IDFC First Bank Ltd
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IDFC First Bank Ltd
NSE:IDFCFIRSTB
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Ladies and gentlemen, Good day, and welcome to IDFC First Bank Q2 FY '25 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Jai Mundhra from ICICI Securities. Thank you, and over to you, sir.
Hi, [indiscernible]. Good evening, everyone, and thanks for joining the call. On behalf of ICICI Securities, we welcome you all to Q2 FY '25 post earnings conference call of IDFC First Bank. From the management side, we have with us Mr. V. Vaidyanathan, MD, CEO; Mr. Sudhanshu Jain, CFO; and Mr. Saptarshi, Head of Investor Relations. I would request MD, CEO sir, to open the call with his opening remarks, post which we will have a Q&A session. Over to you, sir.
Good evening, everyone. Pleasure to speak to all of you this evening. V. Vaidyanathan here. I got Sudhanshu with me. Sudhanshu?
Good evening, everyone. Thank you for joining.
Hi, everyone. Thanks for joining.
So thanks for joining and good evening again. This quarter, as you could see, was [indiscernible] impacted by provisions by 2 significant items, which was basically the MFI business and 1 toll road. And we will definitely into that because that is the one store sticking issue about this quarter's results. .
But before that, let me just share with you the key highlights, which are also significant positives for the bank unless we get ground in the question of provisions, we should just notice the overall picture and then of course, come to the key issue of provisions.
Now one key issue for strength for the bank actually not existing for the bank is the growth in deposits. Now this quarter, again, Y-o-Y growth in deposits is now 32% for the bank. Now if you grow the deposit, then it gives us license to grow the loans because you've got to keep credit deposit ratio in our bank, we like to keep it about 75% on an incremental basis. So it gives the license to grow loans. And that's a very big thing. So now our deposits have now got a significant traction now touching INR INR 218,000 crores. And like we said earlier, we don't see any problem growing at 30%, frankly, for our bank.
Number two, retail deposits was up 37% year-on-year to now reached INR 175000 crores and this is despite the fact that we dropped savings account rates to 3% last to last quarter. So our customers and markets have accepted it, obviously, and still deposits are growing very well. Third thing is that our CASA deposits have grown by 37.5% this quarter. It has now reached INR 109,000 crores. Our CASA ratio is upwards of 48% and our cost of funds this quarter was stable at 6.46%. But this 6.46% includes, let me say, the legacy cost that we're sitting on, which is the premerger IDFC, what we carried at the bank. If you exclude that, our cost of funds is 6.37% is quite stable.
Now second thing is loans. Now on the loans front, we saw a strong growth. We grow saw a growth of 21.5% year-on-year. If you remember, this is what we kind of guided for earlier and our total loan book has now got reasonable traction, I'd say we're now INR 222,000 crores. Our retail loan book grew by 25% year-on-year. And later, you will see that this 25% is also accompanied with good asset quality, which I will refer to later. Basically, could pull out my growth in [indiscernible] for the retail book. So -- so the retail gross NPA is 1.57% and the net NPA 0.53%. Now for -- so basically, I'm trying to say that what I'm mentioning is that retail has grown by 25%, but asset quality is still very good on this front. We'll talk about collection of [indiscernible] a moment later.
Third item to call out is asset quality. On the -- sorry, I want to add one more thing on loans. Basically, our corporate loans, which is the non-infrastructure, but corporate loans grew 20%. Obviously, initially, when the bank was post merger, our fingers were [indiscernible] by the memories of what had happened in the past. So we were slow on corporate loans, but now we're getting more comfort having experienced it for 5 years, we've had no NPA. So corporate loan book has grown by 20%.
Now fourth item is asset quality. On the asset quality, the bank level drops NPA is 1.92% and the net NPA is 0.48%. The PCR of the bank has now touched to 75%. Now many of you might want to know that if the NPA is holding up at 1.9 to 0.48, then what is SMA because after all, SMAs have fitted to the NPA. The SMA of the retail, rural and MSME book, but excluding MFI, I'll talk about MFI separately. So please bear with me on that front because MFI have a problem, and I want to talk about that later. But the SMA 1 and 2 of the retail book is 0.87%, actually reduced over last quarter. It's come down by 8 basis points.
Now we also track bucket view, that is early bucket collection efficiency in the urban retail book, it's running at 99.5%. If you can -- if you go to Slide or Page #28 in the presentation, you will notice that we have given from Q1 FY '23, that is April, May, June of FY '22, till today, we have described our collection efficiency, it is stable at 99.5%. So this is something important to note that our collection efficiency of this front is holding up pretty well. Now the -- so lastly, I'd say, not lastly, just a couple of more points. On the rating front, our rating continues to be stable. But on the fixed deposit program, [indiscernible] at AAA, which to us is a huge, huge, huge arrival moment because of AAA by [indiscernible] even on the FD program is a huge moment for us. Obviously, they reviewed our capital, they reviewed the way we manage their books, the way our trend lines are our utilization of the process, our liquidity, all that, and we feel good about that.
Now I would like to come to provisions. Now provisions for the Q2 was INR 1,732 crores. Now this INR 1732 crores includes the -- at INR 568 crores extra provision we had to take this quarter, and we'll just describe both of them to you. Maybe Sudhanshu will tell you in detail, but I will just keep it brief for you. Now the MFI business, as we have been pointing maybe for 3 quarters now, there has been enhanced in increased delinquency. So the bank has taken a conservative contingency provision of INR 315 crores. Basically, what we've done is that we already had quite a conservative pricing policy for MFI and the 90 DPD basis. On [indiscernible], we have 80% of the book on a DPD basis is already provided. Now what we have done this quarter is because MFI is an issue, and we cannot we cannot brush it away because the portfolio is -- the end of our business is disturbing in many parts of India. So what we have done is that in the SMA 1 and SMA 2, we have taken provisions and therefore, with this almost all of SMA 1 plus SMA-2 has been provided for by the bank, like almost 99% of SMA-1 plus SMA2. That is 31 to 60 and 61 to 90 has been provided for by the bank fully. So this is what gave us the INR 315 crores.
There was a second item of provision this quarter, which was a, let me say, toll road. Now we had called out to you like many years ago, like 2, 3 years ago saying that, listen, we've seen the back of infrastructure. We -- they were close to like there were many, many accounts worth about INR 12,000 crores , INR 13,000 crores, which one by one by one was sorted, and we almost [indiscernible] the look infrastructure is all broadly done. But this quarter came a bit of a surprise to us. It was a shock to us. We deeply disturbed ourselves when the government announced that the state [indiscernible] announced that the toll doesn't have to be paid by customers for vehicles. Now our clients -- client which was an entry point into Mumbai, we had an exposure of INR 1,100 crores at the time of merger. Now even though the client went into NPA, we were collecting from the client. So our exposure came down to INR 500-something crores.
Now suddenly and we were happy about that because end of the day, we already collected some INR 700 crores, INR 600-odd crores. And we thought even if NPA the plans we keep paying and life was okay because toll was getting collected. But now because toll got stopped by this directive, then our client is going to struggle to pay. We thought that we don't want to carry this problem on the books and keep troubling all of you. So we've taken 100% provision against this Mumbai entry point account. Now with this, there is no more exposure left to the account. We believe that the end of the day, the government will pay for this because I don't think anybody -- any government will really cancel contracts like this and not pay. So eventually, when the government will pay, we will recognize it back to our income. So this is the point that took away close to about INR 250 crores this quarter. So these 2 items did affect our provision item.
And that is why this number was INR 568 crores of extra provisions. Finally, I must say that if you exclude these 2 accounts and then see the core that is ex MFI and this, of course, is toll account, our credit cost for this quarter was 1.8%. Now which is very much in line with what we've been talking about. So we don't mention that.
Now lastly, in terms of profitability. In terms of the profitability, our NII was up 21%, and our net interest margin of 6.18%. Our core operating profit is up 28%. So it is true that we have disappointed many by these provisions. And even we don't feel very good about this Mumbai entry point suddenly coming and bothering us like this. But the important thing is the core operating profit. So core operating profit is up 28% Y-o-Y. So we feel that sooner or later, when we see the back of this MFI business, which we will, then you will get to see a normalized profit of this bank. Then the -- so therefore, our capital adequacy, I think, including the benefit of the merger, what has happened at probably with CET1 is quite so strong. and CR really 15.6%. So I must say that the key point to call out this quarter was really the provision item. But I think, like I said, we will want to put it behind us. The -- the other thing is really a number of employees who might be hearing the program, I want to say that because the profits are down and down to INR 200 crores, maybe some of you will -- maybe might want to think how could this reduce so sharply. I want to just say to everyone of the employee that frankly, we are really very proud of you. All of you are working very, very hard and brought the bank to this position of strength from where it was. I really want to thank every one of you personally and on this occasion, the bank's deposits, growth, everything is looking very strong. All of you are experiencing what a fantastic technology stack you have, all of your experience what -- how our app is being experienced by our customers and they're talking to you about it.
