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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to IndusInd Bank Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] 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 the call. Let me start with some macro commentary and then go into bank-specific details.
During the quarter 1 financial year '23, we saw economic activity, momentum picking up sharply as well as headwinds to growth rising as well. The services PMI index signaled a very strong improvement in private services activity while manufacturing sector activity levels were stable.
Prospects of the farm sector also looked better with the timely onset of monsoon and output last year, touching another record.
Bank credit uptake too picked up over the quarter, in line with an improvement in the underlying economic activity.
However, rising inflation levels led to the monetary policy typing by major global printer banks, including India, which is likely to continue in the near term. Relatively strong economic growth prospects, a deleverage corporate sector, much improved health of the banking sector, along with some external -- strong external ForEx reserve buffer and measures taken by the government and the RBI to curb inflation would help India negotiate these headwinds.
Global supply chain pressures have begun to ease, and non-energy commodity prices are now easing. While the real GDP growth is expected to slow down in financial year '23, India still -- will still remain among the fastest-growing global economies.
Coming to the quarter specific developments. Our focus areas for the quarter were continued loan growth and acceleration. We maintained a healthy loan growth of 4% quarter-on-quarter, driven by strong disbursements in vehicle, corporate and other retail assets.
Micro Finance disbursements too return to normalcy after a brief [indiscernible] to adopt to the new regulatory guidelines. We're thus seeing loan growth momentum in all the business units. This has also resulted in a year-over-year loan book growth, improving to 18% from 12% previous quarter.
Maintaining deposit momentum. We achieved 3% quarter-on-quarter growth in deposit mobilization in spite of the liquidity tightening and increased competitive intensity. Our growth was driven by 16% growth in CASA and CASA ratio improved from 42.7% to 43.1%.
The retail deposits as per LCR also grew by 17% year-on-year. We also achieved the highest new customer acquisition of 425,000 customers during the quarter through Consumer Bank.
Ensuring healthy asset quality. We all have provided gross slippages segregated for standard and restructured book in the investor presentation. Our standard book slippages have reduced to 0.57% from 0.75% quarter-on-quarter. Our restructured book has reduced by INR 1,013 crores from 2.6% to 2.1% quarter-on-quarter.
Our net NPA is at 0.67% with a provision coverage at 72%. Our contingent provisions are at INR 3,003 crores with total loan-related provisions at 141% of gross NPA.
Our credit cost has reduced to 50 basis points from 61 basis points quarter-on-quarter.
Sustaining profitability of the franchise. We saw a healthy net interest margin of 4.21% with both loans and depositing witnessing repricing during the quarter. Client fee income grew by 9% quarter-on-quarter, driven by continued retail momentum.
Our trading to income too was positive during the quarter. Our PPOP margin to loans for the quarter were at 5.7% versus 5.8% marginally lower due to lower rating income.
Steady improvement in return ratios. Our profit after track grew by 16% quarter-on-quarter and 61% year-on-year to INR 1,631 crores. Our return on assets improved to 1.73% and return on equity was at 13.4% for quarter 1.
With an improvement in profitability metrics and lower risk density, our capital adequacy ratio improved during the quarter with CET1 at 15.96% to 16.05% with overall CRAR at 18.14%.
Now coming to individual businesses, Vehicle Finance. The vehicle finance loan business accelerated during the quarter to 4% quarter-on-quarter. The year-on-year growth to improve from 1% to 8% over the quarter.
Historically, first quarter has been a seasonally weak quarter, whereas quarter 4 has been a strong quarter seasonally, however, we have seen disbursements of INR 10,078 crore in quarter 1, which are higher than the March quarter. This is the first time in last several years. We have seen quarter -- we have seen quarter-on-quarter growth in disbursements in quarter 1 of financial year. The disbursements are also the highest in the quarter we've ever achieved.
The segments showing strong disbursements are commercial vehicles, utility vehicles, cars and tractors. Disbursement for muted in the 3-wheeler and 2-wheeler segments. The disbursement traction also validates efficient capacity utilization of existing vehicles.
Vehicle customers are also able to pass on increased cost of fuel to the end user, the recent oil price movement and also the tax rate cut by various state governments provide further support to the freight economics.
The collection efficiency of standard customers remain stable at pre-COVID levels. The slippages from the standard book was stable at INR 4.5 billion quarter-on-quarter.
The restructured book in the vehicle finance has reduced from INR 3,298 crores to INR 3,131 crores quarter-on-quarter. The collection efficiency of these customers remain comfortable in the [ 80s ] as per our expectations.
While the Vehicle portfolio pricing is fixed term in nature, the first disbursement are at higher rates broadly in line with the benchmark movements. We have not seen an overall yield on the Vehicle portfolio improved during the quarter and expect the trend to continue in the coming quarters.
The Vehicle portfolio has now shown strong disbursements for 4 quarters in a row. The industry volume, however, is yet to achieve or reach the peak level. We do just see further scope of disbursement growth in the year, participating in the overall industry group.
Micro finance. During the quarter, Micro Finance Industry adopted RBI master direction on the MFI issued on 14 March 2022. Though the time available was short necessary changes were made and we could commence the disbursement from me. We were able to recoup some lost sales and achieve disbursements of INR 7,531 crores during quarter 1. These are the highest quarter 1 disbursements in Bharat financial history.
