© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
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 Q2 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 of IndusInd Bank. Thank you, and over to you, sir.
Good evening, and thank you for joining the call. I will start with some macro commentary and then go into bank specific details.
The Indian economy continues to be among the best-performing economies even in the wake of external disturbances and tightening monetary conditions. Global economic growth is expected to slow down with synchronized and aggressive monetary tightening, lingering uncertainties from geopolitical tensions, continued supply chain disruptions and high inflation. India's external fundamentals, however, remains stable and external financing remains manageable. High frequency data suggests demand conditions remained strong during quarter 2 and poised to expand further during the festival season.
In current quarter 2, global economic and market developments will dominate domestic policy and market conditions. Improving domestic demand with an ongoing festival season boost and public cap exposure, would help sustain growth while export demand is likely to contract. Overall, we expect India is likely to remain among the fastest-growing economies despite the confluence of global headwinds, driven by macro stability remaining intact and inflation expected to ease over from half 2 financial year '23.
Coming to the quarter specific developments, the quarter saw continued improvement across our business -- key business units, both in terms of growth and asset quality. The first half of the year is seasonally weak for vehicles and microfinance. We have nonetheless seen 1 of the best performances by all the 3 domains in the recent past.
Corporate and retail businesses continue a pace growing at 20% plus with no assets quality surprises. The liabilities and client fees too remain -- maintain traction during the quarter. Overall, the salient highlights of the quarter were broad-based loan growth driven by all business units. Our vehicle business recorded the highest ever disbursement of INR 10,660 crores. Microfinance too saw disbursements of INR 9,700 crores, putting behind the blip from regulatory changes. Corporate Bank maintained momentum while nonvehicle retail accelerated sequentially. Overall, we had a healthy 5% quarter-on-quarter loan growth with consumer at 4% and corporate at 6% quarter-on-quarter growth. Traction on deposit mobilization, we achieved 4% quarter-on-quarter and 15% year-on-year growth in deposits during the quarter. Our retail deposits as per LCR accelerated during the quarter, growing at 5% quarter-on-quarter. Our affluent NII business too saw acceleration in deposit mobilizing during the quarter. Asset quality. Our gross slippages during the quarter reduced by 30% quarter-on-quarter, driven by a reduction in both standard as well as restructured slippages by 25% and 37% respectively. Our restructured book has now reduced meaningfully by INR 12,077 crores from 1% to 1.5% quarter-on-quarter. Our net NPA too reduced to 0.61% from 0.67% with a PCR at 72%. Our contingent provisions are at INR 2,653 crores with total loan-related provision of 140% of gross NPAs. Our credit cost has reduced from 50 basis points to 44 basis points quarter-on-quarter.
Investment into resources. We continue to invest in our physical and digital resources. We have added 55 branches this year, along with 2,700 employees in the bank and additional 3,650 employees in the vehicles and microfinance distribution during this year. We are scaling up our digital launches and are on track for the planned launch of the individual NFME offerings in the year.
High profitability of the franchise. Our net interest margin improve to 4.24%. Client fee income grew by 24% year-on-year, driven by healthy retail fees of 71% of total fees. Our cost to income was at 43.9% and our PPOP margin remained healthy at 5.7%. Our profit after tax grew by 11% quarter-on-quarter and 57% year-on-year at INR 1,805 crores.
Our annualized EPS has now moved into the 90s at INR 93 per share. Our return on assets improved further from 1.73% to 1.8% and return on equity was at 14.5% for quarter 2. We also maintained a healthy capital adequacy ratio with CET1 of 15.95% and overall CRAR at 18.01%.
Now coming to individual business. Vehicle Finance. The vehicle finance business continued as 1 of the best ones in the last several years. The business has been achieving record disbursements every quarter. And the first half of this year is no different despite the seasonality pressure. The disbursals have been improving across all vehicle category, making this a diversified growth trajectory.
Disbursement during the quarter were at INR 10,664 crores, up by 6% quarter-on-quarter and 24% year-on-year. This is the consecutive second quarter where we have achieved over INR 10,000 crores of disbursement per quarter. The vehicle disbursements are typically weaker in H1 compared to H2 of previous year. We seasonally factor such as monsoon, festival, et cetera. This year, however, H1 disbursement has been higher than H2 of previous years, or for that matter, any half year in our history.
Consequently, the vehicle finance loan growth accelerated from 8% year-on-year to 13% year-on-year over the quarter and 4% quarter-on-quarter growth. We are moved to double-digit loan growth after 3 years. Within vehicle categories, commercial vehicles, utility vehicles, cars and 3-wheelers saw more than 20% year-on-year growth in disbursement. Disbursement growth in other segments, that is construction equipment, 2-wheelers and tractors was in mid-teens year-on-year.
Vehicle asset quality remained steady and gross slippages during the quarter from standard customers improved from 0.8% to 0.6% quarter-on-quarter. The restructured book in the vehicle finance reduced by INR 861 crores to INR 2,270 crores from INR 3,131 crores quarter-on-quarter. We are seeing restructured customers completing satisfactory performance and becoming eligible for upgrade to standard category. Upgrades and recoveries contributed 70% of the reduction in the restructured book during the quarter.