All of you are experiencing the system, we have given you, the products we have given you. So all of your experience in that from within that we're building a good bank. And as and when you will see these provisions through as micro finance issue through, the core will continue to be much strong. And frankly, when you look ahead, I have no doubt in my mind when we look ahead of -- we talked of this INR 6 lakh crores of deposits by FY '29. Frankly, for us, growing 25% is not an issue to grow the loan book to the numbers we talked about earlier. Honestly, I don't see any those stories fundamentally change. And sooner or later, you will forget this quarter on this MEP and all these things. That's my quick comment for to all of you. Thank you.
Sudhanshu here. I just touch upon a few other key numbers. There might be some repetition, but I'll try to sort of give some additional data points.
Yes, yes, yes. As [indiscernible] spoke about that the customer deposit growth has been quite robust. It is at INR 2.18 lakh crores now at September 30. The Y-o-Y growth was 37%. CASA deposits increased with 38% on a Y-o-Y basis. But if you see on an average CASA basis, the growth was at 37%. Term deposits also grew at about 27.5% on a Y-o-Y basis with retail term deposits growing at 38%, which means the growth in the wholesale deposits was only 8% on a Y-o-Y basis. Our branch count is now at 961 branches during this half year, we have opened about 17 branches for the year.
As we mentioned on Slide 19 of the presentation, the high cost legacy borrowings further reduced by INR 2,400 crores during the current quarter. By the end of this year, there will be a few more repayments and we will be left with just about INR 4,800 crores to be paid off. In fixed deposit ratio improved on a sequential basis to 97.7%. The incremental CD ratio during last one year is at about 78%. Moving on, if you see the cost of funds and the cost of deposits, both have remained quite stable during the quarter. The cost of deposit was at 6.38%, broadly the same number was in the previous quarter. And cost of funds for the quarter has reduced by 1 basis points to 6.46%. On the asset side, if [indiscernible] as you would have noted, the funded assets registered a strong growth of 21.5%. The funded asset book is now at INR 2.22 lakh crores roughly. The sequential growth was at 6.3%. We have given a detailed product [indiscernible] in Slide 23 of the presentation. You may further note that retail has grown at 25% on Y-o-Y basis. Within this, the secured book has grown at a faster pace at roughly about 30%, 31% on a Y-o-Y basis.
We have increased our growth in the corporate book. You can see that sequentially, the book has grown by about 115 and on a Y-o-Y basis, the growth is about 20%. The infrastructure book is now down to about 1.2% of the total funded assets. Another point to note here is our outstanding to one telecom [indiscernible] that now almost reduced to 0. On the funded asset side, in fact, the outstanding is 0, and we have a very [indiscernible] exposure to the nonfunded exposure. Talking of credit cards, we have now issued more than 3.1 million cards. The gross spend on credit cards increased by 46% on a Y-o-Y basis in Q2, and the book now stands at INR 6,332 crores.
Moving on to asset quality. The GNPA increased marginally by about 2 basis points to about 1.92% and the net NPA stood at 0.48%. If you exclude the microfinance book, the GNPA in fact, improved by 4% on a sequential basis. We have stepped up the provisioning during the current quarter and the PCR now stands at 75.27%. This was primarily contributed by the increase in provision on the Mumbai [indiscernible] toll account. GST in the retail rural and MSME book stood at 1.57% and the net NPA stood at 0.53%. It excludes the microfinance book, then the GNPA stands reduced to 1.50%. The overall standard restructured book continues to come down and has further reduced to [indiscernible] of the funded assets -- this was 0.26% in the previous quarter.
About 95% of the restructured book is secured in nature, and we hold up a 19% provision on the same. Moving on to SMA 1 and SMA 2, that they already touched upon that we have seen a reduction of about 8 basis points from the previous quarter. The SMA 1 and the SMA-2 book, excluding micro finance, it was at 0.87%. Gross slippages for Q2 were INR 2,030 crores and net slippages were about INR 1,392 crores for the quarter. Recoveries and upgrades were slightly higher at INR 638 crores in the current quarter against INR 526 crores in Q1 FY '25. The net slippages in value terms increased by INR 260 crores vis-a-vis the previous quarter. And 40% of it came from micro finance balance, I would say, was trade across products. In percentage terms, ex microfinance, the sequential increase in the net reparation was about 20 basis points.
Moving on quickly to profitability. NII increased by 21% on a Y-o-Y basis to INR 4788 crores. NIM was broadly stable, I would say, at about 6.18%, which was lower by about 4 bps on a sequential basis. Fee increased by 18% in Q2 on a Y-o-Y basis. Now 92% of the fee is contributed by the retail book and the fee to total assets was at about 2.05% for the quarter. We had a good decent quarter on the trading front. The trading gains for Q2 were at INR 105 crores. Operating expenses increased by 18% on a Y-o-Y basis, and cost to income was broadly stable at 71% for the current quarter vis-a-vis 70.5% in the previous quarter.
Core operating profit, including trading gains increased by 30% on a Y-o-Y basis. And if we exclude trading gains, then the increase was about 28%. Provision, I would skip where the adequately covered. But just one point to add that if we exclude the provision which we have taken on the total account and the additional provision on the MFI business, then for the balance book ex MFI and total account, the provision was at 180 basis points, which was roughly 170 basis points in the previous quarter, which is to further state that we have not seen -- we have not seen much of an increase in the rest of the book.
Profit after tax for the quarter was INR 201 crores. And if we adjust for the additional provisions, which we have taken, then the adjusted PAT would be INR 626 crores. Capital adequacy, as [indiscernible] touched on, including the benefit, which is expected to come in from merger of about 24 basis points, our CET1 would be 14.08%. We have also taken an impact on the micro finance book, where the risk weights have been increased from 75% to 125% during the quarter. This had an impact of about 21 basis points on RWA. LCR was broadly stable at 116%, and this is well within the range, which we have been guiding over the quarters. With that, I will end my opening remarks and we can open the floor for questions.
[Operator Instructions] Our first question is from the line of Shivam [indiscernible] from Abu Dhabi Investments.
Every quarter, there are some surprises are coming up in our bank. How should we model for the next 2 to 4 quarters? And how are you seeing the environment for the housing finance in the next few quarters?
Housing Finance is stable and growing. So I think it's growing for everybody. For us, I think housing finance is growing at 20%. But -- and that should be quite stable. Now to your first question, actually, that -- we gave a surprise this quarter. Frankly, sorry about this because we really believe that our issues on infrastructure were behind us. They were like we haven't put on the list but we wanted to put it on a nameless basis. Next time, we'll put it, we have INR 14,000 crores of such loans which we identified and we have dealt with it, dealt with it over the last 5 years, INR 14,000 crores. And that, of course, include Vodafone, it's INR 3,244 crores, which eventually did not default, but gave us all quite a scare and freight and bad news in media and media and all that stuff. So -- but barring that, also, there were -- including that was INR 14,000 crores, we dealt with all of them one by one. .
I must tell you that many of them was very difficult. They were -- some of them were in court, some of them are in ARC. There were difficult costs all over. So it really we took very difficulty and we finally thought or the back of it. This transaction by the state government to waiver for fees for toll here was completely out of the blue. It was just nowhere in the picture. It's just a wild thing. This is one of the reasons we don't like project infrastructure financing because we are hostage to this kind of movements outside of our control. So this was an odd one that came through.
Okay. And the second question is regarding the credit card business. So are we on the breakeven? And what are the delinquency -- because are they already saying like there is a discomfort in the unsecured lending. Yes, so what's your thought on that?
On credit card this time, we have given a lot more disclosure. So while [indiscernible] the number of credit cards, we have actually shown on our presentation. The credit cards, SME for credit cards this quarter was 1.69%. Last quarter was 1.88% and the quarter prior to that was the March '24 quarter was 1.4%. So let me come the other order [indiscernible] centricity. March '24 was 1.74%, June '24 was 1.88% and September '24 was 1.69%. So for us, the credit card is behaving well and really on expected lines on the credit portfolio. And we are, of course, watching it very closely because we saw the numbers of the other credit card company, which is -- it's a monoline in this business, and we saw those numbers and we saw another bank's numbers and credit cards. They'll be very watchful. But as of now, we are transparently sharing our numbers with you, it's quite stable. .
