Ladies and gentlemen, good day and welcome to IndusInd Bank Limited conference call. Please stay connected. The call will begin shortly. Participants, you have been connected to IndusInd Bank Limited conference call. Please stay connected, and the call will begin shortly. Thank you. Ladies and gentlemen, good day, and welcome to IndusInd Bank Limited Q2 FY 2024 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. Let me start with some macro commentary and then go into bank-specific details. Indian economy saw strong activity growth during quarter two, even as the global economic environment remained challenging with many adverse developments. Domestic drivers of private consumption and investments, both public and private, have been driving this momentum. A stable macroeconomic environment, relatively strong growth prospects, improving external sector fundamentals, along with deepening of market liquidity, are helping to attract more and stable class capital flows into India. Going forward, outlook for growth remains reasonably strong during quarter three. Festival season demand is already driving a pickup in consumption, as visible in solid sales of cars and two-wheelers in September. Inflation is expected to ease during the quarter, helped by proactive supply measures announced by the government. Consumer and business remain optimistic, especially on growth and income prospects.
Central government spending on CapEx and support to states would continue to drive investment activity. Continuing to quarter-specific developments. Loan growth momentum. Our loan growth continues to be strong at 21% year-on-year and 5% quarter-on-quarter. We saw strong momentum in retail segment, growing 25% year-on-year and 6% quarter-on-quarter. Retail growth was driven by healthy disbursements in our vehicle and microfinance businesses and maintaining traction in other consumer products. Our corporate book too grew by 18%, driven by small corporates. Healthy retail deposit accretion. We maintain our growth track trajectory on the retail deposit mobilization in spite of the competitive intensity. Share of retail deposits as per LCR improved to 43.7%, driven by 21% year-on-year and 4% growth in retail deposits. Overall, we achieved total deposit growth of 14% year-on-year and 4% quarter-on-quarter, driven by granular retail growth.
Traction on new initiatives. We launched our digital banking offer, INDIE, during the quarter. The offering was well received by the customers, and we already have over 1.8 million downloads and 400,000 customers. We are continuously adding new features and investing in marketing efforts to scale this further. Our earlier investments of affluent and NRI also did well, growing 8% and 7% quarter-on-quarter, respectively. Loan book under merchant acquiring business via Bharat Financial grew 16% quarter-on-quarter to INR 4,904 crore. Retail asset quality improvement. Our retail net slippages reduced from INR 1,059 crore to INR 865 crore quarter-on-quarter, while corporate slippages increased due to one account slipping into NPA. Restructured book reduced by INR 274 crore to 0.54% from 0.66% quarter-on-quarter.
Our net NPA is at 0.57%, with a provision coverage ratio stable at 71%. Our contingent provisions are at INR 1,520 crore, with total loan-related provisions at 118% of gross NPAs. Our credit cost has reduced to 123 basis points from 132 basis points quarter-on-quarter. Steady profitability metrics. Our net interest margins remain steady at 4.29%. Client fee income grew by 13% year-on-year, driven by continued retail momentum. We invested in digital launches, marketing spends, as well as physical infrastructure, resulting in OpEx growth of 6% quarter-on-quarter. Our PPOP margin to loans just for the quarter was at 5.2% versus 5.5% quarter-on-quarter.
Overall, our profit after tax grew by 4% quarter-on-quarter and 22% year-on-year to INR 2,022 crore. Our return on assets was at 1.9%, and return on equity was at 15.33% for quarter two. Our capital adequacy remains healthy, with CET1 of 16.33% and overall CRAR at 18.21%. Now, coming to individual businesses. Vehicle finance. Our vehicle finance business continued to show healthy growth trajectory, with loan book growing by 5% quarter-on-quarter and 22% year-on-year. The disbursements also grew by 7% quarter-on-quarter and 20% year-on-year. The commercial vehicles, cars, utility vehicles, three-wheelers, saw sequential growth of 5% and above.
The loan growth was slower in tractors, two-wheelers, and construction equipment. The diversification initiative, which has been playing out well in the vehicle finance. Our light commercial vehicles, cars, utility vehicles, construction equipment portfolios have crossed the INR 10,000 crore loan book mark, whereas tractors is almost there. This reflects a well-diversified portfolio, reducing cyclicality in this business. Light commercial vehicles has been a success story since we carved it out as a dedicated unit. Our LCV market share has now crossed 10% from sub 5% a few years back, and we are, in fact, the number one financial at one of the leading OEMs last month. The gross slippages in vehicle improved from 0.77% to 0.64% quarter-on-quarter.
The restructured book in vehicle finance also reduced to INR 910 crore from INR 1,182 crore quarter-on-quarter. The collection efficiency of these customers remain comfortable, with bulk of the reduction happening through upgrades and recoveries. As mentioned in the previous call, first year, half of the year is seasonally weak in terms of disbursements and asset quality, and portfolio improves as we progress in the financial year. This played out in quarter two, and we expect to maintain the trends in the rest of the year. Bharat Financial Inclusion Limited. Loan book, loan book originated through Bharat Financial stands at INR 39,275 crore, reflecting a year-on-year growth of 22% and sequential growth of 8%. Active loan clients increased to 90 lakhs, reflecting a year-on-year growth of 15%, up from 78 lakhs a year ago.