The collection efficiency of the remaining restructured book was at 83%, in line with our expectation of [indiscernible] collection as mentioned earlier. Overall, we are expecting disbursement momentum to gain further traction with festive demand in quarter 3 and new purchases hopefully income tax benefits driven purchases in quarter 4.
Microfinance. Our microfinance business, too, saw healthy recovery in disbursement growing 29% quarter-on-quarter to INR 9,740 crores, making it the highest ever second quarter disbursements. We also saw new to bank customer addition growing 33% sequentially. The new business lines of Bharat Merchant Stores and Bharat Super Store (sic) [ Shop ] too scaled up during the quarter. The slippages from the MFI book were lower quarter-on-quarter, resulting in Bharat Financial achieving growth at improved asset quality.
Our MFI book at the end of quarter 2 at INR 29,617 crores was up 5% year-on-year and 1% compared to June '22. The RBI direction on MFI issued in March '22 has been fully implemented and the disruption in business costs in quarter 1 now is thus behind us. Household income assessment for more than 70% of our active and inactive clients has already been completed. And the rest will happen as and when the customers come up for new loans.
MFI standard book net collection efficiency for quarter 2 was strong at 99.1%. The collection efficiency for new clients sourced in the last 12 months, that is 4 October '21, remained healthy at 98.9%, which is closer to the pre-COVID level. Our 30 to 90 DPD book, including restructured customers, was at 2.0% on September '22 compared to 2.2% at the end of June '22. The gross slippages during the quarter reduced to INR 435 crores as compared to INR 560 crores during the previous quarter. Considering the recoveries, upgrades and write-offs, GNPA reduced to INR 885 crores, which is about 2.9% as compared to 3.4% at the end of June 24.
We continue to expand our merchant acquiring business under the banner of Bharat Super Shop. Portfolio [indiscernible] under this business has grown 20% sequentially to INR 2,675 crores, with 4.2 lakh active customers -- borrowers. We continue to make good use of Bharat Financial rural reach to broaden the banking relationship with our microfinance customers.
At the end of quarter 2 financial year '23, the total liability book source from customers service to vehicles increased by 53% year-on-year to reach INR 1,662 crores to 1.26 crore accounts with us. Our focus remains to be the banker of choice for our customer segment in Bharat.
Overall, we continue to see improvement in rural activity levels, driven by another year of near normal monsoons, government support and through upward revisions in agri prices, et cetera, and diminishing COVID impact. Our business model remains focused on growth and diversified across geographies, new customer acquisition, low ticket sizes and scaling up new initiatives.
Global diamond and jewelry business. The diamond business has achieved its highest ever loan outstanding as well as revenue contribution during the quarter. The asset quality remains pristine at low NPA on SMA1/SMA2 customers or restructured customers. The portfolio saw a healthy growth of 29% year-on-year growth, was aided by strengthening of diamond prices and stable demand from the largest market.
The industry continues to work within the domestic and international trade norms absorbing the impact of geopolitical conflict.
Corporate bank. Our corporate business has been delivering steady growth with no asset quality surprises for the last several quarters and this quarter was no different. We achieved the growth of 23% year-on-year with standard book slippages of just INR 66 crores during the quarter. We saw growth across segments with large corporates growing by 10%, mid corporates by 1% and small corporates by 7% quarter-on-quarter.
Loan book growth has broadly driven by large corporate segments like strategic client book and financial services and in mid and small corporates like SME health care. The sectors driving growth were NBFCs, real estate, steel, power -- and power generation. We continue to actively reprice the loan book. Our yield in corporate book improved by 40 basis points during the quarter versus 7 basis point improvement during the previous quarter.
A portion of A and above rated customers remain healthy at 72% with overall weighted average of 2.65. The gross slippages from corporate book reduced from INR 603 crores to INR 179 crores. The slippages from standard book were at INR 66 crores. The restructured slippage were primarily from a stress retail book. And with this, the entire exposure from the retail book has become NPA and fully provided for.
Our corporate restructured book has now reduced from INR 5.6 billion to INR 4.7 billion. Exposure to stress telco was reduced from INR 18.5 billion to INR 17.3 billion, including fund based exposure of INR 10 billion and balance nonfund-based exposure. While there are anecdotal signs of capital revival by the private sector, the revival was skewed with select sectors and large players contributing to the bulk of investments in the economy.
Broad-based CapEx recovery is yet to percolate to mid and small companies in the mix of domestic and global economic uncertainties. Overall, we do see corporate book to maintain a steady growth driven by mid- and small corporates with active repricing benchmarks to the market risk. We continue our journey on corporate growth driven by higher rated, granular, shorter duration loan book.
Other retail assets. Our non-vehicle non-microfinance retail book got books of growth momentum by accelerating during the question with 5% quarter-on-quarter and 21% year-on-year growth. The growth was driven by both secured as well as unsecured assets.
In secured assets, both our business banking and loans against property grew by 3% quarter-on-quarter, continuing the momentum from last quarter. With rising interest rates and tightening liquidity, we saw further rationalization of pricing in the market.
Credit card spends continued to remain strong for us as well as the industry with spends of INR 16,700 crores for the quarter. As a result, our credit card loan book grew by 10% quarter-on-quarter. While the implementation of new RBI license -- RBI guidelines during the quarter impacted outstanding card numbers for all payers, our new acquisition continues to remain robust with 81,000 acquisitions in September '22.