And in fact, on Page 38 of the presentation, we have even put out data about [indiscernible] Transunion data of June '24. In that, they are seeing that the 30 DPD for June '24 for the industry is 4.6%, IDFC First Bank 300 DPD for June '24 is 3.6%. For March '24, industry was at 4.3%, we are at 3.3%. Similarly, there is also 90 DPD data, the 90 DPD data, the industry is at 1.9, IDFC is at 1.4. And for March, it was 1.7% for industry, we're 1.4%. So from these numbers, we conclude that we are doing well on credit card asset quality.
And Nikhil, just to add, we have not seen an increase in credit cost in Q2 vis-a-vis Q1. .
Our next question is from the line of [indiscernible] Agarwal from [indiscernible] Capital.
I'll straightaway dive into my questions. Firstly, excluding the prudent extra provisions on microfinance, SMA book and the total account of MEP, you mentioned that the credit cost is 1.8% of the loan book, the average loan book. Whereas my calculated number comes to 2.15% of the average loan book. Is there something that I'm missing here?
Yes. So essentially, if you exclude the provisions of the entire MFI book.
Why would we do that because in the last quarter, when you're comparing with the last quarter of [indiscernible]. So including at MFI, our provision is 2.15%. And last quarter, we had reported a provision of 1.92% including MFI. So the 40 bps is adding because of the MFI this time the 30 bps provision for this quarter?
Yes. So as I think I mentioned that we are seeing 1.8%, excluding the MFI book and the additional provision which we have taken on toll, right? This number was 170 basis points in the previous quarter. While the overall credit cost was 190 basis points, it excludes similarly micro finance book in the previous quarter, then the number was 170 basis points, okay? So just to fill in the reconciliation for you, 180 basis points is ex-MFI. We have seen additional provision on account of this toll and the MFI additional provision which we have taken that has consumed about 105 basis points, and the rest is coming in the normal course on the MFI book. .
Okay. So our provision on the rest of the book has increased from 170 bps to 180 bps this quarter, but our SMA movement has actually gone down. So what is leading to this jump, which portfolio is actually contributing on the higher -- for the higher provisions this quarter?
10 bps is not a major increase, right? As I said, credit cost. .
Nothing to worry in the personal loan segment or any other segment as of now?
Small bit of increase would have happened there, right? Because as I say, that we can see is a normalization or so. But it's not worrisome. That's why we have given a lot of data points.
But you can break it up for them. Of the incremental steps that have happened this quarter, how much came.
But the 10 bps increase is, I would say, is on the rest of the book, right? And some bit of increase would have come in the personal loan segment, but it's not material. Another comfort which I sort of I'm again reiterating is -- the increase is also not [indiscernible] to credit cards. There we are seeing stable credit costs in Q2 vis-a-vis Q1.
Okay. So for the remaining 2 quarters, I think Mr. Vaidyanathan had mentioned at the end of Q4 that FLDG comes into play from Q3 and Q4. And given that we have provided the SMA microfinance book as on date, how do you see the credit cost number shaping up for Q3 and Q4?
Yes. So while we continue to be cautious, right, because there is a lot of moving parts, right? But our best estimate as on date is that on this I'll split into 2 or 3 parts, right? On the ex toll account and the MFI book, we may come in at about 165 to 170 basis points, right, which you would notice that it's a slight improvement, which we are sort of guiding vis-a-vis what we got in H1 because of some benefits coming from [indiscernible]. .
It includes the MFI book completely.
No, no, no, no, no. Again sort of clarify, we are seeing -- I'm splitting this into one, I would give you a data point on MFI, how do we see the credit cost for the year. Second is an impact, which we see on this toll account, right, for the year. And third would be the rest of the book, okay? So on the -- let me start with the toll account. The annualized impact for the year would be about 10 to 11 basis points for the year. For the JLT book on the MFI book, the impact would be about 45 to 50 basis points for the year and in terms of credit cost. And for the rest of the book, it could be about 170 basis points. So if you sum it up, it could be somewhere around 225 basis points for the year.
225 basis points for the year.
Yes. .
Okay. So the retail would be around 215 and 10 bps is the tool. Now retail I'm including the MFI book.
Yes, that's correct. But this does not include the prudent provision of the MFI book or does it, the 225 bps that you're talking about for the year. .
Ladies and gentlemen, the line for the management seems to be disconnected. Please hold as we reconnect.
Ladies and gentlemen, thank you for patiently holding the management is in line with us. Mr. [indiscernible], I request you to repeat your question.
Yes. So my question was we are saying that the entire full year credit cost could be 225 bps, which includes the MFI book, the toll account and the normal retail provisions of around 165 to 170 bps, so this 225 bps also includes the prudent provision that we've made today on the MFI book, right?
Yes, it subsumes that provision as well.
Okay. Okay. Now from FY '26 onwards, the new retail provisioning norms that come into effect, what could be the steady-state provisions we can expect under ECL norms for our bank?
So it's difficult to comment on the timing on the ECL as far as concerned, right? While they have been indications that this might come in. But at the same time, the draft guidelines, which came in also suggested the banks will be given a 1-year window to prepare in terms of system to work on the models, recalibrate and all those stuff. So my belief is that ECL impact could come in, certainly not in the next year, but could be earliest maybe '26, '27.
So whenever that happens, that will lead to a credit cost impact of around, say, 10, 20 bps or more?
Would be around that, but I think it's -- I'm not guiding but it could be roughly that.
We request you to return to the question queue for any follow-up questions.
No, 1 second on [indiscernible]. Since you understood the numbers and you split [indiscernible] suspected for you properly. I think is that even at 225 for other entities with similar business models, on the lending side, I know our cost income ratio is higher. But on the lending lending side for similar models, similar yield, 225 constrained MFIs given a broken are back so hard still to come back and be in the zone, this would actually account for really good credit in an overall sense, [indiscernible]? .
Our next question is from the line of Piran Engineer from CLSA.
Just a couple of clarifications. Firstly, the toll road account was a INR 250 crore account or a INR 500 crores account.
It was a INR 1,100 crore account initially, then along the way they paid by INR 600 crores. Principle paid back meaning, not one short, but they kept paying along the way every quarter a little bit money. [indiscernible] left with INR 500 crores. We already had a provision of about -- these were already prudent on that account, we were keeping about like INR 240-odd crores of provisions of INR 260 crores. So have we taken the balance to INR 250 crores now.
Okay. Okay. Now I got it. Sir, it was 50% provided earlier, now it's 100% provided.
It was about 42% provided earlier, balance we have taken in this quarter amounting to INR 253 crores.
Understood. Okay. That explains it. Secondly, just on the microfinance business, could you give us what were the slippages this quarter versus last quarter?
We are not calling out specifically that number. There has been a slight uptick in slippages during the quarter. But .
Digital credit cost [indiscernible].
Yes, credit cost. [indiscernible] Yes, credit cost for H1 on the micro finance book is about 6-odd percent.
Okay. So it's fair to say that 1Q would have been a bit lower and 2Q would have been a bit higher than the 6%.
Yes, that's correct.
So what would have been Q2 [indiscernible].
Q1 was roughly about 4.5% to 5%.
And Q2 was?
Q2 is about 7%, 7.5%. So we have seen a slight uptick, yes. And -- and that's why we have also on a prudent basis means that additional provision, which equals to 2.5% of the overall microfinance.
See, one of the reasons why our -- see, we are observing the market. We've seen all of the numbers we've spoken to peers in the industry. We were keeping a very high bar and provisioning policy, meaning that like close to about 80% of 90 DPD we were providing for. So imagine anything slips, 80% gone, state-in the PNL. So we kept it like that all the while just to be well proved in this book. So that is why our credit costs are what they are. And the way to think about it is that -- we recognized it early. And eventually, when the recovery comes, it comes, we will take it back as it comes if it comes.
Just to add, that's an important point that intuitively, while these numbers on the MFI provisioning will look a bit high because we make a very higher provision on the recognition of the [indiscernible] that's an important to be kept in mind.
Okay. Fair enough. And in MFI, have we moved it to 125% risk weights like some of the other banks have done? Or are we still at 75%.
No, no, we are at 125%.
And this was done this quarter, is it?
Yes.
And this has an impact of about 21 basis points on CET1.
Okay. Okay. Fair enough. And just lastly, Viv, you mentioned that your SA deposit reached 3% a couple of quarters back. This is for what bucket, less than 1 lakh, you could say?
No, no. We took it straight up to 5 lakhs.
And [indiscernible] seen any negative impact of that. It's fairly inelastic the demand.
