Can I start with just understanding the adjusted numbers. You highlighted that your NIM is 3.47%, which kind of gives us a INR4,700 crores NII. Is that what you see? And could you talk us through the reported NII versus the adjusted NII number? If you can just give us all the moving parts, that would be helpful , to get us some sort of a baseline of what you can take as a business-as-usual run rate number. And if you could do the same for the fee income line, that would also be helpful just so that we know we have got the right numbers? And then the second question is more around closure. If I think about the matters that we've seen, what are you doing about taking up legal actions against the various issues that have come up in terms of claw backs, in terms of other legal proceedings? And also on that same topic of closure, when do you think you can draw line? And when can you get the confidence that there are no new frauds to be discovered? Or is the review still ongoing and we would need to wait for the new CEO to come in and give it thumbs up before we can be sure about that.
This is Sunil Mehta, and I will answer the second question first. I just want to sort of let you know that as far as the entire process of accountability is concerned, we will follow without fear and favor the due process of law. And whatever action that needs to be taken, will be undertaken based on whatever is required to be done as per law, by ensuring that we do it expeditiously. The process will continue. The Bank is progressing as normal today. And we don't have to wait for the next CEO to come in, as far as this process of accountability is concerned and whatever needs to be done from whoever was accountable for the issues that we have just stated in our communication to you.
A couple of questions. One, how do we get comfort around whether th ese one-offs are more? is this the last kind of set of one-offs in terms of clean-up or there are going to be more? And my second question would be regarding the liabilities. In last couple of months since closing the year, how much of deposits has the bank lost? And how do we think about the liability strategy of the bank over the next, let's say, 6 months?
If I can comment on the first part that you have asked about. So as the Chairman mentioned earlier, the financial impact of all the irregularities brought to the Board and the Bank's attention has been taken into the account , while we have prepared and disclosed these Q4 results. There is nothing that is outstanding today to our understanding. So one -off as such we have already taken for. Whatever is the Business As Usual (BAU) impact, as we progress will come, such as the near -term impact because of whatever extra liquidity we are carrying. There could be some industry or business-related issues that will happen, which is part and parcel of being in this business. But from the financials perspective, there is nothing that has not been accounted for in the numbers that we have. And as we mentioned in the opening remarks, we have done a thorough check of all the accounts that we have. We have spent extra time. You have seen that we are almost late by a month to announce the results. So a lot of efforts by all the stakeholders involved has gone into ensuring that the financials reflect the fair and transparent position the bank has. Coming to the deposit side, as you know, we don't disclose within the quarter, deposit numbers. We have given you how our liquidity position has been. In the first half of the quarter, the average LCR is 139%, which is well above the regulatory threshold as well as the higher than what we had carried last quarter. Soumitra Sen: See, on the liability strategy, retailization of deposits, has always been a core thing, which we have been talking about. Apart from the home markets, developed markets strategy, which we do, the new ones, which we are now talking about, is that One Bank approach, where all the BUs are now getting into the liability sourcing, and we have different contests and incentives to run for that. Second, what we are doing is that the premiumization of the accounts, the branch distribution is now looking at opening the high -value accounts. And that's actually scaling up quite well. So you will see that growth happening in the affluent side of the business. And the cross-sell, and especially the NOS, which we look at the Number of Sales per person, with the One Bank approach, that's actually climbing up quite well. On the granular deposits, as you have seen our retail deposits share going up, the percentage from 44.1% to 45.1%. And even during this particular quarter, we are seeing the retail growth is absolutely right on top. So I don't see that to slow down. Sunil Mehta: So, before we move to next question, let me just also reinforce the point that was made by Indrajit earlier, about whatever we have done to bring things to closure. So, after these issues were raised or identified, the Bank has done an extensive review by both external agencies and internal teams for identification of all issues or any other issues that could be sort of identified. As you can imagine, the statutory auditors have also done a n extensive stress test. And obviously, they have fully put in financials and their report whatever has been identified. And of course, the financial impact has now been taken , as I already mentioned. The important aspect that I have to share with you is that during this process, wherever we recognize or figured or identified control weaknesses or any risk areas, those are absolutely being addressed. So, I think we are using opportunity from this crisis to do a deep review of all aspects of systems, controls, procedures and people, to strengthen all, to make sure that we have a robust systems and processes in place, with a high level of transparency as we move ahead. So that if there is any issue, they must be surfaced expeditiously so that the same can be addressed.