We also started a pilot of our home loan products during the quarter in select cities. Home loans will strengthen our universe of product offering for retail customers. We aim to build a sizable loan book in the next 2 to 3 years. As the festival season sets in, we expect growth momentum in retail business to continue in coming quarters.
Now coming to liabilities. Our deposits grew by 4% quarter-on-quarter and 15% year-on-year. Deposit mobilization continues to be driven by granular customers and our retail customers as per LCR grew by 5% quarter-on-quarter and 16% year-on-year. CASA book also grew 15% year-on-year, in line with the overall deposits. The deposit market saw withdrawal of surplus liquidity levels and hike in competition from peer banks. We continue to be selective in our actions and focus on balancing between growth and cost of deposits.
Contribution of certificate of deposits remains low at 3.2% of deposits. Our CASA ratio was at 42.3% versus 42.1% year-on-year and 43.1% quarter-on-quarter. The current accounts saw a healthy growth of INR 8,900 crores, which almost half was due to the spike towards quarter end from [indiscernible] dividend mandate.
The savings accounts saw a reduction quarter-on-quarter primarily due to implementation of centralized treasury settlement in budgetary account. This removes intermediary banks from government budgetary allocations and we had one such account wherein the balances moved out. We only had this account and only have 1 account in the central allocation budget.
Our new initiatives with affluent and NRI banking saw growth accelerating during the quarter. Affluent segment deposits grew by 7% quarter-on-quarter from INR 36,300 crores to INR 38,700 crores. Affluent AEL at INR 63,300 crores too grew by 7% quarter-on-quarter, in line with the deposit.
The segment also contributed the highest ever quarterly fee income of INR 101 crores. Pioneer, the flagship affluent brand continues to gain prominence in the marketplace through campaigns and unique best-in-class Pioneer lobbies. Currently, we have 10 Pioneer branches and lobbies in 6 major cities and plans to launch 5 new branches in the current financial year.
After remaining stable for the last few quarters, we saw a pickup in the MENA segment deposits aided by easing guidelines by the RBI. Deposits from MENA segment at INR 29,000 crores grew by 7% quarter-on-quarter. We have garnered about around INR 2,000 crores of NRI funds so far through the RBI dispensation window. We continue to expand our distribution with opening of 34 branches taking the total branch count to 2,320. We are aiming towards 2,500 branches by fiscal year-end and around 3,500 branches over the next 3 -- next 3-year planning cycle.
We had borrowing maturities during the quarter maturing outstanding borrowings by 3% quarter-on-quarter and 12% year-on-year. The borrowing mix is also moved towards long-term stable process such as refinance from development and finance agencies. We continue to maintain a healthy average surplus liquidity of INR 47,000 crores during the quarter.
Overall, we continue to remain focused on retail liability mobilization amidst the heightened liquidity environment. Our physical and digital distribution strategy has been aligned towards retail deposits. We continue to scale up new initiatives like affluent and NRI.
Digital traction. Bank continued to scale up digital -- direct digital customer do it yourself and partnership-led business, which nearly doubled year-on-year. Bank has an earn model, and lot of earn model, which is reflected in the digital customer acquisition costs, which have been reducing steadily with the increasing business volume across the easy credit, savings online and merchants stack. The new digital launches done by the bank are scaling up as well.
Indus Credit for individuals is now like for personal loans and is enabling on right scale with efficiency in personal loans and credit cards. Indus Merchant Solutions has been a soft organic growth since launch of more than 100,000 user base and monthly active user base doubling quarter-on-quarter.
IndusEasyCredit credit for business has digitized MSME unsecured and secured credit up to INR 2 crore exposure and nearly [ 50% ] of the up to INR 2 crores MSME business is now digital, which has unlocked process efficiencies and customer experience. Bank will soon be launching up the new digital proposition of individual segments with several industry-first innovative features.
On IndusMobile, during the quarter, the bank went live with card tokenization. Mobile and UPI transactions continued to grow 2x Y-o-Y and monthly active user base on the mobile app was up 28% year-on-year. Whatsapp banking chatbot continued to scale with user base increasing 2x Y-o-Y. Whatsapp banking now has a registered base of 5.3 million users. Over 93% of the bank transactions are now digital.
Sustainability. At IndusInd, we have embedded sustainability as 1 of our strategic cornerstones and integrated it with the way we do our business. We already have a large sustainable portfolio in the bank supporting livelihood finance. And you will see us launch several new sustainable banking products.
During the quarter, we launched EV financing program, partnering with the leading OEM. We updated our ESG risk assessment framework and also onboarding a leading rating agency as knowledge partner for ESG risk assessment. We have also commenced forming strategic path towards achieving carbon neutrality by 2032.
Climate risk management is now becoming an important agenda with regulators, and they have had issues a discussion paper on the same. The bank has already integrated ESG risk assessment with this [indiscernible] process and we believe that we are well prepared for upcoming expected regulatory changes.
The bank has been awarded as the best bank in India for ESG award -- for ESG award by Asiamoney for financial year '22, and acknowledged as the market leader in the ESG in India by Euromoney. We are committed to maintain our leadership position in the ESG space and contribute towards our sustainable future.