Sequentially, the loan clients increased by 7% over the previous quarter at 84 lakhs. The share of non-MFI book improved to 13%, as against 9% a year ago. Microfinance. Our microfinance business gathered momentum with a 7% quarter-on-quarter growth, driven by consistent member addition. Year-on-year loan growth too improved to 16%. We crossed disbursements of INR 10,022 crore, growing at 24% year-on-year and 43% quarter-on-quarter, driven by healthy new member additions of 910,000 during the quarter. Portfolio quality too improved, with net slippage reducing to INR 182 crore from INR 311 crore quarter-on-quarter. MFI standard book net collection efficiency for quarter two was at 99.1%.
The 30-90 DPD book amounting to 1.94%, against 2.36% last quarter ago. We have changed a chart in investor presentation earlier depicting average ticket size per loan to average loan per customer. We believe the customer total indebtedness level is a better metric to track, hence the change. Bharat Super Shop, the merchant acquiring business. Bharat Super Shop continued to scale up, reaching a loan book of INR 4,904 crore, with an 83% year-on-year and 16% quarter-on-quarter growth. Disbursement during the quarter amounted to INR 2,195 crore. The number of loan clients stood at 700K as of September 2023. The standard book net collection efficiency from this client base stood at 99.1%.
Bharat Money Stores, the Kirana Shop model. We have around 117,000 active Bharat Money Stores providing banking at the doorstep in remote areas. Liability book sourced from customer service through Bharat Financial increased by 50% year-on-year to reach INR 2,485 crore, through 1.58 crore accounts, which have also registered an increase of 25% year-on-year and 9% quarter-on-quarter, driven by improvement in new account opening. Overall, Bharat Financial has showed a strong growth momentum during the quarter, along with improvement in net slippages. While we are watchful about the rural macro trends, the pent-up demand and our investment in the distribution should aid us maintaining the growth momentum. Global diamond and jewelry business. The global economic challenge continued to impact the diamond, the diamond demand.
This reflects in reducing working capital requirements of our customers. The portfolio has consequently seen a degrowth of 10% quarter-on-quarter. The asset quality continues to be pristine, with no SMA-1, SMA-2 or restructured accounts. There have been some media reports on delinquency in unorganized or lab-grown diamond manufacturers. The bank does not have any exposures to these troubled customers. Corporate bank. Our corporate bank book maintained healthy growth trajectory of 18% year-on-year and 3% quarter-on-quarter growth. The overall growth continues to be led by small corporates, growing at eight percent quarter-on-quarter and 50% year-on-year. Within small corporates, our focus strategy on corporates with less than 500 crore turnover segment has been bearing results, growing 52% year-on-year. Growth across large and mid corporates was 2% quarter-on-quarter and 14% year-on-year, in line with our expectations.
Specialized verticals outside the diamond business constitute 29% of the corporate book. These include real estate, financial services, food and agri, education, healthcare. The exposure under specialized verticals is well managed, well-based sector-specific strategy. The segment continued to show healthy risk-adjusted returns and growth profile. The portion of A and above-rated customers has improved to 77%, versus 72% year-on-year, with weighted average rating improving to 2.57 from 2.65 year-on-year. As external interest rates have stabilized from the last quarter, our yields have been stable at last quarter levels. The gross slippages in the corporate book were at INR 214 crore for the quarter. This included one account of INR 169 crore from last quarter SMA slipping into NPA. Overall, we continue to progress on the granularization of the corporate franchise to small business and diversification.
The asset quality, too, given the nature of the business, shows some volatility in some quarters. Overall, we are comfortable with the asset quality trends in the corporate other retail assets. Consumer banking business continued to show robust momentum, growing 31% year-on-year and 8% quarter-on-quarter. We believe MSME, as a sector, offers significant opportunity. The sector remains underpenetrated owing to challenges in this sector in terms of access to credit, structured credit information available pertaining to MSME enterprise. Our MSME book under business banking is at INR 15,364 crore, which grew 4% quarter-on-quarter and 23% year-on-year. Business momentum was strong, and our new acquisitions continue to accelerate, which are now almost 50% higher than the pre-COVID levels. Majority of the MSME new acquisition are granular from less than INR 2 crore segment, that is small business banking segment.
The segment also predominantly leverages our digital personal lending platform, IndusEasy Credit, accounting for around 95% of the new onboarding. Our digital stack is enabled to get the sanction within a single day, backed by bureau, banking, and GST data-backed data for the small business operation segments, and sanctions are delivered in less than 24 hours for 90% of the applications. We are scaling up our home loan pilot, with the book crossing INR 1,000 crore mark during the quarter to INR 1,005 crores as of September 2023. On unsecured side, the credit card growth was the credit card growth was driven by new card acquisitions and highest-ever quarterly spends. Credit card spends were at INR 22,061 crores, driven by 7% quarter-on-quarter. Our spends market share has improved to 4.7%, as per latest available RBI data.
Overall, consumer assets remain the fastest-growing segment within the overall portfolio. We are watchful on the unsecured growth, given the rapid industry growth and macro trends. We are thus focusing on a balanced growth between secured as well as unsecured growth, with constant vigilance on the early delinquency trends. Now, coming to liabilities. Our deposits grew at 14% year-on-year and 4% quarter-on-quarter. The growth was driven by granular acquisition, with retail deposits as per LCR, growing by 21% year-on-year and 4% quarter-on-quarter. The share of retail deposits improved to 43.7% versus 41.2% year-on-year. Our savings account deposits showed a growth of 3% quarter-on-quarter, whereas current account grew 1% quarter-on-quarter, resulting in a CASA ratio of 39.3%.
