business. Our vehicle finance loans grew by 10% year-on-year and 1% quarter-on-quarter. Vehicle finance disbursements for the quarter were at 10,693 crores. Our diversification strategy is helping us in sustaining steady level of disbursements. We have been able to maintain market share in most of the vehicle categories, as is evident in the industry volume versus our portfolio growth.
Disbursement/market share has been stable in our large portfolios of commercial vehicles, construction equipment, and passenger cars. Our market share was lower in two-wheeler as we consolidated our presence and in tractors as we tightened our underwriting. The gross slippages in vehicle finance were marginally higher at 0.77% versus 0.75% quarter-on-quarter due to lower activity levels during monsoon. The restructured book in vehicle finance has also reduced to INR 309 crores from INR 407 crores quarter-on-quarter, with majority of the reduction due to upgrades and recoveries. Looking ahead, vehicle demand is expected to gain momentum in the second half, fueled by the festive season boost, resumption of government expe- CapEx, and improved overall economic activity and relatively better weather conditions.
The first half of the year is seasonally weak in terms of disbursements and asset quality of vehicle business. The second half of the year contributes largest share of disbursement, as well as recoveries. Overall, we expect to see improvements in both in the terms of disbursement, acceleration, and asset quality during the remaining part of the year. Bharat Financial Limited. Outstanding loan book originated via Bharat Financial now stands at INR 38,513 crore, degrowing by 9% quarter on quarter. As mentioned earlier, we remain watchful on microfinance disbursement, prioritizing collection in light of industry-wide challenges. However, our diversification into merchant business via Bharat Financial saw healthy growth during the quarter. Consequently, the share of non-MFI book has improved to 15% versus 13% quarter on quarter.
Total liabilities sourced through the Bharat Financial now stands at INR 2,376 crores, with 19 million Savings and RD accounts. Microfinance, we continue to follow our approach of disbursements led by acquiring new customers while being cautious on customer-level exposure. Our customer-level indebtedness reduced 6% quarter on quarter, while average loan exposure per customer at INR 39,685, among the lowest in the industry. We expect disbursements to improve this quarter, but may still be lower than our distribution potential, as we remain watchful on the industry development. The microfinance 30 to 90 DPD book increased by 2.1 percentage points during the quarter, given the sectoral stress. Gross and net slippages in the microfinance business were at 398 crores and 355 crores for the quarter.
This implies a net slippage ratio of 0.96% for the quarter. Bharat Super Shop, the merchant acquiring business. We now have around 700,000 merchants borrowing under this program. Our merchant loan book stood at INR 5,790 crores with 18% year-on-year growth. Bharat Money Store, the Kirana store liability model. We have 91,000 Bharat Money stores providing banking at the doorstep in remote areas, growing at 22% year-on-year and 4% quarter on quarter. Overall, we believe the microfinance business is likely to meet, see support from the rural recovery. Industry-level cautious stance and external disturbance, such as heatwave, flood, et cetera, getting behind. The sector is resilient and has bounced back after disruptions in the past.
We do believe in the long-term potential, and our approach of being a conservative and diversified rural play should deliver recovery ahead of the sector. Corporate bank. The corporate bank loan book grew 16% year-on-year, with growth continues to be led by granular, mid-, and small corporates. Within corporate, large corporates grew by 14% year-on-year, and mid- and small corporates each grew by 18% year-on-year. The healthy growth in the mid- and small corporate continues with increasing coverage focus on this segment and focus on select industry segments. Sectors which saw growth during the quarter include petroleum, power generation, steel, et cetera. The diamond business reported another quarter of sequential growth. The asset quality in diamond clients remains pristine, with no NPA or SMA-1/SMA-2 clients.
The proportion of A and above-rated customers has been 79% versus 77% year-on-year, with weighted average rating improving to 2.47 versus 2.57 year-on-year. The slippages in the corporate book remain small, and the gross slippages of INR 118 crore and net slippages of INR 56 crore for the quarter. Overall, we continue to progress on building corporate bank franchise, focus on selective areas of competitive advantage with granular risk profile. Other retail assets. Other retail assets continue to grow at robust pace, with 21% year-on-year and 6% quarter-on-quarter growth. Our MSME book under the business banking is now at INR 17,499 crore, growing at 14% year-on-year and 5% quarter-on-quarter. New acquisition momentum saw uptick with uptake with 35% quarter-on-quarter growth, driven by maturing of branch operating models and new product adoptions.
