Thanks and team, wish you a very Happy New Year and Happy Diwali. So, firstly, with respect to credit card, in fact, last quarter also you indicated that we should star t to see the growth this quarter, but it was down like 4% odd and I think the end September would have seen the decent spend and volume. So, what is ideally leading to this and the right of quantum which was there of almost like Rs. 1100 crore odd, is it more skewed towards the credit card which is leading to decline in the credit card portfolio?
Yes, Kunal, Happy Diwali. On credit cards, like we had mentioned, Kunal, that we are kind of revamping the business. As you know, last year we were in embargo, we couldn't issue any new cards and therefore the credit card spend s year-on-year would be really, really difficult. But with the launch of the new products like Solitaire, the relaunch of IndiGo and stuff like that, I am feeling actually hopeful that we will kind of come back. August was anyway quiet, end of September we saw spend kind of come up, but hopefully we will see some lift into the coming quarters.
Can you quantify that?
No, broadly I think, as I said, even without retiral, OPEX will be in a single digit as we have seen in the last quarter QOQ growth. But we continue to spend on technology about 12% to 14% of the total OPEX that continues.
Could I argue that even taking into account these three factors you have told, you're sitting on chunky excess capital, now, there is, of course, an inorganic opportunity in the pipeline. If it plays out, then you will utilize some of that capital. If it doesn't, could we expect some action on that? Because even considering all the points you mentioned, there is still enough out there?
Yes. Just because I have excess capital, I don't think we should go out for opportunities which does not make sense. So, I think we have to carefully evaluate capital because capital is a very scarce commodity. So, we would like to clearly evaluate each opportunity carefully before sort of investing.
And any postcode on the credit risk proposal and the ECL proposal on what impact you could have on it?
So, I think the ECL guidelines are still at draft and in fact, there is a deadline fo r submission, the suggestions by 10th of November. So, we would rather wait for the final guidelines to come before commenting on that. Only thing is, given that we are highly capitalized, additional provisions, if any, will be comfortable with our capital adequacy at this rate. So, we will wait rather than commenting on the impact of everything on this.
Thank you for the opportunity, sir. The question is on the asset mix. Now, we have almost 300 bps below what was the unsecured mix, say, 4 -5 quarters before. The direct question is, how many quarters away are we from the unsecured share in overall mix starting to rise, not stabilize, not go down, but to start increasing, which means these products put together start outgrowing the rest of the book? That is the question?
Yes, look, I am definitely not going to hold back secured asset growth just to make the percentage kind of improve. I think this will be like a 3 -stage process. The first stage is, microfinance was negative, cards were negative, how do we make it positive? So, in rupees, crore, how can we grow this? That is Stage number I, hopefully, shortly. Stage number II is how do we actually cross at least into the double-digit arena. But longer term, we would definitely like to get higher. This is an area of tremendous focus for us and we are working hard to kind of get the turnaround. I don't at the top of my head remember when it suddenly gets into kind of double digits. But this is a very key area of focus, which we will be kind of spending a lot of time on.
The conclusion would be that from, let us say, the next couple of quarters, you see some marg in expansion, but next year, just thinking about it, how it would move from a quarter-on-quarter basis, it would pretty much flatten out around the 4Q exit or thereabouts. Is that qualitatively the right understanding on how NIM should progress from here?
See, I think we are still, we are looking at this year first, next year we have not thought, but what you are saying is effectively, yes, from Q3 -Q4, you will see gradual improvement in the margin. Obviously, the exit margin at say March 26 will be higher, obviously, and thereafter, I think it will depend upon how the general economy rates move.
Yes, hi. Thanks for taking my question. Question again on margin. So, in the first half, of course, we cut our savings rate more than peers, but our margin compression over the last couple of quarters, if I look across the private banks, it has been larger compared to your peers, right? Now, moving to the second half, we are possibly looking at maybe the consensus view is one or two more rate cuts from the treasury. What are the levers we have to defend margin because as we see it right now, secured book is going faster than unsecured? So, that is an added pressure. Yes, that is one. And the second one is your yield on investments is down sharply quarter-on-quarter. Is there something to read into that? That is a calculated n umber that I have. Yes, just trying to understand that because we have also reported a treasury loss.