We launched Grande, a new variant of the savings account, which carries a strong customer proposition, contributing meaningfully to the CASA growth over the last couple of quarters. Our both the new initiatives of affluent and NRIs showed robust growth during the quarter. affluent segment grew by 24% year-on-year to INR 47,900 crore during the quarter. affluent AUM was also up at INR 73,900 crore, showing a growth of 17% year-on-year. Our NRI deposits grew by 41% year-on-year and 7% quarter-on-quarter at INR 40,000 crore. Our market share in non-resident segment has further improved to 3.3% as of last available data. The contribution of certificates of deposit remains low at 3% of deposits. Our borrowings were down to 11% quarter-on-quarter. The borrowings continue to be oriented towards long-term source of funds.
We had healthy liquidity position during the quarter, with an average LCR of 117% and average surplus liquidity at INR 37,000 crore for the quarter. The bank has taken a significant step towards improving the overall brand, as well as deposit product awareness through comprehensive media presence. The bank has partnered with the International Cricket Council for a series of marketing tournaments over the next couple of years. We believe these tournaments should improve our brand awareness and customer acquisition momentum going forward. Overall, we've maintained healthy growth momentum in the retail deposit mobilization, notwithstanding the competitive as well as liquidity conditions in the industry. Our three-pronged approach of investing in traditional, digital, and new initiatives has played out well, and we aim to maintain this momentum going forward as well. Digital traction.
Bank launched INDIE, an innovative personalized digital banking app with several industry firsts. INDIE aims to bring the best of both worlds together, the trust of a bank and experience of a newest fintech. It reflects a shift from product-centric to a customer-centric way of thinking. The app was digitally launched a couple of months ago, and we already have 1.8 million install base and approximately 400,000 customers, and the TV campaigns have just started with the ICC World Cup. It is an earn model and not a burn model, and we are targeting a break-even period of less than 18 months per client. During the quarter, the bank saw robust growth across its digital platforms and applications. The engagement vectors are looking up on the back of data and analytics-driven engagement, powered by MarTech capability that the bank invested over a couple of years.
IndusMobile registered monthly active user base growth of 30% year-on-year. 74% of customer requests are processed digitally, compared to 69% last year. UPI transactions from IndusMobile are up 71% year-on-year. Transactions per active client are up 20% year-on-year. Merchant app, Indus Merchant Solutions, more than doubled the monthly active base Y-o-Y. We continue to transform existing lines of business leveraging digital capabilities, and digital unassisted models continue to show robust growth. More than 95% of business in deposits and retail loans is digital, and digital unassisted model is growing rapidly. Now, coming to the financial performance for the quarter. Net interest income grew by 18% year-on-year and 4% quarter-on-quarter, with net interest margin at 4.29% remains steady quarter-on-quarter and improving Y-o-Y versus 4.24%.
The net interest margin has been a keenly discussed topic over the last few quarters. We have consistently communicated that our balance sheet construct and the growth dynamics are able to withstand NIM volatility. While the interest rate cycle seems to have elongated, we continue to believe that the bank has enough levers to absorb any increase in cost of deposits within an ambition of 4.2%-4.3% net interest margin. These dynamics played out during the last quarter as well. While our cost of deposit increased by 23 basis points, the lower borrowing cost and effective asset side management resulted in steady net interest margins during the quarter. Our other income grew by 13% year-on-year and 3% quarter-on-quarter. Core fee fees, including trading fee, grew by 13% year-on-year. Our non-core fee income was INR 162 crore during the quarter.
Share of retail fees remain healthy at 74%. Our total revenue for the quarter was at INR 7,359 crore, with a 17% year-on-year growth. The OpEx growth of 6% quarter-on-quarter was driven by continued investment in human capital, digital launches, and marketing initiatives. We've added 3,500 employees during the quarter and 7,600 employees in the last six months. The operating profit for the quarter was at INR 3,909 crore, growing 10% year-on-year. On the asset quality and the provisioning front, our provision for the quarter continued the downward trend at INR 973 crore. The annualized provision to loans is now at 123 basis points versus 175 basis points, and 100 basis points year-on-year and 132 basis points quarter-on-quarter.
The credit costs have now come down to our PC6 expected range. Our retail net slippages reduced to INR 865 crore versus INR 1,059 crore in the previous quarter, whereas off-book slippages increased due to one new NPA, as mentioned earlier. The restructured book has reduced by INR 274 crore during the quarter, from 0.66% to 0.454% quarter-on-quarter, and the bulk of reduction was due to upgrades and recoveries. The net security receipts have further reduced to 39 basis points from 44 basis points in the previous quarter. The bank made additional provisions of INR 146 crore towards the SR book during the quarter. Overall, the GNPA for the bank was at 1.93%, and net NPA was stable at 0.57%.
