Can I start with NIM? Some expansion coming through this quarter, if you could explain what the drivers of that expansion was? And also how we can think about NIMs progressing over the next year? On one hand, you've got the rate cuts, but on the other hand, your funding synergies are gradually coming through. Do you think if you see 100 bps rate cycle, NIMs can be higher than where we are today? And the second question on the corporate sector balance sheet - cash and investments have gone up significantly over the last 3-4 years. These deposits are short term in nature, we don't have the LCR benefit like we have with the household sector, how does the bank take on these deposits?
The NIM for us over the last 12 months if you see, operated in a very narrow band, 3.4 to 3.5. Last year, March quarter was 3.44; now on a core basis, 3.46; last quarter was 3.43 and so on, so it's in a very narrow band plus/minus 5 basis points here and there, that's where the NIM has operated. And if you look at the components of the NIM, one is the cost of funds, which is in one of our pages where we published that, which is I think is on Page number 15, I think it is in our deck. The cost of funds is also very stable at about 4.9. And there are two things going on in the cost of funds to be stable there. One is the borrowing mix has come down during this time period, whatever is on the page there, you see that the borrowing mix in the first of the time period, December '23 was 21% and then from then on last March, it was 18% and now it is 14% borrowing mix. So that's one of the tailwind that contributed as a positive item to the cost of funds. Then there is a headwind in the cost of funds we have seen is the customer preference towards time deposit. If you see the rate of growth even in the recent time period, time deposit rate of growth, INR2 trillion in a full year time period. In the quarter, this quarter, recent quarter, about INR0.8 trillion time deposit rate of growth, 20%-or-so, right? So we have seen that. So the CASA ratio mix has not been favorable. It's an adverse variance there, right? But between all of these, the cost of funds, we kept it stable by selecting retail deposits and not pricing up on the nonretail deposits, and we'll come to the second aspect of what you asked. So the nonretail we've been circumspect, even I think it's going back to almost December '23, that time period itself, we saw that the pricing on the nonretail deposit was unacceptably high and competitive without consideration for the liquidity lendable value of those deposits. So we remain circumspect and didn't price, but try to manage it in a way that it's in a very narrow band there. Now come to the yield on assets, the other component of the NIM before we get to the conclusion of what you'd asked. So if you look at the yield on assets, they've also been pretty stable between 8.3%, 8.4% that's the level at which we operated and that's how we manage that. Now where does it go? I don't want to provide an outlook where this goes. I would urge not to look at quarter-to-quarter because it's not something that could be managed at all because the policy can change tomorrow and then the deposit rates can change over time. The second part is you talked about the cash and investment and the corporate sector balance sheet, how it gets deployed. Certain categories of deposits have lower lendable value and the market doesn't price appropriately for that lendable value because that's how it should be. Typically, those kind of segmented deposits should be lower than a retail because the retail is the highest lendable value you can get. But these type of deposits are priced far higher than the retail deposits. So thereby only for large relationships, and where we could get certain other product mix aligned well, we patronize and participate.
Sashi, first question is on CRB. There has been a lot of media noise around senior management and some changes. It would be great if you could give us some confidence around what's happening and give us some clarity around that? And number two, on ROAs. We have successfully defended the 1.8% ROA we've been guiding for the last several quarters. As we go into the rate cut cycle and growth slightly improving in FY '26, do we have enough levers to defend this 1.8% level or we should expect a brief kind of decline and then come back above 1.8% when growth eventually recovers?
