Axis Bank Ltd

NSE:AXISBANK

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Axis Bank conference call to discuss the Q1 FY '23 financial results. Participation in this conference call is by invitation only. Axis Bank reserves the right to block access to any person to whom an invitation has not been set. Unauthorized dissemination of the contents or the proceedings of the call is strictly prohibited, and prior explicit permission and written approval of Axis Bank is imperative. [Operator Instructions]

Please note that this conference is being recorded. On behalf of Axis Bank, I once again welcome all the participants to the conference call. On the call we have Mr. Amitabh Chaudhry, MD and CEO; and Mr. Puneet Sharma, CFO.

I now hand the conference over to Mr. Amitabh Chaudhry, MD and CEO. Thank you and over to you, sir.

[Amitabh Chaudhry, executive]

Thank you so much. Good evening and welcome, everyone. Apart from me and Puneet, we also have on the call, Rajiv, Deputy MD; Amit Talgeri, Chief risk officer and underlying members of the bank's leadership team: Subrat Mohanty, Ravi Narayanan, Sumit Bali and Munish Sharda.

We continue to move forward with clarity and intent in a quarter where the external signals are mixed. The system credit growth picked up with double-digit credit growth for last 4 months. Consumption has continued up. Working capital demand is strong and together with refinance requirements are driving credit growth. However, the higher-than-expected inflation rate and the global headwinds will mean further rate hikes and tightening of liquidity. There could be some moderation in the short term. However, we do believe that the medium term of policy for Axis Bank is significant. We continue to grow faster and gain market share in our identified segments that provide better risk-adjusted returns.

We remain focused on 3 core areas of execution to move forward on our GPS strategy. First is deepening our performance and of culture. We have lifted the growth trajectory and consistently gained market share across various business segments and now have strong market position and multiple businesses. On deposits, we have gained over 100 basis points market share in the last 5 years to reach 4.7% as of June 2022. On advances, our incremental market share as we close up to 9% to 10% over the last 5 years, and closing market share stood at 5.7% as of June '22. And credit cards, we continue to be there -- to be ranked fourth largest with over 17% incremental market share in the last 6 months and 12% market share on a period-end basis.

In merchant acquiring business, we are now the second largest, up from rank 4 in March 2021. Our Burgundy AUM has grown 3 times in last 5 years, and we are the fourth-largest wealth management business now. On the payment side, we continue to have strong positioning with 16% market share in UPI and 15% in mobile banking.

As discussed above, it is evident that our Basel footprint is 3x to 4x our market share in our traditional businesses. Similarly, on the wholesale side, we are now transaction bank of choice with market share gains and transaction-oriented flow businesses. We have doubled our foreign LC market share from 5% to over 10% in the last 3 years. Our GSC and RTGS market share continues to be strong at 9% in quarter 1 financial year '23. We have been the leading player in the DCM space over the last decade.

On deposits, if you refer to Slides 17 to 21, our customer acquisition remained strong. In quarter 1, we added 2.2 million new customer accounts, a growth of 22% year-on-year. The strong growth in our granular deposits continues with average CASA balances up 16% year-on-year. Our liability strategy driven through premiumization, Data analyzation and deepening remains on track, reflected in average savings account balance growth of 16% year-on-year and 4% quarter-on-quarter.

We continue to see improvement in the quality of our deposit franchise. We're leveraging our wide suite of product portfolio to offer customized solutions for specific markets. We have started seeing traction in our corporate salary acquisitions led by One Axis approach and productivity lift across the channels. 100%-plus year-on-year growth in new salary labels acquired in quarter 1. Our ULTIMA salary program has seen significant adoption in our customer base.

On current account, we remain focused on driving value and relationship-led core current account growth. Our strong positioning in the transaction flow businesses and a wide suite of transaction banking APIs has helped to drive acquisition and balances growth. On a QAB basis, we grew current account balances by 15% year-on-year.

In term deposits, our growth has been higher than the industry, and our cost of deposit remains extremely competitive. Our term deposits grew a 13% year-on-year on QAB basis. The growth in our non-retail term deposits was led by noncallable high-value deposits that are LCR-accretive. Diesel remains an important acquisition engine across deposit costs. We resourced 26% of nonsalary SA accounts and 55% of individual CA accounts through digital means. Further, 68% of individual retail term deposits are volume, and 46% by value were acquired through fully digital channels.

Our credit cards acquisition in the quarter were up 4x year-on-year at about 1 million cards. We are today the fastest-growing card acquisition franchise. In quarter 1, we witnessed strong moving them across our focused retail and SME business segments that grew 25% year-on-year and 27% year-on-year, respectively. Overall loan book grew 14% year-on-year.

We have a very -- we have built a well-diversified and high-quality SME book in the past 2 years. We have replicated the learnings from the SME segment with similar businesses like small banking business on the retail side and mid-corporate book on the corporate side. Mid-corporate book grew 54% year-on-year and 5% quarter-on-quarter.

The SBB segment delivered strong growth of 74% year-on-year, led by our innovative product offerings like digital business loans, merchant cash advance, small ticket Suvidhaa loans, new account aggregator product variants, along with our end-to-end digital fulfillment capabilities. The combined portfolio of these 3 segments, small business banking, SME and mid-corporate, grew 41% year-on-year and now constitutes 19% of the loan book, up 500 basis points in the last 2 years.

Formalization of MSME lending and higher contribution of MSME segment in India's GDP offer tremendous opportunity. We continue to invest in the MSME space, extending our distribution and service footprint across India. Within corporate segment, we brought down the lower-yielding offshore trade book during the quarter and chose not to pursue low-yielding deals in line with our focus on driving profitable growth. Our government business performance remains strong as we continue to add new mandates and gain market share. The government business has transitioned from being deposit-centric to being more solution-centric. We deliver and deploy holistic customer specific solutions for payments, collections and liquidity management across single and central nodal agencies.

Over the last 18 months, we have deepened our relationships across various government businesses and signed MOUs with Indian Army, with Indian Navy police and Forest department among others. Within the private sector banking landscape, we have been a pioneer in government business offering competitive products and solutions to the institutional and retail customer.

On the second point on our deepening of performance-driven culture. We continue to focus on improving profitability metrics. While Puneet will provide granular details, let me highlight the key metrics. Net interest margins improved 11 basis points quarter-on-quarter and 14 basis points year-on-year to 3.6% in quarter 1 financial year '23. NII grew 21% year-on-year and 6% quarter-on-quarter. Fee income was up 34% year-on-year with retail fee up 43% year-on-year.