So, Param, on the margin part, I think the savings account rate before the rate cut, we were paying actually, slightly higher than the peers on the savings account. And therefore, when we cut the rate, the benefit is also higher. The only thing is we cut the savings account rate towards end of quarter 1, for which the full benefit has come in Q2, which is what is reflected in the 31-bps reduction in the cost of fund. So, now that is aligned with the peers at 2.5 for the fixed rate SA. As far as the term deposits are concerned, obviously, we have done the rate cuts as per the buckets, what we believe is right. And that will flow as and when the deposits start repricing going forward. The question is whether if there is a further repo cut, what are the levers we have? I think we will have to play by not only what we want, but what market wants and what peers are doing. But largely, ca n it be the term deposits rate, can be further saving s account? I think it is at this stage very difficult to say anything on that. But clearly, as we have responded to the already, the rate cut about 75 bps, I think we will also respond for any further rate cut based on the market and the peer's part.
Okay, so not skewed towards any particular segment like credit card or so?
Kunal, on the write-off question, I think it is a combination of personal loan, credit card and MFI and write-off based on the policy of 180 days or 270 days and that is the write-off which we have done. No. These 3 segments as I said.
Sure, and the second question is on cost of SA. So, it is still at 2.89, we have revised the rates to 2.5 from July onwards. So, how much of Delta is still left to get towards, I would still believe like there is a floating rate SA which would be at a relatively higher cost. But ideally, can it actually come down to what level do we see it stabilizing given the rates are at 2.5 currently?
Yes, so you are right. I think, Kunal, that the rate is a combination of the fixed rate SA where we have reduced it to 2.5% and the floating rate SA. If you see the composition of the average balance on a QOQ basis. Actually, we have reduced dependency on the floating rate SA which is a higher cost deposits from 19,000 average to about 14,000. Now, whereas our fixed rate SA ha s actually gone from average of 1,05,000 to 1,13,000. So, what you are seeing 2.89% is effectively about 2.51% because we pay slightly higher on the savings account for the staff. So, it is slightly higher to 2.5% is on the core SA balance and average around the floating rate SA is anywhere between 5.5% to 6%. So, if you do the maths, it is basically that is the 2.89 %. I think the amount over 2.5 % will depend upon the quantum of the floating rate SA which we will take and the rate at what we will take. And clearly, this quarter, as you see, the actually the quantum for the floating rate SA is actually reducing significantly.
Okay, got it. But otherwise, it is largely the repricing is already done. There is nothing much left on SA now. From 2.89% level?
So, savings account, you do it similar to the repo rate on the advances. It is on a portfolio. So, the total savings account was repriced at 2.5 towards the end of last quarter.
Hi, team. Congrats on the quarter. Just firstly, on getting back to OPEX, I think two quarter back we had highlighted that this year we are going to do advertising spends and credit would pick up. So, OPEX would pick up. But OPEX has actually remained quite low. Is that merely a function of credit cards not having picked up or is there more than that?
Hi Piran. See, the OPEX has a free component. I think if I look at the pure payroll cost, we are seeing a sizable reduction in the payroll cost with the headcount r emaining more or less flat. So, that is the benefit on efficiency and the automation which we have got. On the second part, I think this quarter, we had a benefit of saving s in OPEX on th e retiral as the discounting rate has sort of changed because of the G-Sec yields have improved. So, that is a one -time gain which we have got. But on the third part, which is what you are saying is right, the variable cost on the acquisition is also one of the reasons for OPEX. But as the expenses are lower, the income on the acquisition also is not there. So, to that extent, I would say it is a combination of the efficiency gain, lower acquisition and some retiral benefit coming. But we continue to spend...
Fair enough. Okay. Secondly, just on your subsidiary Kotak Prime, because it is in a business which is kind of adjacent to our parent, our profits have been sort of stagnant at this Rs. 250 crores mark for the last several quarters. Is that to do with higher credit costs or what is going on?
So, Piran, there are two things. If I look at on a YOY basis, last year Q2 had some IPO profit in the Kotak Prime. I am just explaining the non -core first and then we will come to the co re part. The sequential quarter in Kotak Prime also had a dividend just like banks. And therefore, it is showing a slight decline compared to QOQ or YOY because of this non -recurring income. Second part on the core finance business on the car business, I t hink this quarter while there is an uptick in some credit cost, however, on a placement rate basis, the margins have also improved. So, on a risk reward basis, we are still comfortable, but there is some marginal increase in the credit cost for the car business in that sense.
