You had said recently that any meaningful growth will only come after the next two quarters. But Sir, even if we consider the technical impact, the asset quality performance hasn't been very great. So can you explain from here onwards how should we see FY '26 for Axis Bank on asset quality and even growth parameters? I'm seeing home loans also have not grown. So, LAP has grown and SME has grown.
Sorry, Saloni. Thanks a lot for the question. Let me take on the growth question first and then I'll come to asset quality. I made a statement. I said that our platform will allow us to grow at rates faster this year than the industry. And this thesis will continue to play in the medium term. I think this line clearly brings out the fact and our intent and our confidence in terms of what can happen on growth. Obviously, this is subject to what happens in the market and how the market plays out. But we do believe that our platform is now well-poised to grow across various sectors, across various asset classes. Where do we see more growth? Where the opportunity is? Obviously, something which we are watching very closely. We have been working on each of those platforms. There are reasons, very specific reasons why some asset classes have grown or not to that extent. But please continue to focus on the macro statement we are making. As far as asset quality is concerned, apart from the technical change which Puneet talked about, when you compare the first quarter to the last quarter of last financial year, you do have this unusual impact coming through in the first quarter around agriculture NPL. So, you do have a situation where in the first and the third quarter you see a spike in NPLs because of agriculture. And then kind of you recover that in the second quarter. So, when you take the impact of that out, I think our overall slippages are similar. I will ask Puneet to expand on that further. But I do not see any change in terms of where the slippages are. We have also said last quarter that the credit card performance has stabilized. We will continue to monitor the performance of some of the other areas, which is personal loans and MFI and so on and so forth, and give you a first statement in terms of our outlook at the end of second quarter. We continue to maintain that. But the overall slippages are not growing. They are stabilizing. If you take the impact out of the two factors, one is the technical decline, second is the agri. Puneet added: I would agree. I think, yes, if we have to identify one marginal area of improvement for ourselves, yes, recoveries and upgrades is what we can work on. But otherwise, I think our slippages are not exceptionally off what we see in other quarters.
Sorry, since you say 75% of those slippages are from the unsecured book, when do you see that book stabilizing?
So, it would basically be, if you look at the INR 5,491 crores that I called out, if you back out the 25% of agri, you will be left with a residual number. A large part of that residual number would have trigger accounts from the retail unsecured book, and some of them would have also got upgraded during the quarter.
Just a -- I mean, I am sorry I am still harping about this technical impact thing, but just the fact that your NPA number has changed, or fresh slippage numbers can change from INR 5,500-odd crores to INR 8,200 crores, and INR 2,700 crore addition. I mean whatever material or immaterial changes you might be making to your NPA classification; it is just a little surprising that the gap is so big. So, if you can explain why exactly the gap is so big. The second part of this question is about the growth aspect. So, I know you made a lot of comments, Mr. Chaudhry, but just the fact that your retail book is not at all at this point in time showing any material growth of 6%. 27% of your retail book is just home loans, which has not grown at all in quarters, multiple quarters. And if you were to look at the next largest piece of your book, which is rural loans, there as well you have seen a QOQ decline. I am just trying to understand the reason behind this confidence that you will beat industry growth.
Well, we are - normally, I think you will notice that as Axis Bank. we are quite careful about what we say. I think sometimes we are blamed for not saying enough or not projecting things in the future too much. The fact that some of the retail asset book has not grown should actually give you confidence that we can grow because there is that much more opportunity for it to grow. Some of the asset classes have not grown because you have seen a spate of regulation changes, which has meant that the way loans are done or the way loans are given out, their processes has change or the way they have to be booked, that process has changed. So, in some of the areas where the growth is not there, it is not because if you go and look at the numbers, the disbursement growth is quite solid, but the overall AUM has not grown because in many cases you have seen loans getting repaid or renewal not getting done, etcetera. So, the second part of the confidence comes from there, that we know that the disbursement growth is going quite well. A number of asset classes in the retail area, but the AUM is not reflecting that as yet and it will reflect over a period of time. Wholesale is an area also which did not grow for a long period of time or did not grow fast enough. In this quarter we have shown that the wholesale side has started growing. So, by the way not that our overall loan growth is bad, our loan growth is in line with the industry and we are seeing that the industry credit growth starts picking up. We believe we can also pick up from where we are. So if you believe that if we can deliver this growth with, as you said, low loan growth on the mortgage side or Bharat Banking side, I think it should give you more confidence that what we are saying comes with some logic. As far as the credit, the slippages are concerned, I will ask Puneet to add, but at a very conceptual level, what this new provision policy has done for us is that it has either led to... Either it's pre-polling recognition of NPLs because you are being more conservative or we are delaying recognition of recovery over a period of time. And that's the bigger driver. Yes, because the stock of our overall book is so large, you are seeing the impact of that in this quarter to be quite large. We do believe that the economic impact over a period of time will be almost will become minimal. And yes, so hopefully from here on, it will start to come down.
