There was a reduction in the banking outlet footprint by about 230 sequentially - what's happening there? Rajiv mentioned growth picking up - what loan growth should one expect for FY27? Also, the absolute quantum of AFS reserves as of March '26 and any impact from RBI's FX NOP rule, reflected in 4Q already? On asset quality, slippages have come down but PCR went down sequentially - when do you expect to reach earlier guidance of 50 basis points of net NPA ratio?
On business correspondent, those 200-odd outlets, it's just a function of optimizing, rationalizing some of these centers. As a result of this, we have basically sort of reduced 200 of those locations because they had become unviable as per the work that we have done. Second question was around growth. What I have been talking about over the last couple of quarters is that FY26-27 should see us grow broadly in line with market. And that's really what we are working towards. And I think the foundations now are in place for us to be able to do that.
More it will be fee income. And what will actually drive that? Because this quarter, it's been like better growth in terms of disbursements across the products, but still not reflecting in terms of the overall fee. So is it like once we resolve the card, it gets to that level or there will be more contribution? If you look at the breakup on retail and wholesale also, it appears to be pretty sticky out there.
Your comment on fees is fair. But I think that really is the opportunity for us to go after multiple lines of fee businesses. Your point on cards is fair, but also there's been a lot of work that's happening in terms of optimizing some of the fees that we are charging our customers in some cases, somewhat lower than industry levels, some increase/decrease in locker fees, for example. From a productivity perspective, we can do more on sale of insurance and mutual funds and other such investment products. There is work that is happening on the transaction banking side, to be able to now start adding new lines of business like the capital markets fees. And finally, we have a new Head of Sales in treasury as well to be able to significantly increase franchise fees on the FX side as well. So, there are multiple levers, all are work in progress. And slowly but steadily, we should see better fee income as we go forward.
Where could it settle at the 14%, or 15% SME, where could it get to? Some broad contours.
I mean, SME is a bit complicated, because some of it is sitting in retail, some of it is sitting in wholesale. But broadly speaking, that we will take money away from the very large corporates and put that into the mid-market and the SME franchise is the point that I was making. So therefore, while the overall numbers of SME plus wholesale should remain around 50%, but the composition within that will change somewhat.
On large corporate degrowth - how much we are anticipating further?
I don't want to put a number on how much we are expecting. The way to think about it is we'll be dialling up our mid-market, our commercial bank. In the very top end of the large corporate, which are particularly the conglomerates, we may see some degrowth. That is how we would like to look at it. it's early days. But directionally, we are guiding that we will look at better growth or higher growth or more than proportionate growth in the mid-market segment.
But Viral, in vehicles, your net slippage ratio is like 1%, if I heard you correctly in the opening comments. I mean, historically, what this number look like for IndusInd Bank? I would expect 1% to be a pretty good number and a lot of improvement seems unlikely, just speaking as an analyst?
denominator, right, important to understand that. The asset book continues growing, the slippages are dropping, and that's how you have to translate that into credit cost, right? At the moment, the asset growth is relatively muted. And so therefore, to some degree, all these percentages are a bit skewed. So, I think two things are happening is the point Viral is making. One is anyway, slippages have reduced. And add to that, as growth begins to come, these numbers will start to look better.
Just wanted to check on the 60-basis point guidance for net NPA when do we plan to achieve that again?
We mentioned that in the previous quarter as well, that is a target. We don't have a due date kind of saying, okay, we will get there by this date. That's the level we want to get to. But yes, it's a journey. It's not going to happen like immediate next few quarters.
On deposit growth - this year we have not grown deposits because we've not been growing the balance sheet. Retail deposits is also minus 2%. And since we didn't have to grow, we took the opportunity to cut our rates. But going into next year, do you think you'll have to say, raise rates again to garner retail deposits because if you plan to grow mid-teens, retail deposits are still growing at, say, minus 2% Y-o-Y? What exactly changes for retail deposit growth to pick up?
We'll see. If you look at our deposit rates compared to our larger peers, we are already paying a somewhat premium to the big 3 or 4 banks. So we'll see how this plays out. So, there are multiple things, somewhat some internal, some external, meaning that we've made some organizational changes, structural changes, changes in incentive plans, changes in goal sheets, etcetera, for our branch banking folks. We have integrated the CFD piece, as I spoke about in my opening commentary. And there is a clear mandate from them to be able to grow their deposits. There is a mandate even in our microfinance businesses to be able to get more than what we are getting today. As we grow our retail asset businesses as well, I do believe, that will trigger a virtuous cycle of more cross-sell, more engaged customers and therefore, better balances. We are also working on improving our digital capabilities, which I think it is fair to say that we have a little bit of way to go as compared to peers. So therefore, we are improving our digital capabilities as well as we go forward. I also spoke about the fact that at a very basic level, current account opening - current and savings account opening itself, we have made a transformational shift in terms of customer experience. We are also working on repositioning the brand, which we will hopefully do sometime in July, August of next year.
