So, what should be the steady state credit cost number now after having achieved 63 basis points, do we see improvement to 50 basis points to 60 basis points over a period, maybe over the next 12 months period?
So, Kunal, if I just step back, pre -COVID, if I look at my credit cost, where of course my unsecured percentage is also lower, hovering around 0.4-0.45. As you increase the mix of unsecured credit costs, obviously credit costs on a standalone basis might show an increase. But I think it also gets you higher returns. So, given that the mix of unsecured will gradually go up, it obviously has to be higher than the historical what we used to have. But clearly, even in Q4, we expect the credit cost to further gradually go down and the trend continuing during Q1.
Got it. The second one is on the SA deposits. So, some of your peers have seen rundowns in the institutional SA deposits. So, what is the quantum of such deposits for Kotak? How is it behaving for you and the outlook on the same, please?
Hi, this is Pranav. With respect to institutional or for that matter, marquee and bulky savings account, if you look at, we are more focused towards granularity and we are also consciously looking on quarter -on-quarter, running down as far as SA MIBOR is concerned. So, as far as the fixed rate SA is concerned, it is being built with primarily having more of retail focus onto it with granularity. And also, if you look at one of the engines of growth for us is 811, which is primarily the smaller ticket size, but with a lot amount of granularity and an active participation of the core India into it. So, that's how we have designed our strategy to take care of whether high net worth individuals are concerned or for that matter, mass affluent and then the core In dia. So, that's where it is building on as far as more granularity than a bulkiness onto it towards institutions.
Got it. Perfect. And the last question is on the Agri PSL. So, some of the peers have had some regulatory s upervisory observations. Would you be able to comment whether the same audit has been done or any broader color for your book as well?
It's not possible for us to comment on other banks. I just don't know. As far as we are concerned, we have not taken any provision. Also, as far as the RBI audit is concerned, that is something that we are required to keep confidential, so I can't discuss the findings of anything from the RBI audit. But suffice to say that we have not taken, as you would have seen, we have not taken any provision in this quarter.
Understood. And as far as OpEx is concerned, so one of the things is that, the marketing spend and the acquisition cost that will also continue to go up as PL, cards, etc., all of these scale up. So, just from a cost growth perspective, what kind of, say, medium -term growth should we look at as a sustainable run rate? Because right now, a lot of it is impacted by last year's slowdown in several segments. But going forward, we are looking at more traction. So, how would the cost growth pan out?
Abhishek, think about it this way, that, we want cost to go up when we are acquiring new customers in 811, in Affluent, new cards, new tractor loans, and stuff like that. Those costs, frankly, are good costs and let them kind of go up. That will be offset by a lot of our effort in automation and digitization, where we are trying very hard and working feverishly to improve efficiencies and our customer experience. And obviously, as we kind of gro w the acquisitions and grow the marketing costs and things like that, you will see income go up as well. I don't think we can really talk about a kind of guidance on either cost -to-income ratios and stuff like that. But effectively, that is what we are try ing to drive.
Yes. Hi. Thanks for the opportunity. I think a few questions have already been answered. Just a follow-up and two questions total. First one on the credit car d follow-up. While as you have mentioned that your Solitaire Card seems to be performing well, but I guess last time, you had earlier slowed down the card acquisition through 811 channel for the mass customer segment. Has that funnel been reopened? That is one. And also, in terms of the Solitaire Card, it is a Super Premium card, right. So, is it a ROE accretive product? Related to credit card also one question. In terms of this proportion of personal loans on credit cards, what could be that proportion in terms of this overall personal loan book of INR 25,000 crores? So, that is question one. Question two, sir, is on strategy a bit. In terms of, say, the Bank's leadership bandwidth in the consumer vertical has been further strengthened. In that context, do you have any plans, say, to expand or rejig the consumer Bank's product portfolio? Are there any products which are probably not key focus areas or maybe growth drivers today or maybe you are not offering currently, but you see becoming incremental growth drivers overtime? And the last question, sir, in terms of this IDBI deal, what would be your comments? Since now government has finally invited bids?