Loan book maintained a steady traction with 12% year-on-year growth. Our home loan product continues strong growth momentum, with loan book now at 30,000 crores, growing at 28% quarter-on-quarter. We recorded healthy card spends of 25,066 crores, growing at 4% quarter-on-quarter. Share of unsecured card NPL has been maintained prudently at 5-6% of the loan book. Overall, we continue to scale up our retail assets at faster pace, with focus on improving diversification of loan book, while increasing the retail secured mix and home loans with MSME. Now, coming to liabilities. In spite of our cautious stance on loan growth, we maintained our deposit growth momentum during the quarter, with overall deposits growing at 15% year-on-year and 3% quarter-on-quarter. Retail deposit mobilization, our key focus area, was also growing.
was also growth picking up this quarter with 16% year-on-year and 4% quarter-on-quarter growth. We incrementally added around INR 7,700 crore of retail deposit this quarter, compared to average of 4,400 crore for previous two quarters. Consequently, the share of retail deposit as per LCR improved to 44.1 versus 43.7% quarter-on-quarter. Cost of deposit increased by modest 2 basis points quarter-on-quarter, largely due to higher Retail TD contribution. We continue to scale our initiatives of affluent and NRI during the quarter. Overall, affluent segment-... Deposits at 56,900 crore grew by 19% year-on-year, and AUM of 94,000 grew by 27% year-on-year. We had another quarter of robust growth in our NRI segment, with NRI deposits growing at 37% year-on-year and 10% quarter-on-quarter.
During the quarter, we strengthened our affluent franchise with launch of Pioneer Private, a curated offering for HNIs and ultra HNIs, with over INR 30 million net relationship value. We also rolled out a community banking program, IndusCare, for senior citizens with a few unique propositions. We are seeing healthy early acceptance of these propositions. Our reliance on bulk deposits remained low, with certificates of deposit at 3.4% of our overall deposits and borrowing at 8% of total liabilities. Share of top 20 depositors reduced from 17.4% in March 2024 to 16.1% in September 2024. The liquidity position remained healthy during the quarter, with an average LCR of 118% and average surplus liquidity of INR 48,500 for the quarter.
Overall, we are progressing well on our journey of strengthening liability franchise with strong emphasis on retailization of deposits. Digital traction. Indeed, the digital banking app of the bank continued to scale during the quarter. We have cumulatively opened 1.4 million accounts and completed 100 million transactions till date. The platform sees almost 10 million transactions per month, with active clients doing more than 40 transactions each month. The app is now also open to all IndusInd Bank customers, CASA customers, bringing a better way to bank to all IndusInd Bank customers. More than 125 million personalized nudges happened through the platform each month, leading to 2x YoY increase in average ticket size. IndusMobile monthly active user base increased to 3.2 million, with recurring payments increasing to 25% year-on-year.
We have launched a revamped investment platform on mobile banking and internet banking platform, offering best-in-class personalized investment services, powerful features such as portfolio analytics, funds comparison, risk profiling, et cetera. These platforms are scalable, resilient, and MarTech stack-enabled. We went live with an account aggregator model to offer personal loans leveraging banking data. We also launched a new app for GIFT City clients during the quarter, one of the first banks in the industry to offer this to GIFT City clients. Now, coming to the financial performance for the quarter. Our net interest income at INR 5,347 crores grew by 5% Y-o-Y. NII was impacted due to reduction in loan yields and as a consequence of slowdown in microfinance, as well as continued push on deposit mobilization, resulting into lower loan-to-deposit ratio.
Our cost of deposit increased modestly by two basis points quarter-on-quarter, mainly due to shift towards TD, with overall cost of funds declined by one basis point quarter-on-quarter, with benefits on borrowing. As a result, net interest margin moderated to 4.08% versus 4.25% quarter-on-quarter. Core client fees, excluding trading and other income, was at INR 2,125 crores. We had large priority sector lending certificate fees in base numbers, both quarter-on-quarter and year-on-year, which was absent during the quarter. We continue to optimize our operating expenditures. The OpEx growth further moderated to 14% year-on-year, versus 20% year-on-year in previous quarter. The sequential growth, too, was contained at 1% quarter-on-quarter, even after factoring in the annual appraisal actions in quarter two. The cost to income ratio, however, stuck due to slower revenue growth.
The operating profit for the quarter was INR 3,600 crore. On the asset and the provisioning front, we maintain a steadfast focus on collections during the quarter, while being cautious on the unsecured loan growth. Our gross slippage ratio was at 0.52% versus 0.49% Y-o-Y. The gross slippages of key segments, by key segments, were vehicle finance, INR 692 crore; microfinance, INR 398 crore; corporate, INR 118 crore; and other retail, INR 590 crore. The restructured book reduced during the quarter to 0.29% from 0.34% quarter-on-quarter, with the bulk of the reduction due to upgrades and recoveries. The net security receipts have reduced to 31 basis points versus 39 basis points year-on-year and 32 basis points quarter-on-quarter.