Yes, not only -- I mean the thing is that we want to raise only [indiscernible] deposits as we need to have because as our legacy money keeps getting paid off, our need for money will reduce. So therefore, but to answer your question more directly, I mean our deposits continue to become very strong. even after we cut it up to 5 lakhs. We are now realizing more and more that service is a very like unbelievably powerful item and people who get used to service the relationship managers and the app and the Internet and the ID and password and everything. [indiscernible].
Okay. Okay. That's fair. Okay. That's from my end. I wish you all the best.
Is there any question of your, which we did not answer just to be clear on .
No, I think you'll see the slippages number or the in MFI is what I wanted, but I think the credit cost also answers that.
Credit card is a good proxy for that. And I'll tell you one important point I'll tell you about what provisioning policy we were following, we were following 75% at 90 DPD and 100% at 120 DPD. Now this is for MFI, actually for MFI. So this is like you will agree with me that this is -- and it's not now. We've been having this for many, many years now for years. So this is the reason why our -- our credit cost appears higher at this 6-odd percent, frankly, 6 is not too high yet, but we'll have to see the rest of the year coming through. Now a portion of our portfolio is secured by CG SMU, which is in January -- like December -- we started noting that the collection center meeting discipline was reducing. We were handing to send people to customers' homes to collect, et cetera. And at that time, no one in the industry was talking about this MFI as an issue, but we did.
So in January of '24, we started -- we spotted this and we started ensuring our book and we also tightened all the screws on the lending side. So our disbursal started coming down [indiscernible]. So our disbursal came down from INR 4,250 crores is what we disbursed in Q2 FY '24. In Q3, we brought on INR 3,800 crores. In Q4, we disbursed INR 2,800 crores. In Q1 FY '25, we disbursed INR 2,800 crores, and Q2 we disbursed INR 2,000 crores. So basically, we saw this, let me say ahead and then we reduce our disbursal. And we did one more thing. We -- we started ensuring the book with [indiscernible]. So today, because incremental bookings in January '24 has been insured. So today, 50% of our book is already insured. So on this, coming to provision policy again, on this, we have a more relaxed provisioning because we know the end of the day this is backed by security of a guarantee by [indiscernible]. So blend blend, the 7,500 policy of earlier and the [indiscernible] policy, which is more relaxed, blend blend, we have provided 80% of the 90 DPD.
[indiscernible] how has your experience been in terms of recoveries now that it's been almost 2 quarters because another bank has faced some problems in getting back what [indiscernible].
No, another bank, may have their -- they had their experiences for multiple reasons, and they're out in public domain. They were -- in our case, we have started it now. We -- first of all, the way it works is that we pay them about 1.6% of the loan amount as think of it like an insurance premium, if you think about it like that. We pay that and then every year on the principal outstanding of the do we pay them, think of it like paying off paying somebody on the whole book. We do that. And then we give a window of -- I think they have a window of 1 year or something in which there's a lag after which they pay. So the key benefit for us will come because of full aging of this book and that 1-year lag will be conditional met.
But at least we know for sure that -- I mean, we know that when we wake up in FY '27, for example, the -- in fact, by end of this year itself, by March '25 itself, 75% of our book will be insured. So by March '26, it have lived a full 1 year. So all of '27, we will have very low credit cost in MFI because the whole book will be insured and ready to claim it back from them.
Got it. Got it. Okay. This is super useful. Thank you and wish you all the best.
Our next question is from the line of Prakash [indiscernible] from [indiscernible] Stock Invest and Trader.
I am basically not an analyst. I'm a shareholder only. So my comments or questions are from that perspective. So first of all, I am worried about to, let's say, this continuous provisions. We have talked about it good. But still, I remember last quarter, you said that, okay, next quarter results will be subdued, but then onwards, it will be pretty good. But when you said subdued, I mean we did not expect this will be subdued. This is number one. Number two, I mean, good that you have cleaned up the books. But if you get out of a micro finance, we get out of infrastructure, we get out of personal. Where do you see this growth items coming next? Or do we just hang around like this only. We should forget about this as a shareholder. So your comment, please.
Yes. So if you see the -- if you see the -- first of all, we are not getting out of micro finance. It's an important business for the bank because it is helping us meet many variants of practice sector. And it's an important book because this was -- so basically like small and marginal farmer agriculture, it meets a weaker section and all that. So we are not getting out of this, except that we have -- except that we have, of course, tightened the norms get it got it insured in a prudent basis and all that. So what I described earlier. Now with regard to which will be the areas for growth. Of course, infrastructure, we announced right at the beginning, 5 years ago, we won't do it and we are not doing it. So even this MEP is -- it's a bit of an odd thing that came like a curve ball that came to at the end, but that's that.
Now so what are we growing -- we are growing 25% is the retail finance book growth, 25%. In September 23, our retail finance book was INR 104,000 crores. Today, it's INR 130,000 crores, our Q-o-Q growth is 4%, annualized is 15%, but Y-o-Y 25%. Within that also, let me just share that the home loan business is growing by 20%, loan against property growing about 20%, Vehicle financing is going by 32%. The consumer business is growing by 21%. So -- and the gold loan business is growing by 185%, but that's, of course, is coming from a very low base. So these are all growth areas for the bank. And now corporate credit is also growing. Corporate credit grew ex infrastructure grew by 20%. So let me just say that these are all lines of business that are growing and will grow. We don't see any reason why we should not grow by 20% next year also.
When you say refinance or property and such thing, you have to bear in mind that there is supposed to be a slowdown going on and maybe the demand for all these things are likely to come down.
Well, we'll watch it carefully, and I respect your question, but we are finding that this is -- demand is quite strong. And we have -- let me tell you that we have not relaxed any one of our credit criteria. This 20% growth in this business is coming with the current norms itself, we have not relaxed any credit score cutoffs or anything like that. .
Mr. Vaidyanathan very simple question. In 2018, when the merger with Capital First was announced, our share price was growing in the range of same about around [indiscernible] 58 to 60. And most likely on Monday, we will hit that point again after 6 years of work. So how do you see these shareholders to take it? What do you have any word of advice or any how we should basically look at it? I know there is a lot of [indiscernible] and there is a lot of [indiscernible], but it's just 6 years, and we have done so much of capital raise, which has all gone, let's say, I don't know. So much provisions. How do you see it?
Now for that, let me just correct the number for you so that we are quite clear about this. At the time of merger, if you were holding an IDFC Bank share, the factors that your share price was INR 37.6. You can check your numbers, go and check your records on 11th of, Maybe 12th of December of 2018. We know the numbers. We put it out in annual report also. It was so. Now back 37, is now, say, the 60s, mid-60s and what it will be on Monday or any day, you'll see the numbers. Now let me just say that in this window, the first 4 years please note my comment very carefully. And I understand your question because from your point of view, you're right, your share price has not moved. Actually, move, let me say from 37 to 65, but still that's what has grown.
Now let me tell you that banks, as you very well know, since you're a seasoned shareholder, are valued price to book. Now on a price-to-book basis, the book value per share at the time of merger was 38.43. Book value per share at merger was INR 38.43. Now after that, who wrote the Dewan Housing loan book. I didn't do it. Who wrote reliance capital loan book of INR 1,500 crores, I didn't do it. This management didn't do it, which means that this management is not in this chair and anybody who's running it, anybody would have to provide for it. It's not us, who booked the Vodafone loan. We didn't do it. So what I'm trying to say is that because of all these loans, the book value per share came down to INR 31 by March '21 from INR 38 to INR 31. And let me just tell you that had we not come with a chair and solved those accounts, God knows where would your stock should have been. And from there, from that INR 31, now the book value per share has come to INR 53. And we have raised capital all right, but we have raised capital always at a premium to the book. And therefore, the book value per share is INR 51.
So when you lament upon the fact that our share price has not moved adequately, I request you to think what would have been the position of this bank -- with these INR 14,000 crores of loans, of which so many thousand crores were charged off, not by our mistake. And there was no CASA of 8.5%. And there was no books. So where do you think a share price should have been. So when you point out, I agree that is your expectation, but let me tell you this is an issue, the bank is in an early stage bank. It goes through these troubles. If you really wanted a stock, which has all problems solved and go and buy a bank, it is giving you 18% return on equity, which is already sold its rover 25 years. It is early stage bank. Now my comment is that this bank with great difficulty with the work of 40,000 people of this bank has now come to a position of strength.
Our rating is -- rating agencies have rate us AAA and AA+, whether it's FD or for long-term rating. Now our CASA is 47%. Now our -- now our core operating profit is INR 6,000 crores, growing at 25%. So I'm saying that we have brought the bank to a good position of strength from where it was. So now from your point of view, has it gone up or not? These are the markets, these are early-stage bank situations. So I do believe Bank has made big progress on technology, brand, people, CASA, loan growth, deposit utilization.