Our MFI book at the end of quarter 1 was at INR 29,403 crores was up 11% Y-o-Y. Our MFI standard book collection efficiency for quarter 1 was at 99.1%, as same as quarter 4 financial year '22. The collection efficiency for new clients sourced post COVID too has also remained healthy at 99.2%, which is close to pre-COVID level.
Our 30 to 90 DPD book, including restructured customers was at 2.2% on June '22 compared to 2.6% at the end of March '22. Higher emphasis was placed on recovery during the quarter as we said that the economic condition has subsequently improved for our customers to start repaying their overdue loans.
Through focused effort, we were able to recover INR 57 crores during the quarter 1 against written-off loans, loans sold to ARC and expect to realize higher recoveries in the following quarters.
The gross slippages during the quarter moderated to INR 560 crores as compared to INR 815 crores during the previous quarter. The slippages from the standard customers reduced considerably to INR 278 crores from INR 779 crores quarter-on-quarter.
The outstanding restructured book has also reduced to INR 644 crores from INR 995 crores quarter-on-quarter. The restructured book saw slippages of INR 283 crores, and we have utilized the contingent provision created last year towards these customers.
Our merchant acquiring business under the banner of Bharat Super Shop continued the growth momentum. Portfolio's sold under -- under this business has grown 15% over quarter 4 financial year '22 to INR 2,237 crores with 3.8 lakh active borrowers.
The total disbursement during the quarter was INR 942 crores with continued demand from the missing middle segment.
We see large opportunity in deepening relationships with these customers. The book has been performing relatively well with the standard book collection efficiency of 99.1% for quarter 1 financial year '23 and net collection efficiency of 97.8%.
Our endeavor to take banking to the doorstep of the underserved customers in remote locations continue. At the end of quarter 1 financial year '23, the total liability book source from the customer and service through people increased by 134% year-on-year to reach INR 1,450 crores through INR 1.14 crores accounts with us.
Our focus remains to be the banker of choice of customer segments in Bharat.
Global diamond and jewelry business. The global diamond trade slowed down during the quarter due to Russia-Ukraine conflict and lockdowns in China, Hong Kong. Our Diamond Group book grew 1% quarter-on-quarter and 28% year-on-year and formed 4.2% of the overall loan book. The disruption however did not have any impact on asset quality with no clients getting into SMA category.
The industry is working closely with policy makers for normalizing the supply chain. The recent development -- steps by the government and the regulators to facilitate trade between India and Russia to improve the flow of diamonds.
Overall, we remain comfortable on the Diamond portfolio, except for further growth to continue.
As the supply chain normalizes and markets in the PRC open up.
Corporate book. Our corporate book remained healthy -- maintained healthy growth trajectory of 4% quarter-on-quarter growth. We saw growth across segments with large corporates growing by 3%, mid corporates by 5% and small operates by 11% quarter-on-quarter.
Loan book growth was broadly driven by the large corporate segments like strategic client book and financial services and in the mid and small corporates like SME and health care.
Majority of the corporate loan book is floating rate in nature, and we were able to pass on increased rates for customers due for reset.
Our yield in the corporate book thus improved by 7 basis points quarter-on-quarter, reversing the past trend of falling yield. The portion of A and above rated customers has improved from 70.6% to 73.5% year-on-year and weighted average rating improving from 2.68% to 2.63% Y-o-Y.
The net slippages in the corporate book was INR 4.1 billion for the quarter. This includes, as mentioned in the previous call, some group companies of a retail corporate amounting to INR 2.5 billion which turned NPA during the quarter.
Our corporate restructure book has now reduced from INR 9.6 billion to INR 5.6 billion quarter-on-quarter. Exposure to stress telco, which was at INR 18.5 billion, including fund-based exposure of INR 10 billion and balanced nonfunded exposure.
We do see continued interest from profit towards CapEx plans, impact of interest rate, hike is not as strongly as budgeting was done with the assumption of interest rate hikes. We see interest in CapEx and particularly in segments which have deferred CapEx due to COVID such as auto components, steel, renewables, et cetera. CapEx is also seen under PLI schemes in electronics, mobile distillery for capacities being put up.
Business momentum also remains strong in small corporate and SME segment, with focus on new acquisitions, supply chain financing, et cetera, a bit on a small base. We are watchful of segments impacted by higher inflation.
There are, however, segments witnessing tailwinds, example, export-oriented units, Infra, textiles, et cetera, which provide opportunity for growth.
Overall, we do see corporate book to maintain a steady growth driven by mid and small corporates with active repricing benchmark to the market rates.
Other retail assets. We saw another quarter of growth momentum in other retail loan book growing by 7% quarter-on-quarter and 23% year-on-year. Within secured assets, assets -- business banking and loan against property, which has seen intense competition over the last few quarters, both in terms of pricing and collateral relaxation.
With rising rate environment and inflation, we are seeing underwriting improving. Our acquisition run rate continue to accelerate.
Credit card spends have remained strong for us as well as the industry spends of INR 16,900 crores for June. We also saw the highest ever card acquisition of 75,700 in June with credit card based crossing 2 million mark.
We expect growth momentum in retail businesses to continue in the current financial year. We do, however, remain watchful of inflationary chronic conditions, particularly on the unsecured consumption spend.
Now coming to liabilities. Our deposits grew 13% year-on-year, driven by 16% year-on-year growth in current and savings accounts and retail deposits as per LCR also grew by 17% year-on-year. The quarter was also marked by interest rate hike and heightened competition for deposits.