Overall, the gross NPAs and the net NPAs were at 2.11% and 0.64% respectively. Provision coverage ratio, at 70%, was stable quarter-on-quarter. Our SMA-1 and SMA-2 book collectively was at 33 basis points. With incremental contingent provision added this quarter, total loan-related provisions were at 2.4% of loans, versus 2.2% quarter-on-quarter, or 110% of the gross NPA, versus 106% quarter-on-quarter. Overall credit cost for H1 25, outside the incremental contingent provisions, were 131 basis points. We have created incremental contingent provisions of INR 525 crores during the quarter. This is purely a prudent measure taken by us to further strengthen our balance sheet amidst the challenging operating environment. Profit after tax for the quarter was at INR 1,333 crores.
ROA at 1% declined sequentially as we prioritized long-term sustainability over short-term profitability. Profit after tax, adjusted for incremental contingent provision, was at INR 1,725 crores, and adjusted ROA was at 1.29%. We expect to return to normalized ROA as retail growth accelerate. Our capital adequacy ratios of CET1 and CRAR were at 15.21 and 16.51, respectively. This includes impact of 78 basis points on CET1, due to increased risk in risk weight of microfinance loans from 75% to 125%. Overall, to summarize the quarterly performance, we maintained our balance sheet balance. We maintained our balanced approach of prioritizing growth in secured assets while being cautious on the unsecured microfinance and credit card loans. The secured loans grew by 4% quarter on quarter, versus unsecured de-growth by 6% quarter on quarter.
We should see retail disbursements picking up in H2 with seasonality support. We maintained traction on deposit growth, irrespective of the slower asset growth. The retail deposit mobilization was the highest in the last three quarters, along with only two basis points quarter-on-quarter increase in cost of deposits. OpEx growth was well contained at 1% quarter-on-quarter and 14% year-on-year against the mid-twenties run rate last year. Our asset quality trends have remained range bound in an otherwise turbulent operating environment. H1 credit cost outside the incremental contingent buffer was at one thirty-one basis points, close to our stated aspiration of hundred and thirty- hundred and ten to hundred and thirty basis points.
The increase in buffers is purely a prudent measure given the operating environment, and we don't expect the core credit cost for the rest of the year to be materially outside our stated aspirations of 110-130 basis points. Our profitability matrix was thus affected due to the quarter as we pushed deposit growth, even though higher yielding assets de-grew, along with augmenting the buffers. We believe this is a transitory impact, and we should head back to our core profitability once we resume the growth in microfinance. With this, we can open for question and answer.
Thank you very much. We'll now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Our participants are requested to use handsets while asking a 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 Kunal Shah from Citi. Please go ahead.
Hi, Sumant. So first, broadly to understand on the MFI part, the rundown seems to be quite stark, okay? So if you can highlight in terms of how the disbursements run rate have been in Q1 and Q2, it doesn't seem there is significant write-off out there, but 12% rundown seems quite stark. And if you can even highlight the SMA zero one two pool, particularly for the MFI. Otherwise, it seems to be controlled at less than 400 odd crores there.
I think let me first talk about the disbursement. I think our disbursements were at quarter one at 8,500 crores, and quarter two was at 7,050 crores for the quarter. Against our average run rate of about eleven to twelve thousand to thirteen thousand crores. As a consequence, our book ran down sequentially because the repayments are coming in in the book. So that's the reason why the runoff has happened. Okay, if you look at the 30-90 DPD, it's at 4% right now on the book, and I... So that's where we are on the book right now.
Okay. So 30-90 DPD is true. But if you say, like, disbursements were INR 7,000 crores-
Hmm. Yeah.
And down was almost 5,000 crores. So on 37,000 crores in a single quarter, does it mean, like, repayments are to the extent of almost like obviously, there would be, maybe the repayments and the disbursements was-
INR 9,600 crores is the repayment per quarter.
Okay. INR 9,600 crores was the repayment?
Yeah.
Okay. And, generally this run rate would be the way you highlighted disbursements used to be like twelve, thirteen odd thousand crores?
Yes. 12-13 thousand crores was the disbursement.
Repayment rate would be, in general, on a quarterly basis?
About INR 9,000-10,000 crores is the run, general run rate, yeah, on the repayment.
Okay, because that decline seems to be quite stark, so but write-off, what was the write-off in MFI?
What is the?
Write-offs.
Write-up, write-off in MFI write-offs.
