On reported global yields on advance and cost of deposits - both moved down and cost of deposits went up, but margins are higher, presumably IT refund. Can you quantify it? Also outlook on cost of deposits - is TD repricing complete? And on OpEx, with mortality rate change, how to think about ongoing employee expenses?
The denominator of spread vs margin are different - we should not compare spread and margin. There is a line item with regard to the IT refund. Since we have a large provision on the IT, we keep getting this as a normal flow, it can be higher or lower in a particular year. Although we had 2.89% NIM this quarter, we projected 2.75 to 2.95% to account for IT refund volatility. The NIM we announce is the core NIM. On cost of deposits - I think it is getting sticky at this point of time. At 4.78%, we are one of the lowest in the market. The geopolitical issue came big time in March quarter. Cost of deposit is going to be sticky - scope of realigning on the asset side, but cost of deposit is not going down at the current scenario. CFO on mortality: The Rs. 520 crore one-time impact from new mortality table. Going forward, recurring impact will be very negligible.
On the ECL guidelines that have come through - you called out around 18 bps steady state impact earlier. Is the final guideline tallying with your earlier calculation, better, or could it be higher?
Earlier it was a draft guideline so it was possible to estimate or guesstimate. Now there is a final guideline. Unless and until we compute fully, it is not proper to quantify at this stage. But my sense is that whatever guidance we had given earlier, it would be aligned to those numbers. I am not expecting any significant change vis-a-vis the earlier, although that was more of a tentative calculation. We want to see the real impact and then articulate better rather than giving any number at this stage.
On trajectory of margins - full year guidance is 2.75% range. Is it fair to assume margins will first move down and then move up in the second half given near-term pressure on deposits and asset repricing strategy may take a while?
You are right. One thing we are assuming for this quarter at least is that the cost structure is going to be sticky. The cost of deposit further moderation, we are not looking at. So, the only way the NIM we can manage is realigning the asset pricing - that would be one of the key focus. Why slightly we give a conservative number because the IT refund is a continuous flow but can go up and down in every quarter. All four quarters together, we should not be breaching this lower threshold of 2.75%. The CFO confirmed the one-time AS-15 increment of Rs. 520 crores is fully absorbed in this quarter; recurring impact will be negligible. Wage settlement is still not yet due.
On growth and deposit growth guidance - still expecting loan growth to outpace deposit growth. How much buffer on LCR front? What's the comfortable LCR? On interest on IT refund - you call it core but it's very volatile contributing 10-15 bps to ROA. How long can interest on IT refund continue?
A sustained basis you have the capital and alternative resources - refinance, bonds. We focus on creating a stable resource base. CD ratio improved to ~83% domestic. In a scenario where banks are holding excess SLR, any deposit raised need not go into SLR - the entire money can go to advances. This gap of 2.5 to 3% is sustainable in growth of advances and growth of deposits. Interest on IT refund is a line item per accounting but can be volatile. We do not estimate year by year - we account the estimate in margin guidance. Having achieved 2.89%, I'm giving guidance of 2.75 to 2.95%. We typically do not get into quantifying because it is a normal accounting line item.
How long this IT refund can continue for - 1 year, 2 years, 3, 4? And any quantification on ECL impact and how credit cost run rate could move on implementation of ECL?
I will give you guidance next year again. As far as this year guidance, there is going to be a good amount coming. Next year if I see there won't be any money, I would not account this and give different guidance. My guidance for tax refund is based on this only 1 year. Perpetuality we will discuss next year. On ECL: when draft guidance was there, it was possible to estimate. Having issued final guidelines, it would not be proper without really running computation transaction-wise. We will do it once we implement and have a quarter number. My sense as on today, looking into final and draft guidelines, will not be off track from the number estimated earlier - it will be aligned to those numbers. But once you implement at transaction level for one quarter, then we can quantify.
Do you have a number for blended bulk deposit cost for last quarter? And do you suspect any increase in retail term deposit rate in the near term? Have you made any PLI provision for this year - quantum?
Bulk deposit data - we can provide offline. Earlier we had 24-25% of total deposit in bulk; reduced to 17% a couple of quarters back; now 19% but below my guidance of 20%. I'm not predicting any increase in deposit rate. Cost of deposit at 4.78% is one of the lowest in the system; that's going to be sticky in Q1 - not expecting to go down further. Domestic is at 4.99% - still below 5%, not many banks below 5%. Sticky means not expecting to go down; going up would depend on liquidity scenario. PLI provision of Rs. 500 crores has been made; it is under staff cost.
In the SBI call just prior, they alluded to some scope to improve yields on advance as corporate borrowing moves from T-bill to MCLR. Is this something we can possibly do or a positive kicker on yields going ahead?
That is what I said - when I said the deposit is sticky, that means the only scope for us to realign the asset pricing. When the rates were really low, many MCLR-linked loans got repriced with the external benchmark, more particularly T-bill. With the elevated rate structure prevailing because of the geopolitical issue, I think there is scope for realigning that portfolio and that is what actually our strategy to look into those pricing very closely.