Our core operating profit grew by 17% year-on-year. PAT was up 91% year-on-year. The combined quarter 1 financial year '23 analyzed PAT of our domestic subsidiaries stood at INR 1,082 crores, up 10% year-on-year. The bank's stand-alone ROE at 15.07% was up 596 basis points year-on-year.

Thoughts around fostering our winning mindset. Our winning mindset is reflected in our strong business performance in multiple external recognitions we received during the quarter. As highlighted earlier, customer acquisitions remain strong. We opened 1.1 billion USA accounts in quarter 1 financial '23, up 50% year-on-year. The number of new accounts -- current accounts open were also up 68% year-on-year. Led valuated product offerings across our asset classes and our One Axis approach to bank on the Best Private Bank for client acquisition in Asia at the Fifth Annual Wealth Tech awards.

We continue to see traction in our card segment with 33% year-on-year growth in number of outstanding cards. 31% of credit cards were acquired through known-to-bank partnerships across Flipkart, Google Pay, Freecharge, Airtel and others. The bank on the retail bankers, International Asia Trade business award for trade business use of AI and machine learning and financial services space. We also won the Economic Times Datacon awards for modern and agile data architecture and infrastructure.

Maximus, our digital lending product, grew over 50% year-over-year driven by introduction of new programs and new products with end-to-end digital PL and BL contributing over 50% overall outsourcing. The bank's initiative on basel lending project, Maximus, was revised at the Fidelity Awards 2022.

Our second pillar was around strengthening the core. Our strong balance sheet lends support to our aspirations. Our asset quality is now among the best in class with net NPA of 0.64%, high provision coverage of 77% and standard asset coverage of 1.7%. We continue to work towards building our next-generation technology architecture, strengthening the organizational core and technological capabilities, along with the focus on execution. The impact of significant investments in digital banking, adopting a cloud-first technology and analytics-driven decision-making has helped us deliver a strong core operating performance.

Our in-house visiting team has now delivered over 20 digital products, including credit card servicing, BNPL, MCA, Bill Pay and several other products. These products are all built in a cloud-native micro services-based modular architecture and in an API-oriented manner. Our DevSecOps framework, including our CICD pipelines, are now tested in multiple situations and have significantly enhanced our go-to-market speed and our ability to be agile and customer-centric.

We are seeing strong traction in Project Neo which is aimed at building a world-class digital corporate bank. We have built a best-in-class suit with 70-plus corporate APIs live and many more in the development that are capable of addressing complex use cases across trade, payments, collections, treasury and account information. We witnessed strong corporate interest with significant increase in these repayment transactions then by newly onboarded customers onto our corporate APIs in quarter 1.

Our third pillar, building for the future. This will continue to see strong progress. The impact of this is now visible across the business segments. In quarter 1, we completed the rollout of our new Internet banking, and we launched our new mobile banking app in pilot mode. Our app continues to see strong growth with an amount of 9.7 million this quarter. We launched account aggregator-based lending programs late last year. And this quarter disbursal through this program have grown by 250% compared to last quarter. So these are merchant cash advance, our unique proposition wherein we were the first private sector bank to offer an integrated digital current account and unsecured term loan proposition along with QR, continues to see strong traction.

The product, which was launched in December 2021 in partnership with Freecharge, helps small business to grow their businesses by providing loans up to INR 5 lakhs with a unique daily installment repayment methodology. During the quarter, MCA delivered 2.7x and 2.2x quarter-on-quarter growth in number of loans and number of key accounts opened, respectively.

We commit our bank buy programs to build decisiveness. We are making strong progress through our focused initiatives around Bharat banking and customer acquisition. Bharat Banking continues to scale up strongly. The formalization of the economy by GST, evolution of the technology stack, efficient delivery of various government schemes in retail and MSME space and growing Internet penetration have provided strong tailwinds to the Bharat markets. We have enhanced our solution network significantly in rural regions, led by a strong partnership with CSC and India Post Payments Bank.

During the quarter, we added 12,000 VLEs to take our overall CSC VLE network to 52,450 that would act as extended ounce for our 2,065 barrels ounces. In quarter 1, we also entered into partnership with Airtel Payments Bank to offer greater convenience and process solutions to a vast customer base in the rural regions of the country. We are also focused on developing strategic partnerships with agri corporates and OEMs to scale a rural enterprises segment and capture entire rural value chain. The strategy is to embed banking in the data ecosystem of clients, pursue co-lending policies for PSL and lever the fixed tax and non-updated data to better underwrite customers.

As a result of our focused approach, we achieved strong area growth and disbursements across all the major product segments and delivered 42% year-on-year growth in rural loan book. We are progressing well on Swatch, which is our customer experience transformation initiative. Several ground-level interventions have been set in motion to drive distinctive customer delight for bank customers. Our subsidies continue to create significant value. The One Axis approach is now embodied across the Axis Group and is reflected in robust performance of our subsidiaries.

As I mentioned earlier, the total analyzed pad of our domestic subsidiaries in quarter 1 financial year '23 was up 10% year-on-year. Axis Finance continues to perform extremely well with its PAT up 59% year-on-year. Axis AMC reported 18% growth in overall quality average assets under management with 20% growth in its PAT. Access capital and access securities supported 5 of these INR 34 crore and INR 39 crores, respectively.

Our Citibank Consumer business integration continues. We are awaiting CCI approvals, and we expect to close the transaction by fourth quarter of fiscal 2023. The integration management office where the steering committee is in place with nominees from both sides. Within the constraints of applicable regulation, we are working on key work streams around people, technology and business operations.

In closing, this was another quarter of a strong and steady performance across multiple identified areas of focus. I have mentioned about the positive cultural change in the bank and are coming together as a winning team. We remain optimistic on the growth opportunities, Indian economy while keeping an eye out on the global headwinds. We believe that the strong franchise we are building is well placed to deliver sustainable and profitable growth.

I'll now request Puneet to take over.

[Puneet Sharma, executive]

Thank you, Amitabh. Good evening and thank you for joining us this evening. We continue to make meaningful progress on strengthening our core business performance and ensuring that our balance sheet is resilient across cycles. I will discuss the salient features of the financial performance of the bank for Q1 FY '23, focusing on our operating performance, capital and liquidity position, growth across our deposit franchise and loan book, asset quality, restructuring and provisioning.

