The first one again on margins. So this 34 basis points of NIM expansion in next 12 to 15 months basis your guidance, could you just provide a walk of how much of that can come through via reduction in the wholesale loan share, reduction in wholesale cost of fund, and the decline in the overseas loan share? So, a walk would be helpful to at least contextualize and get some confidence as to how this margin improvement comes through. The second question is on opex. There is a disclosure that there was some one-time write-back. Was it around INR220 crores and what exactly is this number write-back? The third one is on the upgrades and recoveries which seem a bit weak in this quarter. Why was that and how should we think about potential recoveries from technical slippages of the last year here on? And maybe if I can just add one more question. It's on whether would you like to increase stake in Max Financial Services to 30% given RBI of late has allowed some banks to increase their stake up to 30%?
Rikin, thank you for the question. I'll probably answer three and then request Subrat to come in on the fourth. Your first question on the bridge back to 3.80%. As part of my opening remarks, I had said that we've lost about 16 basis points due to change in balance sheet mix over the last 12 months. So if you look at that change in balance sheet mix, we have consistently said that we do think we have the ability to recalibrate the balance sheet over a period of time. Retail disbursements have started growing. So that 16 basis points call out was to give you a quasi-indication of the actionable that can be undertaken. The balance sheet mix is both segment advances as well as rupee/non-rupee that was discussed as part of an earlier response. Moving to your second question on opex and what are the one-offs in opex. If you recollect when we reported last quarter, we had taken about a INR129 crores charge for provident fund liability given where government security rates were at the end of that quarter. Government security rates were adversely impacted because of the RBI administrative action at quarter end. G-Sec rates have eased through quarter one and therefore the charge that took place in quarter one has in a substantial part ended up giving us a reversal. So Q4 charge has ended up giving us a reversal in Q1. So that's one large item. The second large item is around gratuity and the third item effectively is we true up variable pay and there was an excess variable pay provision that we've trued up. Those are the three items that aggregated to the quantum of the one-off that I have called out for you. Rikin, I think your next question was on upgrades and recoveries, I think the simple point I would make to you is we stopped calling out technical versus non-technical. I think you should draw comfort from the fact that Q3 credit costs and Q1 credit costs are very similar. They both have seasonality, they both have meaningful improvement on recoveries from the technical pool. So I think that should give you comfort. We remain comfortable that slippages attributable to technical criteria will not result in an economic loss for the bank.
Before Subrat you come in on Max Life, Puneet, just a clarification on margins. Out of 35 basis points of potential improvement that we are talking about, 16 basis points is the balance sheet mix reversal. Where does the balance come from?
Rikin, I'm not going to lay out the entire bridge for you. You've got to let us work through some of these numbers. Effectively, please appreciate that 19 basis points of margin have been lost year-on-year because of a repo rate cut. So effectively, even if I had held book static, I would have lost 19 basis points of margin. 16 basis points of margin is books mix change as of today. Effectively, like we said, retail disbursements continue to grow and as retail disbursements and retail growth picks up, you'll see some recalibration come through. The balance we will find a way to bridge over time. We would not want to give you a exact itemized bridge because that flexibility we'd like to retain with ourselves.
Follow-up: Max Financial Services stake increase to 30%
So Rikin on Max Life's stake, yes, there is an opportunity based on the clarifications that RBI came up with in December. We are engaging internally. We will go through the process internally in terms of, you know, weighing the pros and cons of increasing the stake and then go to the regulator and check if they are open to this idea. As you know in the past, we were always keen on having a higher stake. At that point in time, the regulation didn't allow us to. So, this particular evaluation will happen and we'll let you know if there is anything based on some of the internal conversations and board approvals.
Yes, so when we are talking about in terms of the change in the balance sheet mix, do you think it will have impact on the growth as well, maybe as we try to pull up the margins and maybe if the overall non-rupee proportion is to come off a bit and retail has to grow, would we see some pull back on the growth side, ex of FCNR benefit which will be there in the very near term, but otherwise from the current run rate, do we see some normalization in the growth as well?
Kunal, we don't offer outlook on current run rate. I think what we've consistently said is we feel comfortable that we'll grow at industry plus 300 in the medium term. We haven't walked away from the industry plus 300 over the medium term as part of our commentary on the NIM bridge. So we will reiterate the fact that we still believe we will continue to grow at industry plus 300 as we find ways to recalibrate margins.