Now coming to the financial performance for the quarter. Net interest income continues to accelerate growing at 18% Y-o-Y in line with the loan growth. Net interest margin improved sequentially from 4.21% to 4.24% quarter-on-quarter. Similar to the previous quarter, the net interest margin was aided by synchronized repricing of assets as well as liabilities. We saw loan book yields improving by 12 basis points quarter-on-quarter.
Yields on overall assets improved further faster by 30 basis points due to lower drag off from excess liquidity. The cost of deposit increased by 31 basis points and the cost of fund increased by 27 basis points during the quarter. The core fees remains strong -- maintained soft traction going up by 24% year-on-year and 5% quarter-on-quarter. The treasury income was positive and stable quarter-on-quarter. The overall other income grew by 9% year-on-year and 4% quarter-on-quarter. Share of retail fees remained healthy at 71% of total fees. Our total revenue for the quarter was at INR 6,313 crores with 15% year-on-year and 4% quarter-on-quarter growth. Operating expenses grew by 5% quarter-on-quarter. Employee expenses grew by 9% quarter-on-quarter, as we had rolled out our annual increment during the quarter and also due to the fresh hiring in the financial year. Our overall cost-to-income ratio was at 43.9% quarter-on-quarter.
The operating profit for the quarter was at INR 3,544 crores, growing 10% year-on-year and 3% quarter-on-quarter. The PPOP margin loans continues to be healthy at 5.7%. Our core operating profit grew by 18% year-on-year.
On the asset quality and the provisioning front, our provisioning for the quarter has further reduced to INR 1,141 crores. These provision on loans are -- the provision to loans are thus down to 44 basis points now. The gross NPAs are down 2.35% to 2.1% quarter-on-quarter and net NPAs are down from 0.67% to 0.61% with stable provision coverage ratio of 72%.
The improvement in the asset quality was driven by reduction in slippages from both standard as well as restructured book as disclosed in the investor presentation. We utilized INR 350 crores from restructured slippage in quarter 2 and contingent provisions stand INR 2,653 crores or 1% of loans.
The net securities received have reduced from 72 basis points to 67 basis points quarter-on-quarter. The loan-related provisions are at 3% of loans or 140% of the gross NPA. Our SMA1, SMA2 book was at 15 basis points and 43 basis points, respectively.
Profit after tax for the quarter was at INR 1,805 crores, growing at 11% quarter-on-quarter and 57% year-on-year. Our CRAR, including profit, remained healthy at 18.01%. The return on assets continued upwards trajectory from 1.73% to 1.8% quarter-on-quarter and return on equity improved to 14.45%.
Overall, we continue to demonstrate consistent improvement in performance metrics every quarter, driven by overall contribution across business units. We expect to maintain the trajectory on key metrics. We are comfortable with achieving our PC5 loan ambitions, as vehicle and microfinance disbursals are seasonally stronger in H2.
The corporate and consumer businesses are scaling up every quarter along with the traction of new initiatives such as home loans and merchant acquiring. We remain focused on our strategy of retailization of deposits. We are investing in our distribution. Our new initiatives of Affluent and NRI too have gathered momentum and almost all these deposits are retail as per LCR.
Our Digital 2.0 launched [ too shifts ] further boost our retailization agenda. Asset quality trends are also as per our communication and we expect the stress book to continue to fall. We will continue to maintain conservative contingency provision.
The operating profit margins are expected to be stable, factoring in the near-term pressure from treasury and investment in the franchise, compensated by revenue building up from retail disbursements and retail fees. The ROA and ROE should thus continue to expand as our earnings scale up with annualized EPS now in 90s.
We can now open the floor for questions and answers.
[Operator Instructions] And the first question is from the line of Kunal Shah from ICICI Securities.
Congratulations for a good set of numbers. The first question is with respect to yield. So as you highlighted, actually, corporate yields are up 40-odd basis points and there is huge competition and we are seeing more growth coming in on the large corporate side, which was up 10% quarter-on-quarter. So what is actually driving this improvement on it?
And at the same point in time, when we look at consumer banking yields, okay, they are more or less steady on a quarter-on-quarter basis despite slippages also being lower. So I just want to get the sense in terms of the rate action on the retail products, okay, and how do we see the momentum over here?
So you're absolutely right. I think our corporate banking yields are up 40 basis points. It is because of the book, which was linked to the external benchmark rate getting repriced in the quarter and our focus on the small and the mid-corporate is getting us some better yield and the resizing of that book, which happened. That's number 1.
Number 2, on the retail side, I think it takes time for the yield to come up. While our disbursement yields have gone up in the business, I think it's only a matter of time that you will see the yields going up in the business, as we move forward. And I think that's the only reason. In my opinion, I think you will see the yields in the consumer bank, specifically micro finance has already seen a 35 basis point yield increase. I think the CFD is almost static on the yield right and I think the corporate bank -- the nonvehicle part of it is also static and should start seeing the yield coming down. It's more fix-rate book out there.
Okay. So overall, MFI, we had still seen the improvement. And this is on the book basis, which you are highlighting or this is on disbursement?
No, it's on a book basis because the -- as you saw the NPAs going down on the book, you saw the yield coming up. So I think we saw -- last quarter we saw 20 basis points and this quarter, we've seen another 20 basis point improvement in the yield.
Okay. And despite that, this is flat, so other product segments would have been slightly down because of the competition here.