Our core operating performance in the current quarter is strong with meaningful improvement in NIMs, growth in NII, core operating profit, benign credit costs and significant improvement in our ROA and ROE. NII for Q1 FY '23 stood at INR 9,384 crores, growing 21% Y-o-Y and 6% Q-on-Q. NIMs for Q1 FY '23 stood at 3.60%, growing 14 basis points Y-o-Y and 11 basis points Q-on-Q. We had clearly articulated the drivers of our NIM improvement journey over the next 8 to 10 quarters. The progress against the key drivers in the quarter are as follows. The improvement in balance sheet mix to loans and investments from other assets. Loans and investments comprising -- now comprise 87% of total assets at June '22 as compared to 84% at March '22.

Within advances, INR-denominated loans comprised 93% of total advances at June '22 compared to 91% at March '22 and 89% as at June '21. Within advances, the retail and CBG segment comprised 69% of advances as of June '22 compared to 67% in at March '22 and 63% at June '21. Low-yielding RIDF bonds declined by INR 5,815 crores on a Y-o-Y basis and INR 402 crores sequentially.

The bank continues to improve the risk profile of its loan book. Our NII as a percentage of average risk-weighted interest-earning assets stands at 7.26%, improving 30 basis points Y-o-Y and 15 basis points sequentially. Fees stood at INR 3,576 crores, growing 34% Y-o-Y. 93% of our fee is granular. Total retail fee grew 43% Y-o-Y. Digital and mobile banking fee grew 121% Y-o-Y and 3% sequentially. Fees from retail cards and payments grew 62% Y-o-Y and 13% sequentially. Fees from third-party distribution grew 27% Y-o-Y. Transaction banking, ForEx and trade-related fees grew 22% Y-o-Y.

Trading loss for the quarter stood at INR 667 crores compared to a profit of INR 231 crores in the previous quarter and a profit of INR 556 crores in the same quarter last year. The MTM is largely in our corporate bond book. 79% of which is AA+ and above-rated and 98% is rated A- and above. We do not expect an economic loss on this book. MTM on the book has an adverse impact on the stand-alone ROA and ROE for the quarter of 16 basis points and 172 basis points, respectively.

Operating expenses for the quarter stood at INR 6,496 crores, growing 32% Y-o-Y and declining sequentially by 1%. The Y-o-Y increase in rupee crore expenses can be attributed to 40% for volume-linked increases, 14% for growth investments, 11% for digital and technology, 6% towards collection expenses, 5% for statutory costs, 5% for onetime expenses and the balance, 20%, for BAU. Expenses sequentially declined by INR 80 crores or 1%. This is attributable to the reduction in INR 103 crores of onetime expenses reported in the previous quarter; INR 372 crores due to lower collection expenses, lower volume and operating efficiency in the quarter; offset by INR 395 crores of incremental expenses on growth, technology, strategic costs, manpower expenses and annual increments and ESOP costs.

Technology and digital expense grew 42% Y-o-Y and constituted 9% of our total operating expenses. Staff costs increased by 18% Y-o-Y and 16% sequentially. We've added 6,150 people from the same period last year, mainly in our growth businesses and technology teams. We have continued to maintain the social security cost provisions. The cumulative social security cost provision in the books of the bank now stand at INR 227 crores.

Operating expenses to average assets stood at 2.24% for Q1 FY '23, higher by 19 basis points Y-o-Y and 7 basis points sequentially. Given the strong momentum across our businesses, we remain committed to consciously invest in our focused business segments. The lower credit cost over the past few quarters has provided us some headroom to run operating expenses at slightly elevated levels. This has not affected our ROE delivery trajectory. We have demonstrated our ability to improve the cost ratios, having brought them down to below 2% in the past and continue to demonstrate the same through a sequential decline in expenses. We remain committed to achieving around 2% cost to assets in the medium term.

Operating profit for the quarter was INR 5,887 crores, declining 5% Y-o-Y, largely due to the MTM loss. Core operating profit for Q1 FY '23 is INR 6,554 crores, growing 17% Y-o-Y and 5% sequentially. Provisions and contingencies for the quarter were INR 359 crores, declining 89% Y-o-Y, 64% sequentially. The bank has not utilized any of its COVID-19 provisions in the current quarter. This is entirely prudent and in no way a reflection on the credit risk on the books of the bank.

Annualized credit cost for Q1 FY '23 is 0.41%, declining 129 basis points Y-o-Y. Profit after tax grew sequentially to INR 4,125 crores, growing 91% on a Y-o-Y basis. Consolidated ROE for the first quarter stood at 1.48%, improving 60% or 55 basis points on a Y-o-Y basis. Subsidiaries now contributed 4 basis points to the consolidated ROE.

Consolidated ROE -- sorry, consolidated ROE for Q1 FY '23 stood at 15.66%, improving 587 basis points Y-o-Y. Subsidiaries contribute 59 basis points to the consolidated ROE. The cumulative non-NPA provisions stand at INR 11,830 crores, comprising COVID INR 5,012 crores; restructuring provisions, INR 1,259 crores; unsecured retail within the restructured book is 100% provided for; standard asset provision at higher than regulatory rates of INR 4,141 crores; weak assets and other asset provision of INR 1,418 crores.

Our provision cover all provisions, NPA plus non-NPA by GNPA stands at 133.51%, improving 1,587 basis points Y-o-Y and 182 basis points Q-on-Q. Our standard asset provision stand at 1.70%. The bank is well capitalized and carries adequate liquidity buffers. Our total capital adequacy ratio, including profit for the quarter ended 30th June 2022, is 17.83%. Our CET1 ratio is 15.16%. Prudent COVID provisions translate to a capital cushion of 58 basis points, over and above the reported capital adequacy. Our average LCR ratio for the quarter is 116%, exit LCR at 0.23%. Our excess SLR is INR 75,636 crores.

The risk-weighted assets for the bank as of 30th June stands at 65%. Growth across our liabilities and loan franchise. Amitabh has discussed the progress in customer acquisitions, growth in liability and loan franchise in his opening remarks. Please refer to Slides 17 to 21 for details around the quality of the liability franchise group and slides on our loan franchise and quality.