And in terms of the overall overseas portfolio, so this doesn't include any part in terms of either the FCNR or the leveraging part of it. So that's definitely not there in this entire book? And if you can just highlight in terms of how we are assessing the opportunity out there and how much we would be raising in terms of this entire FCNR window?
Kunal, thank you. Your question had some affirmative statements which I won't like to confirm or deny, you said the overseas book has no FCNR. We will comment on FCNR growth as part of Q2, when we know the quantum that's been raised. The color of the overseas book, I would request you to look at Slide 30 of our investor presentation. I'll just read out the salient features. 98% of that book is rated A- and above and 64% of the outstanding is to the top 10 conglomerate. So it's a very high-quality book that we run on the offshore side.
So in terms of the quantum raised till now under the FCNR window?
Kunal, we're not calling that out yet. Please allow us to report FCNR (B) numbers once we have concluded quarter 2. We've offered qualitative commentary on what we think we can do on FCNR. We believe that we'll clock above our organic market share on FCNR. We are not providing numbers on what we've raised till June or what we expect to raise till September.
First to hop on the margin part. You talked about the potential reversal of that 16 basis point mix change in the last 1 year. But that's as a result of 38% wholesale growth and then 8% of retail growth. So, how much of that can we reverse because to reverse that we need to grow retail at 30% odd and wholesale at 8%. So how much of that mix change back should we expect in the next 1 year or so?
See we don't offer very specific details on how the mix change will evolve over the next 1 year. I think we have made this point consistently that you should look at our retail disbursement growth trends over the last three quarters, including this quarter, where it has been at about 18%. That disbursement trend will eventually translate to book growth, which is happening gradually. So the work on making sure that mix change reversals has been on for the last two quarters. And we'll see as we go forward, the disbursement strength in the retail side will help us towards that. But we don't offer specific milestone-based numbers on how this will reverse itself over the next year.
Sorry, on the retail disbursement, may I have the absolute retail disbursement number because we have had high retail disbursement growth around 18%, 20% odd in the last three quarters. So the book growth is accelerating but seems like a rather slow paced from 6% odd to 8% of the three quarters?
We don't disclose specific product-wise disbursement rupee values. I think if I was to give you something for you to look at, to corroborate our commentary. If you were to look at Slide 22 of our investor presentation and look at year-on-year growth for current quarter and plot next to it year-on-year growth for each product category that we reported last quarter. In all of the product categories, you would see an improvement in year-on-year growth. That should give you some comfort on the fact that the disbursement growth is translating into book growth with the lag.
So let's assume, for example that mathematically the disbursement will maintain at 18%, 19% of retail book, right? From how long did it take from 8% retail growth to go to at least your average loan growth of 17%, 18%? How long does that take just mathematically?
My request is we can take the mathematical questions offline. Very simply put, whichever way I am asked the question, I'm not going to guide product-specific growth. We have only 1 headline guidance on growth, which is 300 basis points above industry. I'm happy to answer this question in as much granularity on how you should think about the arithmetic. But as a management team, we regret we will not provide segment-specific or product-specific growth numbers.
So that much faster, would it be more like 6%, 7% actually? And just secondly, how much of this 9 bps can be offset by lower opex and credit cost? Because obviously, if you're giving it to better quality customers or AAA rated corporate, there will be a benefit on the other line items, right?
It won't translate to 6%, 7%, but it is a multiple of period-end growth that you're seeing. So, Piran, rather than giving you outlook on what it would be, the simple answer I would offer is, I've had an 8-basis point cost of assets improvement Q-o-Q versus a 9-basis point pricing impact that you've called out. So that's one way to think about it. That may not be very accurate in its holistic sense. But if you're asking me the pass-through through the DuPont there's 9 on pricing, there's 8 on cost.
So, my question is on the investment yield. So last quarter, we had seen a sharp decline in the investment yield, given that the investment book has grown sharply. But this quarter with the investment book declining sequentially, naturally, your investment yield should have ideally picked up. So even this quarter, it has declined. Anything to read on that? Second is on the ECL front, if we can tell the onetime impact, and what could be the increase or impact on the run rate, the credit cost run rate going forward?