A couple of things I'd like to understand. So, this technical aspect that we just covered right now, has it been only for retail assets or across the business classes? And as a continuation to this aspect, is the RBI inspection still ongoing? Would it have any bearing to the inspection as well?
I will not comment on inspection, but I will give you a confirmation that this is not an RBI-triggered change. This is a change that we have triggered on our own.
Thank you so much. If I can squeeze in one more question. On margins, you had given a guidance of about 3.8% being a sustainable number. I know QOQ is not the right way to look at it, but in a decreasing interest rate scenario, would you be looking at tweaking the product mix or doing something a little different with your retail - I mean, with your assets right now in order to ensure that 3.8% is maintained? I'm just curious to understand how you would look at this number?
Thank you for the question. I think it's important that I put that question in perspective. 3.8% was on a through-cycle basis, so effectively the way I would request you to think about a cycle is equate a cycle to the duration of our assets and liabilities. As previously called out, roughly it's in the 15-month, 18-month range. So if you take the last rate cut and measure 15 months to 18 months thereafter, you should see us being able to get back to the 3.80% that we have alluded to previously. So, on a through-cycle basis, we will get to the 2% to 3.80% name that we have. We have never said 3.80% will hold through for every single reporting quarter. As responded to a question posed earlier, we reported a 3.80% net interest margin for the current quarter. The current quarter has for the full quarter impact of 25 basis points and part of the quarter impact for 75 basis points. This 75-basis points rate cut impact will fully play through in the next quarter. That's directionally how you should be thinking about our margins.
Sir, my question on NIM has been answered, but I just wanted to understand one more thing because in last quarter the company has said that the company had 18-basis-point cushion over the through-cycle margin. When the NIMs were 3.98%, it has come down to 3.8% now. So, what is the cushion that the company has?
Thank you for your question. I think let me probably articulate the way we think about margins. We think about margins on a through-cycle basis. We do not think of margins on a sequential quarter basis. The cycle should be measured broadly in terms of the duration of our assets and liabilities. And if you put them in the 15-month, 18-month range, over the period of 15 months to 18 months, then the rate cycle shows you a drop, you will first see a drop in margins and then a recoupment of margins. So, what we have consistently maintained and what we continue to maintain today is the quality of the franchise that we have built will allow us to deliver 3.80% on a through-cycle basis with an early drop because assets get re-priced faster than liabilities and then a recoupment at the end of the cycle. So think about it as it inverted C, that's how margin trajectory should behave.
Would it be possible for you to give me a break-up of the slippages, which sectors it is coming from?
Thank you for the question. I think as we called out, a dominant part of the slippages is coming from the retail segment. So, it is actually sector agnostic. From a product perspective on the retail side, we are seeing that come from the cash credit overdraft product largely offered to the retail customers, which includes some of the cash credit overdraft products we offer to the retail agri-customers that we have. So that's one product set that has gotten impacted by the change in the current quarter. Holistically, across product sets, we have changed how we are accounting for one-time settlement classification, and that's across product sets because that's a thematic change in classification. So those are the two places where We have seen the impact play through. So, it will be sector agnostic, more product specific, please.
I understand you repeated a few times this technical impact, but if you could put it very simply, why did you choose to change how you make provisions, what your policies around those really are? What were the sort of loopholes you identified because of which you chose to change this policy? So, in very simple words, if you could explain what exactly is this technical impact, and even without that, your retail slippages of INR 7,500 crores, excluding that INR 5,335 crores. Could you give us a breakup of exactly how much of this is agri, and where is the other stress that you are seeing? Second, on your loan growth in single digits at about 8% only, going ahead, do you expect this number to improve meaningfully? And if I may slip in a third question, since Mr. Rajiv Anand is retiring this quarter, is the DMV position that you are looking to fill at the bank anytime soon?