We have maintained provision cover ratio at 71%. Our contingent provision, excluding specific provisions, are INR 1,520 crore. The slippages from the restructured book in the last six quarters were at INR 2,407 crore. We have utilized contingent provisions of INR 1,808 crore during the same period. Total loan-related provisions are at 2.3% of the loan book or 118% of the gross NPAs. Our SMA and SMA book was at six basis points and 20 basis points, respectively. Profit after tax for the quarter was at INR 2,202 crore and growing at 4% quarter-on-quarter and 22% year-on-year. Our CRAR, including profits, remain healthy at 18.21%.
Return on assets is at 1.90, and return on equity at 15.33% for quarter two. Overall, we continue our progress on our planning cycle six strategy, with outcomes largely in line with our ambitions. The liability granularization continues apace. The initiative should see further support from the launch of digital offering as well as marketing campaigns. Improving share of retail deposit as per LCR remains cornerstone of our strategy as we move towards 45%-50% in PC six. Quarter two loan growth of 21% was driven by retail segment, which grew a robust 25% year-on-year. The second half of the year is seasonally better for the vehicle and microfinance business. It should help sustain the growth momentum in coming quarters as well. Retail asset quality continues to improve, while corporate remains range bound over the course of the year.
The annualized credit costs are down to 123 basis points, and we aim to close the year between 110-130 basis points. Retail loan growth and balance sheet optimization provides comfort on the net interest margin trajectory. The retail growth also augurs well from the cost to income perspective, which should trend downwards with retail revenues kicking in. Overall, we remain comfortable on all our profitability metrics. Our new initiatives are tracking well on their business plan, and we should see support from the new investment in digital distribution and marketing over the coming quarters. With this, we can open the floor for Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use 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 Nitin Aggarwal from Motilal Oswal. Please go ahead.
Yeah, hi, thanks for the opportunity and congrats on a good quarter. A few questions, like, first is on the CD ratio. We have seen a, like, a good increase in CD ratio past one year, and LCR, also, we have deployed a fair bit of liquidity this quarter. So how much excess liquidity do we now have on the balance sheet? And do you think that going forward, liability accretion will limit the loan growth as we continue to guide for over 20% loan growth?
I think, first of all, we have INR 37,000 crore of excess cash in our balance sheet, and that's reflected in the, in the cash liquidity and, and that's reflected in our balance sheet. Having said that, I think we will... I don't think our growth ambitions will go down. I think what is more important is, I think we have to get our liability growth faster, and I think we are working on all the dimensions to make sure that our liability growth happens. What we've said of our growth ambitions of 18%-23%, and we are on the right-hand side of the growth. We will continue to maintain that growth, and we believe that the second half of the year is better than the first half of the year.
Right. Sure. And the other question is on the yields. Like, this quarter, the corporate banking yield has come off a bit, and the CFT book is also the rise in yield is very controlled, while indicated that it is indicating the stable pricing and no repo action in the recent period. But, what proportion of the corporate loan book is linked to MCLR? And, should we not expect any further uptick in the corporate yields going forward?
So, as you know, corporate book is almost entirely floating rate. Two-thirds of the book is MCLR linked. Balance one-third is roughly external benchmark and linked book. And those benchmarks are, as depending on the market rates, those benchmarks will change, and that flows into our loan book yields. So, it all depends on how the market benchmarks are, and based on that, you will see corporate yield changing.
The other thing which you have to always remember in corporate, as we grow our small businesses, and I think as the mix of the businesses change over a period of time, you will see that the yields will start getting, because the smaller corporates do come at a little bit higher yield than the large corporates.
Right. But given that, how the deposit cost is inching up, like this quarter, there is a 23 basis point rise in cost of deposit. And if I were to adjust for current accounts, that this implies that our cost of deposits is almost close to 7.4. So how much more, like, uptick are we looking at in terms of deposit repricing, and what is the incremental cost of deposit?
So, to answer this question, let's I think, the maximum differential which will happen is 10-20 basis points in the cost of deposit over the next two quarters, but I don't see more than that as an uptick on the cost of deposits as we go.
I think further...
And lastly, just one observation, Sumant, on the, we have started disclosing on the average loan outstanding in the MFI. Why is this number higher than the average ticket size, like, which we used to disclose up till now?
Yeah, because there are, for the customer, we do give multiple loans at any point of time, and that's where the loan can be higher.
So, see, Nitan, what happens is, we used to, you work on a sanction limit basis. So there could be a customer where you sanction INR 40,000 rupee loan. Now, the customer has an option to either withdraw entire INR 40,000 or take INR 30,000 now, INR 10,000 later. But what was happening was operationally, you know, working on those lower ticket size loans was becoming operationally cumbersome. So we have reduced, you know, you know, our stock, you know, people opting for less than INR 15,000 rupees of loans.
So more and more people will, you know, move towards now, whatever is the sanction limit, and that's where we attract the customer. So whatever is the customer's total, you know, loans outstanding, that's what matters. Whether he has taken in one tranche or two tranche, that doesn't matter, and that may not be the right way to look at also. So thinking of that, we have changed the disclosure, to show the at a customer level, what is the total indebtedness level for that customer.
Right. Got it. Thanks. Thanks so much.
Thank you. Next question is from the line of Abhishek from HSBC. Please go ahead.
Yeah. Hi, good evening, and thanks for taking my question. So, one question on slippages. Now, retail slippages are down to INR 1,250 and approximately, you know, somewhere close to 3.5% of opening loans. Do you think there's still scope to improve, or are we at the bottom here?