Thank you for the question. Give me a moment to process whether investment yields have declined or not? We could move to your next question, I'll just come back to you with a response on that question before we finish up the call. On ECL, our assessment as of 31st March 2026, balance sheet is that impact on net worth will be marginal. And the marginal impact is purely an outcome of the fact that ECL is an exposure standard, whereas IRAC is an outstanding standard. And therefore, unfunded exposures will need a provision plus RBI has prescribed floors. Therefore, we do think between these 2 components, which are incremental to IRAC, we should see a marginal impact on net worth on transition date. On a go-forward rolling impact, effectively, our assessment is, the industry as a whole, including us, should see higher provisions to assets in post or in the first year of transition, purely given the way Stage 1 and Stage 2 provisioning will run against the 40 basis points of standard asset provisioning that runs today. So that's how we are thinking about ECL transition. There is a 6 basis points increase in average earnings investments on a Q-o-Q basis, is how I am looking at the data.
Can I get some color on the 9 basis points of pricing of loans that you gave in the quarter-on-quarter NIM bridge. What is this exactly, is this kind of incremental pressure on loan yields that is impacting. And also, if you can discuss the nature of these corporate loans. What is the kind of tenor? What is the kind of products that we are writing in? Is this something that kind of reverses once the capital markets become more accessible to the corporates? And secondly, on the funding side, it seems like a lot of this corporate loan funding is being driven by wholesale funding, your LCR retail proportion has come down a bit. CASA systematically is a little weaker. Is this kind of matching up of temporary corporate loans with temporary wholesale funding, which can go away over time as this demand goes away?
Chintan, thank you for your questions. I'll respond to it in parts. I think the one thing we can definitely tell you is we are lending on the corporate side at positive spreads and at RAROCs that we feel comfortable with. So effectively, from a funding perspective, as long as we're able to lend at positive spreads, we're happy to undertake that lending as they are meeting our risk thresholds. Second, please do appreciate that 91% of our corporate lending is to A- and above rated corporates. So we are lending to the higher end of the credit spectrum. Over the last 5 quarters, we haven't slipped down the credit spectrum at all. So the growth is high-quality corporate lending that we are undertaking. We feel comfortable with it and if the opportunity presents itself, we will continue to pursue that strategy. The second part of your question was, 9 basis points of pricing on loan. Chintan, my request would be to think about it this way. We had roughly a percentage point shift in mix last quarter. We had also called out last quarter that period-end growth was higher than average growth. So there has been a spillover of last quarter's corporate loan pricing impact into the current quarter. We've also roughly had about a percentage point shift of mix in the current quarter. Both of these play through pricing on loans. In general, pricing on loans has been competitive for us as well as the rest of the industry. I think to your last question on CASA, we've held up reasonably well, both on period-end CASA as well as average CASA. In fact, numbers that I see, I think our QOQ performance on CASA, on average has been better than most in the industry.
Just two quick follow-ups. You said 4 basis points from balance sheet mix. So, I would attribute the corporate mix shift towards that 4 basis points, and 9 basis points in pricing of loans. So should that be spread compression, but it doesn't sound like that? So I just want a clarification on that. And the second point on the corporate volumes. Are these temporary in nature? In the sense, are corporates coming to Axis Bank because it's better for them for the moment? And once bond markets kind of normalize they might go back away. So just trying to understand whether these corporate balances are sticky or they kind of become a headwind to growth as they unwind?
Chintan, Vijay here. So these are across project finance, term loans and working capital. Some of these loans will transition into bonds. We believe that these loans have been given for in case of working capital, to take care of their shorter cycles and in case of project finance and term loans for longer terms. And we expect them to remain with us. And because these are across sector, such as energy, commercial real estate, infra and metals, and we don't expect transition as soon as the bond markets become active. But in the natural course, they will transition when the assets mature. And typically, that's how we have seen the market behave over several years.
Follow-up: clarification on temporary corporate loan volumes
Since you're asking questions on temporary loans, I just want to clarify. We have been in this business for a long period of time, and we are doing a combination of loans across, as Vijay pointed out, around working capital, term loans, et cetera. So, there is no specific bunch up of temporary period loans, which have been created in this quarter, which will kind of somehow run off very quickly. Normal ratios around a typical wholesale franchise. That's what we maintain. Just to clarify.
My first question is again around NIM. So your cost of funds seems to have bottomed out. Now where do NIMs go from here? As in that we had the structural NIM target of 3.8%, which we thought would be achieved over, say, maybe 12 to 15 months is what I recall. Where do we stand on that soft guidance? That's my first question. And then my second question is on opex. So obviously, you've called out and you've given many details on opex. But what would be a normalized run rate for opex, because you are seeing some productivity gains, you are seeing some reversals. So what would be a normalized level?