We have written off about 73 crores in write-off. There is no sale to ARC also.
Okay. Okay, got it. And this entire contingency buffer, how should we read this? Is it towards, maybe any particular segment? It seems stress in the other retail is relatively on the higher side. Is it towards ECL, which we have been highlighting? So how should we read this buffer? Because I think maybe earlier you have been highlighting that maybe if profitability is there, then we would use it. Yeah.
No, no, no. I don't want to use the contingent buffer. I think this is a prudent measure which has been created to take care of any eventuality, whether it's CCL or whether if we see the credit cost rising at a certain point, much below what our expectation is. But today, I don't think there is any need to use the contingent buffer. We just created it and set it aside.
So, reason for creating in this quarter?
... Only rationale for creating of this quarter was that I think, we believe that the stress in the operating environment is building up. We saw some increase in the gross flows, and we said, might as well take the safety contingency buffer right now. So it's only fortification of the balance sheet as of now.
Okay, and is the last data point interest reversal number?
Sorry?
With measure number which is impacting the margins or yields?
No, see, the GNPA has gone up, the slippage has gone up only by INR 200 crore quarter on quarter, so it's not like a sharp, a large number that I changed between previous quarter and this quarter. Margin is predominantly impacted because the microfinance contribution is lower, almost 1% lower, in the balance sheet, and it earns around 10-12% more than the average, on the balance sheet. And their LDR ratio has come up, versus last quarter. So those are the two primary drivers for margin compression versus the last quarter.
Okay. Okay. Thanks, and all the best. Yeah.
Thank you. Next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Yeah, hi. Thanks for the opportunity. Good evening, Sumant and everyone. So a couple of questions. One is on the SMA number that you talked about, 30-90 DPD of 4% MFI. So how has this moved on monthly basis? And any ideas to, by when do you expect this forward flow to sort of starting to reverse?
I think we continue to watch the 90 Plus flows, and I think if the 90 Plus resolution is happening better and better, and we've seen that it's improving. I think you will see the forward flows also as a consequence. There's a flow rate basis, and I think that's where we have to see. I think already in the month of October, we've seen some resolution happening in the 90 Plus bucket. So I think you will start seeing over a period of time a reduction in the 30-90 plus. We believe that it should be less than 1%, and it will come back to that number at a certain point, maybe in quarter three or quarter four.
Okay. And the other question is on the loan growth. Now, if I look at the first half, we have grown around 4%. So how should we look at this growth? Because of the, like, a cautious stance that we have taken in certain segments. So for the full year, how should we model the loan growth?
So we continue to be optimistic about, cautiously optimistic about growth. We will continue to evaluate. If we see that the market is improving in the microfinance and we see our own portfolio, seeing the center meetings and the quality of the book improving, we'll start disbursing at a faster pace, which we have not been doing. I think we'll continue to watch that space. I think in vehicle finance, I think we've been ahead of the volumes, specifically in the commercial vehicles and the construction equipment and the car side, not in the tractors and the two-wheelers. We've been a little conservative on that.
But I think as we've cleaned up our book on the, on the tractors as well as the two-wheelers, I think you will start seeing second half of the year is much better than the, in the, in the vehicle finance. We also have to see what the market is. The market has also been very slow on the, on the vehicle segment side. And I think. And we don't want to increase the share of used vehicles right now, specifically in the, in the commercial vehicle side. So I think, I believe that we should start seeing a disbursement which is higher now. I think the normalized disbursement for a vehicle finance is around INR 10,800 crore-INR 12,000 crore. I think we are already there at INR 10,600 crore last quarter.
We should move to 12,000 crore this quarter, because being a festival, there should be a 10% or 11% jump this quarter, and you'll see the book growing as a consequence of that. On the unsecured side, I'm very comfortable with the PL side of the book. I think on cards, we will start increasing our volumes, but I think we see that growing. On the corporate side, we are very comfortable with the 16%-18% growth, and we will continue to get that growth. So I think the biggest part is the microfinance, if it comes back to what it is, I think we should be able to get back to our retail growth. This year, obviously, I don't think we should be able to do 18%-22%.
I think, given what has happened, I think we have to watch quarter to quarter how our growth is. I can assure you that we... asset is a priority for us, and we will grow because I think our LDR at 86% is not happy helping our NIMs at all. So I think we need to move to 89%-90%, and we will start moving that 88%-89%, and we will start moving that asset book at growth up in the business.
Right. Got it. And lastly, on the contingent provisioning that we have made this quarter, so how do we plan to move, like, going further? Will we continue with this potential provisioning, or is it a one-off that we have taken this quarter?
So you should take this as a one-off right now.