We also saw larger peer banks raising their term deposit rate and in some cases, saving deposit rates too. We have been selective in our rate action and seen the rate cap has large been narrowing during the quarter.
We have ramped up our deposit acquisition with new client acquisition from Consumer Bank, touching a new height of 4.25 lakh for the quarter.
Our term deposit monthly run rates have moved from 78,000 to 115,000 quarter-on-quarter.
Our CASA ratio has improved to 43.1% quarter-on-quarter, driven by 19% growth in savings accounts. Contribution of certificate of deposits remained low at 3% of deposits.
Our affluent segment deposits grew from INR 35,300 to INR 36,300 crores during the quarter. Affluent AUM was stable at INR 59,000 crores despite the market correction.
Deposits from NR segment have remained stable at INR 26,800 crores. The NRI momentum is expected to pick up with the recent regulatory guidelines.
We let go of borrowings during the quarter reducing by 12% quarter-on-quarter and 15% year-on-year. The borrowings now form only 10% of the liabilities and almost all are long-term in nature.
We also repaid our Euro MTN program in April, and thus, we don't have any foreign currency bonds outstanding. We also exercised a call option on additional Tier 1 bond at the earliest permitted anniversary of 5 years.
Overall, we continue to remain focused on the retail liability mobilization. Our physical and digital distribution priorities have been aligned towards retail deposit.
We are aiming to take the brand distribution to 2,500 by March 23. We continue to scale up new initiatives like affluent and NRI. We're confident of maintaining our deposits and cost of deposit profile to fund our loan growth aspiration.
Digital traction. Digital sourcing percentage across products continue to increase. And what is interesting now is that we have started building and scaling up digital unassisted model with focus on scale with profitability.
During the quarter, more than 200,000 clients were onboarded using Video KYC. 96% of bank savings accounts and fixed deposits are orientated digitally. Of this, 30% of savings accounts are opened in a digitally unassisted manner through marketing or direct-to-client platform and 40% of fixed deposits orientate in a digitally unassisted manner.
Easy credit stack continues to scale, bringing in fresh volumes as well as reduce the cost of acquisition. 90% of cars are orientated digitally now on the back of EasyCredit at a cost of processing, which is 60% to 70% lower per unit.
We recently went live with EasyCredit for personal loans as well and 54% of personal loans are orientated digitally, which should be scaled up to 90% within the next few months.
We continue to focus on increasing digital transaction intensity and increasing the client digitally. 92% of the branch transactions are digital.
Mobile transactions have increased more than 2x Y-o-Y and mobile active base have increased 21% Y-o-Y. On WhatsApp Banking, we scaled up our user base to more than 5 million. We offer more than 50 services on WhatsApp,and our WhatsApp transactions increased to 45% Y-o-Y.
In terms of new launches, Indus Merchant Solutions app has scaled up to a user base of 80,000-plus retailers and every second user on the app is a new-to-bank suggesting strong pool of the product in the market.
IndusEasyCredit for Business Stack is also scaling up steadily, wherein we offer small-ticket business loan and secured overdraft to clients.
As a result, nearly 40% of our MSME lending in less than INR 2 crore exposure bucket is now digital, and we plan to make it 100% digital with the expansion of working capital products used over the next couple of quarters.
We are progressing on the -- on remaining 2 launches for Digital 2.0. That is for individuals and for SME. They are expected to be launched in the second half of the year.
As we build capabilities in our digital platforms and applications, we also leverage the underlying APIs to integrate with partners and ecosystem to boost our banking as a service model.
Now coming to the financial performance for the quarter. Net interest income grew by 16% year-on-year and 4% quarter-on-quarter, in line with our loan growth. Net interest margin improved sequentially from 4.20% to 4.21% quarter-on-quarter.
The net interest margin was supported by repricing on the asset side as well as active management of the liabilities.
Our consumer as well as corporate book loans. Loan book saw yield improvement during the quarter with overall yield on loans improving by 10 basis points.
While the cost of deposits decreased -- increased by 19 basis points. The cost of funds increased by only 6 basis points due to reduction in our borrowing expenses.
Other income grew by 12% year-on-year and 1% quarter-on-quarter.
Core client fees, excluding trading income, grew by 9% quarter-on-quarter and [indiscernible] year-on-year. Our trading income was down quarter-on-quarter and Y-o-Y due to rise in interest rates.
We have nevertheless saw positive noncore income of INR 146 crores during the quarter.
Share of retail fees improved to 70% from 64% of total fees. Our total revenue for the quarter was INR 6,057 crores with 15% year-on-year growth. Operating expenses grew 5% quarter-on-quarter with continued recovery in the business momentum.
Our overall cost-to-income ratio increased from 42.6% to 43.4% quarter-on-quarter due to lower trading income. Our core cost-to-income before trading income improved from 45.4% to 44% quarter-on-quarter.
The operating profit for the quarter was at INR 3,432 crores, growing 10% year-on-year and 2% quarter-on-quarter. The PPOP margins to loans continue to be healthy at 5.7%.
On the asset quality and the provisioning front. Our provisions for the quarter have further reduced to INR 12.5 billion. The provision to loans are down to 50 basis points now.
We saw a reduction in slippages from the standard book from INR 17 billion to INR 13 billion. The reduction was driven by lower slippages from Micro Finance and corporate customers, whereas Vehicle and other retails were stable quarter-on-quarter.