In line with our articulated strategy, our loan book continues to get more granular and balanced repeated advances constituting 59% overall advances, corporate loans at 31% and our commercial banking loans at 10%. 69% of our loans are floating rate, which positions us well in a rising interest rate environment. Breakup of the floating rate loan book by benchmark type MCLR repricing frequency is set out on Slide 10 of the investor presentation.

Moving to our retail business. Q1 FY '23 retail disbursements were up 77% Y-o-Y. Small business banking, rural and PL disbursements were up 111%, 177% and 42% Y-o-Y. SBB cards and rural loan portfolio grew 74%, 42% and 42%, respectively. Retail loans represent healthy characteristics with 79% being secured. Disbursements to unsecured products continue to grow. Proportion of unsecured disbursements to total disbursements being 22% this quarter as compared to 18% in the previous quarter. Credit card spend for Q1 FY '23 grew 96% Y-o-Y.

Industry spend growth is being driven by pickup in commercial card spends we have consciously focused on growing on the profitable retail card spend. We are progressing well on our endeavor to build a profitable and sustainable corporate bank. Rating details, composition, incremental sanction quality is set out on Slide 36 of our investor presentation.

The offshore wholesale advances are largely trade finance-related and primarily driven by our GIFT City branch. 96% of the overseas standard corporate loan book in GIFT City branch is India in the, and 95% is rate to be and above. The quality of our commercial banking franchise is reflected through the strong relationship approach that we are rolling out. 4% of the CBG book got migrated to the wholesale banking coverage team during the quarter, reflecting the scale-up of our customers, and hence, the quality. CBG Current account deposits on a quarterly average balance basis grew 26%. Our CBG fees increased by 30% Y-o-Y.

Coming to the performance of our subsidiaries. Detailed performance of our subsidiaries set out on Slides 61 till 67 of the investor presentation. Domestic subsidiaries reported a total net profit for Q1 FY '23 of INR 271 crores, up 11% Y-o-Y. This translates into a return on investment of 45%, and subsidies now contribute 4 basis points to consolidated ROA and 59 basis points to consolidated ROE.

Axis Finance delivered strong growth as a full-service customer-focused franchise, offering retail as well as wholesale lending solutions. In Q1 FY '23, overall book grew 59% Y-o-Y and 11% sequentially. Retail book grew 3x and now constitute 36% of the total loans, up 4% in the last 2 years.

Within wholesale, focus remains on well distributed and a granular book. 97% of the corporate book disbursements within Axis Finance were to corporate-related AMI listed and above cash flow-backed businesses. book quality continues to be strong. Net NPA at 0.46% negligible restructuring and Stage 3 assets at 0.36%. Axis Finance Q1 PAT grew 59% to INR 95 crores with an ROE of 15.4% and a of CAR 19%. Axis AMC's average AUM grew 18% Y-o-Y in Q1 FY '23, and the equity average AUM was up 29% Y-o-Y.

Its investor folios grew 50% Y-o-Y during the quarter to take its total investor base to 13.2 million. In Q1 FY '23, PAT grew 20% Y-o-Y to INR 88 crores. Axis Capital completed 10 investment banking transactions, including 5 equity market transactions, in Q1 FY '23. Its PAT stood at INR 34 crores. Axis Securities continues to see strong traction in new client additions that stood at 0.18 million, up 148% Y-o-Y. The grossing revenues for Axis Securities grew 7% in Q1 FY '23, and Q1 FY '23 tax stood at INR 39 crores.

Asset quality provisioning and restructuring. The GNPA and NPA and PCR ratios of the bank and segmentally for retail SME and corporate are provided on Slide 53. We have nil net exposure to IL&FS entities, 3 future entities, share entities that are being reviewed by RBI. GNPA was 3 -- 2.76%, improved 109 basis points Y-o-Y and 6 basis points Q-on-Q. Net NPA of 0.64%, improving 56 basis points Y-o-Y, 9 basis points Q-on-Q. PCR at 77%, improving 751 basis points Y-o-Y and 253 basis points Q-on-Q.

We have not sold any nonconforming loans in the quarter. The bank has a time-driven, rule-based right of policy for retail and CBG portfolios. The net slippages in the quarter adjusted for recoveries from written-off pool of negative INR 17 crores. Net slippages for retail, CBG and wholesale were INR 475 crores, INR 14 crores and negative INR 506 crores, respectively. The recoveries from written-off accounts for the quarter were INR 744 crores, including Y-o-Y and Q-o-Q by INR 456 crores and INR 25 crores, respectively.

Reported net NPA outage for the quarter was INR 727 crores, declining 82% Y-o-Y. Net slippage ratio for the quarter on an annualized basis is 0.41%, improving 219 basis points Y-o-Y. On a segmental basis, reported net slippages in retail were INR 869 crores, CBG, INR 38 crores and WBPG was a negative INR 180 crores. Gross slippages for the quarter were INR 3,684 crores, lower by 43% Y-o-Y and 7% sequentially. Gross loan depreciation for the quarter stood at 2.05%, improving 210 basis points Y-o-Y and 33 basis points sequentially.

For the quarter, 45% of the gross slippages are attributed to linked accounts of borrowers, which were standard classified or have been upgraded in the same quarter. Standard COVID restructuring -- restructured loans stand at INR 3,402 crores or 0.45% of our GCA with a provision cover of 24%. We collected 5% from the opening standard restructuring book during Q1 FY '23.

BB and below pool of the bank declined 38% Y-o-Y and 13% sequentially. Upgrades and recoveries during the quarter aggregated INR 652 crores, constituting 7% of the opening book. New downgrades in the quarter were INR 113 crores, down 91% Y-o-Y. More details on the BB below and restructuring have been provided on Slide 54 of our investor presentation.

To summarize, our balance sheet resilience is visible through strong capital adequacy, net NPA at 0.64%, overall coverage at 133.51% of GNPA and limited coverage restructuring of 0.45. Early improvements in the quality of the granular liability franchise is visible through reduction in operates. As we have indicated previously, this will take it to 10 quarters to fully play out with some inter-quarter fluctuations. The average CASA balance stood at 43%.

Focus growth segments like retail, SME, mid-corporate with better RAROC continue to grow faster at 25%, 27% and 54%, respectively. The reported consolidated Q1 FY '23 annualized ROE at 15.66% is in striking range of our commentary of visible ROE of 16% to 16.5% over the medium term. We continue to closely monitor our geopolitical -- the geopolitical outlook, inflation and liquidity risks and results in government policy action and its impact on our businesses.