Okay. Got it, Sumant. Thanks so much, and wish you all the best.
Thank you. Next question is from the line of Jai Mundhra from ICICI Securities. Please go ahead.
Yeah, hi, Sumant, good evening. Sir, on your contingent provisions, so INR 520 or INR 530 crore, if I look at the SMA 30 DPD of MFI at 4%, it is roughly around INR 1,300 crore. And while the slippages in MFI have been more or less less than INR 400 crore, but the rise in SMA is very prominent in this quarter.
Yes.
It should... And there is no other segments which is showing, you know, a much increased stress. I mean, I wanted to check, is there any other segment where you have seen significant rise in the SMA? And, and-
Only other segment which is a little bit worrisome is cards. Though I told you that the cards, while the delinquencies are showing a higher percentage, they have stabilized. Now, the flows have stabilized. So it's not, I think we are waiting for, so you will not see an uptick on the delinquency. You're seeing a stable flow, which is a little elevated. We are waiting for the decline stage to come in on the cards. Otherwise, on the MFI also, you know, we've given you that our gross flows are at around 3.5%-4%, but the credit cost has been contained at 3%-3.5%, and that's where we continue to believe that the credit costs have been maintained at.
I think there is an elevated flow on the and the but I think we are collecting. We have put a lot of collection resources on the field, and our cost has increased on the microfinance. But we are focused on the collections, and all our energy is on the center meetings and making sure that the collection cost, the flows reduce in the business as of now.
Right. So, sir, what I was trying to understand is this, is there any proportion that this contingent provisions of INR 520 crore is certain percentage of, let us say, increased rise in the SMA book? In the sense that based your assessment that, and looking at the forward flow rate, how much of the 404% 30 DPD could likely slip and hence you would have provided against that. Is there any-
Contingent provision is a prudent measure. I don't intend to use it unless until it's very, very necessary. We've always said that we've kept the contingent provision as a fortification of the balance sheet. Of course, if there is, if you ask me a question, I think most you streamline it. I think most of it, out of 525, at least 250 is kept for the microfinance business so that we are able to, if there is any eventuality, we may use it. But today, I don't see that we will have such flows that we may have to use that eventuality as of now.
Right. Understood. And secondly, sir, on your fee income, right? So over the last few quarters, while you mentioned in your opening remarks that there was absence, absence of a PSLC, this quarter, but even otherwise, you know, the fee growth has been, I mean, has weakened quite a bit. So how should one look at the fee income, which has been, you know, much lower than the loan growth? How should one look at this trend?
So I think two, three things, like you rightly pointed out, in quarter one, there was a PSLC part of it, which is not available, which is around INR 283 crore, which was part of the general banking fees. So that's not there. Our treasury fees is a bit lower right now. Our treasury fees used to be a major component of our fees, which is, which has gone down. The third fee, which has gone down is the loan processing fee because of a disbursements going down. As a consequence, the loan disbursement fee has gone down. I somehow feel that you should start seeing the fees coming up in the loan processing fee as we come up. And the fourth fee, which has actually gone down, is the distribution fee, including credit card.
Credit card as a business has suffered on fees because of some regulatory frameworks which have come into play, including, you know, over-limit charges or late fee or penal fee, penal charges. I think all of that has impacted the fee to about INR 150 crore a year.
Sir, lastly, if you can help with the 30 DPD number as of June quarter, and if I'm right, we have almost zero net NPA in MFI, right? That is the provisioning policy or if you can help us know the net NPA or the provisioning policy and write-off policy in the MFI book. Thank you.
Write-off policy. There is no net NPA zero policy. There are, as you know, RBI policies, as the aging of the portfolio happens. So over a period of time, we provide it fully and write it off.
Yeah.
We don't use segment-wise net NPAs. We can give you net, you know, GNPAs, we have given you in the disclosure, but not the net NPA.
Sir, and what was the thirty DPD as of last quarter in MFI?
It was 2%, around 2% last quarter.
Thanks. Thank you, and thanks, and all the very best.
Thank you. Next question is from the line of Abhishek Murarka from HSBC. Please go ahead.
Yeah, hi, good evening. So just, you know, discussing MFI a little further, one is: What is your provisioning and write-off policy? Is it 180 days, 240 days? When do you, you know, write it off, and how do you provision?
So we provision. If you look at our PCR, it's 70% provision. We provision 70% on the 70-day, and our write-off policy is 180 days to 270, 210 days based on the products which we do.
Okay, so 180 to 210, that range. Okay. The other thing is, what is the recovery that you see in MFI? Because that is critical to all, like, most of the parameters, so from here.