I think everything is not correct because you are talking only the numbers from the point that the merger happens. You should take it from the point when the merger was announced. And you know fully well what you are getting into. And from that point onward, if you will see that we have practically actually not made any progress and INR 58 to INR 60 that share price, I remember because I have been shareholder from 2013, not today.
Yes, please, I would definitely like request you to go and see the numbers. We'll share the screen shot with you. The share price was INR 37.5 in December 2018 when the time of merger has happened. Now I'm not seeing, by the way, that movement of INR 37 to INR 58 is a great job. But also a fact that during this window, the banking system got -- did not get re-rated. You can see the -- there are many other banks who, if you check the banking index, banking index has not performed since then. Our bank, you please tick the shareholder report, we'll send you -- since if you leave your details behind with that, we'll share with you exactly what the bank index has moved, how much our share price has moved and how much book value per share has moved. Our book value per share has moved up only 20% in 5 years. That is after the initial collapse that happened to INR 31 and now up to INR 53, it has now gone up by 20%. All other banks have gone over 100%, meaning the book value per share.
Now if we have grown by percent, I'm not saying it's a great job. It's not. But I'm just saying this was just an issue whether who was there in the chair. This would have been the situation because it's a past issue. So it's, for example, if one bank shares is quoting INR 400, today it is quoting INR 25, then well, it is not because of this management. Someone else has gone and done whatever they've done. So we got to benchmark somebody from where they take over a position and then move to measure benchmark from there.
Our next question is from the line of Aditya [indiscernible] from Vikram Advisory Services.
One more thing, just to the previous comment, just to tell you, just to finish that answer. Therefore, we have done our best. The bank has made tremendous progress. Otherwise, the book value share could not have been INR 51 today out of the situation we were in. But let me just say that we've got to look ahead, I'm not in the business looking backwards. This was due for context since you raised a particular number. When we look ahead, we believe that this bank at this stage is posting a 10% return on equity on a more normalized basis. Now 10 has to move to 12, 12 has to move to 14, 14 has to move to 16. Let me tell you a bit about what the underlying prospects of this bank is. Now I leave it to you as a shareholder for you to assess this and get the conference and I request for your confidence. What is it?
Now end of the day, the bank is borrowing money at 6.3%. We have brought down the cost of funds from 7.8% to 6.3% in these 5 years. And we are raising INR 55,000 crores of money with just 1,000 branches raising INR 55,000 crores at 6.3%. I would request you to note that this is really good by any bank standards of the country today. Now raising money at 6.3%, where lending, we're getting a NIM of 6.3%. Now this is a 5-year-old bank. Now for a 6.3 NIM, even if you add about 1.5%, 1.6% as fees, so that makes it about 6.3%, 7.3%, about 7.8%. Now this cost-to-income ratio is about 71% today. In due course, this is just a 5-year bank. But in due course, when you take a 5 years, 6 years, 7 years forward or maybe longer, this cost-to-income ratio will touch 50%. That's the way end of the day, even capital first is running at only 48% and we have done that. So it will come to 50s. And then you know that, that would be the operating profit of the bank could be that 8% minus 50% like something like 4%. Even if a credit cost is 1.3% of assets, that would mean a pretty strong return on assets for the bank.
So fundamentally, long run bank is structured superbly into the brand plus incremental economics. Now things do come -- regulatory changes do come. Even now, we have given a guidance for 5 years, but we're always watching out for market changes, guided changes, regulation, et cetera. please consider those risks also when you're investing in the bank. But if you -- this is the early stage, but I think the long term of the bank is really, really very, very good.
I request Mr. Aditya to take your question.
So sir, first of all, congratulations on the last 6 years of the merger where you were able to build the bank in terms of deposits and CASA and growth when changing the metrics of the bank from infra to retail and everything. It just sounds perfect, and it is a great job here against all odds where people were doubting whether you would be able to do it or not and all of that. So that's a great start. But what I would like to point out to you, sir, right now is that -- it has been a great journey in the last 6 years from the depositors or the customers for the -- for every people in the bank, except for investors, I'll tell you why. I don't care about the share price. But what I care for is the predictable nature of the results.
So in my opinion, sir, till 2018, ICICI Bank never got a great valuation, whatever reason is because of not predictable nature of the results. Whereas HDFC Bank always got good valuations because of the predictable nature. Now we understand our bank is an early-stage bank. But for how long can this [indiscernible] be counted as -- is it 6 years, 10 years, 15 years, that will help us take our valuation calculated. Second point, I would like to point out is that when -- as a bank, we have -- even if we have 6% or 6.5% of NIMs, 95% of our net interest income goes in our OpEx. So what do we have left for provisions when such events come up. So -- so sir, that is the problem. See, while we understand none of the past first 4, 5 years was your fault or any banking industry things go up and down. But all I'm asking is how can we predict the results of the bank going forward? Either we just provide everything in one shot, like INR 10,000 crores get it done with base capital as much as we want because the arbitrary nature of raising capital is also something that you need to look at, sir. This is all what I want to understand.
No, both questions are fair and let me take them one by one. Okay. Now when we say predictability of results. First of all, I do agree that it is 100% our intent to make the bank more and more predictable in its results. If you see our operating profit, the operating profit of the bank has been moving up significantly. Why I call out on operating profit, that is core operating profit, that INR 6,600 crores. Now this INR 6,600 crores was INR 1,100 crores in the -- at the time of merger, half post-merger. And by the way, I'm not referring to pre -- post-merger annualized was INR 1,100 crores. How does the bank become predictable. If you don't -- we book price treasury profits can ever make it predictable. So it's 1,100 crore. Now that INR 700 crores of core operating profit, NII plus fees, minus OpEx has now touched INR 6,030 crores in FY '24. Now even for H1 '24 to H1 '25, [indiscernible] 29%. So this is core operating profit very important so that we can get predictable income.
Number two, the -- in terms of credit cost, in terms of credit cost, let me give you a clear picture. In the [indiscernible] of credit cost this year is normalizing. But next year onwards, it would be normalized. For those of you who are tracking us some capital first time, you please tell me is that even one year in those 8 years or in fact, till today in 14 years, have you ever given you in the retail side, a shock and say, "Oh my god, we're doing a onetime cleanup. There's no such word as onetime cleanup have used for 14 years, which means that we have a very good controlled credit underwriting process. It's working. So then if -- so therefore, predictability will come only when all these kind of infrastructure loans and MEP and this at, et cetera, we've taken out told you INR 14,000 crores of such loans, but now there is a last day left. The predictability appears after that.
Now and therefore, the -- we believe that it will be reasonably predictable from now on for the next 5 years because there are no major shock. But I can tell you the one shock that you should even now be prepared for, is that from the regulations change from time to time. regulations there we do take them time to time, the signals that come from the regulator mid-change about what we need to change or not market situations may change. We may not want to do a particular line of business because we may consider risky. So these kind of risks can be there. But broadly speaking, we should expect some predictability, but we do expect that maybe '27 onwards, for the next 7 or 8 years, we expect that is FY '27 and onwards, we do expect that by the time, whatever had to come and go would have come and gone, and then it becomes a reasonably stable stable machine. And what is the second question -- second question was on the OpEx. You are saying basically the margin is strong, but a lot of money is going in OpEx. Was that a second question?
No. So the second question was -- so sorry, the third question on that was that, let's say, if you consider this quarter results for ICICI Bank, so it's not comparable. But what I wanted to give you food for thought is that out of INR 1,700 crores that we provided, let's say we remove this INR 500 crores of buffer, we still have INR 1,200 crores of provision on a net interest income of around INR 9,000 crores to INR 8900 crores. Whereas ICICI Bank has INR 40,000 crores of net interest income and is providing for INR 1,200 crores.
No, no, no. I think. No, no, let's be clear about this. we are comparing 2 different models altogether. If you -- be these are models built for 25, 30 years with largely mortgage-based, you give us -- and if you go back and see the same bank of between 2,000 to 2005 or '06 or maybe even earlier period of this, you could see that these banks were going through the period of ups and downs. Finally, a model takes time to stabilize. But let me just tell you this much that our bank has made massive progress in 5 years. Now at least we are in a position to predict a INR 6,000 crores of operating profit, and we can expect, let's find about 24%, 25%, we can expect operating profit increase this year also. So the point is, therefore, that early-stage banks do have the share of ups and downs. I'm requesting you to please factor it in. .