The restructured book slippages were driven by Micro Finance customers coming out of eligible moratorium and also retail group in -- a retail group in Corporate Banking.
We also made contingent provisions against these last year and have utilized to the extent of slippages. The restructured book has reduced by INR 10 billion during the quarter from 2.6% to 2.1%.
We did not have any sale to ARC during the quarter. The net security receipts have reduced from 83 basis points to 72 basis points.
Overall, the gross NPA for the bank was at 2.35% and net NPA was at 0.67%. We have maintained provision coverage ratio of 72%.
Our contingent provision, excluding specific provisions were at INR 3,003 crores. We have utilized INR 325 crores towards slippages during the quarter from the restructured loans as explained earlier.
Total loan-related provisions are at 3.4% of loans or 141% of the gross NPA. Our SMA-1 and SMA-2 book was at 10 basis points and 39 basis points, respectively.
Profit after tax for the quarter was at INR 1,631 crores, growing at 16% quarter-on-quarter and 61% year-on-year. Our CRAR, including profit remained healthy at 18.14%.
The return on assets continued upward trajectory from 1.51% to 1.73% quarter-on-quarter and return on equity improved to 13.4%.
I also want to spend a minute on the stock exchange intimation done earlier this month on media speculation. As disclosed, this pertains to an old investigation. The bank is providing the necessary support to investigating agencies. The matter was also scrutinized by the regulator in the past and the outcome of the same was intimated to the stock exchange in 2016.
The bank is not named as a party in the first information report. Given the investigation and is in progress, there will be limited scope for further information beyond what we have already said disclosed.
Overall, the quarter saw turbulent operating environment with inter linkages of inflation, reversal of accommodative monetary policy and Russia-Ukraine contract playing out.
The first quarter was also a easily weak quarter for some of our businesses. The bank has nevertheless focused on delivering our PC5 ambition.
Loan growth has accelerated to 18% from 12% last quarter. Our Vehicle and Micro Finance has the best quarter 1 disbursement in the history. Consumer and corporate books are delivering steady growth.
Asset quality trends from standard book continues to improve. Restructure book carries comfortable contingent provision. All key portfolio metrics across NIM, core PPOP margin ROA/ROE has maintained positive trajectory.
We continue to invest in new initiatives like affluent, NRI, tractors, merchant acquiring and plan to launch the home loan this quarter. We will also launch the remaining 2 of the planned digital initiatives during the year.
With us committed to deliver our PC5 ambitions of achieving 15% to 18% loan growth CAGR and maintaining a healthy PPOP margins upwards of 5% and reducing credit cost towards 120 to 150 basis points.
We can now open the floor for questions and answers.
[Operator Instructions] The first question is from the line of Mahrukh from Edelweiss Broking Limited.
Hello, sir. Congratulations. So my first question is, if you could explain fees. Sir there has been strong growth in general banking and third-party distribution fees if you could give some color on that? That's my first questions.
I think when you look at the fees, you have to look at the general banking fees as a multiple conference. One is the regular deposit processing fee. The second is the payment. And the third component is the PSLC, PSL certificate. I think it's a combination of all the 3, which has increased, of course, the PSL increased by about INR 50 crores to INR 60 crores in the quarter, and that is what has added to that growth exponentially.
On the distribution side, I think the growth is normal and is actually the core businesses which are growing, which is the health, the insurance distribution, the card distribution.
So that's what has grown, and that is what is categorized in this in the overall fee and that's what has grown.
Okay. So that looks sustainable atleast for a few quarters, right?
Yes. So it's about 8% quarter-on-quarter growth.
Correct. My next question is, in general, on outlook on growth, right? So the most -- if you see the banking sector growth or if you listen to the commentary of banks, they remain quite optimistic on growth, whereas investors generally remain concerned on a slowdown. So how do we tie in the 2?
So in my opinion, you have to see the growth coming from this segment, and that's how you should link it. So -- if you look at our Vehicle Finance business and if you talk to the OEMs, all of them are projecting a high growth because they're coming from a cyclical downturn for 2 to 3 years, We've seen a downturn. So I think you will see growth coming back in this segment.
And of course, also fueled by our entry into the used car market, our tractor business, seeing the scale up in those segments and the medium and the light commercial vehicle, which we have entered and we've now got an 8% market share seeing a scale up to some extent.
So I think you will continue to see a 16% to 18% growth in this segment for us, and we continue.
In Micro Finance, I think there's enough demand. I think the demand was affected this last quarter because of the RBI regulations, and there was a system modifications and which was happening. I think the first 45 days were lost. The last 45 days is where we did the disbursement. And I think you should see a 25% to 30% growth happening in this segment. And also will be fueled by new our entry into the merchant acquiring segment where we are seeing a very rampant growth, which is INR 2,300 crores when we expect to close the year at INR 4,000 crores. So that segment is also going very fine for us.
And Diamond, of course, once the rupee trade ends up, the regulatory changes happen, you should see the growth coming back, and I think that got affected this quarter.
Corporate side, I think the SME and the MSME segment, we are seeing good growth. And on the large corporate, while there is growth, I think the pricing is still very fine, and we continue to be very careful in what we are doing. I think we are getting 3% to 4%, and we go in line with the market or maybe a percentage point higher because we come from a very small pace.
Sir, my last question is on corporate slippage. So where would you see it normalize per quarter, like a broad run rate? Of course, there was slippage from restructured INR 250 crores which was pertaining to the group, which you had mentioned last quarter only. But where would the -- I mean, now most of the restructured corporate loans also would have slipped, right?