Thank you for your question. This is Subrat. On the direction of NIM, we have not changed our structural NIM guidance of 3.8% including the time period that we have mentioned in the past. Like Amitabh mentioned, we think this is the bottom of the cycle in this quarter, which in some ways from our perspective would mean that from here on, the effort will be to continue to move towards the structural NIM guidance that we have during the time period that we had suggested earlier. Amitabh also mentioned that there is an FCNR (B) opportunity coming up during this quarter, which would mean that there might be surplus liquidity, which we'll try and deploy in terms of making sure that there is the right way to deploy and get growth on the back of that liquidity as well. On the guidance on cost, see the work on efficiency and improvement on productivity has been ongoing over the last four to six quarters. So if you look at where the cost to assets have trended over the last six quarters or so, they have been trending downwards. We don't offer a specific, you know, terminal cost to asset ratio guidance. From our perspective, there are opportunities to continue to improve the productivity within the franchise. We have some opportunities on the upside in terms of productivity at the branch level. The technology investments that we've made in the past are bearing fruits. Additional investments are happening in AI. So like we've mentioned in the past, over the next 18 to 24 months, we'll continue to be on this path, but no specific guidance on where the cost to assets will eventually land.
Also, just one last thing on your foreign loans. They've grown quite sharply, so if you could comment on that as well?
As we've earlier said, we've been very selective about both sectors and clients. And whenever we've seen opportunities to participate which meet our internal thresholds and RAROC and also give us an opportunity for reciprocal flows and fee, we will continue to participate. Where in this case the opportunity presented in foreign currency loans, so that's what it is.
Follow-up on foreign currency loans
Just to clarify on foreign currency loans, you know, this is purely opportunistic. There are clients, there are relationships, sometimes they bunch up in a particular quarter or so. No specific directional change in terms of how the portfolio mix is going to be. So some of this is purely opportunistic at this point in time.
And just a follow-up on the previous participant's question on the 9 basis points pricing change impact. Sorry, I'm still confused because there's 4 basis points of mix change. And then what's the 9 basis point about is it Q-on-Q margin?
So the 4 basis points of mix change comprises asset plus liability mix change because mix change could also be placements, investments and advances. Please appreciate it could be proportionality between earning assets. It could also be proportionality of earning assets to total balance sheet. So that's the quantum that is sitting in the balance sheet mix change. There is a liability mix change that is also sitting in the 4 basis points of balance sheet mix change. Now the 9 basis points of pricing change is a full impact of pricing of loans in the last quarter visible on yields in the current quarter, repricing of contracted loans, and given where incremental growth is coming from, the incremental loans compared to headline yields are because of the segment to which they're being lent to are being priced lower. So we've seen a price compression across loan categories given market competitive intensity which is sitting in the pricing 9 bps. And we've seen balance sheet mix change across assets and liabilities, that's sitting in the balance sheet mix change.
Hi team. Congrats on the quarter and thanks for taking my question. Just going back to a mathematical thing, if NIM had declined 16 basis points and our assets, average assets, average interest-earning assets, whatever grew 3%, 4%, then NII should have declined, right, but it still grew. So what am I missing here?
Look, I think, Piran, the way I would explain that number is effectively, if you think about it, my period-end advances growth or my period end interest-earning asset growth is not reflective of the average interest-earning asset growth that we have had through the quarter. Again, just to give you illustratively reasons why that could happen, I could have run an asset for a large part of the quarter and then have had a sell down of that asset towards the end of the quarter, which would effectively mean that I have earned income on that asset for a period. So let's hypothetically say I booked an asset on day 1, I sold the asset on day 88. I would have had income on that asset for 87 days in the quarter, but it will not appear in my closing balance. So the broad explanation to your question is while you're seeing a 2% quarter-on-quarter advances growth. The average interest earning book has grown at a much faster pace for us in the quarter.
And just one question, nothing to with guidance. I think on corporate loans that are linked to, say, T-bill or repo linked? How often can you as a bank go back and change the terms and conditions with the borrower. So, let's say you've given it to some, say, Tata Steel at T-bills 250 bps. A quarter later, can you go ahead and say, no, I now want, T-Bill plus 275 bps?
Unless there is a credit event, we won't be able to reprice it. If there is a repo change, we'll be able to reprice it, typically we do at the quarter end. Unless there is a credit event, we won't be able to do that in general.
Just lastly, sorry, reporting on a Saturday, is this a one-off also like your NIMs, or is this steady state now? And I would urge if we could go back to weekday reporting.