Yes. So, let us start with cards, right? So, Solitaire is targeted towards the affluent. Solitaire has landed well. The spend on the Solitaire Card is proving to be very accretive for us. While it is still early days to see how it kind of builds up, I believe that Solitaire will be a profitable product in its own right, given the levels of spend that we are getting on Solitaire. Your other question around 811. At one point in t ime, we had done a lot of experiments with the 811 kind of customer base, and those experiments did not entirely work out well for us. It is not as if we are not selling card products to the 811 base, but we are doing it in a much more refined kind of way, using advanced risk models and capping exposure just to make sure that we are getting it right. So, that will kind of continue. We will come back on cards and kind of grow the book. IDBI, look, we look at every single transaction that comes up in the mar ketplace, and we essentially have 3 criterias that we look at. The first criteria we look at is, is this particular transaction going to add to us strategically, right? If the transaction adds to us strategically, then of course, we go to the next stage. If it doesn't add strategically, it kind of goes away. Then we look at valuation and say, what is the valuation on this particular transaction and is it value -accretive for the firm? I have said time and time again that for us, scale is scale for relevance and not just scale for size. So, does it really add strategically, and will it be accretive to the group? If it is both strategically and financially good, then of course, we get excited about the transaction. But even then, there is a third lens that we put to it. And the third lens that we put to it is really the lens of saying, what is it going to take to really in tegrate this kind of acquisition, right. We are on a pretty significant transformation path.
Sure, sir. And sir, those 2 questions on the strategy on the consumer Bank and the PL on?
Yes, on the consumer Bank, look, our stated strategy is all about identifying focus segments and going aggressively after focus segments to get disproportionate market share, right? We have launched the Solitaire proposition. We have got a great proposition in the private Bank. Core India, we have got a great proposition in 811. Now, these propositions, once we land the proposition, it is not as if we are going to just keep quiet, right? We want to continue to enhance these propositions so that we get a greater deal of customer engagement and a higher level of acquisition. So, that is going to be an ongoing effort as far as we are concerned, right? And we are constantly monitoring what our customers are saying, what do they really want, and how can we serve these customer segments better? An d based on the feedback that we are getting, based on the conversations, we will improve the propositions that we have in the marketplace. So, we have a pretty much separate product in PL. And therefore, PL on card, frankly, to my mind, is not such a great product because it clogs up the credit limit. And therefore, for us, that is not a very significant proportion of the credit card book.
Sure, sir. And lastly, on One Kotak, right, so, as we have been saying that we are a unique positioned financial conglomerate, but if I look at the core fee income, despite industry-leading loan growth and deposit growth, but the core fee income growth has been much weaker or much smaller tha n the loan growth and even in absolute basis, despite all this conglomerate strategy. So, is there anything which is, when can we expect the core fee income going more or less similar in terms of business growth? So, far, was there any obstacle? Thank you.
Two things, Jai. One, obviously, the fee income consists of a combination of a whole host of things, starting from foreign exchange income to DCM income to life insurance distribution income to mutual fund distribution income and other such products as well. If you look at the fee income growth on a Q-o-Q basis, you started seeing green shoots with a 6% growth on a quarter-on-quarter basis. As I said that this is something which has been started, we have been talking about for mayb e about 2 -3 quarters now, and it is not immediate that you would see the results, but 6% quarter -on-quarter number is, I would say, a beginning, and we just like to keep growing on that, hopefully on a quarter -on-quarter basis. And I think i t is beyond the fee line also, right. Look, there is no question about getting referrals for assets, and it is also not only just from the subs to the Bank, but also Bank to the subs. So, I think we have got to look at it on a little more holistic basis.
Right. Thanks. And I think, sir, if you could repeat what you said in response to that we have strengthened the consumer banking management bandwidth, any products that you would like to sort of rehash or reintroduce or introduce or scale up ov er the next few quarters here? Thank you.
Yes. So, what I said was that, look, ultimately, it is not so much about doing a particular product, it is more about the propositions that we have landed for our various customer bases, right, and strengthening the proposition. So, we land the proposition with a certain set of products and services, and then we are constantly monitoring what customers say about that proposition. And based on the feedback, we continuously strengthen the proposition so that it becomes more meaningful and more engaging for our customers. And we will continue to do that. There will be things that will land, which will have resonated with customers, and then there will be other things which may have not resonated or there will be feedback, and we will twist and adjust the propositions to take care of those things.
Firstly, on the margin part, it was a flat quarter-on-quarter. Last time you had guided that there should be a gradual improvement looking at the deposit repricing and the CRR benefit. What has actually changed in terms of the expectations with respect to margins? You had indicated maybe some short-term liquidity deployed into treasury, which impacted by 4 odd business points. But apart from that, anything else which has impacted the margins, which has just led it to be flat quarter-on-quarter? And what would be the outlook getting into Q4 and next year?