I think you will see more improvement on the retail slippages on the CFD book, so that because the second half of the year is better on the vehicle finance book, so you can see hope for some improvements there. I think on the microfinance book, there is still a scope of improvement. So we will see slippages coming down as we move forward on the retail side of the book.
Sumant, on the overall slippages, I believe the guidance was around INR 1,200-INR 1,250 crore or so.
Correct.
Whereas we are hitting 1,450 odd, you know, this quarter, maybe one account here and there, but we have to account for those one-offs as well.
Yes.
Again, do we stick to INR 1,250 going forward, or you think now we are at a more, you know, representative run rate?
I think we should stick-
Rate on it.
INR 1,200-INR 1,300 crore. That is our, that is our base case, and I think, this was an unfortunate slippage which happened, and we just took the slippage because it was in the SMA for past two to three quarters. So it was better to take that, and I don't think there are any such things which can come in. And with the retail flows improving, I think we can stick INR 1,200-INR 1,300 crore, accounting for any corporate slippage of INR 50 crore-INR 100 crore, if it happens.
Got it. And just one question on deposit growth again. So if you just, if we just look at the last five to six quarters, on a QoQ basis, the deposit growth has lagged, you know, credit growth. And fine, you know, we had some extra liquidity, which you were deploying in that period. Now, with this excess liquidity also normalizing, we will need to accelerate deposit growth, right? So will pricing have to be one important strategy? Because we've had our, you know, deposit rates, I mean, lower than, or rather, our spread over other banks is historically very low now. Do you think you need to increase that spread and incentivize more flows?
No, I don't think so. I think we are able to attract deposits. I think we are doing multiple things. So the digital capability, expansion of branch distribution, and the product launches, which we are doing in the branches, plus the marketing efforts, which we are doing, I should be able to pull up the liabilities. I cannot say that everything will come in CASA. I think there is no... If we want to open the tap in term deposits, we are able to get the term deposits in here.
So, I can tell you, I think we will start seeing the deposit growth coming back, and I think we are a towards getting the deposit growth back, because I think, yes, you are absolutely right, that this quarter we use the excess liquidity that to maintain the margins, and we will, you will see the excess, the deposit growth coming back in the next two quarters.
Got it. Got it. Thanks. Thanks. Just one quick question: The entire corporate slippage was owing to that one account?
No, INR 168 crore was owing to one. Then there was small, small, INR 110 crore account, INR 18 crore account of payment.
Got it. Got it. Thank you. Thank you, Sumant, and all the best.
Thank you. Next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah. Hi, Sumant. So, firstly, with respect to, in terms of the cost of funds, the increase has hardly been like nine odd basis points compared to 23 basis points rise in cost of deposits. So maybe in terms of this, repricing and repayment of the, borrowing, high cost borrowing, is it largely done, or should we see the benefit in the coming quarters as well?
Yeah. So I think a couple of things here. I think the borrowings is always an option available to the bank, and we've seen how it plays out in terms of, longer-term financing with cheaper rates as well. I think that's a thing that we continue to assess and keep on doing. In terms of the cost of borrowing, yeah, so the idea is that if my borrowing numbers are going to be lower and my deposits are going to increase and my cost of deposit is going to be higher, you'll have a higher cost of funds. As simple as that, right? So as a result, you will see a small higher cost of funds, because we've decided that our basic aim is to focus on our deposits.
To maintain that, I think, some other colleague had asked about the CD ratio as well earlier. Yeah, so I think CD ratio being one of the, measures that we take in terms of our advances to deposit book, that needs to be maintained at a particular level. And in order to do that, yes, our deposit growth will be higher than the borrowing growth, and as a result, it will impact our cost of funds. Obviously, as I said, it's much, much lower than the cost of deposits. And as a result, I think there was another question that had come earlier that, you know, without current account, my deposit cost is at 7.3% or whatever it is, will I reprice my asset book?
I think the way to look at it is, you got to look at the cost of funds, because that is the sort of funds available to the organization rather than just the deposit base. So that would be my take on this.
Sure. And secondly, in terms of the credit cost and utilization of the buffer, so maybe we were highlighting that we would be building up the buffer as well towards the maybe transitioning to IND-AS. But again, we saw almost like 180 crores pointsure kind of utilization this quarter. So now would that start to happen from Q3 onwards in terms of the further build-up and still comfortable with 1.1%-1.3% credit cost?
Yeah. So you will see, you will see that we will start building up the buffers. So you will see it in the second half of the year. I cannot commit quarter three or quarter four, but in the second half of the year, you will see the buffer. Like what we've committed, I think we remain committed to building up the buffers, and I think you will not see us utilizing any more of the contingent provisions as we go forward.
Okay. So utilization is largely done now?
Yeah, we will not utilize anything. We said that last time also, so I must be open to it, but we had to because of the restructure. But I think we've now seen our restructured book, and we are very comfortable with that now.
So this utilization was from restructured, what you were highlighting, INR 1,800-odd crores, so was this INR 180 crores?
Yeah. So we told her that the total restructure flows over the last six quarters was about INR 2,434 crore, and we utilized about INR 1,800-odd crore from that book.
Yeah. So 180 was from restructured?
Yes.