Piran, thanks for the suggestion. Honestly, I'm not the person who should be answering this question. But let me answer that question for you. I think we are very clear that from a data confidentiality perspective, from a risk perspective to the institution and our Board, we'd like to follow a Saturday format. We'd like to report on a market holiday. It helps us have a deliberated discussion with our Board on results and have more detailed discussions then. And we've consistent and we've made this change effective Q4 of last year, so you will see us consistently follow the Saturday format going forward.
So, a couple of questions. First, in the NIM outlook that you have given, have you accounted for any dilutive effect of whatever FCNR balances that you might raise or that would be over and above the guidance that you've given?
Sorry, Abhishek, I'm not clear on the question itself. You said we've given an outlook on NIM. I don't think we've given an outlook on NIM. So there were 2 parts to pick your question as I understood it. You indicated that we've given an outlook on NIM and whether FCNR will be dilutive or accretive. I just want to categorically clarify; we've not given any outlook on NIM for the near term. We don't provide any outlook on NIM even for a full fiscal year basis.
Just one question between the choices that you have done. If you look at the last, let's say, about 2-3 quarters, you pushed the corporate loan growth on the argument that the return was slightly better and where the balance sheet is. Just trying to understand, it still kind of caused the margin condition. And you also, on the other side, argue saying that retail disbursements are going up? Just wanted to understand what has changed in the last few quarters that suggest that the risk-adjusted return has improved across the various products? Because at the end of the day what we see on the ground is that the margins have fallen. Just trying to understand, why chase that corporate loan book in the last two quarters, and why you believe that retail is also now generating a similar return.
Okay. So, Mahesh, please understand the wholesale strategy. When we talk about return, we are talking about not only NIM, but what are some of the other businesses we are able to generate to these corporates in terms of higher balances, trade fees, FX, etc. So, we're looking at overall return and not necessarily NIM. NIM obviously for a typical wholesale franchise would tend to be on the lower side if you compare it to other retail asset classes. Now, when our deposit franchise starts doing well, and we can raise deposits and retail will take its own steady manner brick by brick, it will take time to ramp up back in terms of growth, wholesale is the best way to deploy it. We also believe that we are getting great opportunities there, and overall return is meeting our RAROC standard; the RAROC of the wholesale business stands head-to-head with the retail side of the business. So, it's not that we cannot or should not look at wholesale as a growth opportunity. Now, as unexpectedly when FCNR has come as an opportunity, and depending on how much money we are able to raise, we will see as to how to deploy that FCNR fund, whatever we are able to raise across our franchise. So no, I think what we're really saying is that because NIM is such an important question, every analyst has been asking about it. We have seen the bottom. All of you know the levers, we know the levers. We are working across each of those levers. But at the same time, just to ensure that, somehow, we have to be held against the NIM number, we should drop our growth or see something it does not make sense to us. So, we are still standing by what we have said in the past. But we are just saying that if there are opportunities, this is the way we are building it. So, strategy itself has not changed.
Additional commentary on wholesale credit discipline
To further continue with what Amitabh is saying, keeping our book pristine at 91% A- and better, 87% incrementally on a quarter basis. Just to reiterate, we are not just in the game of lending here and we are not clearly competing on pricing. We're going after sectors where there are economic tailwinds. We're going after clients we are comfortable with and clearly where there are reciprocal flows and fee and where there is One Axis opportunity across Burgundy Private, Corporate Salary. You've seen the corporate salary momentum that Amitabh referred to as well as investment banking share. So, we're looking at composite returns, not just lending returns. And we are very comfortable because these are clearing our internal RAROC thresholds. So, we'll continue to go after opportunities and without dilution of either risk returns or our credit standards.
Vijay, just if I have to just ask 1 additional question for you. When you look at the ECLGS applications that are coming in, can you just kind of give us some color as to what is the nature of the customers that are coming in? And how are you entertaining those requests?
Yes, so we have put in place the right guardrails around what kind of customers we would like to select for offering the ECLGS too. We are seeing that the ECLGS scheme is being requested primarily in the MSME space. And the customers who are coming to us are meeting those criteria. Typically, they are in the manufacturing sector or the trading sector, and we are processing their applications in line with the regulations and the requirement of our own policy.
Are you able to quantify how much of ECLGS requests have come in and you've accepted it?
Yes. Thanks, Mahesh. I'll quantify that for you. We've sanctioned about INR5,000 crores of ECLGS. And of that, we have disbursed about INR2,400 crores as on date.