So, I had a question on the clean operating profit you mentioned. Obviously, the cleaner margins have taken a dip, but the fee incomes are where we were earlier, right? So, and historically, the bank had high fee income . So just wanted to understand how sustainable you think is the fee income streams or as we derisk the book, does this fee income kind of take a knock?
So, Adarsh, you would see some part of the net interest income has got reclassified into the fee income. We have given that information in disclosures as well. So, because of that, the fee income is where it is. Going forward, as you know, the strategy, which the Chairman and Soumitra has covered, it's part and parcel of our business. Some of the areas that we are into, are higher fee generating businesses. So, it would depend on what kind of loan mix that we aspire for and what kind of the segment mix we want to have . I'm sure the Board and the management as well as the incoming CEO will have a say into how we want to progress. I think it will be a little premature to comment on what should be our fee income or the fee to asset ratio, et cetera, going forward. Let's see how every quarter goes.
Okay. And the second question is, since you've taken a full stock of the MFI NPAs, you've kind of provided a lot as well. Does this mean now that when you say we start on a clean state, our credit costs go back to what the normalized credit costs were? Or it's kind of still uncertain. We've taken a large part of it, but we are not sure of how credit costs would behave incrementally.
So overall, Adarsh, you would have seen even in this quarter, excluding microfinance, our slippages, credit costs, et cetera, in other segment s have been better or stable. So, excluding microfinance, we have not seen any issues as such. And those businesses continue to be in the steady state. The microfinance side, we have taken additional slippages this quarter. We have also given one additional disclosure in our investor presentation , if you would have seen in microfinance segment. We have given a trend in 0-day plus DPD book and that you would see that the 0 -day plus book is almost coming back to normalcy where it was in the last year's March. So that gives us confidence that the incipient stress is coming back to normalcy. But having said that, as you know, the situation in some of the states is still evolving. There are a few elections in the next 12 months. So, we don't think the next year in microfinance will be back to normalcy. I think there should be a step down, obviously, given the higher number that we have reported for this year. T here should be step down from the current quarter slippages, but it will still be elevated versus the business as usual. And then maybe in the second half of the year, you will see the things progressing back to normalcy. That's our base case today. But let's see how the MFIN guardrails, the state elections, some of the monsoon -related implications happen. So that's where we are. We are cautiously looking at this business, but normalcy maybe 6 months away.
Got it. Okay. This is clear, Indrajit. And just secondly, what is the strategy now in this business? Like given what all has happened, one is the environment and second is internal controls, accounting, et cetera. Is it fair to say that we continue to degr ow this book?
As Chairman sir, had mentioned earlier that we will be cautious on microfinance segment. The approach of disbursements is towards the customers with long vintage, with better past payment record. These approaches will continue. The diversification into merchant advances continues. However, if you are expecting us to push pedal or change the disbursement approach towards reducing than what it is supposed to be, I don't think so. Business as usual disbursements will continue, but we'll not be either overly cautious or aggressive in this segment. Whatever is flowing through our credit filters, we will be willing to take it. But we are waiting and watching on how the underlying industry is evolving. As you know, the MFIN guardrails, the monsoon etc., I don't want to repeat it again, we are watching all those events. Once the leadership is established, then the Board and the management will take a relook at the Bank's strategy, which segments we want to push, which we want to stay a little bit cautious. You would have noticed our capital adequacy is still above 15%. So there is growth capital available to the Bank. The management and the Board will decide at appropriate time, what should be our medium -term, long -term loan mix that we should aspire for.
A few questions. So, the first one was in the notes to account #15, there have been some reclassifications from different P&L line items. Does that impact the P&L? Or it's just mere reclassification, and there is no P&L impact of that? That's number one. The second question is, if you could just quantify the total amount of fraud, which has impacted P&L in the quarter because some of them have been adjusted against each other, the rest are just reclassifications. That's the second one. The third question is, while there was a comment that the corporate loans were strategically just runoff to build up the liquidity. But was there any interest income reversal even in the corporate loans? Because the corporate loan yield has also dipped from 8.8% to 8.07% in the quarter. So those are my main questions.