I'm going to get it started first in terms of what it is, right? See, if you see, we had a reorganization. And Rahul Shukla who heads the commercial and rural banking had taken personal time off and is on sabbatical, right? So he's taken some time off or whatever, family reasons and so on. And the reorganization is expected to accomplish a few things, right. One is, if you see what is going on particularly in the rural segment, take -- example, I'll give you the -- how we are thinking about to drive certain synergy and capture the growth opportunity and bring some productivity, right? So that's both from a customer point of view, better engagement; and from people point of view, better productivity and what does it do to get that. If you take about agriculture, that's now part of the retail management team who handled the two-wheeler and auto business and so on, that's the same kind of a leadership that handles agriculture. So once we reach the farmer, you know that as part of the prior growth approach, we expanded our geographical reach to 2.25 lakh -- 225,000 villages. Now come to your second aspect of ROA. See, if you see our ROA has operated around that 1.9 level, right, plus/minus a few basis points. Ever since we accomplished the merger July 1, 2023, it's been approximately around that level, right? We're consistently delivering there. When you had asked about what does it do in a different rate scenario, if whatever happens? I talked about the margin in a couple of questions before in terms of how we think about the margin to be within a stable range, right? So ROA similarly can move around 5, 10 basis points. Our long-term average of ROA, if you see, somewhere, I think we have published that also. Over a 10-year, 15-year period, if you see, anywhere between a merger or pre-merger or post-merger, any which way if you look at it, 1.9 to 2.1. And for many instances, the frequency of two is the highest. So that is the optimal level, right, at which it operates. So there is no one particular -- can we have a 10 basis points change in a year possible? Absolutely possible. But can it be far higher than that? Not likely, right? Because we have operated in a stable band up or down.
The balance sheet construct is such that we should be able to operate margins within a narrow band, does that really change with the relatively higher repo rate cut? Or do we have additional levers to still manage margins relatively better compared to that of peers? And on CASA, in the falling interest rate cycle, generally we would tend to improve the CASA, but the rate action both on savings and FD seems similar. And on LDR - are we changing stance that we need to get it to the premerger level at an accelerated pace and maybe even if it holds at 90-92 we would be comfortable?
That's a good question, Kunal. Thanks for asking that. One is that when the policy rate changes in a steady manner over a longer period of time, you know that the adjustment that is required from a cost of funds catches up to neutralize -- to keep the margin safe. But if in quick succession the policy rate changes, then the matching of the cost of funds takes longer time. So that means you cannot look at whether it is in a narrow band in a quarter-to-quarter period. But when you look at a year, you will be able to see that it is in a very narrow band. First is the CASA. I do want to go back to describing that, right? The empirical study, both industry as well as for us, which is published CASA ratio and the policy rates if you see over a 15-year period through the up and down rate cycle, the CASA has moved in the opposite direction, which is when the rate goes up, CASA ratio goes down; and the rate starts to come down, there is some lag. It's not instantaneous. A few quarters lag, the CASA starts to go up. So you'll see that if you map us over a 15-year period and the industry, you'll see that it moves up and down. So we do -- if the empirical is repeated, there is no reason to believe that it would not be the same or we're not seeing something different as such, we should get the CASA back, but not in a hurry, right? LDR, I'll take a shot at it to see. See, what we had described, Kunal, last quarter or even about a year ago is that the LDR will come down to the premerger level, 85 to 90; more precisely, it was 87-and-change the quarter before the merger, 85 to 90 is what we have operated, that will come into that range in FY '27. So that is why we saw that the loan growth in this year that went by, FY '25, will be lower than the prior year for the industry and we took that opportunity, both industry loan growth going down and pricing being not to our liking, we accelerated to say, let's take this opportunity to slow down even further. So we grew at 7.7%, the assets under management in this recent time period. We have also indicated that in FY '26, we are subject to appropriate pricing, quality is always given, appropriate pricing that we will be growing at the market rate of growth. If you see the recent quarter that went by, March quarter '25, our sequential momentum growth was about 3.3%, which call it approximately annualized 12% or 13% thereabout. So I'm not giving you an outlook of what you should expect, I'm just describing what happened in the recent time period and that's the kind of velocity at which it was growing. So we do expect that FY '27 is when it will come below that 90 mark.
When you say repo cut gets passed on right away, does it happen exactly right away or does it happen on a particular day in a month or a particular day in a quarter? And therefore, in terms of NIM trajectory, Q1 would anyway not have any benefit from the TD cuts that you are taking now? So there should be a bigger impact in Q1 and then through the year you see some benefit? And on the 2% ROA target - is this like now a 2-year or 3-year kind of target? And do you have any other levers in your P&L, maybe fees or maybe opex where you could see some improvement from here?