Increase in bulk deposits 14% QoQ and 25-26% YoY - would we again pursue reducing bulk deposits and wholesale portfolio as in earlier balance-sheet reduction exercise? On floating provisions Rs. 1500 crores - is this towards ECL transitioning? How much more do we plan to create? And on recoveries from written off - substantial increase vs guidance of Rs. 750-850 crores - do we continue to maintain Rs. 750-850 for FY27?
2-3 years back we wanted to reduce dependency on bulk deposit when it was almost 23-24% of total deposit. We went down to 17% at some point. The balance sheet continued to grow strong - the strategy was to replace bulk with low-cost deposit. Saving growth is 9.1%, CASA at 39% - one of the highest CASA percentage within peer banks. For March quarter, geopolitical issue created liquidity tightness with loan growth at 16.2% - we needed to mobilize bulk and CD. CD component in bulk is Rs. 3,20,000 or 3,21,000 crores. CD has lower duration and cost than bulk. On floating provision: created to buffer balance sheet for any extraordinary scenario, not for tagging with any ECL provision per se. Cannot be touched unless regulatory approval. If ECL impact has to be taken, we'll take it in books directly without touching floating provision. On TWO recovery: normalized guidance of Rs. 750-800 crores continues. March quarter is always productive in recovery efforts. TWO book is almost Rs. 62,000 crores.
Would there be chunky account of Rs. 500-700 crores in recoveries this quarter?
Not any chunky one. It was mid-size, some exposure was maybe Rs. 200-250 crores, a couple of such accounts there.
What was the LCR as of March end? And of the recovery from TWO of Rs. 1,400 crores, has some amount gone to the interest income line item?
LCR is 127%. On TWO recovery accounting - some amount goes in the interest income and also on the income from recovery from TWO. Rs. 100 crores has gone to the interest income part.
On SLR - domestic SLR about 3 trillion, not changed in 3-4 years, ~17% of NDTL. How much scope to keep optimizing? Until now we brought down excess SLR via surrendering in OMO/switches; if no OMO, would you liquidate in market? Philosophically, isn't it better to lock in bonds at higher yields right now rather than lending to corporates and home loans at similar rates?
Bank is running one of the largest treasury management - amongst top three or four in holding. SLR was 26-27% at some point; today around 22.5% or 23%. While managing SLR, it is not one way that we surrender - we keep buying at different levels per market conditions. Maybe 1-2% on SLR is continuous churn buying and selling. Trading profit comes out of all this churn. Against 18% requirement, you are at 22% meaning ~4.5% excess SLR. We like to operate at safety threshold of 3-3.5%. The purpose is not only investment for profit, the purpose is also generate liquidity at the right time. Excess SLR helps in maintaining a comfortable LCR posting (per Mr. Lalit Tyagi). Investment yield and loan customers achieve different objectives. Loan customers gives deposits and other cross-sell opportunities - it's not straight-through interest rate. We look at holistic relationship.
On capital raising plans - is that on track? How soon can this be done?
AT-1 and Tier 2 for 2026-27 - we will be raising Rs. 6,000 crores. If we don't raise, it can go to subsequent year. Earlier we announced equity raise of almost Rs. 8,500 crores as enabling provision to raise till FY 2028. So almost Rs. 14,500 crores is planned raise of capital. We may also raise infra bonds and other bonds depending on duration of liability book and ALM management. What is already announced approved by board is enabling Rs. 8,500 crores in equity, Rs. 6,000 crores in AT-1 and Tier 2. The Rs. 8,500 crore equity raise plan is on table; it will depend on the time at which we really want to tap, based on market conditions and capital requirement for the Bank.
On overseas exposure of almost Rs. 2,60,000 crores - profile, particularly direct Middle East exposure and trade-related, any NPA risk over 2-3 quarters? How much ECLGS 5.0 withdrawal are we expecting? And on auto loan - many PSU banks offering longer tenure 7-9 years at competitive rates - do we see risk?
Overseas trade is normally up to 20% - we don't allow trade to significantly go up because of fine pricing. Remaining is mostly local syndication - US, Gift City are big markets, all global syndication with high street banks. Particularly Middle East - we have large retail operation; outstanding can be in range of around Rs. 50,000 - 60,000 crores spread over multiple countries, some A-rated. The regulator there also announced measures like ECLGS. Real impact we'll not get to know until we just see. No concern as of today on asset quality - these are corporates with strong balance sheet, Fortune 500 names in global syndication. But in Middle East operation we need to be slightly watchful. On ECLGS: MSME book Rs. 1,60,000 crores, ~55-60% working capital, at 15% scale Rs. 12,000 crores plus would be disbursing. On auto: I don't see PSU outlook, but we'll continue to grow. Auto is not a productive asset - based on cash flow of salaried class, bulk tie-ups. Stress book and GNPA percentage are all benign - portfolio review every quarter at board level.