Yes. So, some of those one -offs in terms of interest reversals, et cetera, have been allocated to the underlying businesses as we can't just leave it hanging, so wherever there have been impact. So segment -wise yield, I don't think you will have a comparable to last quarter. So I think this quarter, I'm afraid you can't compare yields in the underlying segment because all these one-offs have been reallocated back to the underlying segment. So you would have seen yield in both consumer and corporate is lower this quarter, significantly lower this quarter versus the previous quarter. That's one.
Got it. So just fair to say that around INR4,900 crores of frauds had a P&L impact in the quarter. I'm just summing up all the numbers, which are there. But does that broadly tell INR4,900 crores P&L impact?
I wouldn't be able to comment on it, whether it's fraud or not . It's still not yet conclusive. We don't want to get into that. Let's wait and watch. The process is still ongoing. But you can compare the BAU versus the reported numbers and that's the difference between the underlying versus the reported number.
No, we get the fact that it was incorrect. I'm just trying to understand what are the examples of it that we've got reclassified? Just trying to understand the nature of it.
So, Mahesh, I'll take you through offline. I'll give you some examples. I think it will take some time. In the interest of time, we can discuss it later.
Okay, sure. There is also an additional income in the credit card line item or card fee income. Can you just clarify that as well?
Some of this relates to that. Again, the fee line items that we have shown, you would see that they also reflect the underlying numbers. So the fee line items of this quarter are not comparable to the previous quarter. So all the reclassification, et ceter a, has also been reflected into the corresponding fee line item in that slide. So part of the interest income got reallocated in some of those line items, appropriately reflecting the underlying.
Perfect. Sorry, you had indicated this answer in the first part saying that you will not want to comment on within quarter performance of the balance sheet. Is it at least possible for you to give a qualitative answer as to how is the position on the liability side?
We have given in the press release also, the first half of this quarter till 15th of May, the average liquidity coverage ratio is 139%. So, we had given you the period -end number of March, and we have almost maintained stable liquidity in the first half. If I'm not wrong, we continue to carry the same as of yesterday also.
Sorry, the second question also was about the future, right? When can we get the closure? Do we need to wait for the new CEO to draw a line? Or do you think the Board can draw the line on the various issues? And have you finished identifying all the various issues?
What we have done is that based on whatever reviews that have been done, all issues have been duly identified and duly addressed and declared and shared with all stakeholders, including what we have done with you. We will follow as per law, whatever needs to be taken. We do not have to wait for the new CEO , because the process will sort of continue. And all these issues have been duly reported to the regulatory authorities. The financial impact of all the issues that we have declared, has already been undertaken in Financial Year 24-25. So those financial adjustments have been done. So, from a financial perspective and coming back to business as usual, that is being continuing, and people will start focusing on that. And as far as the other stuff is concerned in terms of, on accountability, that will continue to follow as per due process of law. Indrajit Yadav: Coming back now to the first question. So Chintan, as we mentioned in the opening comments, on a going concern basis, for quarter 4, if we take out all the inter -head adjustments and one -offs etcetera, the net interest income would come to around Rs.4,700 crores. The non-interest income would come to around Rs.2,500 crores. The operating expenses would be around Rs.4,200-odd crores. So the operating profit would be around Rs.3,060 crores, is what we disclosed in the opening remarks.
Sir, I have 1 question. So we had roundabout Rs.1,325 crores of contingent provision as of last quarter. Have we utilized those in this quarter?
Yes. That has been utilized.
So the Rs.3,500 crores of microfinance slippages, just wanted to understand, did that slip in the quarter? Or had it slipped earlier, but you've recorded it now because of some recording lapse earlier or internal control lapse?