This quarter. Okay. Secondly, in terms of the employee cost, so last time also, we highlighted that there would employee incentives, additions, and annual incentives were there, which led to a higher OpEx. But we are seeing the trend continuing almost like further 11% kind of an increase on a quarter-on-quarter basis. So any one-off out there in the employee side?
No, no, no, no. I think this is the incentive payouts which we pay after. So there was an incentive payouts which were done. We added, for the sales performance. So that was one cost which came in. 3,500 employees got added. Last, we had also added about 7,500 employees over the last six months, and that base effect also of the cost was had come in. Now, what you will see is stabilization of the employee cost as we move forward.
Okay. Okay. Yeah. Thanks a lot.
Thank you. Next question is from the line of Suresh Ganapathy from Macquarie Group. Please go ahead.
Yeah, Sumant, I have a similar question on contingent provisions, because if you are saying you want to make INR 300 crore contingent provisions this year and make 1.3% credit cost, including that, then why did you dip into INR 500 crore of contingent provision in first half? You did 500, then you make 300 in second half. This is not a coherent strategy, I feel. So just wanted to get a clarity on this. You know, how are you looking at? Are you still maintaining that you will be between 1.1%-1.3%, inclusive of the INR 300 crore contingent provisions that you want to make this year?
Yes, I will be very comfortable between 1.1 to 1.3. And you see what happens, the first half of the year is a real troubled year for the vehicle finance and the microfinance unit. That's where the flows happen, and I've made a statement that the gross flows should see a reducing trend in the quarter three and quarter four. And as a consequence, I'll get the capability to create the, the cost, the buffer positions, and I will be able to get the contingent provisions between 110 to 150.
Okay. Now, now the thing about slippages, right? So see, your, your slippages of this quarter, you had some corporate numbers, so you had INR 1,400 crore of slippages, and last quarter was a somewhat similar number. So you see this number trending down, you are saying, in the second half, right?
I will see that coming down, and I still continue to maintain that we will be between INR 14,400 crore-INR 15,100 crore. That's what the numbers we've been given to the market, and we continue to believe that we will be within that range. You will see the retail slippages coming off very strongly.
So that means, roughly that means your second half numbers is only INR 2,200 crore, because you're guiding for INR 5,000 crore, right? And you've already done INR 2,800 crore for the first half.
Correct.
Yeah. Okay. Now, just one last question again on slippages. See, I mean, the economy has been fantastic, and you are seeing such great outcomes even in public sector banks. What explains the 3.5% annualized run rate on your retail book? This looks too high, and if I look at the individual segments this quarter and the reported NPL numbers, all the unsecured loans have created problem in retail. I have seen personal loans going up, MFI loans going up, and card NPLs going up. Can you give some clarity what's happening on the unsecured loan NPLs?
So you're absolutely right. I think, if you look at our unsecured, the merchant acquiring business, which we have created in Bharat Financial, does have a 2.5%-3% credit cost, and the flow is around 4%. That's one of the businesses, and we are growing that business, but that yield is also at 28%. The merchant acquiring business has that, and it's an unsecured business to a large extent, though it's guaranteed by the government, but it's an unsecured business. The second is the card business, where we've seen a little bit of a slippages in this quarter, which is little higher than what it was projected to be.
So that's another business where our credit cost is touching about 3.3-3.5% against what we had thought it will be at 2.8-2.9%. So that's something which has come up, like 60 basis points. And our gross flows in the PL business has moved up by about 5 basis points this quarter.
Yeah, Suresh, also just to clarify, like, you know that, but GNPA also function of write-offs, et cetera. If you see the gross slippage, every segment has seen a QoQ improvement, vehicle, MFI or other retail also.
So the GNPA depends on how much you write off in which quarters. Gross slippage-wise, we have seen the improvement as well as net slippage in the secured, unsecured both.
Okay. Okay, clear. Thank you so much.
Thank you. Next question is from the line of Saurabh Kumar from JPMorgan. Please go ahead.
Sir, just, two questions. One is on your, you know, NRI, deposits. I mean, is there an impact from higher rates, globally? And the second is: What's the outstanding amount of your security receipt book and the provision against that? Thank you.
Yeah, so NRI, of course, it gets benefited or impacted depending on how the currency rates are between, you know, INR and the respective currency, and also the interest rates that are there. But that all you have to take it, and we are currency-wise, we are fully hedged. We don't carry any risk at all in the book. In terms of the security receipts, we had reduced security receipts from 0.34% to 0.26%. No, no. 0.44%-0.34%.
0.44%-0.34%
0.44%-0.34%.
Okay, and what's the outstanding amount of NRI deposits right now?
INR 40,000 crores.
Okay, thank you.
0.39% is the security receipt outstanding as on date, net, 0.39%.
Okay, thank you.
Thank you. Next question is from the line of Rahul Jain from Goldman Sachs. Please go ahead.
Yeah, hi. Good evening, Sumant and team. I had three questions. Number one, to start with, how much excess liquidity we would be carrying on the balance sheet now?
INR 37,000 crore.
Okay, and that you think can be deployed, all of it in lending, or you'll keep some part of it on the books as, as liquidity?
That we are comfortable with keeping some excess liquidity around INR 20,000 crore. We've always said that, so we will keep that at a minimum threshold of INR 20,000 crore in our books.
Okay, and in terms of LCR, what would that imply?