We would be glad to take your questions now.

[Operator]

[Operator Instructions] The first question is from the line of Mahrukh Adajania from Edelweiss Financial Service.

[Mahrukh Adajania, analyst]

Congratulations. My first question is on loan growth outlook. So of course, you've done very well on your focus segment. However, if you look at overall loan growth, then -- I mean, what would be the outlook for the next 9 to 10 months? I mean, will we be able to do double-digit Y-o-Y growth? Is that a fair assumption because that is key to constructing our earnings model, right? Obviously, our margins are improving and that should help. But...

[Amitabh Chaudhry, executive]

Thanks a lot for the question. We have delivered double-digit growth. We have always stated that we will continue to grow faster than the market. We are giving a range of how much we'll grow faster than the market, and we continue to maintain that particular guidance.

In this particular quarter, in the last couple of quarters, we've been saying repeatedly that the pricing in subsegments of the wholesale side don't make so much sense for us. We do expect with all the rate hikes that have happened and that might happen in the future, that -- and with the -- what we are seeing in terms of behavior by other banks that the -- hopefully more disciplined return on pricing both for the working capital side and the term loan side. And hopefully, that should feed into our loan growth going forward.

Just to show a growth in our advances and have a consequent impact on them. It did not make a sense to us. We have a very clearly outlined strategy on delivering a certain ROE. As part of that, we have said that we need to deliver a certain level, certain cost ratio, certain credit costs, and that's what we are focused on. We do believe that as we continue on this journey, the loan growth will come and the prices return to normalcy. And because we have an extensive corporate franchise, we are one of the key banks to the corporate India.

And frankly, when you look at what to look for that data, please see our growth on the fee income side, you see our foreign LC market share, our GSE market share, the traction, we're getting a positive. So we are not too worried about getting that loan growth back at the right time. We're just waiting for the right pricing to resume, which we believe should happen in the next couple of quarters, if not earlier. I hope that answered the question.

[Mahrukh Adajania, analyst]

Yes. My next question is on deposits. So the last quarter, you had talked about reclassification of some deposits from retail to wholesale. All that is done or is something pending there?

[Amitabh Chaudhry, executive]

A small amount is still pending, but most of that work is almost done. The small amount of deposits are still pending. And that's why you would see that we -- you are seeing a growth in the deposits coming from the NRTD side. If you look at the number of NRTDs which have been opened and compare year-to-year, there is clear growth is visible from our perspective. And again, as we said, we are quite confident that the granularity in the franchise is there for people to see. We continue to work on our client project, and we expect to continue to see the generate coming through in the future quarters also.

[Mahrukh Adajania, analyst]

Sure. My last question is just on OpEx. So obviously, the OpEx improvement has been good this quarter. You did explain the delta as well. But that's all -- any near-term target? I know longer term is 2%, but your OpEx tends to be very volatile. Like in the fourth quarter, we had guided to some uptick in OpEx. So what is a stable ratio in the near term that we could look at? And any comments why employee expenses have risen so sharply Q-o-Q that has happened even for ICICI so asking?

[Puneet Sharma, executive]

Mahrukh, thank you for the question. I think let me break my response to 3 parts. To the point that we had said last quarter, expenses will go up. Our cost to assets was 2.17 when we closed quarter 4, which was our reported number. Our cost to assets has gone up in line with our commentary to 2.24%, which is principally led by the investments that we continue to make in our growth business. So the cost trajectory is reflective of the commentary that we provided as at Q4.

To the second part of your question, which is do we have confidence in our ability to manage our cost base adequately to deliver on the medium-term guidance of around 2% cost to assets. The answer is absolutely yes. We have delivered below 2% in the past. We have been able to deliver a sequential decline in cost, which is effectively against trends that are visible today. So we remain confident, Mahrukh, we don't -- we cease to offer short-term cost of assets guidance. We don't intend to bring that back currently. So the only comment that we have to offer is over the medium term, we will get to around 2% cost to assets, and we feel confident about that.

[Mahrukh Adajania, analyst]

And employee expenses?

[Puneet Sharma, executive]

So Mahrukh, on employee expenses on a year-on-year basis, we've added 6,150 people to our growth businesses as well as our technology and digital teams. Second impact is the RBI instructions on accounting for reserves came through in quarter 2 of last year. So there was no lease-up cost in quarter 1 that is reflected currently. So there's a full year effect of last year hiring, plus ESOP cost, plus annual increments that have paid out in the current quarter that are showing you the cost growth on the staff cost side.

[Operator]

[Operator Instructions] The next question is from the line of Abhishek Murarka from HSBC.

[Abhishek Murarka, analyst]

Congratulations for the quarter. So I have 2 questions. One, on -- so a couple of quarters back, you've given a medium-term guidance of 20, 30 bps improvement in NIMs driven by several factors. We've almost flowed back 20 bps in 2 quarters or 3 quarters. What is the outlook for income...

[Puneet Sharma, executive]

Sorry. Abhishek, I'm sorry, I can't hear you to clearly would you please repeat that what you're saying? I'm sorry, not all that is.

[Abhishek Murarka, analyst]

Sure. Am I audible now? Hello?

[Puneet Sharma, executive]

Yes, Abhishek, better now.

[Abhishek Murarka, analyst]

Okay. My question was on NIM. A couple of quarters back, you had given a sort of medium-term outlook of 20, 30 bps improvement in NIMs driven by several factors. And we've -- in the last 2, 3 quarters. So what is the outlook from here? And also, if you start growing again in corporate and maybe international loans, does that -- that would be a drag as well. So how do you counter that?

[Puneet Sharma, executive]

So Abhishek, what I had commented 2 quarters ago is when we were at NIMs of 3.4%, we had said that we have a NIM improvement journey of 30 to 40 basis points that we want to cover so that we get to a NIM range of 3.7, 3.8 that helps us deliver the aspirational ROE. That commentary and that trend or execution against that commentary continues. We are 2 quarters from when we made that statement. From the 3.4 levels, we are up to the 3.6 level. We haven't built the NIM accretion by drawing down on our LCR. So our LCR remains consistent over the quarters.

This is business-led NIM improvement. We stay committed to getting to the 3.7, 3.8 over the next 8 to 10 quarters, which is a residual period of the comment we made earlier. And the direction to deliver that, in addition to the 4 variables I spoke of, was improving the quality and the composition of our liability franchise, which is work in progress. As we stand today, we stick to what we said, 3.7, 3.8 over the next 8 to 10 quarters. In terms of improvement is what we should be able to get.