It's not like that. I think the runoff of the book has to be taken into account. Some runoff, which is happening in the book, which is 3 years old, which were at -- the higher part of the yield is also running off. So you have to take all that into account.
Sure, sure. And secondly, in terms of CASA, so now you in terms of the factors which have led to the spike in CA and even maybe the rundown in SA. But then how should we look at it going forward, maybe even though it was a quarter-end phenomenon with respect to CA. Do we see it sustaining or maybe it should run down and there could be some pressure on CASA going forward, because SA was quite down on a quarter-on-quarter basis, yes?
Yes, you're absolutely right. I think CASA should remain in the range bound [ 40% ] and 43%. We've always said between 41%, and I think we should come back to 41% and 43%. I think yes, on the CA side, there was a dividend mandate, which came in INR 5,000 crores of dividend mandate. I think you will continue to get such deals. Our SA was a consequence of a change in the government strategy where I think the centralized depository, they all can budgetary allocation accounts, which are centrally allocated, go through the treasury accounts now and they don't use the intermediate BR bank as a settlement center.
So I think that's what has happened. And I think [indiscernible] got implemented in the road or the road and transport, it will get implemented in the power, shipping as well as other industries. And I think we have to watch out for that space. I don't think we have only 1 such account which is from the central, and that has got impacted. In my opinion, you should see the CASA coming back. I think you should see us in the range bound 41% and 43%.
So only thing I can tell you, our NIM will remain range bound between 4.15 to 4.25 as a consequence.
Okay. And lastly, in terms of data points. So if you can give the breakup of the outstanding restructuring pools. You highlighted on vehicles, but what would be the other segments. Corporate is also down. So I think if you can give the breakup of the risk slippages as well as outstanding restructure.
We will disclose this like last quarter in the commentary.
Next question is from the line of Nitin Aggarwal from Motilal Oswal Financial Service.
Congratulations on strong numbers. A few questions. Like, firstly, on the credit cost, now that over the first half, we have consumed almost 1% credit cost or our guidance of 122-odd basis points. So how do you see this in context to the guidance? And by when do you expect the slippages to normalize completely?
I think the slippages are getting normalized. I think you will see us in the range of 120 to 150 basis points only for the year. I can only tell you this. I think it is -- what you are seeing -- what you have to see if the guidance is on E&R, not on A&R and I think that is where the guidance. I think we've always said our credit cost will be around INR 4,000, INR 4,200 crores to INR 4,400 crores, and it was given in the overall E&R at the end of the year, and that is where we will be at 120 to 150 basis points.
Okay. Sure. And secondly, on the mortgage side of the business, wherein we are like looking to grow quite rapidly over the coming years. So what customer profile, geographies, any color if you can provide on the distribution strategy that you want to employ to grow this business? And how much book size are we looking at over the next couple of years?
So I think you have to look at mortgage in 2 parts. One is the affordable housing and one is the normal mortgage. The affordable housing is in 23 cities already. And I think that book is about INR 1,600 crores to INR 1,900 crores. We want to grow this book to about INR 5,000 crores. And that's our strategy on that. It comes at a yield of 11%, and we are very fine with that.
On the branch banking side, our strategy is to grow where Pioneer growth, number one. So I think our Pioneer is in 10 to 11 cities, which is that to expand to 20 cities. So we will launch mortgage in 20 cities wherever. Pioneer or affluent goes, we will follow that cycle in the Pioneer -- for the Pioneer.
The other thing is we have a home market strategy, and we are at 16 markets on the home. The Pioneer would overlap with that, but I think wherever Pioneer is not launched, and there is home market that we want to expand to 25 cities, we will also launch mortgages in that city. So I think our segment is affluent plus a segment of branch banking, which is -- you can't call it mass affluent or what you -- mass affluent. So that's what we will focus on.
We are not going at the lowest level. And the lowest level at the affordable housing space, we are having -- our vehicle finance unit will drive that business. Have I answered your question?
The next question is from the line of Adarsh.
Congrats on good numbers. Sumant, obviously, the macros look strong. I guess if you can reflect on how do you expect to tightrope liabilities. There will be smaller banks, which will give higher CA rates, there are large banks which need to increase deposit mobilization and wholesale deposit rates have moved up quite sharply. So if you can just elaborate on the liability side, how do you expect this to pan out over the next 12 months?
Adarsh, we have -- our strategy is very clear and I talked to you before, but let me just reemphasize that. We have 5 playing level fields, which we will play our game on. One is we focus on an affluent and NRI and you've seen the growth. And I think that's the business which will continue to invest in. And we believe in the next 12 to 24 months with these books will double. And I think our INR 25,000 crores to INR 30,000 plus crores liabilities will come from this segment in a big way.
The second is, we believe that branch expansion still plays in India a very important role. And we'll continue to expand our branches. We're going to 2,500, and we're going to 3,500. I think the difference is, I think the branch look and feel will be different as a process. And I think what we are doing is, we are going into a concept, which we call as community banking.
And I believe we have selected 5 communities [indiscernible] and you will see our branches around those communities developing. We believe that when you're fighting in a very crowded market, you've got to find the niche for yourself. And we believe we found a niche when we were -- when we had come in and we launched the liability in the home market strategy, which we continue to expand.