Thank you for the questions. Okay, let me demystify technical impact in simple terms. NPA classification happens on days past-due criteria, and then there is qualitative criteria, which teaches agnostic of days past-due. An example of that could be, if you've given a customer a one-time settlement, do you follow the days past-due criteria for downgrading the customer, or do you downgrade the customer as and when a one-time settlement is given? So qualitatively and simply, classification can happen on days past-due, classification can happen on qualitative parameters. We have not changed any day-past-due parameters because they are driven by regulation. The qualitative parameters, as we have previously indicated, we benchmark the most prudent in market on an annual basis. That benchmarking exercise happens for us in the period of Feb and March, and the implementation of that happens from the next fiscal. The purpose of the benchmarking is to make sure that our balance sheet is resilient and can withstand any credit cycle that comes our way, therefore giving you a robust, credible outcome when growth comes back. So that's the thinking behind why the change and what the change is about. I'll defer to Amitabh to answer the DMD question.
That is on the credit growth, and also on the slippages in this about size 335, including the technical impact, the retail slippage. How much is from the agriculture portfolio and how much and where is the rest from?
So roughly, if you look at what we do, is Q1 and Q3 are cyclical, and the way I would request you to think about it is, in Q1 and Q3, about 25% or thereabouts of slippages are from the agri portfolio. So, you could apply the maths to INR 5,400 crores, and roughly about 25% or thereabouts would be agri. The percentage would be broadly similar for last year's rupee crore number. The rest of the 75% is coming entirely from the unsecured business. We are very clear in making a call-out saying, we do not see stress in the secured part of our retail book as on date.
Sure. On the credit quote and the DMV question, thank you.
So, when Rajiv retires in August, as per expectations of RBI, we need to have MD, CEO and three EDs. Our NRC is actively looking at who and when we appoint a third person as Executive Director of the bank. When we are ready to do that, we will be very happy to do it, but you should expect announcement of ED appointment as Rajiv retires. So that is the answer to one of your questions. Second question I thought I answered in detail in the response to the first question, which was, yes, credit growth is where it is, but our confidence about what we can do the rest of the year and in the medium term given where our platform is, is high. We are expecting to grow faster than the industry. Obviously, that's an expectation, but we are quite driven towards ensuring that we can deliver that output. Our platform allows us to do it. It is a question of identifying the specific retail asset class and the wholesale asset classes where we want to grow. So, we have made that statement very clearly. We are not guiding for growth, but I have given you enough hints on that. We believe we can go faster than the industry.
Just a follow-up to this. So, would you say that this is a one-off then?
Thanks, Amitabh. I think broadly the way you have to think about whenever a policy changes, there is a re-correction of stock and then there is the true flow. What you've seen in the current quarter is a re-correction of the full stock because we don't apply policy changes prospectively, we apply it to the full book as of a given date. So the reason the number is large in Q1FY26 is the full book has gotten reassessed on that criteria, consequently large. Now that the stock has flowed through Q1 to the point Amitabh was making earlier, the flow should be more moderate than what you've seen in the current quarter.
So, it's safe to say that this is a one-off then, the spike in slippages?
So, it is safe to say that -- so I'd like to confirm two or three things. One, having benchmarked our policies, we do not expect to make any further changes of this nature on a go-forward basis because we think we are at the most prudent end of the street today. So, this is probably the end, not just probably actually the end of policy corrections at Axis Bank unless regulation changes today. So that's one confirmation we are happy to offer. Second is, the impact will play through the full year, but the stock correction is Q1. So yes, it's fair to assume that the impact will be more muted in the subsequent quarters.
Yes, sorry. My question was also on this, the technical impact. I just wanted to know if I understood it correctly. The slide says that the total impact was INR 614 crores. So, the profit is down by INR 614 crores because the bank has changed its asset classification and income recognition norms. Is that correct? Would it be correct to say that?
Yes, that's correct. So I guess you are referring to Slide 44 of the investor presentation. INR614 crores is nothing, but 75% of INR 821 crores, which is the provision we have made because of higher recognition that was done due to change in norms. So INR 821 crores is the provisions and contingencies impact. Post-tax impact is INR614 crores. So, yes, one way to read the number is the reported PAT plus INR 614 crores of PAT would have been apples-to-apples to same quarter last year.
And with this new policy, are you all compliant with the ECL norms? Should they be implemented?
The new policy would -- effectively the policy has nothing to do with ECL norms. The ECL norms are provision-led. Our provisioning policy was always more conservative than required by regulation and more conservative relative to our peer banks. So yes, basis is PCR today. We do not believe that there will be a stage 3 impact on ECL transition to our network, i.e., we are adequately provided for stage 3 assets.
