Outlook on margins for the next 2-3 quarters and longer term, given the 24bps expansion already, and color on weaker fee/distribution income this quarter.
On NIM expansion, it's a journey - not at the end. As CASA percentage grows and medium yield assets continue to grow faster than low yielding assets, the journey continues for many more quarters. There will be an immediate quarter impact of the last rate cut - one third played out this quarter, two thirds will play out in the next quarter. On distribution side, there is seasonality - second quarter is usually better than third quarter. Also GST impact in last quarter as commissions were impacted by GST structure change. Product mix matters - when markets are buoyant, customers tend to choose ULIP products with lower commission percentages. Volume traction continues to remain good.
When does asset mix restructuring complete to grow in line with system; NIM walkthrough as lending spreads were broadly flat; CA pickup organic vs chunky balances; first tranche timing of Blackstone fund infusion.
Asset growth this quarter is close to 4.5%. Run rates are quite good in chosen segments. Corporate growth of 8% may not sustain but even if dropped lower, run rates will be fairly healthy. On CASA - no chunky stuff, all reasonably granular. Bump ups happen due to nature of business, but averages also show healthy growth - reasonably secular. CASA growth is a factor of multiple things including better productivity from branches, newer products. On Blackstone - awaiting final regulatory approvals; hoping to get done in this last quarter. On NIM - several factors moved: yield on advances down 9 bps but cost of deposits lower, cost of borrowings down, CRR cut, better yield on investments and average own fund. Combination of 5-6 factors helps get to 3.18.
Mortgages and auto loan books have been stable for 4-5 quarters - when will they pick up.
On home loan, stepped up pace on LAP book - growth is reasonably healthy this quarter. On home loan side, not finding risk rewards attractive - pricing is below optimal levels required. Continue to serve existing customer needs but not acquiring aggressively at those rates. Long term product where you can lock balance sheet on poor rate economics. Cautious - no answer on when this will change. Auto - working on it, made some structural changes internally. Hopefully get back sooner. Will wait and see how home loan situation, competitive intensity and pricing evolves. Opportunity to grow other assets - many growing in their 20s.
Where will fee income / fee income to assets settle over next 12-18 months as it seems flat near 1%.
Not looking at settling - wherever we are is not where we are settling. Levers exist - launched wealth in the market this quarter, business that will grow over next few years. Trade and forex has upside possible, not yet at desired trajectory. Card business continues to grow well, will add to fee income. These are still to play out. Far from saying settled at 1% level - want upside and will drive upward trajectory. Last two quarters seen some trajectory - moved up to 1% from 90-92 basis points. Traction visible - won't necessarily have to wait for 4-6 quarters.
Corporate loan growth - is it bond market substitution or CAPEX related lending; margin walk reconciling 12 bps NIM expansion when yield on loans and cost of funds dropped similarly.
Corporate growth is mix of factors. Bond markets had priced higher and bank lending came in line. Increase in working capital requirements - paid offtake from corporate sector has increased. A little bit of CAPEX, not substantial. All three contributed. On margin walk - Management said will take this offline after the call.
Aspirational ROA over the next two years.
In February document, we had given guidance on how to look at ROA over next 2-3 years. That doesn't change. Just now in execution mode on the same strategic plan. That continues to be your guidance on what ROAs will be.
Standard asset provisions buffer; ECL plans; will credit cost stay near 50 bps moving toward ECL or come off due to asset quality improvement.
Credit costs guidance around 55-60 bps. Still waiting for final guidelines from RBI. Based on draft, worked out the impact. Concessions industry has asked - if those come through impact will be quite minimal. Currently a little bit short on ECL. KVS Manian added: Fundamentally don't think ECL changes credit cost dramatically. Over time should align with credit costs - cannot have an accounting mechanism not reflecting actual credit cost. May be one time impact. Venkatraman added: For transition period RBI giving, over a few years - won't see material bump up.
Fee income improvement range over next couple of years.
No specific guidance. Effort - levers not yet used: wealth, cards, trade and forex, all to still play out. Trying to get those things done. Upward trajectory hoped for - how much, time will tell.
Asset quality outlook for MFI segment, blended credit cost trajectory, and quantitative loan mix outlook for 3-5 years across high/mid/low yielding book.
On the loan mix - too early to put a stable number. The attempt is to keep working towards growing the mid-yield book faster than the high-yield book. Composition of high-yield and very high-yield (microfinance) has not changed. While cards have grown well, other high-yield segments like personal loans or MFI have not had the accelerator pushed because of credit cost concerns. On credit cost - full year guidance was 55-60 bps; for 9 months already at 55 bps, will end the year between 55 and 50, say 52-53 bps. Q4 credit cost expected to improve further. On MFI - slippages and credit cost are coming down every quarter; Q4 expected to be lower than Q3. Still cautious in growing MFI selectively - will watch one more quarter before deciding how much to press the pedal. As medium yield asset is built, credit cost on those will be higher than low yield asset.
MSME asset quality progression and any impact from US tariffs.
BuB segment (lower end of SME) has begun to grow with comfort on credit side. Credit costs are well in control, no deterioration. Commercial banking (higher end of SME) - portfolio quality remains robust, no stress. Both these segments' credit costs this quarter are lower than last quarter.
How much TD repricing is left, and what drove the 8-9 bps yield decline beyond repo cut pass-through.
From cycle start, about 14 months on average for full term deposit repricing - about 4-5 months to go, so one and a half more quarters. On yields - incremental business also happens at lower rate. As rates drop, MCLR repricing happens on non-repo assets, new business comes at lower rate, new corporate business at lower rate. Yields go down overall but costs also go down. NIM improvement is not one silver bullet - CASA percentage improvement impacts cost of funds, cost of deposits go down. Borrowing cost reduction is actual cost reduction. Multiple parameters work to improve NIM.