On the merchant loan book - we do see a very healthy uptick over there, almost 10% Q-o-Q after almost 4 quarters. Is this strategic? Would we see something similar over the next 4 quarters in this book? Do you see this becoming a sizable part of the loan book over the next 2 to 3 years?
This is a book that we are passionate about. It's a business that can be scaled quite significantly from here. We are investing in both people, technology within this space. And in this franchise, we can do a lot more. So I don't want to comment on whether the rate of growth will be the same, but it is a business that we certainly want to grow not just over the next 3 to 4 quarters, but over the medium term. Let me answer that question slightly differently. I mean I think today, if you look at our microfinance business at BFIL, it's broadly speaking, 70%:30% microfinance to BSS, which is our Bharat Superstore Business. The plan really is to convert it into a more rural business where microfinance then effectively becomes 50%, not because it's going to degrow. But because we're going to add new products within that franchise to be able to grow that franchise and to be able to serve the community there through multiple products like Micro LAP, for example, is an example of another product that we will add there. But fundamentally, the rural business is something that we want to grow, not just on the microfinance or BSS side, but with more products.
Lastly, Rajiv, you mentioned about the macro environment, in West Asia crisis. Our portfolio is generally very aligned to the macro environment, right? So any early assessment on from a book perspective where we are linked to the oil and gas value chain and asset quality related to vehicle finance and SME, any assessment there?
To the second question, was we have accreted capital in this quarter. And so therefore, our capital position has become stronger than where it was in the previous quarter. This level of capital is enough for us to be able to support growth at least over the next 1 year. So yes, there is no plan to raise capital anytime soon. So, as you can see, this whole theatre is evolving literally on a day-to-day basis, but we've already done 2 iterations where we looked at the entire portfolio across all our businesses. At this point in time, we are not seeing any significant hotspots or across the entire portfolio. But I do believe that if this crisis continues and the physical ability to move oil and gas is constrained as it is today for a longer period of time, it is, I think, inevitable that maybe, I don't know, two quarters from now, we will see some impact on portfolios. But like I said, I mean, it's a wait-and-watch mode at the moment.
Follow-up on the AFS reserves and net NPA reduction trajectory.
The AFS reserve was negative Rs.50 crores. I just want to highlight that our AFS book is not that large. It's quite small in the context of the overall investment portfolio. So, it's a small number, negative INR50 crores on AFS. The second question you had was on the net NPA. First, I want to highlight the entire quantum, you're seeing a sequential decline. It's gone down from Rs.3,300 crores to Rs.3,169 crores. Important to also highlight more than 50% of that is from the vehicles business. Less than 25% is now from the microfinance business. So, in terms of residual risk, the vehicles portfolio, you will not see that much of credit loss resulting from that net NPA. It is important to understand the constituents of that net NPA as we think about residual risk sitting there. It would be a gradual reduction. You're not going to see an immediate write-off there. We want to be consistent. We've been sharing that over the last few quarters that we would want to be consistent on our policies on write-offs. The new clause not impacted us too much. The only thing we've seen is the FX volatility impacting our other assets and liability. The impact of the RBI requirements was not material. I mean it was in tens of crores.
Post this guidance of almost system average credit growth, in terms of ROA, how should we look at the step-up getting into FY27 and FY28, looking at where do we see margins settling down, we saw some improvement on the core NIM. And when we look at it in terms of fee income, so fee income, particularly on the retail side was slightly weaker. I understand it's because of the cards looking at the breakup of the proportion. But 1.2% fee, how should we see it scaling it up and maybe towards like 1.5-odd percent how much of time it would take. So particularly on the ROA led by whether it would be more led by NIM and fee or it would be more like a cyclical credit cost, which can aid the RoA improvement?
So, let's take the current ROA base we are at 45 basis point. So, for our journey to 1%, we are looking at that coming in equal contribution, both from the credit cost and from operating profit. So that's the first split of how we get there. Within operating profits, some improvement on NIM, much more on fees and much more on expenses. So that's how I would bridge it. Because the expense base, we are looking at controlling that. And as the asset size starts growing, that's where we will see some optimization. So broadly, that's really how we are looking at the Journey to get back to the 1% RoA.