Hi Kunal, Devang here. You are right. So, let's understand what has impacted this before going to the likely scenario next quarter. So, this quarter, of course, the yield got impacted. The floating rate yield got impacted by the 50-bps cut in the June, of which the effect came in the Q3 as on expected lines. However, this was offset also by partially the CRR rate cut which happened during Q3 and, of course, the repricing of deposits where we saw the cost of funds reducing from 4.70 to 4.54. As against that, Kunal, as I explained, we also saw a lot of IPO-related short-term funds available in the Bank. And that obviously got deployed in the treasury assets, which are typically lower-yielding assets for a short period of time. And that effectively brings down the averages of the funds available and impacts the NIM mathematically. So, if I effectively remove the effect of the short -term funds, which were significantly higher compared to the Q2 on an average basis as well, the NIM improvement is actually 4.58 as against the average which got arrived at 4.54. Now the second question, how do we see the outlook going forward? I think Q4, we will obviously have the i mpact of the 0.25% rate cut in the Q4 floating rate advances as well. However, the repricing of deposits of course will continue in the Q4, but at a lower pace, as you can see actually, the cost of fund decline was 5.01 to 4.70, now to 4.54. So, that has been obviously at a reducing pace which will go into Q4 as well. However, the CRR cut which happened during each of month in Q3. The average of that will have a full quarter impact benefit, actually, in the Q4. The last one, as you know, Q4 has a typical ab erration where in February we have lower number of days, while the yield on the advances are at a full month basis of 30 days, the deposits comes only for 28 days. This does bring some sort of a kicker in the NIM, which is aberration which gets of course c orrected in the Q1. So, assuming no further rate cuts in February, I think we will see a moderate increase in Q4 NIM, as I explained. But I think more realistic and stable NIM is something which we will be able to sort of estimate going forward from Q1, once the aberrations are also removed and we have a clearer picture. We are already seeing some of the tightening in the liquidity and the rates in the term deposits hardening. And as against that, we also expect to see some growth in the unsecured business. And let's see how it plays out and impacts.
And the second question is with respect to credit cost. So, eventually now we are seeing the specific credit cost coming down to 63 odd basis points. You indicated some stress conti nuing on the retail CV. But otherwise, are we comfortable on PL, credit card? Has MFI also maybe almost picked out and you should see the benefit? And where should we ideally see the credit cost trajectory going forward?
Yes. So, the cred it cost reduction is on the expected lines. And as I explained, the unsecured businesses, which is the microfinance, credit card and personal loan, if I look at each of them, the microfinance and personal loan, credit cost actually has started decreasing. And that's actually the benefit, which is sort of you are seeing. A credit card obviously has plateaued and it's not showing any increasing trend. So, the primary reason for the reduction in the credit cost is on account of unsecured business credit cost coming down. On the commercial vehicle, I think we are now saying we are cautiously observing it. We are hopeful that it will plateau down during the Q4. And then we will see how it operates. But I think the good news is that the unsecured credit cost is behind us now. And that's what is effectively resulting in the reduction what we saw during the quarter.
Hi. Good evening, everyone. I had four questions. So, the first one is on CA and you alluded to some benefit from capital market, but even the average CA balances even on sequential basis for last two quarters have been improving. So, how much of this would you really be attributing to the capital market? And how should we think of stickiness of this deposits? So, that's the first one.
Hi, Rikin. This is Paritosh. See, in our wholesale business, we have a large number of customers who are from financial segment, which is custody, private equity funds, mutual funds, insurance companies, all of them and also capital market s business gives us deal CA. Some of these things are consistent , one or the other customer keeps giving us this CA. So, even if this is a deal CA, this is a regular and consistent deal CA, which keeps coming to us from multiple set of customers. So, I would say there is a tendency of this business to be more sustainable with some degree of volatility. Just to add, the current account, the average growth is not only the wholesale deposit. The consumer current account also granularly grew, including the SME business, which also contributed. My reference to the IPO and all that was with respect to the short -term deployment in treasury. But I think if I look at purely on a current account average thing, it's not only wholesale, but I think the consumer bankin g also contributed to that in that. So, despite EOP, if you recall, we had said that Q2 EOP had a lumpy deal -based thing. But on an average basis also, if you see the current account is showing a growth, both for consumer as well as wholesale.
Got it. The third one is on the total cost of deposit. How would that number look like? Would it be broadly 4.45%? And how much of term deposit repricing do you think is still remaining? So, that's the third one.
Look, I think we have indicated the average cost of the saving account, which is already there in that. I think the term deposit rates obviously have sort of reduced over quarter -on-quarter. But I think as I indicated, getting into Q4, clearly there is some tightening and hardening of the rate, which may take place. In terms of the residual sort of repricing, I explained the cost. If I look at the cost of fund benefit itself, which used to be about 32 bps in Q 2, further reduced to 16 bps in Q 3. It's further , obviously as the repricing starts completing, it will further go down. So, clearly with the average term deposit, which is between 9 months to 12 months, and if you look at roughly the repricing started towards middle of Q1, we expect the repricing to get completed by Q1 of the next year.
