On the growth - it has been pretty low this time around 1.5% Q-o-Q, which is almost half the system. How should we see growth going ahead? Are we comfortable enough to meet the 1.2x nominal GDP target you had quoted for this year?
When we started this trying to restructure our asset side, 50% of our asset book was in low-yielding segment - corporate and home loans constituted over 50% of our book. They still do very close to that. One year back, we had 53% of our book in repo-linked assets. So what we are trying to do is a structural shift over a period of time. If 50% of your book is such that you do not want a double-digit growth on them, you need to do doubly more on the rest of the 50% to get a particular growth rate. There are segments where we do not want to press the accelerator yet, like MFI or personal loan areas. In our chosen areas of growth, we have been able to grow quite handsomely. Commercial bank is growing at late 20s, cards is growing, gold loan if you take away the Digi-biz, retail gold is growing close to 7% Q-o-Q. We continue to remain bullish. LAP and BuB have just about reversed their negative trend over the last quarter to positive territory this quarter.
There is an exchange notification on capital raise. Is it just an enabling resolution? Or is there something more to read into it?
Since we have given a notice for a Board meeting on 24th, let's respect the Board's authority to make decisions and then talk to you on that. So we will just now leave it at that. Let's wait for the 24th, please.
3.06% is the current NIM, what is the normalized level of NIM, say, over the next 1 to 2 years? Would it be 3.3x?
All I can say is upward. All I can say is that it is definitely upward. I don't want to limit myself with any number that I tell you. So let's say it is upwards. The reason I'm hesitant to tell you - there are many moving parts in this game. We are trying to restructure liabilities. We are trying to restructure assets. Then there are external factors like rate cuts, further rate cuts that can happen. Let's remain agile, keep executing and doing our best and let the outcomes play out. But clearly, we would like to see NIMs higher than this, obviously.
On asset quality - the MFI stress has peaked, but it's still there. In the next 2 to 3 quarters, can we see a sharp reduction in credit cost? You had guided to 50 bps or 45 to 50 bps as the normalized range. But next half, will we see a substantial reduction as MFI recovers?
Mahrukh, let me correct you first. We have never guided 45 or 50 bps. Last call also, we said our full year guidance is 55 bps. Last quarter was 65 bps. This quarter is 50 bps. For the 2 quarters put together, we are at 58. We'll still maintain our full year guidance of 55 bps. Obviously, endeavor would be to try and come below that. But at this stage, I'm not giving a guidance different from what we have stated earlier. KVS Manian added: I am not yet in the comfortable zone on MFI. So I do not know how that plays. Let's after we get a comfort on that side, we can consider on revising our guidance.
On capital raise - since you are consolidating on areas you don't want to grow and even if growth picks up, it can be self-funded through internal accruals because your margins are improving. Why would you need capital at all?
Let me first correct you. that we don't want to grow is an incorrect statement. We have intention to grow in our chosen areas of assets - on the asset side, which are profitable to grow. Mid-yielding segment also requires higher RWAs. So therefore, we will come back after the Board meeting and talk about update on the capital part of it.
On capital raise - is it fair to say that given your earlier articulation of building new line of businesses on the wealth management side or investment management side, the potential capital allocation is not only for the organic growth, but also seeding some businesses?
Let the Board make a decision. And after the decision, all these factors will be considered while making a decision and the rationale of that decision. I promise you that as soon as the Board makes that decision, we'll come in front of all of you and explain our rationale whatever - whichever way we decide on that.
On the credit card - we have made very strong progress and it is helping us improve fee intensity. Can you talk about where we are in the profitability journey in this segment? And how is the sourcing mix between internal and external customers?
Strategically, we are moving into acquisition by our own team. So our organic card number is growing. At the same time, we have tightened or revised our policies on the fintech, the cards that we were sourcing. The organic sourcing is helping us to get better customers. Most of them, the bulk of it, almost 90% of the customers are our existing customers. From that point of view, it improves the stickiness of the customers with the bank. KVS Manian added: there are 2 parts - organic and inorganic. Our organic strategy is all upside ours, all downside in the beginning ours. When we work with fintech partners, we share some upside. We are not yet in big profit zone. We are in the middling mild loss, mild profit kind of zone just now. Scale is important to build profits in this business.