Hi, just one more question on this technical impact. If I missed, what triggered this change in the policy?
Gopika, thank you for the question. As a bank, we undertake a benchmarking exercise to market best practices annually. This exercise we do internally between the months of February and March. When we did this exercise, for the non-DPD-based parameters, we did find an odd bank that was following criteria that were more stringent than us, and that benchmarking led to the change that we have made. If you go back in our history, you would have seen similar changes made to the CBG provisioning policy, similar changes being made to our 100% provision on unsecured retail assets policy change. So it's a continuous process to get better over a period of time, and that's what yielded this change currently.
Okay. This is not because of any concerns regarding your retail portfolio...
Sorry to interrupt the question. By the way, we had stated that we are changing our policy in the last call, so it's not that this is some sudden thing which we did. I think when we did the last call, we did say that we are making a change and you will see an impact come through our results. But anyway, yes. No, there was nothing which we are seeing in the portfolio or something in the economy which is making us conservative. It was a planned thing which we do every year. I think now we have become the most, as Puneet used the word, the most prudent bank in terms of provisioning policies across the spectrum, and hopefully we have done with it.
And one quick question on margins. Of course, how do you see the impact of margins? Because the funds have come down, but how do you see margins panning out in the next quarter, in the coming quarter?
So, thank you for the question again. I would request that we look at margins on a through-cycle basis rather than a sequential quarter basis, and I'll answer your sequential quarter question. Our balance sheet is reasonably tightly matched on duration. Therefore, over the duration of our assets and liabilities, which is roughly in the 15-to-18-month range, asset re-pricing and liability re-pricing should level off. Therefore, we retain our confidence that on a through-cycle basis, we will stay at the 3.80 NIM that we have previously alluded to. For the next quarter, the RBI has cut rates by 100 basis points. 25 basis points of that have been fully passed through in the current quarter for the full quarter. The remaining 75 basis points have been passed through for part of the quarter. So, the way you have to think about it is the full 75 basis points will get passed through the next quarter. That's how, directionally margins will go.
And the second question I'd like to ask is, we have seen a protracted phase of high slippages from particularly the retail segment. Has it been difficult for the bank to sort of really pinpoint as to when the pain in the retail space is going to come to a near-tapering level? Have you assessed the situation well there? How long should investors expect that retail will be a pain point for Axis Bank, as well as for the banking industry as a whole?
Thank you for the question. I think I missed answering the question earlier, or part of your question earlier, which was whether this is just retail or across the portfolio. The implementation is across the portfolio. But please appreciate that the larger corporate customers are able to work through some of these changes sooner than the retail customers. So that's the reason why we clearly called out that the impact on the CBG and the WBCG segment has been minimal. To your second question on asset quality trends, We have called out the fact that credit cards is stabilizing for us. We have called out the fact that on personal loans, post-credit corrections that were undertaken, early rates on the new portfolio are encouraging, i.e. delinquency lower than previously underwritten portfolio. This personal loan portfolio should vintage by end of H1, which is another quarter. And if the rates continue to be the way we are currently seeing it, we have called out the fact that early rates are good, so you'll clearly get a directional input basis vintaging of the book. On secured, we have had no problem on retail or - and segmentally on wholesale CBG, we are not seeing any emerging risk. That should give you a full flavour of how we are seeing the colour of our book.
Good evening. My question on NIM was mostly answered, but I did want to ask about the technical changes that you mentioned. Out of your loan book sector-wise, did you see that the impact of those technical changes was more in one particular part of the loan book or was it more evenly distributed?
Thank you for the question. Like we said that, we can't call this out sectorally, because the change has impacted the retail segment more. And within the retail segment, the product that has got impacted by the change is the cash credit overdraft product. That's ...so it's a product-specific impact rather than a sector or a segment-specific impact. One-time settlements are across all products, all segments. So the combination of the two is what has manifested in the current quarter.
Okay, Sir, and I have missed, I think, Sir, your answer on the PL portfolio, I mean the personal loan portfolio, because it was expected to show some improvement in the next two to three quarters. So, are there any initial signs of improvement?
Yes. Thanks, Varun, for the question. Yes. We have clearly seen some signs of change in the portfolio there. I think Puneet mentioned it earlier. All the key indicators that we have seen, whether its bounce rates, early delinquencies, resolution rates, we have seen an improvement. I think that provides us comfort and all are within the risk guardrails. I think he also mentioned the fact that we would still like to monitor these for a quarter before we are calling out normalization or stabilization, but clear signs of improvement.