It can happen -- if your repricing date is set for 15th, it is 15th. If Bhavin's reset date is set for 25th, it is 25th. If my reset date is 5th, it is 5th. And it depends product to product. And that means the mortgage product is different. Wholesale product is different. SME product is different. So it is different product. There's no one that is what it's broadly. Will a good amount reprice in a month? Yes. Will most of it reprice in 3 months? Absolutely. That is correct, but I do not want to talk about it quarter-to-quarter at all. You should look at a year because we do not know what will come next week or next month, so we will handle it as a management appropriately to market needs and customer needs. I don't want to give you an outlook. And by the way, I do not know where you picked up a target of a 2% ROA. We've not specified that. All we specified even in this call earlier was that when you look at the frequency of the 2% over the last 10 years or 15 years, the 2% has been the maximum frequency at which we have hit on an annual basis. We have told you about the opex, right, in terms of how we have made investments, if you think about the branch investments, and so the time for getting some realization benefits as well as the productivity benefits are on the anvil on that. If you look at a 5-year period, 250 branches to 350 branches to 750 to 1,400-something to 900 to 700 something now. We have accelerated and made those investments. And now we are pressing on that to get better productivity, and thereby, the efficiency to come in. The trajectory of that is for the cost to income to improve. And again, one other aspect I do want to tell not just look at cost to income, please look at cost to assets too, where we are the best-in-class in terms of cost to assets at about 1.9-and-change.
On CASA market share. Could you provide some details over next 18 months to 24 months, how do you see your both CA and SA market share evolve? Is there any particular number that we could think about in terms of CASA ratio over 18 months to 24 months? And specifically on savings account market share, given your investments in branches and technology, do you expect to gain meaningful market share on savings account in next 18-24 months?
In a different form, it's the same question of an outlook or a target that want us to specify. The opportunity exists. Our total market share is 11. The time deposit or CASA market share is give and take around that level. So which means we are evenly positioned, take time deposit could be 11.5 and CASA could be 10.5 and so somewhere in that level. That's where we are in terms of the market share. The opportunity exists across both of this. I do want one other very important factor to tell and which we have been mentioning over the last 3 years, 4 years. The penetration of time deposit in our customer base is low. So we do see opportunity space for getting better customer relationship through those time deposits. Our goal is to have the predominant share, wallet share of the customer whatever comes. And so thereby, that is how it is operated. And that is how the market share, if you see 11%, either any of these CASA or time deposits hovers around that kind of level. Our ambition and our historical experience has always been to gain market share. That is how we are positioned. How much we gain depends on market conditions at any point in time and the disposable income in the hands of the customers, depending on how the inflation plays out, how the wage growth plays out and so on and so forth and market returns as well as is another aspect of it, yes, which we have seen in the last 12 months when the market returns were high, we have seen some investment into the markets.
What is the maturity of the term deposits on book? And similarly how much of your borrowings mature over the course of next year? Also on borrowings floating rate hedged as we go into this rate cycle. And lastly, last quarter you had given a number on the PSL shortfall in SMF and weaker section being about 1%, where are we there broadly?
No, you'll get some of these things you'll get once the annual report is out. We don't have that, some of these things handy because it belongs to multiple buckets that goes through. So on the time deposit, we can't really have a number to give out to say this is a maturity that you're looking for. On borrowings, there is a maturity profile, which also last time we published, I think it's 0.5 trillion or thereabouts of the legacy bond borrowings will mature. And we will have opportunity space to have some new borrowings, which is infrastructure borrowings, which could be much more cost effective. So it depends on the market rates and there's no one particular strategy. We do the breakeven between certain category of deposits and infrastructure borrowings. And in many instances, we see the infra borrowings could be better. So again, I don't know what the market rate will be when we go to the market, but both of these are -- we will have some borrowings, infra borrowings at a cost-effective way and there will be a certain level of maturity that will happen which is, again 0.5 trillion or thereabouts, that will happen. And keep in mind that the borrowing mix to the total liabilities now stands at about 14%. Premerger, it was in single digit call it 8% or thereabouts 9%. On borrowings that are hedged, it continues to be around 60%, 65% of the borrowings, which will be hedged, which is again from the HDFC Limited book, which is what we've always had that. About that percent-or-so is where it is on PSL shortfall. We endeavor to close it, but that is always -- we chase volumes at different categories.