Okay. But this is only this quarter or it has been a trend for a while now, like you have called out retail CV. I am just trying to understand, does that trend exist in cars also?
No, we believe that t he credit costs have sort of scaled up and here onwards it will remain at that level going forward.
Got it. And just lastly, going back to that earlier question on floating rates SA, now can you choose not to accept it or if you do not accept it, the customer will then put it in TD, right, which will be even higher than 5.5%. So, I am just trying to think that floating rates SA is still better than having that money flow into TD.
It is like this, we do not refuse floating r ates SA, but we have increased the thresholds as far as accepting floating rate SA is concerned, right? So, what happens is automatically only above a certain threshold which is a much significantly higher threshold, the higher rates kick in, right? Up to a certain extent it is fixed rate, then there is low floating rate and then above a certain extent the floating rate SA kicks in. So, customers who we sign up and who qualify for that and if they cross the threshold, they get that. That is the way it is. S o, we are not accepting it, but we have changed the thresholds to make it more efficient for us.
Good evening. Happy Diwali. My first question is on provision. So, you spelled out the specific credit cost, 93 basis points declined to 79. So, if you do some rough calculation, then your other general or standard provisions have gone down materially, right, from around 2 billion to 0.4. That is correct, right? And why would there be a decline despite asset growth there? That is my first question.
Okay. So, Mahrukh, first of all, when I say 0.93 and 0.79, we are talking about only the specific NPA provisioning. We are not talking about total provisioning. As far as the other provisions are concerned, we also had this time, other than the specific provision, about Rs. 50 crores write-back, which we have highlighted in the EU. This is on account of the AIF -related provisioning in view of the revised guidelines from the RBI, which now requires you to provide on a lower of exposure versus investment. So, there has been a write -back of about Rs. 50 crores provisions. And therefore, other than the specific NPA provision, there is a reduction in the balance provision, largely on account of this.
Got it. And my other question is someone, Piran, already asked about OPEX, but I had a broader question on OPEX. So, if you see from the time of the ban, so just a quarter before the digital ban to now, the total OPEX growth, I know there will be retired benefits or rate benefits in some quarters, but from then to now, OPEX point to point has grown in single digits. It is just like a point-to-point growth. Whereas if you see HDFC or ICICI, even for them, the point-to-point growth in that period has been in double digits. I know you have been spending on technology like all other banks have been. So, where have the s avings come from, say, relative to other banks? This is growth, not in terms of ratio. And actually, because we are aspiring to grow from a smaller market share to a higher market share, you spelt out your growth aspirations. So, shouldn't we be investing more or at least as much as the other banks, given that now other foreign banks are also deeply interested in India? We have seen FDI.
So, let me, first of all, look, I don 't think we have a great amount of visibility into other banks. So, I am not going to comment on other banks. I definitely have a high degree of visibility into Kotak. And therefore, let me connect upon Kotak. See, one of the things that we have been doing over the last couple of years, actually, is investing quite heavily in technology. And because of our investments in technology, we have been able to automate and digitize our processes quite extensively. And Pranav, I think, covered it in his comments, where he talked about decongestion, declutterization, devoucherization of our processes. And that is kind of paid off benefits. Now, that is a good part about it. That is a good efficiencies and stuff we have got. I would also add, in the spirit of complete transparency, that our credit card volumes have been lower than what we thought they should be or what we aspire to. So, credit card acquisition costs are slightly lower. And then spends on credit cards have also been lower than what would have aspired. So, if spends on credit cards is lower, you get the feature cost or the rewards cost on cards also being lower. So, some of it, most of it, most of the benefit is really because of efficiencies that we are driving through the Bank, not only in the consumer Bank, across the Bank. Some of it is due to things like lower volumes on cards, lower volumes on MFI, because we have a banking correspondent and we pay them as a function of total outstandings. And therefore, those two, in fact, those are two areas where I wish our expenses would have been much higher. But net-net, I feel very good and very pleased with the efficiencies that we are getting out of the efforts that we are doing on automation and digitization of Kotak.
Hi. Good evening. Can I start with your CASA? The growth has been quite strong this quarter. I just wanted to check what was driving that, if there were any, the short -term flows that you get sometimes in the CASA that help bulk up your CASA ratio? You've seen a lot of IPO activity or if there's anything else that you would consider as something that is transitory ? So, that would be my question?