On loan growth - you said broadly in line with market and foundations are in place. What is your internal assessment of market growth? And within this, how do you see the mix of wholesale, retail, SME moving? You're rationalizing one part, not really growing some parts and then really growing some parts. How do we see the overall mix changing? On RoA target - we are still sticking to the 1% exit in FY27 - how about the medium-term aspirational target, where do you wish to eventually reach? And the third one on MFI - how much more normalization is there to go in terms of slippage, on absolute basis also it's a relatively high number, and disbursements wise we are still lower than Q1 '26 with capacities to do much higher disbursements - how do we see the trend going forward?
Question one was where do we see industry growth? I think the industry growth for this year should be, everything one needs to caveat with subject to how the West Asia crisis plays out. But notwithstanding that caveat, we should see 13%-14% growth. Broadly speaking, we are, give or take, 60:40 on retail to wholesale. One of the things I've mentioned is that within wholesale, we are dialling up on the more granular businesses, mid-corporate, SME, etcetera, and taking some money out of the very large corporates. And so therefore, while the overall number may remain more or less the same, but I think the proportionalities internally within that will change. I also mentioned the fact that on the retail side, we have already started to see growth on the more traditional retail asset businesses, home loans, gold loans, etcetera. And that is something that we will continue to build on as we go forward. If you remember, the conversation I had with all of you really was to be able to convert IndusInd Bank into a much more universal bank with a predictable profit franchise. And that's really what we are really working on at this point in time.
Can I just get a little bit of detail around kind of how much can large corporate shrink further? And a couple of detailed questions on average CASA balances growth in the quarter - you gave the average deposit growth at 1%, I'm also after the average CASA growth. Also, any one-offs to flag in the NII line this quarter? Or can we take this as a very clean NII line? And on provisions - you said that half of the journey from 45 bps to 1% ROA comes from provisions, that kind of suggests that provisions will be something like 90 basis points of assets. Is that a fair post code for you?
So, let me first answer the point on average CASA growth. So, quarter-on-quarter, we've not really grown CASA mix. It was 30.2% in Q3, 29.8% in Q4. But again, important to understand the constituents. The retail book that's really been growing. We've seen some degrowth on the wholesale book. So, the mix is important to highlight. On provisions, the other important thing to understand is also the growth in the loan book. So far this year, the denominator has been coming down. Slippages have improved, and therefore, the numerator is going to be fairly controlled over the next 3 to 4 quarters and the denominator is really going to start going up. And therefore, we will see that showing up effectively in the credit cost on loans and assets going down. So that's really the math on credit cost.
But that's what large corporates have done minus 25% year-on-year. Is there another 10% to go, 20% to go or smaller numbers? And NIM was clean, right?
No, we are more or less done there. As far as the degrowth, the point that you are making, that we are more or less done. NIM was clean. No one-timers in this quarter (per Viral).
Just going back to the credit cost question. So apart from MFI, what would be the driver of credit cost improvement from current levels? And MFI also probably should just be maybe Rs.200-300 crores more, right?
So again, if you look at the slippages data for this quarter, the reduction is happening across our portfolios. It's not only the microfinance, which has dropped. We've seen a drop both in consumer as well as vehicle financing. And therefore, the improvement will be across sectors, not just micro finance. You are right about your point that the absolute on microfinance is a much smaller number, but the improvement really will come across the three large segments that I talked about, microfinance, consumer and vehicle finance.
Second was on just your deposit and funding cost movement. Now your cost of deposits has fallen only 2% Q-o-Q and cost of funds has fallen 12 bps Q-o-Q. And just on the deposit cost thing, 2 bps QoQ when our CASA was largely stable. Does this mean that our TD repricing is almost over now? Because last quarter, we reported a much better decline.
That's again an effect of the total balance sheet. If you look at total balance sheet, that's grown and therefore, that cost of funds average has dropped more than what you see on the cost of deposit. So, you're taking equity also in this in the denominator. That's correct. I think that's fair to say that the repricing that journey is pretty much done.
Now we are aspiring for system level growth, and we see that large corporate may remain in consolidation mode. That would mean that effectively retail plus SME may have to be more than like 17%-18% plus. At the same time, you see macro, which may have some implication on SME growth and maybe vehicle growth. Along with that, deposits while they have been stable retail deposit, but there's not material growth there. So would you be comfortable in growing - considering these constraints on SME/vehicle along with dialing up deposit to achieve towards the systemic level growth?