Now we believe in the client segment, the niche will come in the communities, which we want to offer. So I think, for example, the very strong on diamond. We believe diamond is the community which has an end-to-end capability, and we will launch the diamond where there are 800,000 workers on the ground, which get an average salary of INR 100,000 per month.
So I think there is an opportunity of a very different nature there, which we are going to that.
The second, I think -- can be at the front. We are very strong on the defense vertical. I think some parts of the defense and we believe that there is a very strong opportunity in the defense area, which we think that we can make a very good come back. So I think the strategy around segmentation along with the branch expansion is the #2 strategy.
The third strategy is I think we are launching digital. I believe that digital will play a very huge role as we move forward in the client acquisition. And scaling up of the client acquisition, you've seen the [indiscernible] will get launched in the month of December or January. We believe that in the first 12 months or 24 months -- first 12 to 24, we will acquire 2 million customers with a INR 15,000 crores to INR 20,000 crores of balance sheet.
Now that balance sheet is what we think will help us create a very differentiated. I'm not saying it will come from digital, but clients will be identified. We will start giving relationship management and everything through the [indiscernible] proposition. So I think that's a very, very big opportunity.
Fourth in my opinion, the Bharat Financial network is still not being fully exploded. I think we have 70 lakh accounts, but I think -- I believe that -- I think if we can start engaging with them in a different way, we are planning to take this book to INR 5,000 crores in the next 12 months, and I believe that's a very, very big opportunity for us.
And last, I think our client acquisition, specifically our current accounts position is taking a very different shape. And I believe that current accounts growth of around INR 10,000 crores in the next 12 months to 18 months will give the bank a COD advantage.
And the last point is our rates will continue to be higher than the market and our pricing will be differentiated. We will continue to price basis selective segment and selective geography and bank, we will play a very differentiated here.
Perfect. That was useful so much. And just a clarification on the CA base. If you adjusted the large account, the government balances, would the core CA would have grown or that...
Yes. That is what we are saying that we grew 5% quarter-on-quarter. And our retail balance sheet is what we have bothered. I could have filled in this balance sheet. I could have got a bulk CA. I think the issue's I want to move out of the bulk CA, whichever is there in the book. And I'm saying retailization and granulization of liability is happening, and that's where the growth was 5% quarter-on-quarter on that book.
Next question is from the line of Hardik Shah from Goldman Sachs.
This is Rahul. Just a couple of questions. One is on the loan book growth side. Just trying to understand the logic behind growing the large corporate book so significantly as well as the unsecured PL and credit cards. So can you just help us understand what's driving these 2 components so sharply?
So I think let me answer the point number two. If you have seen, we've not grown the Bharat Financial book, and I think the Bharat Financial book has remained and gone down as percentage of our 10% to 11%. And I think we have always said that we will not cross the 5% margin on the unsecured book. So I think we've remained within that margin and the growth happens. And it happens during this period, and that is why the growth happened. So I think we are within the unsecured gap of the regulator. And I think there was an opportunity and we grew that book at a faster pace. And I think we were at 3.5%. We have moved to 4%, 4.2%. We're still within the bar of the 5%. And I think that's why we grew the book where we grew.
On the first part, I think on the corporate side, I think we're getting into a very good A rated paper about relationships. It's about balancing the books and getting the risk density. Now -- and that is where we are working on the risk density and this was very good opportunity and very good fee opportunity also and cross sell opportunities, which came into us, and we did those businesses. And I think we got into new relationships, and we got some very good deals.
Got it. Just 1 small point. Can you just help us understand the duration of this corporate book that we would have onward is largely working capital loans? What are your duration of these?
So there is 60%, 70% is working capital, 30% is term loan, but all these term loans are less than 5 years -- 5 to 6 years.
Okay. Got it. That's helpful. The other question is, have we kind of changed our savings deposit rates in this quarter?
Yes, I have changed the rates. We've changed it effective October 1. I think the rates are now at less than INR 1 lakh remain at 4%. INR 1 akh to INR 10 lakh remain at 5%, and INR 10 lakh to INR 100 crores remain at 6%.
Got it. Understood. Just 1 last question. Sumant, the CA growth has also been very strong. So is there any inter-linkage between the large corporate growth on the loan book side as well as the CA growth? And do you also plan to kind of moderate this corporate loan growth as the retail -- other pieces of retail picks up like Bharat Financial and CVs, et cetera?
See, I've always said that the ratio mix for us is range bound. And I think we have always said 55% to 58% will be retail and 42% to 45% will be corporate. And that's where we will -- 1 quarter here or there doesn't matter, but I think that's where our loan mix will be to get an efficient NIM as well as our contributions. So I think that's what we have decided. And that's where we will be.
Number two, the second question was, will we continue to grow -- will we continue to grow -- what happened on the liabilities? I think there was -- these dividend warrants come from various undertakings from us. And we've been business of transaction banking for a long time. These are our clients. And we will mandate as a process. These are mainly PSUs. And we have very strong fixed interaction, which we have INR 9,000 crores book. So I think the deals on that book may not be very high, but these are the type of businesses which we get for them and we [indiscernible] we do this business very well.
So that's why we continue to get this mandates. Why did we do the corporate bank? I've always told you that you got to do your risk adjustment. And I think these are very good businesses, and they have a lot of prospects and as a consequence, we get a lot of fees. And if you look at the FX revenue and the growth in the FX, if you go through, 1 of the reasons are we're doing this business.