[Abhishek Murarka, analyst]

Sure. The other one is on OpEx again. So basically, in the medium term, you do expect it to come down from current levels. But given you're growing retail and maybe CBG more, what would drive the OpEx down? Because these would incrementally be a higher OpEx to asset business compared to, let's say, large corporate.

[Puneet Sharma, executive]

So a couple of things, Abhishek. One is we said that we are making investments. The productivity gains from that investment need to play through the P&L because investments are not made for the sake of making investments. So that's one. Second is while we grow the granular business, we're also building on how the sourcing composition of that business can be, which is also a meaningful cost driver.

So if you change the sourcing mix, you do get cost optimization even as you build granularly. So the cost journey will be a function of productivity gains from investments made plus tactical actions on our businesses. We do think it is it is achievable, and therefore, we are sticking to what we have said, which is the medium term around 2%.

[Abhishek Murarka, analyst]

Sure. And that is also, let's say, medium term would be 8 to 10 quarters just like NIM.

[Puneet Sharma, executive]

We do a 3-year medium-term plan. So Abhishek, I think around 2% would be an FY '25 number.

[Operator]

The next question is from the line of Kunal Shah from ICICI Securities.

[Kunal Shah, analyst]

Congratulations for great set of numbers. So firstly, in terms of retail TD, if you can just highlight in terms of on a like-to-like basis how would have been the overall growth. And the context is when we look at it in terms of the hikes that we would have taken over the past 3 to 6 odd months compared to the other players, we are relatively on the lower side. So should we see catch-up on the rate side to further gather pace on the retail TD?

[Ravi Narayanan, executive]

Yes. Kunal, thanks for that question. So as we mentioned, the entire focus is on getting the LCR-accretive business moving. And this is the constitution-wise approach that we were doing. If I were to look at it on a like-to-like basis, I think the RTD figures would be somewhere around the 13% growth Y-o-Y. So that is where it would be.

[Kunal Shah, analyst]

Yes. In terms of [indiscernible] retail TD rates?.

[Ravi Narayanan, executive]

Sorry, come again?

[Kunal Shah, analyst]

In terms of the retail TD rates, the way we have seen the increase is relatively lower compared to that of the other players. So do we plan to catch up and get the retail TD growth relatively at a faster pace?

[Ravi Narayanan, executive]

So Kunal, this is something that we are looking very -- watching very keenly in the market. And we would like to analyze and study as to where the market is moving. At this point in time, we feel that where we are for the particular tenure that we are offering our rates, I think we will continue to hold on to those and watch and wait and see how we play our game.

[Kunal Shah, analyst]

Sure. And secondly, in terms of wholesale or corporate advances, maybe at least on the advance side, it is declining. But have we built up the position in the investment portfolio or the credit substitute because there is significant price in the investment book? So if we have to look at corporate plus credit substitute, how would have been the overall growth?

[Ravi Narayanan, executive]

There was no -- Kunal, this quarter, there has been no material addition to the corporate substitute book. So what you're seeing on the -- the decline that you're seeing on the corporate loan book is what it is. And as Amitabh spoke about in his opening comments, our focus segments are growing very, very strongly. And I think incrementally, in other parts of the wholesale bank, as and when we see profitable growth, we will certainly chase after that. I think the quality of the franchise is unquestionable. We are gaining market share across various parts of the corporate bank.

We are actually serving the customer across the capital structure, which means that there are loans that we do, there are bonds which we do, domestic bonds, offshore bonds, much of that, we originate and distribute and earn a fee. We are serving corporate India from Axis Capital. Almost 40% of all IPOs last year were left led by Axis Capital. And so therefore, the use of the balance sheet is only one part of the relationship strategy that we have with the corporate bank.

[Kunal Shah, analyst]

Sure. And lastly, on -- yes. And lastly, on Citi acquisition integration, you highlighted steering committee and integration on say, people, processes and technology. But otherwise, when we look at it, how has it been compared to what the expectations were? Any positive, negative surprises? And maybe any read-through in terms of how credit costs or any incremental expense that would be incurred towards the integration when we are expecting it to complete by Q4?

[Puneet Sharma, executive]

Kunal, except the CCI approval, we do not have full and complete access to Citi information for all the right reasons. This is what we are able to track publicly because some data points are published publicly. The Citi performance is trending in line with the assumptions we made at the time of the investment.

That is all that I can say at the moment. Best-case estimate of CSA approval should come through in 4 to 8 weeks from today. At which point in time, we will have better clarity on data, and we could offer incremental comments assuming it's come through pre our quarter 2 reporting.

[Operator]

Next question is from the line of Adarsh from CLSA.

[Adarsh Parasrampuria, analyst]

A question on the liability side. Retail TD, you indicated that large part of the reclassification is done. Now just wanted to understand over the next couple of years, getting retail TD momentum back will be key to sustainable growth for the bank. So can you just highlight what steps are we taking? You can have a pricing play? You indicated about customer additions. Can you talk about the account deepening? What's happening to your corporate salary buildup?

[Ravi Narayanan, executive]

Thanks, Adarsh. The overall piece in which we are looking at it is in terms of setting the franchise to start with. And the way we are going about it is, if you would have seen Slide 17, you would see that we are moving in multiple vectors. One of them clearly states that how we are facilitating our staff -- the frontline staff in terms of enabling them to free them up from routine operation work. So if you see 65% of our branch service transactions have moved digital and 94% of them are straight-through, which gives us the lever to increase engagement with customers.

So similarly, we have ensured that we are emphasizing our KRA changes for our staff. The entire focus is on ensuring that there is -- as Amitabh mentioned in his opening comments, the focus towards delivering an engine which is focused on growth. The productivity, whether you will look at it in unit terms or value terms, is also moving quite strongly. And over the last couple of years, it has moved by nearly 30% at a resource-by-resource level.

Similarly, the product penetration that we are focusing on comes through the fact that and that is why salary as a focus segment comes into play. And you would have seen that our engine on the efforts of salary. We have doubled the number of corporates that we have signed up as well as reaching our corporate program, the Ultima salary program.