Correct. So I think the corporate will -- you see these are one-off specific cases which have come in and which are affecting the corporate, and you know which group I'm talking about. And I think that's the flow which happened this quarter, and there was one more item which happened, which actually got upgraded during the quarter itself. And you will see an upgrade also in that quarter itself.
So I think otherwise, you should see corporate normalizing. We are not seeing any high indicators of any such fresh flows which are coming in, I think it will be a BAU. And the BAU flow, we've always said corporate will fluctuate between 30 and 50 basis points, and that's where it will be.
The next question is from the line of Kunal Shah from ICICI Securities.
Yes. So questions. So firstly, currently now, how much are we carrying in terms of the provisions on the restructured pool?
We are carrying INR 3,003 crores as contingent to...
Yes. So contingency. So we can assume that maybe larger part of it is towards the restructure. And then maybe there is a flow-through from the restructure, contingency will keep on getting utilized the way it has happened in this quarter?
We don't utilize full, we see how it is -- our objective is to take, see our guidance is 120 to 150 basis points.
I also feel, for example, in Micro Finance, most of the restructured pool, the moratorium is over. They are paying. whatever had to flow in as slowness. What will get another INR 50 crores, INR 100 crores maybe will slow it. Otherwise, we are back to.
In the CFD book, the Vehicle finance. We've always said 20% will flow in. And that is what is flowing in. It's not that we are seeing anything else which is flowing in.
So I think, except for the future group -- the one corporate group, which actually flew in, there has been no surprises for us in the restructured book.
Okay. Got it. And in terms of this BL, PL and HL, now that component is also quite huge and there has been a good pickup in this segment. So you can highlight among these 3, which is growing and given that now that scale is also quite high INR 11,000-odd crores, would we tend to break it down further?
Yes. So I think PL is growing. I think we have seen a INR 300 crores to INR 400 crores quarter-on-quarter growth on the PL side of the book. We are seeing merchant loans, which is about from the Bharat Financial where I think we have seen a 15% growth in the merchant acquisition, which is growing.
I think we are seeing an [indiscernible] what you call smaller businesses like BL, LAP and GL, they have grown quarter-on-quarter by 32% and KCC, again, a 3%, 3.5% growth quarter-on-quarter, which has come in.
I think all these businesses have started growing well, and we will see more growth as we go forward in these businesses. And we are diversifying our group for secured as well as unsecured. So this is why these businesses have been put and they are doing very fine now.
And split from the next quarter.
If you want the split, we can send you the split over the mail.
Yes, because now that's becoming quite substantial. So that would be great if that can be shared going forward here.
And lastly, in terms of the branch expansion, so again, maybe almost we are looking to add more branches. Maybe it was not a substantial one in Q1, but you highlighted 2,500 by the end of this fiscal. And we have seen OpEx also growing sequentially now 5% and catching up the pace with the peers. So how should we look at cost to income? Now would we see that going up with these investments getting into the branches and the employees?
So I've always said that our income growth will also match our expense growth at some point. So I think that's what we will see. Our Micro Finance, unfortunately, did not grow this quarter, but we will start seeing the growth.
I think our cost to income will be range bound between 41% and 43%.
Of course, in some quarters, you may be 30, 40 basis points here or there, but our objective is to come down. We added -- our branches infrastructure costs came in. I think our resources, if you look at, we added 3,200 resources last year, and we already added 927 resources this -- this year, I think our cost on technology specifically is going up. And I think that's about 6% to 7% of our overall cost now.
So it's increasing. And I think once our operating leverage of Vehicle and MFI start coming in, I think we should still come back to 41% to 43% range, which is what we are headed for, and that's the guidance which we have given.
The next question is from the line of Adarsh from CLSA India Private Limited.
Congrats on good numbers.
Sorry to interrupt you, sir, your audio is not very clear. May I request you to speak through the handset.
Yes. So Sumant, a couple of questions. One on liabilities. This kind of tough period in the sense that a lot of wholesale deposit costs would have moved up sharply. So just wanted to understand is a lot of that already there or we will see some of that impact come through in the next few quarters?
A lot of bulk deposits are smaller duration, yes, 90 days to 180 days. So I think you will see some part of it also coming in next quarter. It's not that the -- because I think if the cost goes up and if the RBI increases the cost by about 30 to 50 basis points, will see that impact on the book coming in. So I think we have taken that into account while we're preparing our quarter 2 and quarter 3 going forward.
So we've taken that into account. And we still believe that even if the cost of deposit, we have enough assets and our strategy to make sure that our NIMs are within range bound between 4.15 to 4.25.
Perfect, Sumant. And my second question related to the restructured book, right? So a lot of the reduction was slippages in this quarter. So as you said, a lot of it what had to slip -- has slipped like. So what -- like say, how does this 2% of restructured book wind down? Like they perform for a year, they wind down? Or like when do we know that what was the outcome from the full book?
Quarter-on-quarter, you will start seeing the winding down. I think -- but I think by March of next year, which is the financial year -- financial year '22, '23. You will see 70% of the book winding down to a large extend because I think the payments would have started and what I had to go down we go down.
We've always said that we provided extra. And I don't see our restructured book cost actually crossing more than INR 1,000 crore to [indiscernible] to INR 1,300 crores. So that's what our certain things we've only utilized up till now INR 325 crores.
