Axis Bank Ltd

NSE:AXISBANK

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day and welcome to the Axis Bank Conference Call to discuss the bank's financial results for the quarter and year ended as on 30th June 2023. Participation in the conference call is by invitation only. Axis Bank reserves the right to block access to any person to whom an invitation has not been sent. Unauthorized dissemination of the contents or the proceedings of the call is prohibited and prior explicit permission and written approval of Axis Bank is imperative.

[Operator Instructions] There will be an opportunity for you to ask questions at the end of the briefing session. [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, Mr. Rajiv Anand, Deputy Managing Director; 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, [ Yashasvi ]. Good evening and welcome, everyone. We have on the call, Rajiv Anand, Deputy MD; Puneet Sharma, our CFO; and other members of the leadership team. We have begun the new fiscal year with strong operating performance across segments. The bank's quarter 1 financial year '24 profit after tax grew 41% with consolidated annualized ROE at 19.44%, up 388 basis points year-on-year. We also accelerated our progress in identified areas of distinctiveness, namely Digital, Bharat Banking and customer obsession, while working on synergies from acquired Citi businesses. We remain watchful about the emerging macro variables and we are fine-tuning our strategy to continue to deliver a sustainable and predictable performance. We continue to remain focused on 3 core areas of execution of our [indiscernible] strategy, namely embedding, our performance-driven culture, strengthening the core and building for the future. Let me now discuss each one of them in further detail.

There is visible improvement in the quality of our deposit franchise. We have made significant progress in our journey towards improving the quality, granularity and premiumization of our deposit franchise over the last 3 years, led by multiple bank-wide transformational initiatives. Please refer to Slide 18 and 19 of the investor presentation. The results of these initiatives are evident in the deposit performance. The bank's deposit franchise grew 400 basis points faster than the industry with improvement in both quality and composition of deposits, low-cost CASA share is at 45.5%, compounding at 19% for the last 3 years.

In the last 2 years, the Bank's outflow rates on Basel reporting basis have seen reduction by 460 basis points and are now trending closer to the best in the Indian banking sector. During first quarter of financial '24, on a quarterly average basis, savings deposits grew 20% year-on-year and 10% quarter-on-quarter and current accounts grew 17% year-over-year. Total deposits grew by 15% year-on-year and 6% quarter-on-quarter and term deposits grew 12% year-on-year and 5% quarter-on-quarter on the back of 21% year-on-year and 9% quarter-on-quarter growth in average LCR accretive deposits for the quarter. The micro market-led strategy is making an impact with 52% increase in districts with market share gains in last 3 years. The granularity, quality and growth of deposit franchise has improved tremendously in the last 3 years. We will continue to invest disproportionately here.

We've also seen all-round growth across businesses, markets and market-leading growth in our focus segments. And SME segment continues to remain a key growth driver for the bank. The combined portfolio of mid-corporate, SMEs and small businesses, grew 32% year-on-year and now constitute 20% of the loan book, up over 600 basis points in last 3 years. Corporate loans grew 25% year-on-year, led by healthy pickup from NBFCs, retail trade groups, telecom services, textile, et cetera. The disbursement pipeline for quarter 2 looks healthy. 70% of the pipeline is from term loans and balance 30% from working capital and trade.

On retail, we are driving a balanced growth in portfolio, leveraging our best-in-class digital and data analytics capabilities, the share of unsecured disbursement for the last 4 quarters has been in the 20% to 25% range. As far as '24 is concerned, on wholesale banking, the transformation program that we started 2 years back, are delivering client impact as we strengthen our capabilities in the transaction banking and treasury segments. Our go-to-market traction [indiscernible] is strong with contribution to revenues from transaction banking APIs across Payments, Collections and Trade, Treasury and CVD segments. The pipeline on cash management and trade APIs continues to remain strong with 1000-plus customers and engagement phase of which 250 plus are in UAT stage.

In addition to the strong product market fit, Neo continues to get widely recognized in the market. The bank bagged the award for Best Product Innovation for Neo API banking suite at the Infosys Finacle Innovation Awards 2023 and the Best API project at The Asset Triple A awards. Building for the future, digital banking performance is strong. Our Digital 2 balance sheet continues to deliver strong growth with 56% increase in deposits and 60% increase in loans.