We are currently at 117% LCR as what we've disclosed, and we will always be.
115-125.
We want to be at 115%-125% is what we want to be on LCR.
So at INR 20,000 crore excess liquidity, you will be at, you know, in that range of 115-120?
Yes.
I mean, again, 20,000 is a number that you are just taking. I mean, so idea is that at the end of the day, LCR has other components to it in terms of what constitutes your LCR, right?
Yeah.
I mean, so HQLA and then outflows or type of deposits that you have at the financial institution, non-financial institutions, corporates, non-corporates, tasks, whatever it is. So I think that may not be the right measure to take, but, yeah, it gives you an indication of LCR. I think another good measure to reflect is on your stable funding book is your NSFR, which I think is an important measure to know how stable is your funding over a period of time for your asset book. I think that is a big measure. In terms of excess liquidity, while the threshold is INR 20,000 that we're going to keep, but I really believe that we are not going to go down to that level.
I mean, because at the end of the day, it's about utilizing that liquidity in a manner which is most conducive. So if you think that my liquidity is lying in cash only, it is not. It's lying in treasury bills or very short-dated government securities where I don't have risk, and I can yet repo it back whenever I want to raise that temporary liquidity so the need should arise.
Thanks, thanks for the elaborate answer. Actually, the reason I was asking is because the compression on deposit is, of course, heating up. You know, for us, the LDR has gone up, you know, the deposit growth. Therefore, we'll start becoming critical at some stage and, you know, and, you know, I was just trying to see how much, how much buffer we've got, you know, on that side that we can deploy and maintain our growth rates. So that was the reason I was asking that. All right, second question is on retail slippages. Well, of course, it has come down. 3.6, 3.7% odd still appears to be on the higher side, no? What should be the, you know, right run rate in this cycle, you know, on the retail side, Sumant?
So we've always said that. See, you have to look, go by segment. So MFI will always be around, slippages will be around 350 basis points. The credit cost will be around 250-300 basis points. That's what we will stabilize at.
Mm-hmm.
On the-
Vehicle.
On the vehicle side, 200, 2% of gross slippages and 100 basis points of credit cost will be what we will stabilize at. On the retail side, it will be 300 basis point of gross slippages and 200 basis points of credit cost. That's what we will stabilize at. So if you look at it, you know, you have to look at it in totality, that we have recoveries, upgrades, and that's how we will stabilize it at this point. And overall, the gross slippages should stabilize between 2.75%-3% in the, in the book and in the retail book, and that's what our credit cost will be, around 100 to 110 to 120 basis points.
When do we see that number, Sumant, this year or by end of this year or next?
You will, you will see it in the second half. I can assure you this much.
Okay, the third question is again coming back to the corporate slippages, right? So it's a standard book, and then you've got restructure, which is a very small amount. You said SMA, so, you know, what SMA and what is the nature of this slippage, INR 168 crore, that one account that you called out? Can you give some more color on SMA-1 and SMA two, what's the pool of that book in corporate?
The overall SMA-1 and SMA-2 for our book is 0.2. SMA-1 and two is 0.26% of our overall book. SMA-1 is 0.06% and SMA two is 0.2. This was one account of INR 165 crore, which was booked in somewhere 2017, 2018, which slipped. We have very adequate collateral against that account, and we should see the recovery, sooner than later on this account.
Okay, and any particular sector or this is an idiosyncratic case and you don't expect this to be repeated?
I can't say whether the corporate slippages will come or not. We don't see anything which is a burning issue right now on corporate, is what I can comment on.
Because the economic environment seems to be pretty robust, so, you know, I was really surprised to see this number. That's why I'm asking you this question.
There was one account which was always in SMA-2 for a one-off, which was always there for the last three years, and it was not coming out of SMA-2.
Fair enough. The last bit is, you know, I think somebody else has asked this question earlier about the unsecured bit. You talked about the merchant financing portfolio, but what about the consumer loans, like credit cards and personal loans? How comfortable are you in this environment, given that, you know, clearly the cycle seems to be peaking.
Rahul, I fully agree with you, and I think it will not cross 5% of our loan book. This is what we have said, and we will continue to believe in that. We are not growing the asset book or the, the card business or the PL business as a strategy of ours. We are 2% market share, 2.1% market share on number of cards, 2.2, I think today, on the number of cards, and we are about 1%, 1.5% on the, the PL book. Overall, this is 5% of our book. We are not growing that fast. So please understand, while the businesses have grown, look at what our outstandings are. We are only fifteen thousand crores into overall loan book, so we have not grown these businesses at that fast level.
I don't think because of the Bharat Financial, our unsecured exposures will go for a toss if we do that, so we are not growing that business.
Understood. And then since we are on that, and maybe the last question, the RBI also sounded quite cautious. So are you seeing anything which we should be aware of, as a fraternity, on the unsecured side?
If you look at TransUnion data or any other data, I think the PL flows have not increased. So there is no, no such thing on the PL. Yes, in the STPL cases, where the ticket sizes are less than 50,000 or 70, you are seeing some stress, but not in the other, other ticket size. On the credit card also, I think there is a 30+ flow of about 20-25 basis points, but not, nothing to be perturbed as of now.
Got it. Thanks a lot, Sumant, and wish you good luck for the future quarters. Thank you.