Hi. Good evening. So, my first question is on loan growth and specifically just coming to credit cards. This quarter we have seen, at least in the RBI data that came out, that a lot of other smaller banks have started increasing thei r card issuances. What seems to be holding you back in terms of card issuances and spend pickup?
So, frankly, Abhishek, like we have been talking about, we completely revamped our credit card proposition. We have launched a whole range of new products, right from Solitaire for the top end to Air+ and Air, which is a cash mile product for the mass affluent and then a cashback product. This whole range of products are going out and you will start seeing growth in spend s and Air cards. Having said that, we want to be cautious. We obviously don't want to grow very aggressively and then get into credit problems. And as you would have seen, Q3, generally speaking, has been a very muted quarter for credit cards across the industry. So, we wi ll see in the first instance, we will see spend on the cards go up as we ramp up acquisition. And then we will see ANR build over a period of time. The newly launched products, particularly Solitaire, is doing very well. And we are very hopeful that those numbers will start showing up very quickly.
No, absolutely. I don't look at costs as any negative item as such. It is a necessity for growth and revenue generation, of course. But just as a thought process, if you are expecting, let's say, mid -teens, high -teens, whatever, loan growth, costs would lag it substantially by 3-4 percentage points or you could see more operating leverage as cost growth being much slower than loan growth. So, just how do we think about these two? And then that can give a sense of the jaws going forward. So, I am just trying to get some understanding there.
Over a period of time, Abhishek, not quarter -by-quarter-by-quarter, but on a trend basis, we should see cost-to-assets coming down. And we started to see that trend and we are hopeful that that trend will accelerate. Actually, if you also look at cost-to-assets ratios, if you look at, as Ashok rightly said, over a longer period of time, if I look at from last year over this quarter and this quarter, as I said, some aberrations, actually it has come down. It used to be abo ut 3%. It is now down to around 2.7 and 2.5 sort of range, right? So, it is always coming down, that's a good way to look at as an indication as a cost -to-the-asset build-up basically. I think it's already on this way. I certainly would like to further improve that as we go along, right?
Yes. Hi. Good evening. My first question is on ECL. So, based on the draft, what would be the likely impact on credit cost for you from ECL? And my other questions are that you did mention or you did allude to some rundown in the PL portfolio purchase from Standard Chartered. So, could you quantify or throw some light on it? And I just also wanted to know if you could quantify the proportion of liabilities which are yet to reprice in the 4th and 1st quarters from the old--
On the ECL part, as you know, it is still a draft circular which RBI has come up and all the banks, including us, we have obviously represented because it requires you to make a floor-based provisioning by asset segment. However, considering even the draft circular, the impact of the ECL provision is less than 2% post -tax for us in the Bank. So, it is not likely to materially impact even if you were to apply the draft circular as is. So, that is the first point. 2% of the net worth. And as you know, we already have significantly higher net worth than required. So, we don't see any significant impact arising out of that. And even in fact, the circular also provides for amortizing that over 4 years and all that. But we will see how the final draft circular comes. But I think it is suffice to say it is not a significant impact at all, even if you were to go as this circular. Coming to the standard charted portfolio, which is there, now I think the residual portion which remains is not very significant. It is less than INR 1,500 crores approximately. It is about 20% of what it was. So, I think it will run down over the next 2 quarters in that sense. The third portion, what you said, is on the repricing, which is left, which I partially answered earlier. As we had mentioned, the term deposit average maturity is about 9 -12 months. And we expect the repricing to effectively complete during the Q1 in that sense. And that anyway, if you see the trend of cost of fund reduction, it reflects actually the repricing pace of the term deposit. So, that is how I look at it going forward.
Yes. Hi, team . Congratulations on the quarter and also on hiring Mr. Saha. Just firstly, getting back to the current account thing, our growth for the last 2 quarters was good. Last quarter was even better at 8%. Is all the pickup in growth due to the capital markets business or some structural changes we have made due to which current account growth is picking up?
Hi, Pranav here. Our current account is primarily, if you look at, there is a lot amount of activity around the granularity in the market also. And we have been able to capitalize on in terms of the opportunity which is being thrown out there in the market as far as acquisition of more of what you call as private labelled companies, proprietary, and things like that. So, our growth pr imarily, and that is where you will find an AMB growth commensurating with the fact that these are granular current account franchisee getting created. I will just add, in addition to that, our focus on building CMS capabilities and offering more cash management services to our corporate customers, which not only help us get better CA, also effectively helps improve productivity both at Bank end as well as the customer end. So, that is together between consumer Bank and the wholesale Bank helping us improve the CA.