And at the same time, again, coming back to the ability to onboard the customer better, we have the digital elements of saying that whether it is nonsalary, we have moved 26%; individual current sourcing, we have moved 55%. And similarly, RTD, coming back to your earlier question, we are seeing 68%, 70% of the RTD onboarding going on to the digital. So a combination of freeing up service to sales capacity, ensuring that there are enablers which are in place; KRAs, which are changed to reflect this aspiration of ours to create the growth engine; and then delivering the quality of growth that we are looking for, whether it be in terms of premiumization, whether it be in terms of granular deposits, whether it be in terms of LCR-accretive. So all of that are coming into play and helping us move in that direction.

As Puneet mentioned, this is a long-term play that we are at. And the effort is to ensure that we are moving in this direction. The RTD book per se, I think the question on rates and how we are looking at it, as I mentioned earlier too, this is a market dynamic element. I do believe that we will wait and watch and see how competition. This is the interest rate upcycle, but we do not want to be the leader as of now. We will wait and watch and see how competition moves. But the idea is to be in front of customers and to see that we are able to get their better and better wallet share.

[Puneet Sharma, executive]

So just to add to other everything that Ravi just mentioned in terms of what we are trying to do in the physical space, 68% of our RTD comes digitally. And so therefore, to that extent, we have improved the journeys digitally to ensure that if you're seeing drop-offs, how can we ensure that drop-offs reduce and so on and so forth. We really run literally hundreds of campaigns to our base for retail term deposits. And each of these campaigns is run digitally based on data analytics that we have. And many of them are very, very successful. Some of them don't work. But I think it's a -- and really, what we're looking to do is increase these hundreds of journeys into -- hundreds of campaigns into literally thousands of campaigns, and they are building out capabilities to be able to do that.

We're also trying to optimize the funnel, meaning 68% of individual TDs come digitally. But we also need to ensure that as the customer is looking to redeem on maturity rate or looking for prepayment, is it possible for us to hold them back in some manner by making an offer for a personal loan, for example, or a ODFT product are some of the journeys that have already got constructed. And so therefore, the digital team is looking at through data analytics, not just at increasing the top of the funnel but ensuring that leakages don't happen as well.

[Adarsh Parasrampuria, analyst]

Got it. No, this is useful. My only observation and just a follow-up on this is, for some of the large brand banks, there is a certain retail TD accretion that normally happens when you build on it either through rates or through efforts, and then there is an extra momentum that gets built in. What I'm just trying to understand is underlying there was a reclassification. So expect reclassification, how large that number was, how is the momentum? Because it looks like somewhere, the underlying momentum has been quite weak, right? And then we have to do a lot more on -- run on the treadmill to kind of get an organic accretion, which is there for some of the larger brands in terms of banks out there.

[Ravi Narayanan, executive]

So I wouldn't disagree with you at all. I mean this is a market where everybody has to be on the treadmill given that it's an interest up rate -- sorry, uptick cycle that is coming through. And as I mentioned earlier, that excluding the reclassification, et cetera, we would be somewhere ballpark around the 13%, 14% mark.

[Operator]

The next question is from the line of Hardik Shah from Goldman Sachs.

[Rahul Jain, analyst]

This is Rahul here. Just taking the previous conversation forward on deposits and bringing in the element of branches. So on one hand, we see these TD ratios are elevated at 87%, 88%. Capital, fair enough, 13%, 14%. But branch expansion is just 1 in this quarter, if I saw the numbers correctly. So how are you all thinking about it? And on one hand, we've got HDFC Bank, which is talking about massive expansion of branches. On the other hand, we are looking at higher LDRs and then rates are rising. So what's the strategy around that particular element?

[Ravi Narayanan, executive]

Thanks. So as I mentioned, the number of branches opening in quarter 1, we should take it as a pinch of salt because kind of looking at places identifying. But let me come back to what the bank is weighing in. As I mentioned, the focus is on setting the franchise. At the same time, we are also cognizant of white spaces in different states across the country. So a combination of both these will come to bear on the way we are looking on the direction we take. The whole idea is to see that how I can get each of my existing branches own more and more of the catchment and take a better wallet share. And to that extent, we track it at a district-by-district level and see how we are moving across the 670 districts that we are presenting across the country.

So both in terms of the existing branches setting as well as any white spaces available across these districts is where we are focusing on. And I think that will determine the way we look at it over the next 2 to 3 years of how our distribution footprint should be.

[Puneet Sharma, executive]

Just to put that in context as well, our mobile app today has 9.7 million customers who come to the mobile app on a monthly basis and transact somewhere in the vicinity between 10x to 12x, which means that there are 100 million visits to the mobile app on a monthly basis. And so therefore, as we think about our physical strategy. I think the strength of our mobile app is something that we would superimpose upon that and think through in terms of the number of branches that we require over the next 2 to 3 years, as Ravi mentioned, to be able to fill white spaces, some of it physically and some of it digitally as well.

[Rahul Jain, analyst]

Okay. Just another question is on the growth sequentially. So of course, the headline numbers are sort of indicating a sort of marginal decline led by corporate. But when I look at the retail book also, the secured portfolios have seen a lower quarter-on-quarter accretion. Maybe some seasonal factor could have been there. But just trying to understand, did we see any pricing pressure there too? Or how's the repayment rates trended in those portfolios or it's a calibrate -- or sort of conscious decision to sort of calibrate more towards unsecured and go a little slow on secure? How do you think about the mix changing going forward and what has happened in this quarter?

[Ravi Narayanan, executive]

So overall, as we guided that we would be directionally moving towards bit more of unsecured than what we've done. So our disbursement this quarter was about 22 unsecured versus 19 of last year. That journey continues. This quarter has been all about rate transmission, increasing fee and also, therefore, keeping -- at the same time, ensuring that the volumes do come in. Been a bit of a timing difference in terms of rate hike. We've been acutely aware that we would like to transfer the rate increase to the customer. That's why you see numbers which are there. But overall, the year-on-year growth of about 25% is a pretty healthy growth, and this momentum is going to continue in the remaining of the year.

[Rahul Jain, analyst]

And then would you say that the repayment rates or the prepayment balance as, et cetera, would have been normal that you witnessed otherwise?

[Ravi Narayanan, executive]

Yes. It's been a normal year in terms of repayment. So there's nothing extraordinary there.

[Rahul Jain, analyst]

And just wanted to squeeze in one last question in terms of credit cards, very strong momentum there. If I can just -- can you just throw some light around what would be your revolver rate? What would be the EMI portion out of the spend that you all have?