Large banks have cut deposit rates in the most popular buckets by 30 to 45 bps. Are you comfortable that the liquidity position has changed enough to support a healthy deposit growth for the system and yourself? And my second question is on your priority progress - if at all there are any shortfalls, how would that be managed? Would that have any ROA impact?
First is if I get on the rates and deposits as such, right? One is that it's not -- the deposit rate change, if you noticed, while we may have had gone first or second or whatever it is, across the industry, you're seeing -- at least the large top 3, 5 players you are seeing responded to the policy rate change. So that's something that was part of the transmission process. All that differentiates with that ability to reach, that means have the distribution reach, bring in new customers, have better engagement through the RMs, that's been what we have done in the past, that's how we have grown, if you see the past year, rate of deposit growth about 15.8%-or-so, that's INR3.4 trillion in the year. So we continue to be optimistic and continue to have that approach of energy to get that market share gaining, right? So the rate is not a differentiator in the past, and we don't think rate is a differentiator to win something because that would be very transitional and a short-term approach to getting that. Second aspect of what you asked is the priority sector lending. While the priority sector details get published in the annual report, but nevertheless, at an aggregate level, as we have said in the past, we do meet that 40% that is required. We're slightly above that level in terms of the aggregate priority sector lending. There are two sub-segments, which is the small and marginal farmer segment and a weaker section that always calls for something that inorganically, that means how do we go and buy it in the market either through certificates, IBPC, PTCs or any other manner or through on-lending program. There are several instruments that we use and we keep on. And if none of those economics work well, there is always the last resort is the RIDF. What does it mean to returns? Whether you have one or the other instrument, the impact on the return is very similar, there's no difference. Even if you look at the year that has gone by, we were about 1%-or-so short on these kind of segments. And even now, we continue to look for and search for how to close in that last 1% across SMF for the weaker and we will endeavor to do and close as much as we can.
Additional color on CRB reorganization
Rahul was one of our very good business managers. And obviously, he did express, as Srini mentioned, his desire to go on a sabbatical because he had some personal matters to attend to with his family and the academics of his children. But having said that, he built a very strong team. And as you probably heard Srini, we have reorganized the entire asset side of the balance sheet under an even more abler individual. As you know, Kaizad now handles the entire asset side of the balance sheet and the investment banking business. And all the heads who have been with us, we have, as we have mentioned several times in the past, we have a very good depth in management and they now all of them have now handle larger businesses and report to the Deputy Managing Director. I'm quite excited about this reorganization, and I'm sure that we will harness the most optimal way to find growth and as Srini mentioned, synergies between various asset groups so that we can optimize even our resources at the grassroots levels, so that there is not too much of an overlap. So this is going to be a very exciting period for us, and you will start to see a lot more efficiencies and even greater hunger than what we have seen from the CRB and the entire asset side of the balance sheet. Obviously, optimizing yields, optimizing the need to maintain priority sector requirements and other aspects as well. So this is a year to watch out for in terms of the kind of benefits that will accrue from this so-called massive reorganization that we have undertaken during the year.
Two quick questions. First one for the repo-link loans. Do they get repriced immediately as soon as the repo rate changes? Or is there usually a lag of a few months from the change of repo rate? And secondly, an extension to this, does the number of days impact your reported margins? And the second question: was there any reversal on AIF provisions in this quarter?
In terms of the timing of the repo rate change and so thereby the transmission or flow-through, by product, it is different. If you think about mortgages, which is 30% of the book-or-so, it can happen in the immediate cycle, rate changes and in the following month cycle, it can happen. So it can be anywhere within a month, it can happen. If you look at corporate loan or something, it can happen immediately. So it depends on product to product and the contractual arrangements, which are there in terms of the repricing frequency. But no -- it will not be a kind of an annual or something like that. It can be a month, it can be a quarter, but not something that it takes a year to get that transmitted. And your second aspect of number of days, yes, it can be a couple of basis points, it happens all the time. AIF, there's nothing significant in this quarter in terms of the contingency. If you remember the AIF provision that we had last financial year, not the one that ended, was about INR1,200 crores-or-so. Then after the RBI clarification in the beginning of the recent financial year, it was taken down. And then depending on the volumes that move up and down, it moves, but there's nothing significant as such on that. So yes, it was not required, but then it didn't survive to the P&L to the bottom because there are so many ins and outs that happens in the provision. So the way of contingent provision didn't happen because at the end, there was some net addition of INR60 crores for various other reasons. So it didn't survive to the P&L to the bottom line, yes.