But see, this was also true a year back, right? Year, year and a half back. But our growth was still weak then. And we were catering to the SMEs. We had the consumer banking product, cross -selling current accounts to them. But this year, we have seen current account deposit growth really accelerate. So, just trying to understand, maybe it just happened by chance, but have there been any specific steps we have taken? That was my question?
Trust me, it hasn't happened by chance. It has been a lot of effort and a lot of focus of the sales teams. And Pranav has driven a lot of this through the branch network. We have been very focused on getting the affluent customer base. The level of changes that we h ave driven to our branch network, both in terms of process, focus, building our branches based on persona of catchment areas, making the whole acquisition process far more efficient, all of that, plus all the automation and digitization to help customers w ith their payment flows has all resulted in this. So, trust me, it has been a tremendous amount of effort and focus on this area, which has led to this kind of performance.
Got it. That helps. Secondly, just on your Agri-finance book now, last couple of years, it has been unchanged at INR 25,000 crores. And this is different from the tractor book. So, can you just talk a bit about what loans are there here and why you are not growing them? And I am presuming these are better yielding than the rest of the book?
So, this is primarily the Agri-SME value chain, which is what we cover here. So, this is not the KCC book. This is primarily the Agri-SME value chain business, which is what we are. We have kind of pivoted around, buildi ng around the various Agri-clusters across the geography. And that is something which we kind of pivoted as a strategy over the last couple of years in terms of driving it. And that is what is yielding results in terms of numbers that you are seeing. Slowly, the numbers have been inching up on our last 3 quarters, when you see the numbers.
Got it. And then just lastly, a couple of clarifications I needed. Devang, when you say the CTC is flat, but even if I adjust for the labor code, the employee OPEX is up 9%. So, what am I missing here? And secondly, what is the mix of LAP in the mortgage book?
So, I also mentioned that if you see the pension liability, last time I had mentioned we had a benefit because of the interest rate movement, which has effectively reversed out and normalized during the quarter. So, that is the first part. Second, I think some of the share-based incentive, which are like SAR, obviously, the provisions have gone up because of the share price movement, which has impacted those provisions. LAP and sort of HF, I think it should be around almost equal 55-65 sort of thing, basically.
Hi. Good evening, sir. Thanks for the opportunity . Sir, on slippages, right, so the absolute slippages are stable Q -o-Q. You have been mentioning that the Bank has been experiencing improving trajectory on personal loan , credit card , MFI. And those are supposedly high delinquent product. So, if they are improving, then, which is the piece which is rising and hence, the overall slippages are stable. That is if you can provide some clarity there apart from the retail CV, which anyway is a very small proportion, I believe?
Hi, Jai. So, if you look at the slippages data, you are right that if you compare just the slippage data, say, 1,629, going to 1,605 doesn't make a significant reduction. I think I would urge you to look at the fresh slippages upgraded within the same quarter. So, if you look at the number during this quarter is 257. So, effectively, while INR 1,605 crores is a gross slippage, which we entered during quarter, of which 257 actually also got cured during the quarter. If I look at the similar number in the last quarter, it is 1,629, going to 1,464 . So, if I consider the upgraded portion also as a part of the slippage, actually it has come down by about INR 100 crores on a quarter -on-quarter basis. So, that is the first part. Second piece, I think, yes, slippages are combination, but I think in terms of t he unsecured businesses, they are indeed coming down. But I think it is the retail commercial vehicles and some of the rural-related advances which is effectively sort of bringing it up during the quarter.
Thank you for taking my question. I will restrict myself to one question. Devang, you mentioned that rates are tightening and competitive dynamics might not be as good in the 4th quarter. Do you not think the RBI measures will help there? Or is the tightening for you strong enough that we should be a little wary of how the dynamics play out in the 4th quarter?
I think they are super high. My comment was also based on the initial liqu idity in the system data, which is we are seeing. Of course, you are right. Some of the measures have been taken by RBI currently. But typically, Chintan, if you see, Q4 is a very quarter where for the corporates as well as for the Bank, where the liquidity does tighten up in that sense. So, it was more based on what we saw for the first 10 days of January. Of course, if RBI takes measures and to ease it out, it will sort of reflect in that. But till date, at least we have seen, at least the term deposits rates, even if you see the term deposit rates quoted by the peer banks across the buckets have actually inched up . So, my comment was based on that experience, actually. Now, of course, with these measures tightening, who knows whether they will sort of further break it down but let us see about that.