Every MFI business will only have a recovery of 7%-15%, depending on the early... So early stages will have about 15%-20%. One year older cases will have about 5%-7%.
No, no, I meant what is the recovery path, not the number, but from here, how do you see, let's say, collection efficiency improving? Do you think it will happen by December? Do you think it will be, February, March, before disbursements pick up? So what is the path of recovery from here, let's say, for the next two quarters?
Our opinion, this quarter is very critical. I think we have to wait and watch and see how the disbursements pick up this quarter. This is a festival season. Always the festival, these two quarters have been very good quarters for MFI historically. Now, given the stress which has appeared in this segment, we have to wait and watch and see how the MFI segment plays out, given that four NBFCs have been banned from doing this business or are not adding new customers into this. So we have to wait and watch. I think there are stresses which are emerging in some parts of the country, specifically Bihar, Maharashtra, Odisha, parts of North. So I think you have to continuously wait and watch on this.
Like I said earlier, we are cautiously optimistic on the microfinance. We like this business. We believe that this business has turned around once the disbursement takes place, and, you know, because you don't give disbursements to clients who are delinquent. And I think once the disbursement takes place and the funding process starts, I think you will start seeing business happening. And I think, in my opinion, another month or so, you should start. In my opinion, if everything goes well, I think within two months, you should start seeing the floor rates coming down in this business.
Right. And just from a credit cost perspective, you said it is around 3-3.5 in MFI right now.
Mm-hmm.
But if you see your 30-90, that has gone up by 2%, and a lot of that is likely to probably flow forward into 90+, you know, next quarter as well. So, let's say 3Q and even part of 4Q, do you think credit cost in MFI would be higher? The rest of the sector is actually seeing much more increase in credit cost. So just wanted to get a sense.
So I think we have to. We have put in our resources in the 60-90 bucket and trying to stabilize the flows right now. And I think 30-60 and 60-90 is a major focus area for us, where we are curing customers and getting the flow moved back. In my opinion, yes, historically, we've seen 60%-70% flows out of this into the NPAs. We think that it should be reduced to about 40%-50%, and if we can roll back to a 10%-30% of the clients, then it would. We would have done a better job of this.
So I think we are optimistic that we should be able to manage the way we've been able to do it up till now, but I think we have to see how it plays out in the market right now.
Yeah. So, Sumant, just, if you look at the way credit costs may trend for MFI, and it's very highly likely that it would be higher than the 3% you were factoring in earlier-
Uh.
Then for your overall one point one to one point three guidance, maybe for the next couple of quarters, do you see us breaching that? Because it will only come back in within the guidance once this MFI thing normalizes.
But I also believe that the credit cost in the CFD business and in the consumer businesses could give me a relief for the MFI cost to be exhausted. There are gives and takes, so I also feel that the consumer business as well as the vehicle finance business should give me a relief at some point of time.
Understood. So the second thing, Sumant, is on margins. Now, this quarter, of course, four point zero eight, and maybe one more quarter or two more quarters of stress in MFI, plus the LDR, you know, staying low. So do you think now, at least for the next, again, six months, we are likely to see a lower range of margins, maybe four to four point one, and then maybe go back to four point two, four point three, like we had earlier guided next year? So is that how to think about the trajectory in margins?
See, you're asking me a very specific question, and we can't answer specific questions. It all depends on whether the high-yielding book of the bank takes off. If the high-yielding book of the bank takes off, the margins will come. If you are dependent on a corporate book or a mortgage book to grow your assets, the margins will not come. So in my opinion, I think our high-yielding books, which could have performed better, is MFI book, and I think the unsecured part of the book, which has also not grown. We saw, like I said in my commentary, we had a negative 6% growth in the unsecured part of the book.
If we can moderate that to even 1% or 2%, I think the margin should stabilize at, you know, what we want it to be stabilized. If it does not grow and we don't see that as an opportunity, I think the margin will be where it is. So I think you have to. In that case, we can also do another thing, that I think we continuously grew our deposits to make our LDR and, you know, our realization go up. If we feel that our asset growth is not coming at the pace, we may even slow down our deposits. While we may grow retail, but we may slow down our asset pace, liability pace, something, and get the LDR up to 87%-89%, 88% to manage the NIMs at this point.
We had a double whammy. On one side, the high-yielding asset book went down. On the other side, we continuously grew our liabilities, and that growth actually had the LDR impacted in a big time for us.
Understood, understood. Thank you so much. Thanks, Sumant, and all the best.
Thank you. Next question is from the line of Suresh Ganapathy from Macquarie Group. Please go ahead.