Going slow on the low-yielding asset is weighing on overall loan growth. Can you highlight the proportion up to which we expect the overall low-yielding advances to come down from the current levels of more than 50-odd percent over the medium term? How long could it weigh on the overall loan growth compared to our guidance of 1.2x, 1.3x of the GDP multiplier?
Let me play the contrarian on that with you. Why do you call low-yield assets growth weighing down? I think it weighs up on the profitability front. We have to grow the balance sheet, but yet we have to grow profitability. Our intention is to change the structure of our earnings, and that's the goal. If the corporate credit growth comes back, nothing stops us. And if our liability profile continues to improve, there's nothing that stops us from pressing the accelerator on the corporate side. In a cycle where corporate credit cycle is not very favorable and you try to grow, it can only come at extremely low yields and ROE destructive manner. Even in corporate, we are saying mid-corporates, we want to grow. It is harder work. It is not that we are against growth - in chosen segments, we want to grow. Cards is in 30s, commercial bank in late 20s, gold 7% Q-o-Q ex Digi-biz.
Last time you indicated a host of structural initiatives. Any new initiatives or any incremental initiatives over the last 2 months which is getting implemented now?
Kunal, we already told you that we have 50-odd projects, large projects, which we are running as what we call the project breakthrough. Maybe after the December quarter, we'll come with - I had given a kind of a small update in the early-stage update in the last quarter. But we will come back to you in the - with the December results and give you a more comprehensive update. There are initiatives always in the pipeline.
Do you think that the bank requires additional capital to do the current level of business? Or do you have a capital adequacy ratio in mind that suggests that this is on the lower side?
Mahesh, I will leave the question at that - answer at that saying that let 24th Board meeting happen. Let us make that decision. The Board will meet and discuss all issues. Whatever is the outcome, let's then come back and explain, give you the update rationale, all of that we will talk about. Give us those few days to come back to you on that.
From a medium-term perspective - we are still in the midst of a rate cutting cycle. Since we are possibly still looking at further rate cuts ahead, at what point do you start thinking that balance sheet optimization as a lever is largely done, and we will start looking at growth as a driver of profitability going ahead? Your leverage is coming down, so it has an ROE impact.
Param, all I will tell you is that growth in profits and growth in assets needs the right balance. One without the other doesn't - either is not possible or does not make sense. So we remain very careful about how to balance these 2. We understand that there are times when we have to drive profitability through asset growth and there are times when we have to correct the profitability not necessarily through asset growth. We will remain agile. We will remain thinking about what is the right strategy to do in what environment, and we will act according to that. I do not want to predecide what we will do, when we will watch. We will react to the situation. We will adapt and react to the situation. Of course, all parts of the equation, we will take into account. We will do what we think is sustainable and right thing to do for medium, long-term benefit of the bank and the shareholders of the bank.
On margins - can you talk through the moving parts of the 12 basis points NIM improvement this quarter? There was an expectation that this quarter will again be slightly negative. And from 3Q onwards, the margins will start to improve. How should we look at margins going ahead - what is a sustainable level?
The movement from last quarter, 2.94% to 3.06%. You should also keep in mind that we are one of the few banks where we do T+1 repricing on the repo-linked book. So, a large part of the hit on the 50 bps has been taken in last quarter. Having said that, the main reason for movement this quarter is our deposit cost was lower by about 19 bps. In addition to that, our cost of borrowing was down by about 3 bps. So together, that's 22 bps on the liability side. Our yield on advances dropped by 14 bps. And then we gained 1 bps in CRR and another 2-odd bps from optimization of other assets and liabilities. KVS Manian added: our intention is to change our NIM profile over a period of time by continuing to focus on what I call the mid-yielding assets. So, we do expect improvement in NIM going forward as well, of course, subject to further rate cuts.
On asset quality - last quarter was impacted by MFI and partly by business banking. So this quarter, is it safe to assume that all things are back to normal?
The MFI continuing 50% provision that happens, we provide over 2 quarters, on the unsecured. So that hit has, of course, come this quarter. Last quarter's slippages do hit this quarter. If you look at the slippages, they have dropped. But are they in comfortable zone? I don't think so. So MFI stress is still in play. It is easing for sure. We have seen the peak already last quarter, not this quarter. And month-on-month, we have seen easing. But has it completely come to a territory where we are comfortable? The answer is no. Rest of our asset book actually has stood rock solid on the asset quality side. The credit cost, excluding MFI has actually slightly declined.