Across the system, we have a little under 2% market share. So therefore, we do believe that this franchise is certainly worth more than the 1.7 odd percent market share that we have. And so therefore, given the team that we have, given the process systems controls that we are now putting in place, I do believe that we will be able to at least start to grow in the vicinity of where the market is. To the point that you are making that if the macroeconomic environment as envisage begins to play out, please remember that market level growth will also come down. And so therefore, to that extent, I mean, if that begins to play out, we will also calibrate growth as appropriate.
Your liability side reset has already happened, right? Whatever the bulk deposit is more or less steady, but there is no liability reset that is still pending?
From a pricing perspective, yes. But I think obviously, proportionalities are something that you need to consider as well, meaning that we have some way to go to catch up with peers in terms of the ratios of the current account relative, the overall ratio of retail plus SBC as compared to peers, etcetera. And so therefore, while there may not be necessarily a great deal from a repricing perspective, we do hope that as proportionalities improve towards more retail, we may be able to get some benefits on overall cost of deposits as we go forward.
There is a Y-o-Y sharp increase on other assets in the balance sheet. Is that RIDF and if so, if you could quantify. And on PSL, how you are positioned because the MFI book is sharply down as of the end of the year. Not that you will have higher RIDF instalments next is what I wanted to say.
It's a combination. So, you're right. Partially, yes, Rs.3,000 crores was RIDF. The remaining is really grossing up of the balance sheet with the FX volatility. So, revaluation of FX contracts where we are hedged from a risk perspective, but you have two contracts which grossed up the balance sheet. So that's really explaining the Other Asset and Other Liabilities movement. So, this year's PSL, we met. So, we're not going to have RIDF. Having said so, the RIDF target for shortfall of the past year, that's not fully done yet. So, we still have another Rs.2,000 crores RIDF left in terms of the demand. It's not come through yet, but that's it. But as far as PSL goes for this financial year, having met the targets, we should not have incremental target on RIDF coming in next year.
First question is on the LCR. If you can help us what would be the release under the new norms for LCR for you? And a follow-up to that would be what is your internal comfort level on LCR? Or is there a Board approved floor of LCR, which you would like to maintain?
So LCR, I think at 118%, that's a stable level. I don't think we're going to see much delta there, very marginal there. The range, we would operate between 115% to 120%. That's pretty much the range we'll be working within. And that's what we are internal tracking. No, nothing significant coming in [on new norms release].
If we are, let's say, not able to match the loan growth with the retail deposit number, are we open to tapping into CD and higher cost? Or I mean is growth the primary aim over here?
Given the fact that we have not grown for a year, I think it becomes very clear to me and to my Board that we need to start getting back into growth mode. Now if the industry grows at 12% or 13% and we grow 11% or 12%, I will not be deeply disappointed. But I think fundamentally, we need to get back into growth mode.
The risk-weighted assets were sharply down by about 300 basis points. Anything to read into that? And with 16.2% CET, will we still looking to raise any capital?
So, on the RWA question, two factors playing there. One is the drop in the loan book, right, that directly translates on credit RWA. Second, we've also run optimization on the book. So, things like quantum of rating portfolio, the market risk calculation, etcetera. We've seen some uptick from that as well. So that's really helping us maintain and lower the absolute RWAs.
Our employee cost has declined sequentially even if I exclude the new Labour Code impact, if you could highlight something on that? And the other question was on the deposit growth front, how do you see system deposit growth panning from here on? And could that be a constraint on loan growth going ahead? Because as of March end, we are running at a 16% Y-o-Y loan growth. Where do you see it settling in FY-27?
On employee cost, it's a factor of the churning that we've seen through the course of the year. I don't think it's been a substantial movement quarter-on-quarter. It's actually flattish. But yes, it's been flat to lower. And you're right. The one-off was the Labour Law impact last quarter.
On deposit growth being a constraint on loan growth going forward.
So simple answer to your question is will deposit growth be a constraint to credit growth? Absolutely. I mean, in a sense, is a basic tenant of banking that we will be able to grow only to the extent that we are able to raise deposits given all the various constraints around LCR, LDR, etcetera, is concerned. But having said that, it does look like we will see slightly lower levels of credit growth in the current year, especially given the macroeconomic environment that is currently playing out. But like I said, it's a wait-and-watch mode. Things are changing literally on a day-to-day basis.