We've always said that we will keep extra buffer and keep INR 2,000 crores safe and I don't think we need to utilize anything more than that on our restructured book.
So that if you think of it overall, is 15% to 20% of the restructured book, which is original, which is what the cost will be.
Perfect. That was helpful. And just a follow up on margins. Sumant, we've seen unsecured mix pickup for us, CVs is doing well. MFI will likely come back. So from a loan mix perspective, the levers are there for margins to do well, right?
We have always maintained certain things. We've always balanced our book. Our overall unsecured book to the overall loan book has been always been less than 30%. We've always maintained a ratio and the unsecured book, which is credit cards and PL in the consumer bank has been less than 5%.
We have not let that bust because we have a Micro Finance book, which we have always said to the market can go up to 15%.
So I think those are the levers which we have used. And I think we have some headroom there, but I don't think you will see us busting those levers ever.
The next question from the line of Nitin Aggarwal from Motilal Oswal.
So Sumant my first question is around the treasury performance for the quarter that looks quite strong in such a challenging time. So any more color as to what has really driven this quarter on the treasury line?
So I think, first of all, we must admit that we've done well on treasury. And we do -- we run a very good treasury book. And I think we manage the book well.
Arun, who's here, who is our Deputy CEO, and who runs this business also. I think, Arun?
Yes. I think way back in January onwards, we started unwinding all duration portfolio. And I think as a conscious decision, we did not do any of these or we get very insignificant sort of non-SLR bonds.
And by March, April, we are already unbound everything. So by April, actually, all our positions were unbound when it came to the second. We have switched them into mostly treasury bills. And that's why we did not really take a hit on any of these positions, but yet try to some revenues with the positions that we carry and we spread them off in first week April to second week April.
And secondly, Sumant, the SME bank has been putting a very resilient performance like over the last several quarters. As the time [indiscernible] the other concerns [indiscernible] as well. So going into FY '23, as we look to do better on earnings and growth, what are the top 2, 3 things that you will be most watchful.
What is the top 2, 3 things that are most watchful for you for the current year?
I think 3 things, which I think we have been watchful is. I think we've given a guidance on credit costs. We want to remain within the guidance of 120 to 150 bps. And I think that one thing they are very -- Second is, I think on the first thing itself, you check out the flows. And I think the standard book flows have normalized. While our flows have increased because of the restructured. I think people have to understand, and I think the message is our standard book has normalized and is improving every quarter-on-quarter. And that is something a message, and please look out for that.
The number two, I think, I'm very watchful is that I think we manage our mix in such a way that we are able to maintain in the NIM range which we have guided. And I think cost of deposits like you've seen this quarter has seen an increase. We manage the cost of funds very well. And I think we have to continue to manage the balance between cost of deposits and cost of funds to make sure that we are within this range and manage the mix of the portfolio.
The third thing, and I think which is not more important, I think we have to be watchful of our cost. I think while we continue to invest for growth, and we never stop our investments. I think technology costs and with the launch of the new initiative on the individual side coming up in the third -- or third -- or the fourth third quarter of this financial year.
I think you will see some expenses on the marketing side, which will build up. And I think our data center migration is also in line.
So we have to see how are we going to manage these costs as we move forward. So I think these are some which we are looking forward to. I may necessarily not say the costs are to match. I think the growth in the income has to be much better than try and manages the investment cost.
So I think I always look at it that we're too small right now to start managing costs, I think, in these areas. I think for us, the growth in income is more important than growth, managing the cost as of now.
The next question is from the line of Mr. Manish Shukla.
First question, Sumant, if you could please break down the slippages and restructured book by segment again for the current quarter as well as the previous quarter.
Yes. So you can take down the gross slippages. I think the gross slippages in quarter 4 financial years. So I will go I'll go by the segment to CFD, which is the Vehicle finance book, we had a INR 450 crores of gross slippages in quarter 1 financial year '23 against INR 453 crores in the standard book.
We had INR 235 crores of slippages in the restructured book in quarter 1 against INR 100 crores in quarter-on-quarter quarter 4.
I think it will be easier if I just upload that table along with the commentary?
Yes, that will be perfect. That's would be much easier. Second question, Sumant is that on the [indiscernible] of the liability side. The share of retail in total LCs per LCR has been hovering around 40%, 41%. Now that we are in a rising rate environment and every bank is going to chase deposits. How -- what are your thoughts on increasing the share of retail and overall deposits as reported under LCR?
So we've said we want to achieve 45% and that we are committed to achieve 45%. I think there are 4 or 5 initiatives, which we are backing this office. I think the NRI -- I think unfortunately, the NRI flows had been stable over last year or the previous year also because of the moving targets, I think you will start seeing the NRI flows stemming in and with the regulation changing or RBI giving the dispensation on the CRR and SLR.
And I think some more dispensations will come in the forward or the swap rates. And I think you should see the growth coming back in that business.
We are targeting a good growth out there as a consequence of that. That's number one.
The second is the affluent fees. I think the affluent fees also saw some -- while the growth in liabilities have been strong, I think they can do much better. And I think we are committed to achieving our numbers on that. That should see a growth.
Our acquisition run rates have increased and I think we are seeing around -- in the branch banking side of the book, we are seeing about 125,000 to 150,000 accounts on savings accounts, which should move to about 200,000. And I think the acquisition run rate will itself increase the balance sheet itself, along with the new branches.