Got it. That's helpful. And quickly on current account.
I just answered you. That INR 5,000 crores came as a consequence of dividend mandates, which we got. I've written that in my speech.
Next question is from the line of Abhishek Murarka from HSBC.
Congratulations for the quarter, great numbers. So 1 question again on yields. Can you give some sense of the yields on your large corporate, mid-corporate and small corporate segment individually and how they would have moved between last quarter and this quarter?
We don't disclose it. That's something we don't disclose it. But I can assure you, the yields in the large corporates have moved the lowest. I think the yields in the SME and the small corporates have moved higher. That's all I can tell you.
Right. And so could you give a sense of the kind of movement? 40 is your blended, but on an incremental, would it be higher by 100 basis points or so?
Incremental?
No, no, 40 bps was the difference between Q2 and Q1 on the entire corporate book. What was your question?
Incremental disbursal.
On the incremental disbursal...
Incremental disbursals, let me tell you, are happening linked to an external benchmark rate and our market. So I think the yields will be higher because it is linked to the external market. That's the answer to your question, Is the -- if it is linked with the [indiscernible] -- what is treasury -- all is linked to the CD rate, so the rates will be higher accordingly.
Right, right. The second question is on SME. Now because of this increase in rates, right, a lot of it obviously has to do with the EBLR. Are you sensing any kind of pressure in SME or any kind of early delinquency indicators? How are they trending? Just wanted to get a sense of it.
I'll tell you my data. I have no delinquency no SME, 0% delinquency. I have a small book. It is about INR 4,000 -- INR 3,800 crores book. On the [indiscernible] side, we have taken a lot of losses over the last 2 years, what we had to take. And I think the flows have slowed down dramatically. What we have to act. You should ask me a question, are you seeing attrition in your book, because of the retail. And I think we have to watch out for that space this quarter.
Right. Got it. And finally, just a quick data point. In your credit card book, what is the revolver mix?
It's about -- I don't know why the revolving rates are all going up. We're still struggling at 27% to 29%. It's not growing. The revolver base is not growing. But what we do well - sorry, we do well if we do the EMI portion very well on the business.
Okay. How much would that be?
It would be around 25% of the book as of now. So we have a book of INR 7,000, INR 1,400 crores to INR 1,500 crores will be that book. So it will affect the yield on the book because the EMI book comes at a lower spread, while the revolver rate comes at a higher spread. So the yield, your question should come, what is the yield on the credit card book. It fluctuated between 16% to 18%.
Yes, and any sense of when the revolver rates would pick up? Just a broad sense, whatever...
History tells you that when there is an inflationary environment, first, the personal loan disbursement increases dramatically. So if you go historically into the unsecured business, historically, the personal loan disbursal business will rise and then the revolving rates on the OD product starts rising. And that's where the card revolving rates will increase.
So I think first, you have to watch out for the personal loan disbursements in the banking sector. And I think you're seeing already a spate of increasing personal loans. We are very watchful of that. And then you will see the credit card revolving rates going up. And that is where the debt trap happens.
The next question is from the line of Akshay Jain from JM Financial.
This is Sameer here. Just a quick question on fees. So gradually fee as a proportion of assets is kind of inching up. Do you think it probably goes back to about 2% as it used to be long back, because corporate balance sheet growth is also now coming back. So just wanted some thoughts here.
And secondly was on the OpEx trajectory. Some outlook there in terms of branch additions and spends. Those were my 2 questions.
So Sameer, on the fee part, if you look at our fee composition, 71% of our fee comes from our consumer. And I think what is more important is you must see how a client acquisition and consumer is scaling up and what is the product holding and consumer happening. So if you look at 12 months ago or 18 months ago, we were at 3.6% product holding, and we come to 3.9% to 4% of product holdings. As consequence, your fee composition is increasing.
So it's the composition of the upfront measures rather than the downstream measures. The upstream measures are showing an improvement in the consumer bank and as a consequence, the fees is increasing. It's not the downstream measure. So I think as long as the upstream measures are doing, I think we were 68%, is now moved to 71%, and I continue to believe that we will fluctuate between 70% to 75% in the consumer bank fees as we move forward.
On the corporate side, I've always said that our fees in asset ratio should be between 1.6% to 1.9%. That is where good corporates are. And we will continue to be that. Overall, I see the fees between 1.8% to 2.1% and that is our guidance that we should be in fee to assets at 1.8% to 2.1%.
And 95% of the corporate fees is from trade FX and the normal processing fee. So IB fees is very less.
The second part is your question?
Secondly on OpEx.
On the OpEx? So if you look at our OpEx, we've seen a gradually upswing on the OpEx. And I think we should quarter or two come back to 43%. But I think it will take a quarter or quarter or 2. And I think we are -- I think the revenues will start coming up. See the problem is also, I think the -- OpEx, there are 3 as long as you're investing in new businesses like mortgage, your cost is going to come up. As long as you're investing in new technology, the cost is going to go up. Digital, there is different -- and the employee cost.
And I think we have done our appraisal process in this quarter and I think what we thought will be the appraisal cost actually came out a little higher, because I think the market had moved dramatically at that point of time. And I think we took out, so that's why 9% quarter-on-quarter cost increase.
