On business Banking - what proportion is secured vs unsecured? How much is backed by government guarantee schemes? How have slippages moved Y-o-Y? And on MFI - X bucket collection efficiency in April, May, June and July?
On business Banking, almost very large part of that book is secured book. Almost entirely it is a secured book. There is very little of CGTSME and those kinds of products. Largely it is pure lending, secured lending. On MFI, we don't disclose the roll forward, but we saw the peak of this in May and both in the month of June and July, we have seen a secular fall in slippages even in our MFI book. Our SMA book, which is a precursor to slippage, is also lower as we exit the quarter than previous quarter. Clearly on this part, the worst is behind us. Provisioning comes with some lag, so it may moderate down with a lag of a quarter, but slippages have shown a trend onwards.
Historically, asset quality was stellar. With unsecured loan stress and margins falling, how do we think about ROAs? You had guided to improving ROAs meaningfully - is this pushed back given the macro?
If you take net interest on average assets and fee on average assets, our fee on average assets has also grown. Technically, we have been able to defend the ROA, but for the MFI provision that we have taken, we would have defended our ROA at the same level as last quarter. I remain optimistic. The structure change in mid-yielding assets is consistently happening. Our ROA is defined by improvement in CASA, improvement in fees, and change in mix on assets - all three parameters are playing out clearly. The asset quality on rest of the book has remained absolutely at the same level as last year.
On microfinance stress - can you quantify it? Our portfolio is towards Kerala rather than Karnataka where there were ordinances - what led to this stress? On CVCE freezing out and business Banking - any surprises in asset quality?
Our MFI portfolio is not Kerala. Our portfolio is across the country over multiple states, but 20% odd is in Karnataka. So that is where the big pain is coming. Our slippery numbers are there in our deck in MFI/Agri. On CVCE and business Banking, we have seen marginally higher stress than in the past, but it is not yet alarming. On CV and CE, we are largely not on the very retail end - we are in medium to large size strategic customers and retail premium customers. Business Banking has more Kerala focused book - about 30% is Kerala. But it is not showing any abnormal signs. We have been cautious and have not grown that book very fast - we have taken some protective measures over the last 2-3 quarters and done some tinkering with our underwriting.
Will it be possible to quantify what percentage of our loan book or borrowers have exposure to the US market?
That is a tough one. The way I look at the tariff situation is first, it may not be the last word yet. Government will get into some negotiation, do something to defend. Once it is there, this is some monitorable for us. But difficult to say what the impact will be. Frankly, we have never looked at our portfolio from this lens and analyzed it in that manner.
Could you call out the slippage in MFI and Agri separately for this and last quarter?
We normally don't give that split, Param. The large part of the Agri part is the MFI. Venkat: Large part of the slippage that you see there is MFI.
What is the decline in savings deposit cost on a quarter-on-quarter basis?
We cut our savings deposit rates twice. Second was only in June - we cut it in June 15th by 25 bps to 250 from 275. That has not seen the impact in the full quarter, only a 15-day impact. That benefit will come entirely next year if that is what you are looking at.
On near to medium-term profitability - high-yielding categories like MFI, business Banking, CV have higher risk, so what does the growth heavy lifting at 1.2-1.3x nominal GDP and helps margins? And bulk of profitability/ROI benefits - more in FY27 second half? Is this more like a building blocks year?
FY27 second half is too long for us to start talking about. We remain focused on the next half year. Some of the gains from NIM and profitability will come on the liability side as well - and that part can come without risk. There are still opportunities for us as a relatively small market shareholder in many products. LAP, for example, we have just scratched the surface - we don't almost have a LAP book. While other Banks are looking at growth from a large book, we are looking from a small book and therefore it is possible to grow. Gold, like I said, I am very optimistic about growing - reasonable yield book, highly capital efficient, very low NPA, highly profit accretive. There are enough opportunities for us to grow our book to that 1.2x metric.
On MFI - quite a few lenders recognized MFI stress in 3rd and 4th quarters; for us did it bunch up only in 1st quarter? Will there be accelerated/aging provisions on slippages this and next few quarters? Also, in retail/unsecured/business Banking and CVs, do you see credit costs remaining high in Q2 and then moderating? And on margins - how much do they fall in Q2 before stabilizing?
Yes, MFI stress had begun to show up a little bit on the 4th quarter, but significantly showed up in this quarter. We saw the peak of our slippages in May and in June and July, we have seen drop in slippages in MFI. Since last year December quarter, we take an accelerated provision on our unsecured loans. So, that policy continues. Therefore, this at best lingers for a quarter more, not more than that, because we take 100% provision by that time. On NIM, because we repriced faster due to T+1 policy, but our cost of funds have also dropped significantly and we have been able to defend some of our NIM pressure. We don't expect our further NIM pressure to be more than 5-10 basis point range in the next quarter. But for the MFI/Agri piece, our slippages have remained in the same range as the last year - nothing alarming, no significant change in asset quality other than MFI/Agri segment.