But the good news is that the -- when you look ahead, let me say FY '29, I'm quite confident that by the time all of these things, you ask me how long, 5 years, 10 years, 15 years. So I'm telling you that by '27, '28, '29, I am definitely expecting our bank to become very stable in terms of predictability. That's your first question predictability.
On second question on OpEx. Now on the OpEx front. Now if you see the -- I mean, it's well known, I don't want to spend too much time spending on it in the interest of time. But our -- in the last 5 years, we have grown our branch network. We have launched [indiscernible] presentation, the number of products launched by the bank [indiscernible] the bank -- the bank has launched not less than 20 products -- the bank has launched a prime home loan, tractor loan, education loan, new car loan, gold loan, commercial vehicle, farmer loan, Kisan credit card, microcredit loan, wealth management business, fast tag, ForEx solutions, credit card. I mean every product has its cost to start with. So -- and branch network, there's a huge branch network coming up here. So -- and people and technology. So all this has happened in the last 5 years. So therefore, early stage has to go through the OpEx. The next generation of people running this bank between say 2030 to 2035, will find all of these things to be amortized.
In the other bank, I was running into between 2000 to 2009, we were starting with all these kind of things. But today, it's on an amortized book and each of the branches are having INR 300 crores of deposits and all amortized and look to money how the bank is printing money. So everything has a life stage and the people who go through the initial stage of building a bank are Karam yogis. And you have to go to Karam yogi, some has to do the job of Karam yogi for the future generation to print money.
Our next question is from the line of Kunal Shah from Citigroup.
So just to get into a few specific numbers for the quarter and maybe it would be great if you can get the absolute numbers. So firstly, on MFI, is it correct to assume that we would have done the provisioning in total of INR 500 crores, including INR 315-odd crores of contingency. And the last quarter, it would have been INR 120 crores, INR 150-odd crores. I just want to reconfirm those numbers.
No. So Kunal, as I mentioned, that half year, the credit cost on this book is about 6-odd percent, right? So.
Number, if you can just say how much is...
Coming to that, right? And I further sort of gave a breakup that in Q1, the credit cost was about 4.5%, 5%. And in Q2, that has inched up to about 7%, okay? If you average MFI book is about INR 12,000-odd crores, right? So if you apply these percentages, you would realize that the credit cost, which has come through is about INR 400 crores. On top of that, we have made this additional provision of INR 315 crores, right? So those are the numbers in the MFI front. Of course, we have done some, I would say, advanced provisioning. So hence, I said, while in the full year guidance credit cost, this additional provision is also subdued.
Okay. So 7.5% on 13,000 or maybe 7% to 8% or INR 13,000 crores or INR 20,000 crores, that would be like INR 250-odd crores on a quarterly basis. 7.5% is the annualized number.
Yes, broadly. .
Okay. So INR 250 crores plus almost INR 315-odd crores. So that's the broader number. And when we look at it in terms of the last quarter, if I take the same as a 4% number, that would have been closer to like INR 130-odd crores.
No, that would be higher. So on a INR 12,000 crores, right, if we apply 4.5%, 5%, right, then.
That's again an annualized number.
Yes, it comes to about INR 150-odd crores. That you're right. .
Yes, yes. That's [indiscernible].
Basically think of it that this quarter, we have taken provision of this INR 320 crores on the SME 1 and 2 portfolio.
Yes. Yes, clearly, yes.
[indiscernible] this portfolio -- so some of this money obviously would slip to 90 DPD and what is 90 DPD will slip to 120 DPD in normal course. So when the slippage will happen, this time since it's pre provided, the impact in Q3, Q4, at least on the JLP line will not be that much.
Got it. And when we were guiding for the full year number, 40, 50 basis points of impact on MFI, so that comes to broadly like INR 1,100 crores, INR 1,200-odd crores. So particularly coming from MFI for entire year FY '25. So considering what has been provided, there is still maybe something more which can come in, okay? And that's to the extent of INR 300-odd crores.
Yes. So number for the year, at is broadly correct, it could be about INR 1,000 crores to INR 1,100 crores, right? But Kunal again to note, right, our provisioning policy is very stringent, right, when they said that we end up providing 75% in 90 days and 100% is 120 days, right? For other institutions, the provisioning policies could be very different, right? So while for us, it looks high, I think that picture also needs to be kept in mind that we are doing a lot of early recognition.
We do early recognition. We don't touch the books. We don't want to give the benefits to pay us back. We just keep the books clean. It's just the way we work, that's the way we dealt with our prior issues at the time of merger. We did what we did. We are dealing with the same way. I can tell you investors that nobody can ever pick a finger on our bank in terms of how we run our books, how we manage our accounts. We keep it super clean. And our practices are clean. So we do that. And to an earlier question, we were talking about our -- this one, our SMA, we have actually given out the data of SMA for every product. So if you go to Page 32, it's a very important slide we introduced this time. We have -- as you know, banks do disclose NPA, we disclosed SMA, but this time, we carry transparency to another level, we have disclosed SMA by product. Then we have disclosed SMA by product for 3 quarters at a stretch. So you can see that you don't have to take our word for numbers can talk. If you see the first column of mortgages, it is 0.4, 0.39, 0.39. So we know that mortgages are stable. We don't have to expect a problem next year at these numbers. So you see vehicles, 0.96, 1.22, 1.27. It's stable. Similarly, MSME is stable. You're at 1.26. 77689313 Consumer durables are stable at [indiscernible].
Yes, most of the product segment are stable. yes.
We are clearly calling up only 1 product is bothering us. Then that every product is fine.
And Kunal, another disclosure, which we have made in terms of our exposure to top 5 states and vis-a-vis not performance is in the industry. [indiscernible] we are broadly there except Kerala, where we are slightly higher. There also we reduced the book in last one year or so by 30%.
But let me tell you one more thing for shareholders and a few shareholders spoke before and as well as analysts, let me just keep it simple to everybody. I feel that people who would be looking -- would be looking at this quarter's results and just look at one MFI book and thinking that there is a problem, et cetera, that the data we have disclosed it by in Page #32. But let me just say that looking at one data point of one MEP or this one, people who take come to conclusion of the bank will make a mistake because you cannot -- you cannot underestimate the power of a bank that is borrowing money at 6.3% and lending it out to get a NIM of 6.3% with controlled credit cost. Controlled credit cost. It's like even now, if you compare it to other banks with similar models, this credit cost, including MFI, including that is still quite low.
So the power of a bank running at 47% CASA, clean governance, good incremental return on equity at the bank, incremental run equity of the bank, which is the -- you can compute it. And a growth model running is something that you will make a huge mistake if you -- in my opinion, I mean it's for a call, but I think people would bet against this call would be -- I would say that this is a really great bank in the making, really great bank. After 5 years, you would have forgotten this quarter, but you would have seen a INR 11 lakh crore business bank, which will be a as deposit and maybe INR 500000 crore of loans. I think it's a really good bank coming up even at a 2% ROA or one point or 1.8 ROA, 1.7 ROA, that would still be a lot of money.
And Kunal on this MFI, just to add, all along, this book was not giving us that kind of a pain, right? Credit cost was range-bound except COVID if you take out, right? It was about 1.5% to 2%, right? -- we know -- all know that some overleveraging has happened, right? While we also -- I can confirm we also give only one loan to a borrower at the time, right? -- only -- and our program started with Tamiladu, where, unfortunately, we had a slightly higher concentration. We had an impact coming out of floods and then we know the heat wave and all those. So it accentuated the problem, right? But we were proactive enough to slow down the book, right? And we have kept stringent provisioning policy. We are allowing the loss to sort of come through. So we -- as a management, we have been quite proactive in recognition of the while credit costs are high in this year, but -- and could we expect it to sort of cool off into Q1, Q2 and so on. And next year, it may be still higher than the normalized levels of 2%, which we're seeing earlier, but we feel that the provision, which is about 225 basis points guided for this year, that would come off to a normalized level into the next year, right?
We have also done a lot of policy interventions. That's when you were saying that apart from JLG, we are not seeing that kind of an increase, whether it's SMA 1 and 2, so what I can comfort to the shareholders and investor is that that we have done a lot of policy interventions -- that's why you are seeing some of these numbers. I spoke of that in credit cards, we have been very cautious. The stress is not increasing similarly in other product classes. So there have been 1 or 2 topical things which have come in and that needs to be taken into account.