So, in the notes to the accounts we have given this background. There is around Rs.1,800 crores of loans, which were incorrectly classified into certain other categories, and that resulted into them being recognized as standard in more than 90 DPD days bucket. Those classifications have been rectified in this quarter. There was a review going on, which we also disclosed. So, the Rs.1,800 crore is where the correct classification of the underlying customer base has resulted them turning into NPA this quarter. And that correct classification, as you would know, happens from the initial day and those original DPD, properly accounted for. Just that the classification back, resulted into additional slippage of INR1,800 crores. And the balance is Business as Usual slippages. It is also higher and that's what we have been discussing throughout the year. The slippages accumulated or the overdue book accumulated over the 9 months has turned into NPA in this quarter. So those 2 things are driving the microfinance slippages this quarter.
Sir, I have 2 questions. The first one is that what led to the reduction of the corporate book from INR170,000 to INR140,000 during the quarter? And my second question is, if I look at your net interest income, even if I adjust for the one -offs, it comes to around INR4,700 crores for the quarter against a normal run rate of approximately INR5,300 crores. So what explains that difference?
The business as usual interest income is also being impacted because of the interest reversal which have happened on account of the elevated microfinance slippages apart from one -offs, during the quarter. So that has an impact. There is additional impact because of the events in March, we had to carry excess liquidity. That liquidity comes at a cost because you are deploying it in a lower -yielding assets. Thirdly, the loan mix change, because of the MFI being written off, the yield on the book have been depressed. So there are other business as usual impacts on the net interest income, which are relevant to the events that happened in the quarter, which we cannot say those are one-offs or whatever. We have just given you one -offs, which we need to act upon because of some inaccuracies of prior period items , reclassifications etc. Those have been accounted for. The Rs.4,700 crores, which we say as business as usual, that will change depending on how the current quarter is going, how the next quarter is. So that number is something like baseline, which is from where we are starting. But I appreciate your point, that itself is lower because of some of the impacts, which happened during the last quarter on our business. Soumitra Sen: Just to add on the corporate book, it was just a tactical move to build liquidity. So, the focus remains on corporate book, and it should keep on climbing up. There's no go slow on that.
The reclassification to corporate would have happened only if there was irregularity in some recognition on interest income there, right? Or is there some ad hoc reclassification done towards corporate?
So there's no reclassification in the corporate book. So, it was mainly in the fee and interest income for the retail portfolio. Corporate was intact as it is. The reduction is mainly on account of repo rates, which has impacted the margin and the liquidity that we have maintained.
Yes, fair enough. And on the other 2 questions, the notes to account 15, is that just mere reclassification? Or there is a P&L impact of the forward items, which are mentioned in notes?
No, the first part of the notes to account has P&L impact. These have been accounted in the current quarter's numbers. Those are the respective lines we have mentioned it clearly. The second part is where we have also mentioned, these are just reclassification. Those 2 line items of INR761 crores and INR158 crores, they don't have a P&L impact. And we have given you like earlier mentioned, the steady -state business as usual numbers, which takes into account all these changes that have happened during the quarter.
Got it. And just one last question, Indrajit. Did I understand clearly that the fee income of around INR2,100 crores in the quarter was also because of certain reclassification from interest income to fee income. So, the steady-state fee income could be lower than what we saw in this quarter?
What I mentioned earlier that around Rs.2,500 crores of normalized fee income is there in this quarter. If we keep aside the derivative-related adjustment that we have done. That number is stable versus the quarter 3 because some of the interest income has got reclassified into the fee income. So, this Rs.2,500 crores is the BAU. Now it can go up, down, wherever depending on how the underlying businesses go, and that we will have to see every quarter.
Sorry, my question again also is the same as the previous one. This Rs.761 crores of interest income, which got reclassified, is it possible for you to give us a bit more clarity as to what has caused this?
So there were certain items, which were from the beginning have been part of fee income, but wrongly classified under interest income. We have just reviewed the overall grouping and classification. And based on that, we have regrouped in the correct head. So as such, no impact on the P&L. But yes, the classification inside the P&L would change, and that's what we have done in Q4.
Okay. And the second question is that the higher slippages that you have shown on the MFI side, in the normal course of event, which is about INR1,800 crores, how would you explain that for the quarter?
So as I was saying earlier, Mahesh, there have been overdue books, which has been in the last 3 quarters. And part of this is also because of the Karnataka state, some of the events which happened. Those slippages are higher because of those earlier 9 months stress. We have been continuously saying the slippages in quarter 4 will be higher in 4 digits, and that's what has happened in this quarter.