Hi, Chintan. This is Pranav. Basically, if you look at the entire set of CASA numbers and I would like you to give more attention tow ards the averages and that will give you an understanding in terms of whether it is granular or whether it is a bulk. So, it is primarily a drive towards granular CASA. Two-three things which we have been putting in place, one with respect to launch of a proposition called as Kotak Solitaire, which resulted into in terms of mobilization towards a better and a higher set of customer segment, which is encompassing high networth as well as the mass affluent segment. Simultaneously, on the current account side, our emphasis is in terms of building a very strong throughput through the collections and the payment ecosystems to be captured at a consumer level. And that is where more of a granularity than bulking it up, simultaneously reduction as far as our SA on t he floating rate is concerned is another testimony to the fact that we are focusing towards building this as a granular franchise.
The second question, if I could ask in one perhaps for Ashok, we are sitting on a very healthy CET-1 ratio. We have got RBI draft proposals on credit risk and ECL which may be quite positive. If you could perhaps put a postcode on the RWA reduction in the pipeline, is it high single digit RWA reduction and following that, Ashok, how do you think about the excess capital? If I look at your projected just on consensus numbers, at 15% CET -1, you can probably grow your loan book at 18%-19% before you need capital that is from your excess bucket. You have come in sadly in an embargo, but now that is behind us. How do we think strategically about excess capital?
First things first, this is a good problem to have. And at least the way I think about excess capital is that it gives us a lot of flexibility. One, it allows us to weather an y kind of downturn or any other kind of issues that may arise, but also it gives us an opportunity to take advantage of any other inorganic activity that may come into the market. So, the way we think about capital is the first call on capital. The first c all on capital is always that of the business. Operating businesses have the first call on capital. If they go faster, they get it. Devang holds the businesses feet to the fire at a 15% capital and then we manage the excess capital separately in a capital optimization committee which Devang runs. The excess capital then is first deployed into KAAML. Now, Jaideep talked to you about KAAML and Jaideep talked about how we have raised YTD about $1 1 billion in that. We always put skin in the game into the funds that we raise in KAAML. That really helps us with our LPs and stuff like that. By the way, KAAML over a period of time has delivered very decent after-tax kind of returns. So, we like the investments in KAAML. Now, those investments do not pay off on a quarterly kind of basis. So, it is a little lumpy, but still the return is very good. The second call is we really like because we understand the financial infrastructure in this country, we real ly like investments in financial infrastructure. So, things like MCX or things like KFIN, where we have got these investments. Now, all these investments, the market value can go up or go down. When they go up or go down, we take them directly into network and therefore, you see excess capital going down or coming up. Coincidentally, this quarter, excess capital has actually come down by Rs. 1,183 crore because of the market value of these securities kind of coming down. So, that is the second one. The third one is we are constantly looking for other opportunities to invest this invested capital in such a way that the return on this excess capital is as close as possible to the return which we get in our operating businesses. Now, that is obviously not easy, but the lower the gap, the better. And obviously, we always keep in mind that we want, we may need that liquidity for any other opportunity that may kind of come along. And we scan, we look at every single opportunity in the inorganic space, not restricte d to the Bank. I would love to get some opportunity either in our life business, in our brokerage business, in our asset management business, just love to get those kinds of opportunities. Within the Bank, we really like these portfolio tuck-in acquisitions. It takes away very little management bandwidth. It helps us bulk up and it helps us kind of move along. So, we look at everything. If the opportunity makes sense strategically, and then if it makes sense financially, we execute upon it.
Yes, sorry about that. Just a follow-up to that is, you earlier mentioned that MFI is where the next quarter looks better and PL, you are anyway stable. It is the credit card piece, which is keeping you a little bit away to buy it right now. Is that a clear understanding?
So, look, where we stand today, PL, we are kind of building on momentum. MFI disbursements are pretty much in the same zip code as repayments. Cards is the one which we are really looking to see how we can kind of come back to. Like Devang said, we are being, we do not want to do anything crazy. We want to make sure that we are going to get this right. So, if that means it takes another quarter, so be it, but we want to build the business in the right way. It is a tremendous de gree of focus, like I said, and we will report out the results, of course, every quarter.