Yeah, hi, Suman. Just qualitative assessment, because Suman, a lot has gone wrong in the last couple of quarters. I mean, you know, you always argue that you have lower exposure to Bihar related to everybody else and some of the problematic states. And you know, rightly, you always had a much lower ticket size in the MFI segment. Personal loans also not much exposure, but still, you know, 4% slippage ratio in the overall retail segment. Couldn't you have anticipated this? Or what is the behavior of the customers? Why have banks got it wrong? I mean, this industry has got it wrong. But even you have had a problem, right? Could you have not got this a little bit better?
Suresh, let's take a focus on. There are two specific questions, and let me answer the microfinance segment separately and the personal loans or the credit card question separately. On the microfinance segment, if you look at us, we've been able to exit. We did not have a West Bengal blowout the way other banks had. We did not have an Assam blowout. We also, today, in the Bihar blowout, we're not so much there. We are. We've actually reduced our exposure to Bihar to 7% of the book, where other people have 15%-20%. We actually started exiting Bihar long time ago to that extent.
So I think, I've always said, in a microfinance segment, 3.5%-4% of gross flows is given, and you'll have a 2.5%-3.25% of credit cost. It cannot run below that, and I continue to maintain it. There may be some quarters where you may have a take, but in some quarters you'll be able to manage that. I continuously believe that the strength of my book of microfinance is very, very strong. Yes, the whole industry is going through a trouble phase because the funding cycle has stopped right now. And I think once the funding cycle comes in, you will see that the quality of the book will come back.
Also, please understand, also when you look at microfinance, look at the number of clients who are exclusive to you and which are not more than one lender against you. Clients who are exclusive to me is 44% of the book. Clients who have only one other lender other than me is 27%. Another client who has two lenders only is another 20%. Only 9% of my book is where three lenders or more are there. And I think.
Sumant, the slippage is 5%. You have had INR 400 crores gross out of INR 3,200 crores on an annualized basis. That's a 5% number.
That is the market. I'm just telling you, that is the market right now. You look at other microfinance institutions, the slippages are higher right now. The market is like that because there is no funding, there is no benefits which are being given to these guys. There has been stress in the rural economy, which has come, and I think it will stabilize. In my opinion, you will see stability much faster than what we are anticipating. I am very bullish on the microfinance segment, and I think you will see the stability coming in very soon. Let the quarter to Quarter Three end, I think you will see a very different, maybe Quarter Three, Quarter Four, you will see a very different microfinance segment, and we'll be talking a different story on microfinance.
Okay, what about other segments? Because if I closely observe, your construction equipment NPAs have gone up, car NPAs have gone up, three-wheeler NPAs have gone up. Even all other segments are contributing to stress, right?
Yeah. So let's go step by step. If you look at the, say, vehicle finance book, on the vehicle finance book, there are two areas. So construction equipment NPA is made up of two customers. Those two customers will get reversed this quarter. Those slipped during the quarter, that is the only reason. They're just two customers, and we believe we have a pristine book in construction equipment, and we will be able to manage that, and you'll see the recovery this quarter on that. On the. Where we have a strength is on the tractors and the two-wheeler side, where I think, yes, we slowed down our business and we saw the stress much earlier and our book has been running down on that segment.
On the credit card side, I've always said that the gross NPA flows are around 7-8%, with the credit cost of 2.8-3%. It has remained at that level on the business, and I think that the stress is not increasing, but there is also not an improvement in the flow rate on the credit card side. So it is static. It's at least the baseline is still there. There is no increase in the... But the flow rates continue to remain elevated, and it's stabilized at an elevated level right now.
Okay, and this contingent provision is nothing got to do with an unfunded exposure to a telecom asset, right? I mean, or do you think could also be earmarked to that?
Not at all.
Yeah.
I don't think so, but I think you're right. Maybe I should look at us, you know, positioning something towards it. But, let me tell you, to be honest, I created the contingent provision so that I could take care of any unforeseen probability which may come in my book or take care of the ECL as and when it comes. Yes.
Sumant, the issue is you could have done that previous quarter or quarter earlier, because, you know, typically, contingent provisions are made in a quarter where, where you believe you have some excess profitability to provide for. Would it make sense to crash the financials and make a contingent provision? Because that's what has happened. In a very tough quarter already, you have gone ahead and made contingent provisions. So maybe the timing is something which is curious to all of us. That's the only thing that I thought I will-
Anybody's guess, Suresh, would you not like me to deliver a better Quarter Three and a Quarter Four with much more simpler and a stabler return, while I would say, "No, no, let me make a contingency in good times of..." I've made it. I know this quarter was bad. Let me do it. Yeah, I will get beaten down, but at least I've fortified my balance sheet and I can move ahead. I don't have to, I don't have to look back, and I think you're. I think the bank should be looked at from a long-term perspective, and I think in the long-term perspective, I've changed nothing of my parameters.