I'd like to give one important clarification -- not clarification, a way to think about our credit cost, okay? Now as to how could you -- what is the credit core for next year? For example, if this is a question on your mind. Let me help you think this through. We think that every business has its own nature, like home loans, they hardly give you any credit cost. Loan against property gives very low, maybe call it 25, 30 basis points. So you assume if you have a INR 25,000 crore book, you multiply that by 10 basis points in home loans, maybe the INR 25,000 crores of LAP into 30 basis points, 35 basis points for loaners property. The new take contributable book. and then you multiply that. The numbers are there in the books, so I don't want to expand on it. But let me say this INR 7,000 crores book into, say, 400 basis points.
And then you take a predicator 500 basis points, just to pick a number. and then you take a -- and so on, you apply -- we say to used cars, say, 250 basis points, maybe personal loans, 250 basis points. You -- what you do is that simply take the book multiply that by well-known industry numbers. You do Sigma do some product of that. You will get a number of about 1.85% for our bank. So in one quarter, one month, something may be something may be down. But blend blend, our bank is heading for about 1.85%. And for this yield that we are getting, 1.85% is a good number, stable number coming for 15 years. So we don't doubt our model because it's working. So if you do this, you'll get a fair number, you can predict the number for the for many, many years to come.
Now if an odd thing like JLG happened or toll happened, then odd things change. But in general, we are running a stable credit book. We are running a stable yield 6% plus. We don't expect credit with this one. And then only cost income ratio has to come down that's it. We don't have a problem fundamentally numbers in credit quality. We don't have a problem in the yield. We have -- our cost income is an issue, and that's not an issue issue, not an issue as we're running a bad bank. It's just that it's the new age bank, and we're building all the expenses that coverall the products we launched. It will come up in due course. And once the cost income comes up, this bank will be making a like [indiscernible] comfortably without skipping a beat.
Yes. And sorry, the second question is on cost of funds. So when we look at it, we indicated that cost of funds should see the benefit of 12 to 13 basis points as and when there is a rundown in delinquency borrowing, but maybe this quarter, there was almost like INR 3,000 crores run down. Now we still have like INR 6,000-odd crores left, but still cost of funds staying put. So should we assume that maybe broadly that benefit could be lower as the repricing is also continuing? How should we look at the overall cost of funds because that benefit is still not getting reflected with the repayments having been done?
A little bit, a little bit. Like if you think of it like [indiscernible] 6.38, somewhere in that zone. .
Okay. Okay. Got it.
Kunal, if you see cost of deposits has been quite stable, right? That's not going up for us, right? And of course, we do certain borrowings and so on. There is an impact which is coming as this book has come down significantly, right? Now still there's the 10 bps of gap, which could be still filled in. But at least the cost is not going up for us. And into the coming quarters into the next year, we expect this to come down further, right? So directionally, we feel that cost of funds for the bank would reduce from the current level.
See, we feel quite -- to one of the earlier shareholders' question, feel that, honestly, we feel that like a 27, 28, 130 should be a reasonably upward trend of operating profit. Credit costs should stabilize about 1.85% for the math I told you. You can do the math you also on a spec sheet. If you do some product of the book into that the known behavior of this product, you'll get through that number. If you -- so we feel that with that kind of yield and this kind of credit cost and cost to income ratio coming down, we do expect that our '27, '28, '29, '30 should be reasonably strong upfront. You take this comment with the usual Kits about market industry, regulatory, et cetera. If you have to adjust anything, there might be price there might be share of its own little bit of issues like can happen to any bank at any stage. But that's how to think about it. But on a long-term basis, we feel quite confident where the bank is headed. .
[Operator Instructions] Our next question is from the line of Hardik Shah from Goldman Sachs.
My first question is a data keeping one. Can you tell us what is the total contingency provisions on the book? And what is the restructured book that you have right now?
Yes. So the contingency provision is the one which we have created during the quarter of about INR 315 crores and the restructured book, as I said, that book is now only 0.23% in value terms, that it's about INR 500 crores of restructured book which we had and the predominant part of it is the mortgage book, which is sitting there. On this, we are carrying a provision of about 19-odd percent.
Okay. That is clear. And the second question is on the write-off policy, sir. What would be a write-off policy for micro finance and other unsecured products?
We cannot give specific product-wise policy or the number out there, but we follow, I would say, a conservator faster write-off on the pool, right? And so, we go product by product, see the nature of the product and so on, and that's how we sort of define a policy at the bank.
Our next question is from the line of Nitin Agarwal from Motilal Oswal Financial Services.
Sir, I'll say that while the journey over the past 5 years wasn't smooth, as one would have liked it to be, but there were many bright spots, which we appreciate. And deposit growth, which has been impressive, the technology start that the bank has built. RBI approval more recently and these also upgrading the deposit program rating to AAA are all by highlighting the progress that the bank has made, but the investors would also like to see the improvement in profitability, which is one metric where the bank still has to catch up even when compared to guidance, 1.0. So my questions now are more in that context versus the profitability outlook [indiscernible]. And so the first, if you look at the earlier guidance was like 1.4% to 1.6% ROE by FY '25. And now reaching this number may take us like another 2, 3 years, if things like go on well from here. So do you think that further expansion in ROE, 1.9% to 2% ROA by FY '29 is a doable after you reach this initial milestone? Or will you want to revisit at some point?
See, we'll have to -- as of now, we are -- when we drew up this model at that point of time, see, basically, what did we do to come to the guidance. We assumed a certain continuation of the lending yield and lending income and the cost of fund has been continuing to where it was. And then we modeled it. And then we came to the numbers and we shared it. Now along the way, so our model directionally is very much valid. Now the important [indiscernible] to note on this is that Along the way, we are seeing changes. For example, there is a message, let me say, in the system to reduce the yield on microfinance business. And because of the issues going on in the industry and also maybe there's a more venerable segment of society and so on.
Now if we touch that, yes, there is an impact on the income line. Similarly, if there's any other situation changes that come at us, for example, we are told that in insurance industry. Now there is a message to say that the insurance -- the commissions that a bank gets will have to amortize over the contract. Now you might find that next year, the number that we were expecting to post, we may not be able to post it because we'll have to amortize it to '27 with or what would have normally booked in '26. So these kind of things do change along the way, but we have to be very focused on building a long-term bank, which has a fundamentals are in place. So once the fundamentals are in place, then it could be a year stayer that side. But I think that I have no doubt in my mind that if you borrow money at 6.5 and you get a book yield where which gives a NIM 6.3. It just has to make a lot of money, it's just plain mathematics.
I mean, whether it comes in 2029 or 2030. I'm not saying that I'm stretching it because it's too early for me to look at the numbers again. But I'm trying to tell you that directionally, the bank has to get their bills no doubt in my mind.
Our next question is from the line of [indiscernible] from [indiscernible].
So just on the excluding MFI and total credit cost of 180 basis points. Just want to understand, as you kind of provide the SMA data, other segment data seems to be stable. But back in March '24, we are guiding for FY '25 credit cost of 165 basis points. But even excluding MFI, we are running at 180 basis points. So -- what's the -- which segment that is kind of deviating from your earlier expectation? And how should we think about it going forward because our guidance for now is in the second half for the MFI book should be better than 180 basis points. Just want to understand how confident are we on this guidance in this very challenging kind of evolving macro environment situation?
I think Sudhanshu pointed out our expectation for the credit cost for microfinance business. And he also pointed out and he started it up to going to 225. Now it has 3 components, like Sudhanshu pointed out. One is the micro finance, but that we discussed before, and we have factored it in. Number 2 is this one account of this INR 250 crores we had to take for that toll that we talked about. So that's also a factor. Now for the rest of the business, like we have shown in the numbers, our data is saying that it's reasonably under control. Now reasonability is quite under control. You can see the numbers out there. Even now, if you exclude these 2, 180 is not a bad number. You can see the numbers in the market. So we feel that this is reasonably under control. And the -- basically, the way to think about it compared to last year to this year, our credit cost is going up because of normalization, but it looks like accentuated because of the MFI and the toll and all that.
But short answer is that we feel reasonably for the 225 reasonably in control of this. We understand that industry, the numbers have gone up. Personal loans, we saw some data of other banks and credit cards. We have not seen it in our books as of now. We have seen data on personal loans and other banks. We've not seen it in our books as of now. And home loans is like absolutely spick and span -- there is absolutely no credit cost at all there. It's like as good as nill and loan against property is behaving very well. So net debt, other products are doing well. The numbers are out there. SMA product-wise, NPA product-wise, everything is out there in the presentation.
Just a quick one on the thinking on the next capital raise. Because the industry challenges is kind of hitting profitability and the capital consumption, if we continue to grow at 20%, seems to be a bit higher than expected. So how should we think about the timing of the capital raise and also the CET1 level that we're comfortable holding?