On the larger macro cycle, for the last two decades or 15 years, where do you think we are on our credit growth to NPA cycle? Are we at a stage where we are seeing the credit growth going up and with that in order to get that credit growth, we will also see the NPAs going up or are we in a space where there will be a range-bound period of NPA? And considering SME growth comes in and retail loans start coming in better, will incremental market share growth come at the lower or higher end of the NPA range?
I guess you are talking about the industry level. You've seen us through various cycles, we've been pretty steady. Our NPAs have been quite steady other than the year or two of COVID. Even those time periods, may be 20 basis points, it went up, but otherwise we've been operating in a very narrow band on nonperforming loans and so on. If you listen to our Chief Credit Officer, he has done various analysis to say that the credit cycle bottomed out maybe even three quarters ago, four quarters ago and which you have seen at the industry level, the nonperforming loans going up and the credit cost beginning to go up. The offset has always been some of the legacy loans 5 years, 10 years, whatever legacy loans some recoveries and repayments have happened against those. So whether the credit NPAs and credit costs will normalize over the next 1 year, 3 years, it should, but that should be at a lower level than what historically we have seen is the assessment of our credit officers. Getting directly to that question in terms of whether we would go down the credit ladder to pick up the volumes? The short answer is no. Credit policies will not be changed to pick up volumes. They have been stable and they're consistent. And the market opportunity presents very well to capture. In addition to the credit, one other important dimension that determines whether we pick up that loan or not is also the rate at which we can do. And the third dimension that is required is we just not want to be a lending institution to anybody. We want it to be a relationship bank, including SME.
Additional color on credit cycle and growth strategy
Our segmentation of customers, whether it's corporate, whether it's SME, whether it is retail is very clear. We have tested these segments over a long period of time and we probably have a reasonable fix on the expected loss, credit losses in that. And the opportunity to nibble away more share in these kind of customer segments is huge. As I said, it is up to us the pace at which we want to grow, but it doesn't mean that the proportion of our losses is going to go up just because we are growing fast because we're going to be limiting ourselves only to the segment that we are comfortable to operate. So Srini did allude to it. If you take a 25-year history of our expect actual credit loss experience adjusted for some of the event risk and also mergers, you will find that we have been virtually on a flat basis or on a straight-line basis across the X axis of the curve. So growth does not mean our losses or loss ratios will go up. I think it should be more or less in a range bound because of the target segment that we would still like to -- because there is opportunity, there's a runway, and we would want to stick to this opportunity and not go down the risk ladders.
Has the industry or have we started cutting lending rates on fixed rate products like vehicle loans or personal loans after the 50 bps repo rate cut? And on your unsecured book of roughly INR2 lakh crores, what percentage would be unsecured business loans? Are these repeat loans to existing customers or do you also acquire fresh new-to-bank customers? And are there some signs of stress in unsecured business loans?
See, no, I don't know, but we are not -- we are seeing intense competition. We've not seen anything different now than what we saw 6 months ago from a price competitiveness point of view, let it be mortgage product or auto product and so on. So that's one from an industry point of view. No, we've not cut, but we do have a risk-based pricing model for us given a risk profile of a customer. So my profile may be different from my colleague's profile, and so it depends on what it is, so we get different rates. One you see that we published personal loans, which is almost about close to INR2 trillion or-so, right, as of the quarter end INR2 trillion or so. See call it, about 75%, 80% of them are salaried customers, mostly salaried with us or if it is taken from the market still salaried. The rest could be the open market loans, which are non-salaried customers. Non-salaried customers could be self-employed, which is some professionals or they're doing certain other activities and so on and so forth, which they may use this for other purposes. Then the third aspect of it is the performance of what this is. No, we've not experienced stress, touch wood, and we see that it's quite strong and very good and operates across several such segments, which is from individuals to proprietors to partners to various. And we operate this in a few segments. We operate this in the retail personal loan segment, we also operate this in the CRB segment and the emerging enterprises, which is business and it can operate for a small merchant to a medium merchant to a larger entity. So across all of these, we can operate there.