Yes, this year has been tough year on the growth side, but I think, we will get back, and in my opinion, very soon we will be talking a very different language in my opinion. Yes, I admit that I made a contingent provision in a tough time, but I thought I would like to not delay the good story part of the bank also.
Okay, all the best, Sumant.
Thank you. Next question is from the line of Rakesh Kumar from BNK Securities. Please go ahead.
Yeah. Hi, sir. So,
Rakesh, I can't hear you.
Rakesh, sorry to interrupt you. We are losing your audio.
Can you hear me now?
Rakesh, your audio is breaking a little bit.
Yeah. So the first question is with respect to the MFI loan book itself. So, like, what we see is that, like, you know, whenever the book is getting, you know, run down, the average loan book average loan per borrower, that number, you know, is coming. So what kind of borrower, like, you know, that we are running down? So, also looking at, you know, the active borrower number and the merchant loan clients number. So quarter on quarter, that number also has changed. So if you can, if you could, just let us know that, you know, what kind of customer we are not acquiring at this point in time in the MFI business?
So I think we look at three areas. One is certain districts in certain states which we are not referring. Number two, if a center has a delinquency beyond a certain threshold level, we don't consider the center at all, and that is why the disbursements are poor. It's not about the customer. Second, I think the center, because it's a JLG model. Third, if we feel that there is an over-leveraging on the household income, and the household income has changed very frequently in the client's book, we don't change, irrespective whether we don't change or... If we change that, the change has happened very frequently, we don't. Four, if we think that the borrower has more than three borrowers in that, we don't do the business.
Fourth, if a customer has been more than 60 DPD with any one of the lenders, we don't do the business.
Understood. And secondly, sir, when we are running down, you know, kind of a higher-yielding book, then what is the reason that there is a risk, there is a rise in the credit risk weight? So, I couldn't understand, number change quarter on quarter.
The risk weight which has been changed is by the regulator, not by us. I think,
Sequentially, sir, from June to September and looking at the book that we are running down, so there should not have been so much increase, you know, because we are, you know, running down the higher yielding and, you know, book which can might, you know, attract higher risk weights.
No, no, no, you don't. The regulator has increased the risk weight-
On the full book.
on the full book of microfinance from 75 basis points to 125 basis points. That is why the risk, the capital charge has increased.
Okay.
Yeah. So the risk weights on the capital charge on the microfinance business has increased from 75 basis points to 125 basis points. That's an impact of 78-80 basis points to us.
Lastly, sir, just on this vehicle loan book, where the disbursement has been coming down for the last three quarters, and like, around 70% of book, CE plus CV, is kind of for the system also. Like, if you look at the, you know, the data is not growing, there is a very low growth. So, and this is around 24% of book, for us. So how do we foresee the growth coming from this, you know, one-fourth of the book?
So please understand, I think, the growth has slowed down. We believe that the growth is coming back on this book. There is a... So if you look at OEMs, the OEMs are showing a 3% to 2% to 3% growth. The growth in the sales has gone down, but the data which shows is the two. In my opinion, there are two or three parts to it. One is, I think, where we operate in the Tier Two, Three to Tier Five markets, I think there is a demand which is coming back, and we are seeing that demand. Specifically, in the half two, there is a demand and the which comes back.
Number two, the used vehicle, which is less than two years, we are focusing on that, so to make sure that the demand comes back in that. Third, a diversification strategy, and we are building a book on the car loan side, on the used car loan side, and also now we are growing the tractors and the two-wheeler after we've corrected our underwriting and the credit standards on that. So we should be able to now, this quarter itself, you will see the growth coming back in these businesses.
So 10% is the growth, sir, that we have done Y-o-Y in this segment, and possibly within
It's very difficult to predict. Let me see the quarter three, and I think, I will be able to comment post the quarter three, because festival season is an important season on this one.
Sure, sir. Sure, sir. Thank you. Thank you.
Thank you very much. Ladies and gentlemen, we'll take that as the last question. I'll now hand the conference over to Sumant Kathpalia for closing comments.
Thank you for participating in the call. I know this has been a tough quarter, and some of you may be not very happy with the results. I can assure you that the bank is well on track, and whatever we've done is in the best interest of the long term for the organization. We should be back soon on where we belong, and any questions which you have, me and Indrajit will be able to answer you at your convenience. Thank you so much.
Thank you very much. On behalf of IndusInd Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.