Thank you. Next question is from the line of Piran Engineer from CLSA. Please go ahead.
Yeah, hi. Thanks for taking my question. Firstly, I just wanted to reconfirm, two-thirds of the corporate book is MCLR linked or EBLR linked?
Sorry, it's two-thirds is EBLR, one-third is MCLR.
Got it. Got it. Okay, thanks for that. Secondly, if you can just talk about your credit card partnership with Poonawalla. What's really in it for you?
Yes. I think it's just a partnership where we have a good relationship with Poonawalla, and I think we are doing a co-brand to get some clients, and hopefully those clients will convert into asset customers or liability customers for us. The risk on the balance sheet is very, very low. I can tell you this much.
So it's their customers, and you are going to provide-
Yeah.
credit cards to them. And so what... Can you give us some color on the cohort? What, what exactly are you looking for out there? Because I'm- I would have expected you all to have a better customer set than them.
Well, no, I agree with you. But please understand, the portfolio will not be more than INR 200 crore or INR 250 crore over the period of 3 years. That, that's what we are looking for. Our criteria are our own under credit underwriting criteria. So the selection of their customer base will not even get... A lot of these clients will get rejected as a consequence. But sometimes you have to do these businesses, so you have to do them.
Okay. Okay, fair enough. And just lastly, I'm curious to know, you mentioned about your LCV market share improvement over the last few years. Just wanted to get a sense of, you know, what you all did to drive that improvement, and at the same time, who lost market share really? Was it the captive financiers or?
Yeah, well, so this was a different segment which we created. We were very focused that we wanted to diversify from M&HCV exposure and reduce our exposures and diversify the book on the, in the vehicle finance segment. That's number one, so which drove us. We also thought that this segment was occupied by NBFCs in a large way, and I think the leading one of the leading NBFCs had a very large market share of 11%-12% at that point of time. We thought it was an opportunity because we had the distribution and the capability and the dealer network to get into this market. Sriram, who runs our vehicle finance, who-
Sriram here. Like, the main NBFC which has lost the market share is Tata Motors Finance. They have lost quite a bit in Tata in Tata products. And then we have converted some product, some market share from Chola in other products.
Okay. Got it. Got it. That answers my question. Thanks, and all the best.
Thank you. Next question is from the line of Rikin Shah from India Infoline. Please go ahead.
Thank you for the opportunity. Just have one question now, on the OpEx, particularly. So with the investments on the human capital side, branch additions, digital capability buildup, as well as marketing, how do you envisage, the cost to income ratio to improve by three to four percentage point in the next couple of years?
So first of all, in a retail business and to invest in a retail business, I think the costs are upfront while the operating leverage comes over a period of time. We have invested in new lines of business like merchant acquiring, NRI, affluent... a mortgage business, affordable housing. So we've invested in and digital. I think all these operating leverages, this is still subscale businesses. I think the businesses will start playing out in the next, you know, two to three quarters, you should start seeing some improvement in our, in our cost to income ratio. I think our cost to income ratio will go to 45%-46% before it comes to 41%-43%.
That is where by year three, we believe our right cost to income ratios will be 41-43 for a bank of our size.
So the OpEx will continue to be elevated, but the income will kind of kick in and which will drive the moderation. Is that the correct understanding?
So let me put it in another way. I think if the digital businesses play out, the OpEx will moderate. In the initial stages of buildup of the digital businesses, the OpEx is elevated. But over a period of time, I think as you fine-tune your digital businesses and your capabilities, the cost of acquisition of an account goes down dramatically. So for example, in a credit card, when we started the digital business, we were about INR 6,000 for cost of acquisition. Now we are at INR 1,800, and we should get down to about INR 1,000, and that's where the real advantage of a digital business comes into play. In an account acquisition mode, I think right now, we've invested the business.
I think, we are doing a lot of campaigns and understanding what quality of client is coming in, what is not coming in. So you will have some cost, it builds up. Over 6-9 months, you will see the fine-tuning of that portfolio happening, and as all our campaigns happening, and as this plays out. Now let's go to other lines of businesses. If you, you created a mortgage business, I think in the initial phases, mortgage business don't create any result. They are 100% efficiency business in the initial phases of the, of the business. As you grow and create your book above 7,000, 5,000 crores to 7,000 crores, the operating leverage comes into play in a mortgage business. Today, the operating leverage in the mortgage business is negative. It's a negative carry on level.
So I'm fine with it, but as long as it supports my liabilities and it grows, and because it's an annuity, annuity-based business, so that's something. So we have invested in new initiatives, new branches, and as long as those play out over a period of time, I think, you will start seeing the revenue growth happening. Of course, the cost... the increase in cost will not be to the extent what you are seeing right now. So increase in cost will be moderated to, to be less than the revenue. So the negative cut on what you are seeing in revenue growth at 17%-18% and cost growth at 25%, you will see revenue growth at 20% and cost growth at 9%-11%. That's how it will happen. The negative, the negative carry will go away.
All right. Thank you for the elaborate answer.
Thank you very much. Ladies and gentlemen, we will take that as the last question. I now hand the conference over to Mr. Sumant Kathpalia for closing comments.
So thank you for participating in the investor call. As usual, Inderjit and me are available for any clarifications or further discussions which we want to have. Thank you and God bless.
Thank you very much. On behalf of IndusInd Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.