On margins - they've come out better than expected or even better than guidance. Do you expect them to improve further in the second half? In terms of CASA ratio, once balance sheet growth picks up, how will CASA behave?
On NIM, our deposits reprice over a 12- to 14-month period, and we are 6 months into that. There is, of course, deposit repricing that will continue to play through the next 6 months. Assuming our CASA trajectory continues, our desire will be to grow the margin from more than here. On CASA, you're absolutely right. We are very much aware that as growth picks up, our CASA momentum has to be even better to maintain the ratio. These are also times when overall industry CASA and deposit growth has been mute. One is also hoping that tide will turn a bit on that and deposit growth will, in general, pick up, that will also give us some tailwind. There are many other initiatives we have in the pipeline to drive our CASA trajectory forward.
Some initial estimates on the impact from the new ECL guidelines and the guidance that RBI is going to put out on operational and credit risk revised standardized approach?
On the ECL, the draft guidelines is out now, which we are examining. Based on the earlier submission, we have given an indication that it will not be a substantial impact to us. It will be low less than 0.2% on the capital. This was the estimate as per the March pro forma submission. But we need to study in terms of what it will be, but we don't expect any significant impact due to the ECL transition. On Basel III revised standardized approach - we will have some benefit, but too early for us to give out a number on that or an estimate. There will be benefits coming out of that. I don't want to put a number at this stage.
The overlay provisioning - that's with respect to which segment? And can you give some color on MFI portfolio in terms of SMA or collection efficiency, how it has behaved in September versus June?
Overlay is actually Retail segment. On MFI - as we have observed the slippages has been coming down after peaking in May month-on-month from June, July, August, September with each month being lower than the previous month. We have seen some reversal in terms of moving to a lower bucket from the higher bucket. There has been a higher collections also in this area. Total book BC-driven book is less than 1.7% of our total book, and we have not been growing almost flattish. The BC book at about INR3,300 crores BC driven book, that's JLG loans. We do see signs of trending downwards, but there's external stress because the number of borrowers - the person can borrow from and the quantum he can borrow has been capped.
On margins - across the sector, the deposit repricing has been better than banks own expectations. You had indicated potential mid-single-digit NIM contraction last quarter. So what has changed in your own assessment? What has surprised positively on deposit repricing?
Rikin, it is not only about pricing. Pricing is, of course, we were quite agile on pricing side. But it also - the CASA ratio, 1% improvement in a quarter also makes a big difference to the cost of funds. And therefore, it's a mix of volume and rate actions. We cut our wholesale deposits and went more retail. On the wholesale side, whatever we did, we did on short term. So, there are several rate actions we took, which has basically dropped our cost of funds. The average CASA growth is 6% Q-o-Q, which is much more than we would have estimated in the beginning of the quarter. So therefore, there are mixed actions. And I would say, partly good execution, partly markets, partly secular trends.
Average CASA balances have picked up in the recent quarters. NRI and remittance market share has improved. Any other levers beyond that, that have started working in terms of government balances, etcetera, that has already started to yield results?
Government also is doing - government business is also doing better. Some of the CA uptick has been driven also by that. We have multiple initiatives like that, which are - some have started playing out, some are yet to play out. For example, FedOne is we have launched essentially our payment side. We have yet to launch our collection side products on the corporate side. As we start building our wealth proposition, which we are - we have not yet gone live with that. As we build our wealth proposition, we will gain share on that. There are many things in the pipeline.
On asset quality - the agri slippages have been high in the last couple of quarters. What explains that? More specifically, write-offs are very high in this quarter, driving your credit cost, while the slippages have come off. Has there been any change in the write-off policy?
Two things, Rikin, what we show as agri MFI, that is the MFI piece I was talking about, the elevated slippages were only arising out of MFI. And as we said, that is easing. Has it eased enough? No. But is it easing? And are we seeing a definitely downward trend? Yes. Venkatraman added: there's been no change on any write-off policy. We have a kind of policy in place. We are consistently following that. KVS Manian added: as the unsecured stress started showing 1 year back, some of those write-offs are happening out of that portfolio. Nothing unusual or extraordinary that is to be noted.