Why has branch openings slowed down this year.
Working on multiple things on the branch side - Free the Branch initiative, reimagining the branch operating model. Wanted to settle that before pushing the accelerator. Working on brand refresh, branch formats, reformatting physical layouts, branding. Also evaluation of branch network - efficiency, relocation, branch sizes. Wanted to get a better handle before pushing on branch numbers. Better branch traction will be visible in Quarter 4.
OPEX run-rate as you grow mid-yielding granular business - will it continue at 4-5% QoQ or taper off.
On cost-to-income ratio, it's to do with both cost management and income traction. This quarter down because of strong income momentum. Guidance over 2-3 year period is 53-55, because we will be reinvesting savings in distribution, technology and other initiatives. Endeavor to ensure positive jaws so cost alignment matches income growth. KVS Manian added: This is a tightrope walk - will build income. Don't build benefits out of efficiencies - if we get it, it's a bonus. Focused on remaining efficient. Don't build efficiencies out of that in the short term.
Gold loans yield/LTV pressure outlook.
Pressure on yield in gold loans there because of falling interest rates and PSU bank rates, but gold loan book grown substantially. Yields have been maintained. LTV challenges have not happened - LTV has actually come off from last quarter to this quarter. Industry-wide phenomenon because of increase in gold prices. Not pushing growth by targeting only LTV. Yields maintained and managed. Growth has been reasonably good. LTV pressures not there at this point in time. Gold loan growth of 9% is in spite of running down wholesale lending book not allowed under new regulation - if grossed up, another 2-2.5% higher. LTV at 54 - enough headroom available.
Personal loan book growth outlook similar to MFI - what is the trigger to start growing.
Compared to MFI, more comfortable in personal loan space. In baby steps - did the highest personal loan disbursement in last 12 months in December. Trying to build slowly. More comfort than MFI space. Just now focused product on existing customers alone - have not gone out to acquire customers; evaluating that. Economics of that must justify. Personal loans book is small - 3,600 crores - so even if it grows reasonably, will take time to make a dent on overall scenario. Let's start building it then see impact.
Yield and rating distribution of corporate exposure - mix of A-rated corporate down 500 bps; any desired number to reach.
Consciously said would not focus large part on low yielding. In corporate banking, AAA means maximum price extraction from the bank. Consciously let go of certain large assets. Not going down risk spectrum to build a book - more granular, more mid corporate, deeper geography but not diluting credit standard. Not focusing so much on AAA names because reciprocity doesn't come from there nor does yield. To strengthen rating - either very securely asset backed or proper cash flow tracking.
Despite letting go assets, 6% sequential growth was reported - was underlying corporate growth in double digits; is unwinding more or less over.
Over the last year, this book has grown slow. Restructuring impacted growth for last 3-4 quarters. Started focusing on mid corporate but takes time to build. Now seeing progression. Some opportunistic assets in corporate at decent yield. Don't take 8% as steady state run-rate. Unwinding is over - have to now build. Long term loans cannot be easily unwound. Harsh added: Corporate is also short term in many cases and very opportunistic - if opportunities come, will do them. Look from balance sheet, RAROC, risk return, reciprocity perspective.
Will margin be a bigger driver of ROA expansion.
NIM is one of an important driver for ROA expansion. Fees can also add to that - other things will add. Margin is both an asset side game and liability side game. Liability side mix, asset side mix, and fee improvement - all three need to drive ROA trajectory. Venkatraman cautioned: For Q4, endeavor will be to maintain NIMs around current level given the two-month impact of last rate cut still to be passed.
LCR for quarter end and average; impact from RBI April regulation change.
Quarter-end LCR was about 114%. Average was about 123. Expect about 5% to 6% impact out of new regulation from RBI - it is a negative impact.
Growth trajectory implications considering LCR norm and capital infusion next year - is 1.2-1.5x nominal GDP unchanged.
Function of opportunity and external environment. Continue to remain focused on medium yielding segment growth. Last quarter 4.5% advances. Assuming all things equal, will try and be around the same levels. High teens is what we are working towards - around 16.
Quantum from RBI trade relief measures - exporter moratorium dispensation; labor code impact / gratuity higher provision.
RBI exporter moratorium: very, very negligible. Insignificant. Negligible. On labor code - quantum disclosed in results, point number eight captures it; very small amount, not material but provided for. This is the direct impact relating to employees. Contractors, suppliers, partners may have impact with knock-on impact over time, those are not quantifiable.
Margin sustainability given improvement is largely from balance sheet management - LDR up, borrowings down; how to maintain steady margins next quarter.
Continue to work on liability mix, asset mix, all NIM accretive. Repo rate cut will play out fully in next quarter - negative impact. Will have to mitigate that.
Possibility of further system-wide TD rate cuts after the first tranche.
After last rate cut, savings rate did not drop. Term deposit rate had moderate cuts but not as much as repo rate cut, not fully reflective. Bond markets have hardened, rates have hardened. Opportunity to cut rates was lower post last rate cut - true for entire sector. Venkatraman added: Want to focus on growth and keep momentum going, deposit growth must keep pace - may not be wise to cut rates at this point.
Has unsecured stress gone out; will there be a push on unsecured growth.
Already pushing growth on organic card side - own cards growing reasonably fast in last two quarters. Fintech partnership cards still cautious - not growing fast enough. Personal Loans - making baby steps. Microfinance - still cautious. Venkatraman noted overall growth around 16%.