Axis 2 is now roughly 5% of the bank's overall business and we intend to increase contribution by 3 to 4x by fiscal 2027. We have taken early leadership in leveraging platforms like Account Aggregator, ONDC, CBDC and OCEN. Please refer to Slide 46 of investor presentation. Axis was the first bank to go live on the current aggregate platform as financial information provider. Since then, the bank has launched a number of use cases as a financial information user. Today, the bank offers personal loans, auto loans, 2-wheeler loans, home loans, small business and loans and credit cards, leveraging the account aggregator framework. The amount of loans disbursed using this framework grew by [ 20% ] in this quarter compared to same period last year. We launched One View, a multibank aggregator feature built into Axis mobile app that allows users to get a consolidated view of all their balances from different banks, track all transactions and access statements at 1 place.

It is a unique offering, first of its kind in the banking industry and has seen more than 2.5 lakh registrations in the first 8 weeks of its launch. We continue our leadership in partnership with ecosystem models. We have more than 100-plus mutual partnerships to fuel new customer growth. During the quarter, we partnered with Airtel and Flipkart to offer instant personal loans to their customers in less than 30 seconds.

During the quarter, we also partnered with RBI Innovation Hub and launched 5 minutes digital end-to-end KCC loans with instant loan account openings and access to funds. We also launched digital business loans for MSMEs, leveraging RBI's Innovation Hub. We are also the first bank to launch a Central Bank Digital Currency merchant app, the first to launch an iOS app and one of the first banks to offer partial interoperability with UPI QRs.

On the bank-wide programs to build the [indiscernible], our big bet on Bharat is growing from strength to strength. We have further expanded our distribution footprint to 2,250 [indiscernible] that are complemented by 62,000-strong CSC VLE network. The CSC quarter 1 asset disbursals grew by 3x on a year-to-year basis. We are leveraging the tech stacks of Agritech and Fintech companies to serve the retail customer in Bharat. During the quarter, we went live with ITC MAARS, a multiproduct partnership, offering [indiscernible] for rural assets, retail assets, liabilities, ForEx across their large network of farmers and farmer-producer organizations.

Our Digital 2 lending platform is live with [indiscernible] partners and we have more products and partners lined up to go live on the platform during this year. Quarter 1, the quarter 1 financial '24 disbursals grew by 34% year-on-year. Rural advances were up by 22% and deposits on the Bharat segment grew by 17% year-on-year. Sparsh, our customer obsession program is making an impact on our customer experience goals. It is now live across 100% of the bank branches and all service touch points. Over the last year, NPS in retail journey has moved up to 130 and in wholesale to 133 over an index baseline of 100.

We have industry first fix 6-hour service promise for our Burgundy customers available on our app. On Citibank Consumer business integration, the Citibank is now well integrated and the customers have seamlessly transitioned to the broader platform and access. This is demonstrated through the trends we are seeing across credit card spend, card acquisitions and stronger term deposit mobilization.

We are also witnessing synergy benefits coming through. Examples include improvement in monthly disbursements in the vehicle finance business and the great response we have seen for Neo wealth management products from the [indiscernible] labeled with the Axis group.

The ex-Citi colleagues have welcomed the opportunity to take on larger responsibilities within the bank. The annualized attrition is materially below the trend of the previous 2 years.

In closing, the Indian economy and the banking sector are well placed in context of the global geopolitical macro headwinds, the emerging trends and shift in global value chain mix, Indian government's supportive policies and infrastructure [indiscernible] MSME, Bharat and digital will help the Indian banking sector. We, at Axis Bank are well positioned to take advantage of these opportunities and believe that we have significant numbers for growth. We remain focused on our digital strategy and our areas of distinctiveness in building an all-weather institution that will stand the test of time.

I will now request Puneet to take over.