Credit cost guidance has actually been up to 55 bps. Earlier, we used to guide below 50 bps. Is that a correct understanding?
Not really. Last time, we guided 50-60 bps. So, right now, the guidance is around midway on that. We used to guide that lower figure last year. This year, last time itself, we had said 50-60 as the guidance.
On fee income - is this more low hanging fruit being plucked or can fees continue to sustainably grow faster than balance sheet?
We would like to believe this is there to stay. Our wealth vertical is just about falling in place. We will have to grow our Wealth business which will add to fees. We now have a team in place on the transaction Banking side and therefore we are expecting our trade and Forex fees to grow. Our current Bank assurance growth has been very good. Para-Banking fees have grown very handsomely. We are still scratching the surface, and our cards business continues to grow. There are enough levers for us to sustain the fee growth at a good momentum, much faster than the growth in balance sheet for many more quarters to come.
On growth - I heard growth will be 1.2x of nominal GDP for FY26? We used to grow at 18%-20%, then we did this recalibration?
We have been always saying 1.2 to 1.5, 1.4, 1.5 times, but that also depends on the environment. If the environment is of a low growth environment, then the faster growth becomes tougher and that is why we guide towards the lower end of that band. Venkat added: 18%-20%, you should know the context at that time, economy growing at 7 and inflation was 7 and then you apply the 1.2-1.4x, you will still get to that 18%-20%. So it is a context to that growth and that is why we stick to nominal GDP and a multiplier.
On business Banking, growth has slowed down. Is this more of a pricing related tweak? Is it just very competitive?
Generally, the environment is - many calls warning against SME credit. While our book is not seeing particularly higher stress, it is important for us to be cautious. We have made some internal rejigs on our credit buying decisions and we have been slightly more cautious. On the commercial Bank side, we have continued to grow faster - it is the upper end of SME. We are pushing the upper end of SME growth faster than the lower end. We have created a new team there. In quarters to come, we will pick up some growth in that segment as well.
Do you plan to build some buffer on the provision front? Because you may never know the stress on your portfolio incrementally.
Anand, it is a secured book. It is not an unsecured book. So, we are not yet thinking in terms of that.
Cost implications of your transformation process - how would FY26 OPEX look? You talked about branch transformation, people changes - what kind of OPEX should we build in for FY26 and FY27?
We have always guided that do not assume any benefits out of cost to income and they will remain in the same range that they have been. The 70 RBSCs we created - we did not add people from outside. We optimized internally, re-transferred people from one role to other. The 70 business PRMs is not addition to our manpower, it is realignment. We are trying to optimize whatever we can. However, since we will be in investment mode and all these talents will add cost, we have to continue to optimize. We do not want to guide for any benefits arising out of this, so we will remain in the mid-50s range that we have always guided.
You sounded confident on MFI asset quality not deteriorating and marginal NIM down-tick in Q2. Is it correct to assume that 1% is kind of the bottom of ROA for us?
Yes, I think we are close to the bottom of the ROA side. Had it not been for the extra MFI provision that we took this quarter, we would have defended our ROA at 1.24 itself almost. We are assuming no rate cuts happen from here. NIM 5-10 basis points downside possible, but hopefully we will defend that through fees and other means and ROAs will sustain from here and upwards.
On asset quality - is there any pocket of worry incrementally from here on?
If we strip off the MFI/Agri segment and look at the rest of the book, we have currently no reason to assume that there is any stress building up in our book. Our current SMA position even as of July is not indicative of any stress. Is there a marginal deterioration in BUB, CVCE? Yes, there is. But there is a marginal deterioration, not yet alarming. Unless this data changes, we remain confident of our asset quality.
Have you aligned the KRAs of employees as you free capacity at the branch and focus on business development, CASA, para Banking? How have KRAs changed and would you be tweaking KRAs 6-12 months down?
All branch scorecards have been changed. All employees and sales profiles have a scorecard which reflect our Bank's priority, rolled out across the Bank for all profiles. Scores are declared every month for every profile. CA and fee, but asset mix too - asset mix is showing steadily improvement towards the medium yield. Even this quarter we have made 50-60 basis points improvement in mid-yield. All three - CASA, fee, asset mix - absolutely built into the scorecards of people.
Would the weightages have gone up for these three in particular? Can you quantify?
Yes, absolutely. Branches, for example, the CASA weightage for branches has gone up dramatically more than it used to be. Let me put it this way - more than half the weightage is for liability products. Earlier it was more tilted towards assets - that is in the past, Kunal. For now, it is more than 50.
Fair to say increase in Agri is purely on MFI? What is leading to the increase in retail slippages?
There is no MFI anywhere other than what we classify as Agri/MFI. On retail slippage, it is more seasonality - even comparing with last year, in Q1 it is generally slightly higher. SMA is lower, July itself the slippages are lower. There is no trend of any big deterioration.