The fourth is the Bharat Financial book has started increasing and if the account is getting open. I think we already seeing INR 200 crores to INR 150 crores, which is if the disbursement starts happening, I think you should start seeing a INR 350 crores to INR 400 crores quarter-on-quarter growth in this business which is along with the merchant acquiring business.
And the last is the digital piece, which I think will get launched by November, December, where I think we are -- we will start talking about a scale in a different way. What we are doing with the branch banking today, I think we'll double of that, we will start doing in the digital. We start doing 200,000 to 250,000 accounts a month to 3 million. And that, I think, will set a new benchmark on how our balance sheet.
So I think we're well prepared to take care of our growth as well as the retailization piece, which we are moving towards.
Okay. And my last question is on the entire MFI whistleblower episode. Whatever actions had to be taken from your end? Those are largely done in terms of either making procedural changes or making provisions? Or is there anything which is still remaining?
Nothing is remaining. In my opinion, the only thing which is remaining, we are doing for a system upgrade, where I think by March 23, would have done a system upgrade also. So I think that's the only thing which we are doing. We are making it much more robust. And I think we are adding much more features and controlled secure features into that. That will happen by March '23. Otherwise, all changes in the organization structure processes as well as what needed to be done have already been done.
Sorry, one last question is in the MFI book, there is a quarter-on-quarter uptick in ticket size from about 27,800 to 29,700. Is this because of the new RBI norms? And should this be the new normal?
No, no, no. I think what has happened, the acquisition of new-to-bank client actually, which was 800,000 to 900,000 a month, went down this quarter to 500,000. The Cycle 1 ticket size is actually to 18,000 to 20,000, whereas in Cycle 2, is 30,000, in Cycle 3, 35,000.
So what has happened this quarter is that the Cycle 2 and Cycle 3 have been successful, our new-to-bank customers have been lower than what they are normally. And as a consequence, the ticket size has moved up.
Understood. This is very clear.
Next question is from the line of Rahul Jain from Goldman Sachs.
I think most of the questions have been answered. Just one observation. If I see Slide #25, the write-offs in the corporate book appears to be on the higher side. So pardon me if I'm sort of repeating this question, but can you sort of explain what sort of triggered such a large write-off number? I'm sure this is an aberration.
I think you're absolutely right. There are 2 accounts which have gone into the write-off. One is the media account which was there, which we had -- which we had taken a provision long time back, and we had to write off because of the IRAC norm. And the second one was a real estate account, which was at [indiscernible] So both of them have been written off as a consequence.
Got it. Just that I have the floor, maybe one or 2 more questions. On the deposit side, again, coming back, right. So you've got the levers on the yield side across portfolios with pickup in high yielding portfolios, et cetera. I hear you on the NRI deposits, et cetera, but anything that goes beyond building the customer base, which is more -- far more sticky and allows you to diversify in your retail deposit -- retail asset mix at a future point of time. I mean any strategy or anything that you're sort of doing out there to improve that part of the segment so that the business becomes less cyclical?
Yes. So I think what I told you, I think while the branch banking is doing, which is all the levers, which are mobile payments and all of that is happening. I think the digital piece will create a very super engagement strategy, and we are coming with a completely different UI/UX sort of payment stack, which will redefine the client experience. product as well as the business strategy on the liability side.
It's the client-to-client experience does not start from liability. It can start from a very different journey and end up because of the transaction going through the payments going through the bank. And I think as a consequence, we believe while the ticket size may not be equivalent to what our branch get of about 52, we have taken a 30,000 about almost a 50% decline in the ticket.
I think it's the volume which we are planning to do. And I think we will acquire about 2.5 million to 3 million customers per year through the strategy. And I think as we go forward, you will see a very differentiated CASA mix as well as the bank going forward in the liability strategy.
And I think we believe that, that's going to be the change agent for the bank going forward in the [indiscernible]
In no way am I saying we'll stop expansion of branches, no way am I saying that brand distribution is not important. I am saying it's a mix of both the strategies which work together and create a very differentiated off it. And of course, in the current account side, you would have seen the merchant acquiring business. And I think as we scale up this business, 30% of the client flow go through it. So the AUM, which is there in the merchant acquiring business, which is about INR 2,300 crores. About 30% of that book lies with us in the current account book. We want to scale this business up to about INR 15,000 crores in 3 years' time. And you will see that the flows in the current account as a consequence will start coming in.
And as we grow more deeper into our MFI penetration. While the book may not be booked, the cost of that book will be very, very good as we go forward.
And I believe that we should be able to create a INR 5,000 crores to INR 6,000 crores book in the next 2 years in this. We are already at INR 1,500 crores.
I'm seeing a very good potential, which is coming in as a consequence of these efforts, which we are doing.
Understood. I appreciate that. And just on the deposit bit again, on deposit pricing rather. Over the next few quarters, of course, given that everybody is sort of in a fighting for deposits, how do you see yourself playing in that market? I mean what you need to offer substantially higher rates? Or you're comfortable with whatever rate differentially you're running with versus the larger banks, and that should be enough to generate enough volumes to support your loan growth.
So if you look at our loan growth, we are talking about even if we do everything even if we do 20%, we're talking about INR 50,000 loan growth, which means that we have to convert this into INR 60,000 crores of liabilities. That's what we need to convert it into if you look at our growth, we are today at INR 10,000 crores or INR 12,000 crores -- INR 10,000 crores of growth. I think for that, we need under INR 5,000 crores. And you will see us maybe solving that, rocking that situation in the next 2 quarters at time.