See, we are a growth bank. We are a growth bank. And because of growth only our ROA, ROE also started getting addressed and it gets fixed. Now the -- but at this point of time, since our core CET1 is also at 14%, including the benefit of the merger. And otherwise, it's 16.8 --16.6 including T2. So as of now, we are comfortable, we're not thinking -- we're not talking even internally, we're not talking capital at this point of time. .
Our next question is from the line of Pritish Bumb from Dam Capital Advisors.
Just one question from my side on the credit card business. So just wanted to check, basically, when you scrub the data and do detailed analytics and see what kind of a customer profile is. If you can highlight 2, 3 issues, what is happening suddenly in the industry for last, say, 1, 1.5 quarters, 2 quarters in terms of what has changed. And if you can also highlight how we have been [indiscernible] in terms of in 1 or 2 reasons where we have been cautious for in terms of the credit card business.
In the credit card business, we have been very, very cautious in the beginning. Frankly, in every business, we are cautious. That's why our credit costs are low, low mini except microfinance, where we where we had the issue. But other than that, in our other business, the credit cost is quite low, and you can compare that with the market and hope you'll agree. Now in the credit card business, the way we did it is that largely initially, we started giving only to our own savings account customers and built a big part of the book like that. We have no DSAs. I don't know if you're aware or not, but we do only direct sourcing broadly, most of it, most of it actually all of it, we do direct sourcing. And there's a bit a unique model without having to pay DSAs fees and so on. So therefore, in our segment that we have lent to it initially, like we said, our own customers. And later, we also started issuing -- started taking direct customers from direct origination, like direct acquisition customers open the open market as well. .
So we are -- I shared the numbers earlier. I'd not like repeating, but I just told you that please go to Page 38. We have put out Seven TransUnion data of the industry for 30 DPD. And for us, and at every point, June '23, September '23, December '23, March '24, June '24 and September '24, we are distinctly 60 basis points or 70 basis points below the industry 30 DPD. Similarly, 90 DPD, we are below. I think our scorecards are working and so on.
And just to add, even in H2, given the interventions which we have done for us at all, we feel that credit cost could marginally come down.
So we are -- honestly, we are not going to give you any surprise or shock on credit cards because the book is bearing well. Our issue was one product. We have called it out, frankly, other than one product, I think all are behaving well, and the numbers are out there for you.
Our next question is from the line of Rohit Jain from Tara Capital Partners.
So sorry, my question is a continuation of the last question. Now in general, in the credit card segment, we have seen stress across players whether it's NBFC players, market NBFC players, whether it's the likes of Kotak also or I'm not even talking about SBI Card, the monoline player. And in your case, I see that credit card, which is a business that has grown recently, there, the SMAs are going down and you are saying that the credit costs are going to be lower. I mean, I understand that you have your own filters and your own sources of confidence. But when there is so much issue in an industry that even the best of the breed are sort of showing stress, sort of better belief. So I just wanted to understand how is it that we are going to escape unscathed from this turmoil in the credit card segment when almost every single player has highlighted stress there.
The -- first of all, the question is very fair saying that how is it that our credit cost can be so low when the market is not -- market is higher. Frankly, I could ask this question of us in the other businesses as well. Because, frankly, except microfinance in every business our credit cost is diving well as compared to similar banks, similar players with similar industry. So credit cards is just one more of such products. Now in credit card, one reason could be that if you again go by the CIBIL data that we put out on Page 38, the -- in the prime segment and above, the industry data. I'm just reading out the [indiscernible] transparent data, okay? So the correctness of it is for that, you have to check with CIBIL. But I'm just reading out the exact data. We put it out on page 38, the prime and above for the industry is 74%. For IDFC, it is 92.1%. It is probably just the way we have acquired our customers. .
Even on the liability side, for some reason, the way the brand is built and it is according to me, a strategic source of how we built the bank. On the liabilities also, our bank is getting a customer base which is slightly premiumish customer base with higher balances with us. Our average balances and we're opening our household savings account, et cetera, something like [indiscernible] INR 3.5 lakhs. I don't think any bank is getting INR 3.5 lakhs in the household accounts in the opening. So our bank is just attracting, let me say, customer base is a slightly higher income on the liability side. And when we lend credit cards to them. By definition, we end up slightly -- maybe we're getting a slightly better credit -- credit profile. I can guess that from the data that is coming from CIBIL, it's there on Page 38. So this can be a really good reason in my opinion as I speak. But really, on the other products, let me say, home loan. We just hardly have a credit cost. So that's true for the industry, I'd assume for every business of credit cost at 1.85% also, I'd imagine that [indiscernible] expect total account, I hope you'll agree with me that 1.85% is good in these conditions, probably better than other institutions in similar lines of business. I mean, I'm sure of that actually.
Our next question is from the line of Jai Mundra from ICICI Securities.
Sir, just 2 data points, sir. One, if you can share the movement of NPA, so I think the slippages you mentioned that INR 260 crores is the addition, but if you can just say absolute amount of slippages and write-offs for this quarter?
Yes. So slippages, gross slippages were about INR 2,030 crores in the current quarter vis-a-vis INR 647 crores in the previous quarter. And the net slippages went up from INR 1,132 crores to INR 1392 crores in Q2, right, which means that the top INR 260 crores, which I sort of stopped off, right? Out of that, about 40% was contributed by micro finance and which would be about INR 100-odd crores. That leaves about INR 160 crores as the balance, right? And which I said is broad-based across products, right? And in terms of percentage, the net slippage increase if you exclude the micro finance is about 20-odd basis points. So yes, sure, things have slightly inched up, but it's primarily, I would say, because of micro finance.
Sure. And secondly and lastly, sir, we have affected the merger effective October first week. What is the -- I mean, what is the change in the net worth, not on the number of shares that are visible, but have we accreted some cash? Or is there any impact on the network of the bank.
Yes. Network accretion would be about INR 618 crores at September end, and this benefit would flow into Q3. And in terms of capital adequacy benefit, this would give us about [indiscernible] bps of relief, right, which will come in Q3.
So this INR 618 crore is the cash that you would have received or this is something else that comes to network?
Yes, it will be a combination of cash, certain investments and so on. And so network accretion would be INR 618 crores.
Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to Mr. Jai Mundra from ICICI Securities for closing comments.
No, sir, thanks a lot, everyone, for joining the call. Vaidyanathan sir, if you would like to give any closing remarks.
Yes, first of all, I want to thank every one of you for being with us for this long. It's spent over 1.5 hours with us. Thank you for your interest and your confidence in us. And for supporting us for the last 4, 5 years. The bank had its share of -- had its issues in terms of of its core profitability. Many people think that there were bad loans that we had to charge off and that's the problem, but that's a bit of [indiscernible] view. I have known institutions, which have had strong operating profit. And if they have a credit cost, they charge it off and next quarter, they can smile again. But in our case, our issue was low operating profit.
We were just 0.32% of assets was our operating profit. So that means that we have to fundamentally change the business model where operating profit comes to 2.5%. That was very, very, very hard for us to build the core operating profit. So let me just say that the hard work of doing that has been a good part of it put behind. And now our core operating profit is 2.5%. So this 2.5% of assets, now if our credit cost is 1.3% of assets, I want to just clarify, when we at 1.85, [indiscernible] loans but when you take it of assets 1.3. So you have 2.5 and then you have a credit cost of 1.3%, then you know you're at least looking at about 1.3% of PBT and post-tax maybe 1%. So therefore, our bank on a stable-state basis, ROA has -- is reaching about 1-ish which literally 0 based. So I say the bank has made big progress and profit to the shareholders who spoke earlier, if I came across explaining the past numbers, and I want to just clarify that I didn't mean to be, I didn't mean to be a rough anything of that. It is just that I just want to explain.
So coming back to the point, so like you're coming to 1-ish. Now we have no doubt in our mind that a model that has brought us from 0 to 1 in 5.5 years can also take us from 1 to 2 because you've got to pull the model through into a spreadsheet and put it for long, you will get there. So this is the long-term model of the bank is definitely looking good. And we feel that we should have the patients -- we meaning we as management. I shouldn't hurry things, build it in a stable way with good foundation with good products, then good products, good governance, not cutting corners, not taking -- doing keep tricks to manage the profit of the quarter. Say things as they are, present the numbers as they are and build a core model. Then in the long run, we can expect to build a really fantastic bank. If I do shortcut, then wrong things that happen and no one will be happy with that. So we are building a bank for the long run, and we request you to -- and we're building it strong, just see the numbers, and it will play out in the times to come. Thank you, everybody.
Thank you everyone and best wishes for the festival.
Best wishes for the festival to everyone of you, and happy Diwali to everyone of you. .
On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.