On EBLR - is it largely done or still scope to get the EBLR further down from here?
There is scope to get it further down. We were 51% odd sometime back. That is down to 48 now. As we build car loan business, gold loan business - all are fixed. Cards are fixed. Commercial vehicle is fixed. Some of the areas growing fast are fixed. There is definitely more scope to get it down from 48. Venkat: Also, moved nicely from around 25%-26% levels to now 33%. The fixed book has moved up from 26%-33%.
Why would NIM only decline by 5 basis points the next quarter? And what was the contribution of interest de-recognition on account of higher yielding segments slipping in the current quarter?
We have a residual - 50 bps that came in June has had a one-month impact. We need to yet get 2 months impact on 50 basis, which is roughly 33 basis points. If 48% of our book is there, say 33% will be 15 or 16. We are saying that we will defend 7 or 8 basis points and therefore we are saying something around between 5 and 10 will be the impact. Venkat: 4-5 bps, Mahesh has been the impact due to the URI.
On the fee income line - contribution of recovery from written off continues to remain fairly high. Any outlook? And general processing fees contribution also high - any color?
General processing fee will remain high. As disbursements go up and gold and these businesses go up, it can become even more robust. We have also revamped our fee structures on many of our products, liability products. We have renegotiated some of our partner fee structures. Some of those are sustainable increases - no one-time stuff on the general fee. Venkat: Recovery from written-off assets in this quarter has been relatively lower than last quarter. Last quarter Q4 you will see a very large uptake every year. In Q1, like every year, we have the reval of unlisted investments - we get the benefit in other income in Q1.
Can I equate it with the write-off number broadly? Write-off has been high last couple of quarters.
No, it has no connection at all.
NPL recovery number is also softer than what we have seen over the last 3-4 quarters - net slippage is looking high in this quarter. Any change in recognition of recoveries?
Param, please don't compare Q1 with Q4. Every year, the way to look at it is Q1 of last year and compare. It is more or less at the same position. No change in recognition of recoveries or any such thing - nothing.
On loan processing fees, it is down Y-o-Y by 11% in the fee breakup. What is happening there?
The products which give us more fees on disbursement, like gold, were lower in this quarter. Gold loan growth is actually only a June phenomenon after RBI clarity on the gold business. Some of those businesses which give higher processing fee were lower in this quarter. We are hoping that some of that will recover. In spite of that, our overall fee performance was fairly strong.
On mid-yield - where is the risk of higher credit issues coming in with higher yield? On nature of collateral for SME and business loans, are these still real estate hard collateral or have you moved to collaterals where loss-given default is higher?
I have been talking about higher asset yields by change in mix and not necessarily by going for higher yield assets with higher risk. On the lower end of business Banking in the SME side, when we say secured, we mean property security. At the higher end of SME in commercial Bank, it tends to be not fully 100% secured kind of transactions as well. At the lower end, when we say secured, we mean property secured. Retail and commercial - both kinds of security is available.
Has the loss-given default of these securities over the last 6 months changed? Are they same as 2 years ago?
We obviously use a historical model to determine what to do going forward. Based on our underwriting, we keep reviewing our data and keep updating the loss-given default as defaults and losses keep occurring. Usually in properties, while the risk may play out, property values also in most places inch upwards and not downwards. Property valuations are higher and we have our own rating models - relatively higher-rated customer we may take a less LTV ratio, whereas if customer is rated low we take a more conservative view on LTV. We have no reason to assume that what we are underwriting now is any higher risk than what we have done in the past.
Have you changed LTVs - increased the LTV which allows you to make higher yield, on gold loans or on mortgage/business-related loans with property as collateral?
No, not for making higher yield. Actually, it is the other way. In LAP business, the question is whether we take LTVs based on market value or fire sale value. Obviously, the best of customers will never give you their business if you put LTV based on fire sale value. So it leads to adverse selection. What you think is good credit actually turns to be bad credit. Our objective is to get right pricing for the risk we take rather than take higher risk and therefore get higher pricing. That is not what we want to do.
A lot of competition - smaller Banks, larger NBFCs - are getting into the mid-yield space. Is the competition forcing some sort of dilution of credit standards?
There is competition, no doubt, but that doesn't force our credit standards to be low. It is a big market. The share that we want, we are getting at our rate versus security. Virat: In that kind of situation, we would rather give a rate discount, but not bring down our security level. Manian: If we have to choose between the two, we will choose lower rate than lower security.
Given the environment is sluggish, you still remain confident on asset quality?
We are always cautious. So we will remain cautious. Bar MFI, there is no reason for us to be alarmed about anything as yet. If data changes, we will change our mind. But as of now, I have no reason to feel diffident about it. I am not diffident about it. We will always be cautious. I will keep watching.