So what the way we are going. I don't see that as a risk if all our strategies play out. And I think we're not seeing the risk.
Having said that, I think people -- I've always said that initially, we were 200 basis points ahead of the market. During 2020, '21. We reduced it to 150 basis points. And now I said we will be 50 to 75 basis points ahead of the market.
And that's where we want to be. And I think we've been able to attract deposits at that level. And I think we should maintain that if the situation gets worse, I think we will come and inform but we will also change our mix in such a way that we have changed the mix of the business in such a way that we're able to take care of the deposit price.
Great. Look, congratulations for a good quarter, and thank you so much for the responses.
Next question is from the line of Sameer Bhise from JM Financial.
Just one clarification on the Vehicle Finance book. So the sequential attrition in the loan book appears a bit more pronounced versus the fact that disbursements were flat Q-o-Q.
Yes. This is what we have been explaining for last 3, 4 quarters. The way the MFI construct works in the previous year, disbursements are low, the runoffs are so high that even the higher disbursements can't catch up.
And once you have delivered 3, 4 quarters of consistent disbursements, then you don't have to keep on growing disbursement, it's just -- it keeps on building up.
So it's purely because of that construct that you have seen the disbursement versus loan book movement over the last 3, 4 quarters.
Okay. Sure. And just secondly, on the corporate side. What sectors are you seeing the incremental opportunity?
Sanjeev?
Yes. I mean we are -- basically, there's -- on the large and midsized corporates. So it's across the auto sector, the renewable space, the government push on Infra, the PLI scheme. So pretty much it's across everything, and there are big CapEx kind of plans lined up.
Okay. And just about the slippages on the Micro Finance side, could you split it between from the restructured book and even from the standard book?
So we are uploading the information, but I can tell you that the quarter 1 slippages, INR 278 came from the standard book and INR 283 came from the restructured book. Out of the INR 560 crores of slippages.
The next question is from the line of Jai from B&K Securities.
Sir, if you can...
Sorry to interrupt you. May I request you to speak a little louder, please. Did you hold music, we will go to the last participant.
The next question is from the line of Rakesh Kumar from Systematix.
Can you hear me?
Yes.
Sir, just an extension to the previous question in relation to the regulatory disclosures that we make on NSFR and LCR. If I see an NSFR like the stable deposit composition is relatively on the lower side and looking like an outlier as compared to the bank of a similar size. So how we are going to change this deposit composition profile, maybe enough times to come?
And second thing is that what we have seen in last 10 years, 12 years performance that after a rate rise in sequent years, there is a margin pressure because your deposits are then priced at a higher rate and then [indiscernible] next year, not in the same year when the rates are rising. So these 2 things, if you can elaborate on will be quite helpful.
So I think you have to look at it in 2 ways. I think if you look at -- you're absolutely right. If you look at our retail LCR, it's on the low side. And that's something which we've done it on purpose and we are now increasing it and as we've laid it us as a part of our CC5 addition as well as going forward.
And I think our LCR today, if you look at it from a Basel fees, it's 41%, and we want to go to 45% and eventually settle at 50% at some point of time. And I think that's where we are headed.
And I think as that happens, I think you will see it.
The other thing which you will see is that if you look at our CASA ratio, I think one of the things which you will observe is that our current account percentages are lower to a large extent, whereas anybody else who's there would be around 30% to 35% of its book in CASA and this will come out of the current account. And I think that's fair. I think you will start seeing a focus on the current account business, and that itself will start driving the margin as well as going forward.
So I think 3 or 4 things, I think you will start seeing us focusing on retailization of liabilities.
The second is the current account book, which has almost been stable for last 4, 5 quarters or declining, you will start seeing a growth in that book as we go forward.
I think the third thing is, I think you will start seeing that as your CASA facilities move up, I think your cost of deposits will start going down and your margins will come.
Fourth, I think we've always said that we have the capability and we may not have had it last time. I think we have the capability of creating a distribution mix through our domain specialization where we can change the mix very fast to manage our NIMs as we have gone on margins as we move forward.
Just one more question, if I could ask. This is with relation to the risk weight of the credit and the proportion of the loans which are on the -- this rate of 35% or lower? Proportion of that kind of loans have been coming down. So compared to Q3 and Q4, we have seen quite a lot of growth in that kind of a loan. Q1 NSFR is not yet out. So -- but looking at these 2 numbers, it is looking that we are trying to get into the credit, which is higher risk weight. At least from the 2 quarters numbers that we have.
Just to give you, I think if you look at -- and it's a part of the commentary, our [indiscernible] book has actually increased by 300 basis points from 70% to 73%.
Overall, our risk-weighted asset year-on-year has gone down. Yes, risk weights have gone up.
So I'm unsure as to where you're coming from, of course, we have increased our SME and MSME book also. But as a percentage, within this, I shall not increase. So I don't know from where it's coming, maybe you can send us a question and we can investigate and get back to you on this.
For example, RWA growth is 11%, whereas the loan growth is 18% year-out. The credit growth is -- credit RWA growth is 12%. So the risk and density has actually come off over the last 12 months. But I can engage with you separately offline and discuss with this.
Ladies and gentlemen, we'll 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 call. As usual, Indrajit and me are available for any other further clarifications that you may require, we'll upload the one statement which we have to upload by the end of day or tomorrow morning earlier, and we -- so thanks a lot for participation. Thank you.
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.