What you are seeing is not because we've taken upfront cost, but it's also of new hiring as well as that we hired 6,400 staff. So as long as we are growing new businesses like in merchant -- like in micro finance, we grew businesses. So I think the cost sector, I think the maximum we will go on the efficiency is 44% to 44.2% and then I see it settling down to about 41% to 43% range.
Next question is from the line of Mahrukh from Nuvama Wealth.
Congratulations. My first question was on MFI. Why has the book grown only 1% Q-o-Q? Because of the reorganizations, I mean the new guidelines?
No. It is -- yes. And also the runoff factor, which is coming in. You have now -- with this book, you have INR 8,600 crores of runoff on a INR 9,400 crores book. That's the issue. So please understand that the book is very big and runoff factors coming into play. Yes, so we'll have to go to a disbursement of INR 10,500 to INR 11,000 crores to achieve the growth thing. But you should push the pedal when it's required. It is not required as of now.
Got it. Got it. And Sumant, you very well explained about the third quarter demand that the festive demand is picking up, it's strong. Second quarter was also good. But would you have any slightly longer-term outlook on how demand pans out beyond the third quarter in terms of loan? And also deposits you explained community and your other strategies. But just in terms of loan growth, where do you see -- where or when do you see demand peaking?
I think as long as public CapEx pick up, I think the demand for loans will pick up. And I think -- and that demand will come from the SME and the midmarket corporate side. I think we are seeing that public Capex picking up and I think that should create demand. There are demands which are coming I think from certain segments. I think real estate the demand is very high right now. Cement, the demand is coming up.
I think we see demand in the steel side. We are seeing demand in the power generation side. So I think we are seeing demand and we are seeing some private CapEx here or there coming up. But I think, yes, as you rightly pointed out, I think we have to see how the macro plays out in the long run before we start pressing the pedal on the growth on all these vectors. So I think while quarter 3 and quarter 4 look that and we should see a very good demand. I think we have to wait and watch. I can't give a projection for the long. There are a lot of geopolitical as well as macro factors which are at play here. And I don't think anybody can predict the next 12 months today. I can predict the next 2 quarters. And the next 2 quarters, I feel India will see a very strong demand coming up. So if the -- the example is if the macro -- the growth does not come back in the -- come back in the Western world, I think you can see exports going down.
So I think you have to see how the demand shapes up overall to say that what will be your growth in the asset. Though we have given that thing, then this year we will grow at about 20% plus. And I think we continue to maintain our plans, that we will continue to grow at 20% plus. Though we've grown at 18%, I think we should hit the 20% mark this year.
Got it. That's helpful. And just 1 very specific question on your comments. Your power generation is private thermal or it's public only?
It was one of the public entity, which increased during the quarter.
The next is from the line of Anand Dama from Emkay Global Financial Service.
So question was continuing with what Mahrukh asked and you can predict for the next 2 quarters. Do you believe that the run rate that we have seen in terms of growth in the current quarter, can we clock about 20% odd growth for FY '23, which you have earlier predicted about 18-odd percent?
Yes, I think that's what we said. I'm very comfortable with that. Please understand this 18% growth has come in the background of no MFI growth, which happened in the [indiscernible].
And the outlook on the books, do you see that book picking up in the second half of the year?
What we said is H1 of the year, we've never seen such disbursement. So it was record disbursement in the H1 of the year, which was higher than what we saw last year in the H2. And I think as a consequence, we believe that 45% of the disbursements happened in the H1, and we see a very strong H2 for the vehicle segment.
Okay. So you believe that even the commercial vehicle book will contribute meaningfully...
Again, I would like to correct you, pardon my saying so. But I think you please understand, look at the vehicle categories which we are in. We are in 7 vehicle and commercial vehicle book is only 25% to 30% of the book. The balance book is coming from somewhere else.
Yes, [indiscernible] as well.
Yes. So you are seeing growth in personal vehicles, used cars, scooter loans, tractors, construction equipment, small commercial vehicles. So I think you should not only focus on the medium and we have also diversified into light commercial vehicle, where we have got 10% market share. We're growing very fast from that. So I think you should see it in all the segments where we are growing.
Lastly, what percentage of corporate book will be -- corporate and SME book will be linked to EXIM trade, export or import trade --
I didn't get your question. It was a little garbled.
What percentage of your corporate and SME book is linked to EXIM trade, export or import trade?
So I think if you look at our export to import, I think -- I can't tell you about it, but I think 25% to 28% of our client...
Not in the corporate. Not in the SME. He is asking for the SME book...
[indiscernible] So I think 70% of our clients do a trade transactions with us in the overall corporate book whether it's export or whether it's import. Let's not confused. 70% of our clients do transactions with us in the corporate bank.
I think my question was the outstanding number that we have fund and non-fund both put together on the corporate and the SME side, how much is linked to EXIM trade, so the corporate is engaged into some kind of export or import for a business.
So if you just go into the corporate, I have just told you 70% of the client will have EXIM trade. Like, for example, the diamond is 100%, so it's 70% of top line.
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 joining the call. I wish you and your family a very happy Diwali and season greetings for the year. If you have any further questions, you can contact Indrajeet or me and we will be available. Thanks a lot, and god bless.
On behalf of IndusInd Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.