Thanks. Sir, my question is on margin. So, is it fair to say that the yield compression due to repo transmission is largely played out, and from here, your yield on advances should basically reflect a mixed change rather than any repricing? So, is that a fair conclusion?
Yes, Abhishek. Largely, you are right because assuming there is no further repo cut, what you are saying is right.
Of course, yes. And then, on cost of term deposits, since your repricing period is less than 12 months, so basically the repricing should happen for the next couple of quarters because we have already had pretty much 2 quarters of repricing of term deposits specifically?
Yes, that is right. I think our average book is between 9 -12 months. So, we started reducing the rates in April -May. So, by Q4 or at the most first quarter of the next year, we should be able to reprice the book.
Thank you. So, on OPEX, basically, until the loan mix sort of moves back towards unsecured loans, you will continue to see lower cost to assets, because it is just reflecting the business you are doing on corporate and home loans. So, is that again a fair assumption?
So, look, like I said, there are two elements to it. One element is all the benefits that we are going to drive from automation and digitization that I am hoping will continue and we will continue to drive that. Now, so that should be a continu al trend. As and when cards, basically, cards kind of start picking up, we will see some level of spends go up, obviously, product costs will go up and stuff like that. But I think the general trend of getting the benefit out of digitization and automation hopefully continues.
Thank you for the opportunity. The question is on credit cards. It has been like 6 months since the embargo was lifted, but the card book is down around 7%. What I wanted to check was, is it driven by any regulatory corrections required in any part of the card portfolio still? And what would be the share of commercial credit cards in the overall credit card business for us? That is the f irst one? And second, just quantitatively, Devang, is the retiral benefit of around Rs. 100 -Rs. 200 crore or is it substantially higher in this quarter?
So, I will take the first part on cards and I will let Devang talk about the retiral ben efits. So, first of all, there is absolutely no regulatory restriction on cards. Like we said, we got out of the embargo at the end of the last fiscal year and we started getting back into cards and really it is about ramping up the cards business, which is what we are in the process of doing. Commercial cards frankly is a small piece for us. So, our spends get affected by that. But commercial cards are not really the most profitable part of cards. It is a small piece and it is a nice piece. That is it. Let us go with it.
And on the retiral benefit quantum.
Yes, on the retiral part, I think it is less than Rs. 100 crore. But I just wanted to highlight one thing. As the yield goes up, while I get benefit in the retiral, there is obviously a negative on the tre asury MTM. So, as the yield reverses, you will get benefit in treasury MTM, but the retiral cost will go back. So, I think it is a reverse part of it. But to answer your question, it is less than Rs. 100 crore.
Hi, good evening, sir. Thanks for the opportunity. You have explained the credit cost trend in PL, CC and MFI. If you could also talk about CV, which we had talked about in the last quarter?
So, the retail book is what we had called out saying that we have higher stress in the retail CV segment. The overall impacted part of the retail book is not a very large part of the retail book as we have and it will take up over the next few quarters, we expect it to kind of gradually come down because the CV is normally a 5-year book that you underwrite and hence it will take that much time for the thing to wear off over the next few quarters. It will start to gradually come down.
So, all, let us say, high credit cost book, which is PL, CC, MFI and maybe CV, they all are experiencing stable to improving trajectory, right, and that should hopefully sustain?
Let me again repeat for the sake of repetition. The credit card, the credit cost has stabilized. While they are not increasing, they will reduce at a gradual pace for the n ext 2 quarters. MFI's book, the credit cost has started reducing and we will see gradual decline going from Q2 -Q3. As far as personal loan is concerned, I think the credit cost have dissolved and I think it has significantly reduced. As far as the commerci al vehicle retail business, what we just now discussed, it is still under stress and for next couple of quarters, we may see remaining or slightly increase in that cost.
That helps. And lastly, sir, ActivMoney, the amount has declined on a Q-o-Q basis. Is there anything to read into this deficit?
ActivMoney has a flow from CA as well as from SA. So, what we have seen is there is a huge amount of utilization of funds and that is where we have seen a bit of money going out of, w hat you called as ActivMoney, getting utilized for the liquidity purpose of the customers, both at a CA as well as at a SA level.
Fair enough. The other part on the investment book.
Investment books, I do not see any material change on that. Because I think, frankly, when I looked at it, while we have taken an MTM reversal in the current year, as far as the yield is concerned, I do not see any material change compared to earlier quarters.