On ECL impact - you mentioned the impact is going to be quite small or manageable. Will this come in the way of the targeted ROA improvement because we have laid out a target to be somewhere in the middle of top three and the next three in terms of ROA?
One-time impact, whatever happens that Venkat did give some guidance on. But that is onetime. We do not expect on a running basis, the ECL methodology to land up giving you significantly higher kind of credit cost. We do not expect our fundamental credit costs to change just because the methodology of accounting them changes. New methodology should not typically result in a higher credit cost just because of some mathematics. Truly, we should lose more money for our credit cost to go up.
On the Yes Bank stake sale - how much is the gain and how will it be reflected in P&L or balance sheet? How is that accounting done?
Yes Bank was taken into our AFS in the balance sheet when the revised accounting norms were announced. And that has gone - that is what they call the designated equity. And it went into the reserves, the profit on sale of that. Actually, in the year, it was negative. As of March, it was restated at a particular price, and there was a small loss, which went directly into the reserves.
On fee income side - the ramp-up has been quite strong. We are already seeing it upwards of 1-odd percent. Where do we see and how quickly can we see the overall fee to assets ramping up? Is it coming too quickly than the expectations?
Absolutely. That is our intention. Even 2, 3 quarters back, we talked about this saying that trade forex, trade and forex, wealth and cards being key drivers of this. The runway is still completely open on wealth - while in para banking, in insurance distribution, we have already started showing traction. The core wealth business is yet to go live technically. So therefore, there is runway ahead. On forex, while we have seen progress on the corporate side. We have not yet seen progress on the retail side. On trade, we still have a runway to grow that going forward. There are enough levers yet to pull for us to improve this trajectory.
On margins - when you look at the yield on advances decline of about roughly about 20% and cost deposits on 20%, how do you explain margin expansion here? Is there no one-off in the interest income?
Don't derive the number from that. You'll have to look at it from a NIM perspective. From a NIM perspective, the deposit and borrowing cost, clearly, we have a 22 bps save there, whereas the yield on advances has dropped only 14 bps. So, you get a clear 6 bps out there. In addition to that, there is 1 bps from CRR. We also did continue to do optimization of our balance sheet in terms of other assets and other liabilities. We have got about a couple of bps from that. That is an ongoing exercise. There are still some more assets, which we feel we can get returns out from or dispose. Absolutely no one off.
We missed the direction of margins this quarter. If everything were to remain as what it is today in terms of interest rates, does margin go up or go down or it remains flat next quarter or in the next 2 quarters?
Mahesh, it does go up, obviously, for the simple reason that our deposits reprice over 12 to 14 months, the term deposit side reprices over 12 to 14 months. So we are in the middle of that cycle. So there is going to be repricing of our deposits for another 2 quarters, if not slightly more than that and benefit will flow. Venkatraman added: This is assuming no rate cut. KVS Manian: Rate cut is a separate after you clarified.
On the standard asset provision, the management overlay - what exactly was that? And on what portfolio size did we take that INR48 crores? Is it like the same borrower has another loan, which is, say, Stage 2?
It's INR46 crores, Piran, the management overlay. It's a proactive decision, which we have taken on standard assets which have not been reclassified where we are seeing some stress on connected accounts. So as a proactive measure, we have taken the INR46 crore management overlay. Largely in retail. KVS Manian added: Connected borrower, not the same borrower. Promoter and a company of the promoter, private limited company of the promoter are connected, just as an example. There are scenarios there that we don't want to take you through the whole thing on a call like this.
Is there some benefit in terms of day count accounting that has accrued this quarter on NIM? Usually, in certain quarters, there is a hit and then some quarters, there's a benefit. Just want to make sure that this is an absolutely clean number.
This quarter, nothing Piran, nothing. KVS Manian: BAU in normal course.
Data keeping questions - what is your LCR for this quarter? And what is your CET1, including profits as of this quarter?
129 LCR. Venkatraman: It is 15.71%. It's given on an annual basis. Yes, that includes CET1, so that's CRAR. 15.71% is a CRAR includes CET1. The profit we do only at the end of the year, now that we do only in Q4. We don't do that calculation through the year. At this stage, we haven't taken - we haven't done that profit.