[Sumit Bali, executive]

Yes. Sumit here. Revolver rates have reduced for us and for the entire industry rate. So that has gone down, which essentially means that a lot of revolvers went out with the credit cycle, which we saw a couple of years back. Apart from that, we are seeing behavior where customers were evolving a couple of years back and are now displaying more of transactor behavior.

We believe this always happens after a credit cycle. Last time it happened in India in 2007, it took almost 4 years for the industry to recover to the normal revolver rate. Our sense is this time is going to be faster because the growth rate is much faster, right?

Having said that, our strategy is pretty clear. The book is clean. We see opportunity in the market. Organically, we see opportunity in the form of partnerships. We will grow our franchise. The rates will organically recover over time. We are not annually worried by the fact that revolver rates are low right now. The balance sheet and the business can earn money, which are reasonable in -- even in the context of lower events. So we'll stay with the strategies we're playing out right now.

[Rahul Jain, analyst]

Your revolve would be below industry levels or would be at that par with industry?

[Sumit Bali, executive]

There is no published metric on this. So very difficult to say what the industry is at. We believe everybody is lower than where they were by a certain level. There is no published metric on this. So very difficult to comment.

[Operator]

The next question is from the line of Mahesh M.B. from Kotak Securities.

[M. B. Mahesh, analyst]

Just a couple of questions. First is on Slide #10. With respect to the spread improvement that you reported this quarter, how much do you think would you attribute to the loan mix that is sitting out there, either loan mix or the balance sheet changes?

[Puneet Sharma, executive]

So Mahesh, thank you for the question. We haven't split the 13 basis points, but the 13 basis points will be a mix of repricing effect on our sorting rate book, plus the mix effect, but we haven't called out which driver has constituted what amount.

[M. B. Mahesh, analyst]

The question is more in the sense that would you say that -- is it fair to say that the decline in wholesale book would have contributed to the margin expansion? Or do you think that's an incorrect assessment there?

[Puneet Sharma, executive]

So the decline in wholesale book would have contributed to the bank margin expansion because we ran down the trade book. So that is the correct assertion. However, to take that assertion to the conclusion that, that is the only driver of margin expansion in the current quarter would not be correct. There are drivers like our CBG book and retail book delivering superior growth and superior pricing.

The fact that we have had a reprice that has taken place over the last quarter that is to fully play out, the mix shift between INR loans and FCY loans. So the 4 drivers that I keep talking about, the reduction in the RIDF book, all have contributed in parts to make sure that the spread has expanded by 13 bps. So I would not like you to leave with the conclusion that -- or if I were to frame or paraphrase your question, I don't think I will lose the spread once I start doing my wholesale book. So that's the other way to answer your question.

[M. B. Mahesh, analyst]

Perfect. That's useful. Second, if I just look at the same slide and just kind of look at -- how do you see the pricing of the loan book changing over the next couple of quarters given the yield movement for your portfolio?

[Puneet Sharma, executive]

So it's about 70% of my entire loan book, to be precise, 69% or change is floating rate-linked, of which roughly about 30% is repo. We've had one repo -- one cycle of repo rate hikes happening in the current quarter. Assuming that another rate cycle happens, we should see that repricing take place.

MCLR, if you look at how we've actually put out data for you to make an independent assessment. We have a pretty broad spectrum reprice on the MCLR of the 23%. About half of it reprices over a 12-month period. So the MCLR reprice is going to be more out in time the repo reprices will be faster. There is going to be a component of the 30% fixed rate book that pays itself through the next 12 months, which will also reprice. So that's how I'm looking at the reprice effect on the book over the next 12 months.

[M. B. Mahesh, analyst]

Okay. Sure. I'll just take this offline. But just if I would ask one last question, Slide #14. You've seen an improvement in the LCR on a Q-o-Q basis. You said that exit LCR is 123. There has been no material change in the balance sheet on the asset side. If anything, there's been a reduction in cash balances. Just trying to understand what would explain an improvement there.

[Puneet Sharma, executive]

Mahesh, I've articulated previously that we had 2 levers to improve our NIM: the composition of our liabilities and the quality of our liabilities. The relative quality of our liabilities has improved on a quarter-by-quarter basis. So if you look at the LCR disclosure, the outflow rates would have come down, which, therefore, results in an improvement in LCR. 123 is the exit now. It is the journey that we set out that we will get to.

[Operator]

Ladies and gentlemen, we'll take the last question from the line of Saurabh Kumar from JPMorgan.

[Saurabh Kumar, analyst]

Sir, just 2 questions. One is the mark-to-market. So I'm assuming this is mostly coming from your corporate bond book. So could you just highlight what is the duration here? So that's the first one. And second is on your C2 assets. So how should we think about it? Because if I look at from pre-pandemic level, it's growing about 10.5-odd percent. So as the unsecured mix sizes, should one really assume C2 assets to improve? These are the 2 questions.

[Puneet Sharma, executive]

Thank you for the question. We've called out the color of the rating profile of our corporate bond book. So we get that 98% of the book is A- and above and 79% of the book is AA and above. We haven't called out the duration of the book, but it is not a short-duration prospect. So if your question is the pull-to-par duration, the pull-to-par duration is a multiyear duration versus a 1-year duration on a shorter period that one may assume.

[Saurabh Kumar, analyst]

But in this quarter, you were not exposed to the short end of the curve? That was the question.

[Puneet Sharma, executive]

That is correct. So all of it is -- in fact, if I were to make an assessment, nearly all of this is corporate bond book. And then in nearly, I mean, extending to a 100% is the corporate bond book. We've explained to you there's no economic loss, and it will be multiyear pull-to-par.

[Saurabh Kumar, analyst]

Okay. Got it. Second on C2 assets?

[Puneet Sharma, executive]

Look, I think we don't offer guidance on C2 assets. I think historical performance would be the best reference that I would like to draw to. We really don't have a [indiscernible] C2 assets.

[Operator]

I now hand the conference over to Mr. Puneet Sharma for closing comments.

[Puneet Sharma, executive]

Thank you, Nirav. Thank you, everyone, for taking the time to speak with us today. If we've left any questions unanswered, we'll be very happy to speak with you off-line in the course of the eating today. So please do reach out to Abhijit for any further questions or clarification. Thank you very much for spending your evening with us.

[Operator]

Thank you very much. On behalf of Axis Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.