[Puneet Sharma, executive]

Thank you, Amitabh. Good evening and thank you for joining us. We continue to make good progress towards building a stronger, consistent and sustainable franchise. We have strengthened our core businesses and are focused on ensuring our balance sheet is resilient across cycles. Amitabh has discussed the business and transformation projects. The salient features of the financial performance for Q1 FY '24 across operating performance, capital and liquidity growth on our deposit and loan franchise, asset quality, restructuring and provisioning is as follows. Net interest margin at 4.10%, improving 50 basis points Y-o-Y. NII at INR 11,959 crores, a Y-o-Y growth of 27%. Our fee stands at INR 4,488 crores, Y-o-Y growth of 28%, granular fees stood at 94% of total fees. Operating profit at INR 8,814 crores, Y-o-Y growth of 50%, cost of assets at 2.32%, increasing 8 basis points Y-o-Y.

Cost-to-income at 48.9%, improving 417 basis points Y-o-Y. Net credit cost at 50 basis points increased 9 basis points Y-o-Y, largely due to lower recoveries from prudentially written off accounts. PAT at INR 5,797 crores, increased 41% on a Y-o-Y basis. Our GNP at 1.96% declined 80 basis points Y-o-Y and 6 basis points sequentially. Net NPA at 0.41% declined 23 basis points Y-o-Y and flat sequentially. PCR at 80% improved 233 basis points Y-o-Y. Our standard assets coverage ratio, which is all non-NPA provisions by standard assets stands at 1.39%. All provisions which is standard, COVID and NPA provisions by GNPA stands at 145%, improving by 1,134 basis points Y-o-Y.

Our consolidated ROA stands at 1.83%, improving 35 basis points Y-o-Y. Our consolidated ROE stands at 19.4%, improving 388 basis points Y-o-Y. It's important to note that we met accretive CET1 in the quarter by 36 basis points.

Net interest margins. Yields on interest-earning assets have improved Y-o-Y and Q-o-Q. We, however, saw an increase in funding cost in Q1 FY '24 by 114 basis points Y-o-Y and 28 basis points Q-on-Q. As a result, net interest margins improved 50 basis points Y-o-Y and declined 9 basis points Q-on-Q. The balance 3 basis points decline in NIMs on a sequential quarter basis is attributable to interest on income tax refunds in Q4 FY '23 with a NIM equivalent interest on income tax refund in Q1 FY '24. The marginal cost of deposits have stabilized over the last few months. We expect cost of deposits to increase further over the remaining part of the financial year but the pace of deposit growth will most likely moderate.

Our progress on structural NIM drivers continue with improvements across variables on a Y-o-Y basis. Our balance sheet mix improved, loans and investments comprised 88% of total assets in June on -- as at June '23, improving 113 basis points Y-o-Y. INR denominated loans comprised 95.64% of total advances, improving 324 basis points Y-o-Y. Retail and CPG advances comprised 68% of total advances at June '23. Low yielding RIDF bonds declined by INR 11,385 crores on a Y-o-Y basis. RIDF bonds comprised 2.29% of our total assets at June '23 compared to 3.58% of our total assets at June '22. The composition of liability measured through average CASA ratio improved by 151 basis points Y-o-Y. Quality of liabilities measured by outflow rates improved by 460 basis points over the last 2 years.

We had strong fee performance in the quarter. Fee income stood at INR 4,488 crores, growing 28% Y-o-Y. Total growth retail fee grew 37% Y-o-Y and 1% sequentially. Fees from cards grew 60% Y-o-Y and 24% quarter-on-quarter. Fees on retail ForEx exchange and remittances grew 33% Y-o-Y and 12% sequentially. Our transaction banking fee grew 17% Y-o-Y and 4% sequentially. Operating expenses for the quarter stood at INR 8,232 crores, growing 28% Y-o-Y and 12% sequentially. It's pertinent to note that there were no Citi BAU expenses in Q1 FY '23 and only 1 month Citi expenses in Q4 FY '23.

21% of the Y-o-Y growth and 28% of the quarter-on-quarter growth in rupee terms is attributable to integration expenses. The balance Y-o-Y increase in rupee crore expenses other than described above can be attributed to the following reasons. 12% is linked to volume, 57% is linked to our technology and growth-related investments and the balance, 39% is for our BAU operations. Technology and digital spend grew 19% Y-o-Y and constituted 8% of our total operating expenses. Staff costs increased by 23% Y-o-Y. We've added 8,366 people from the same period last year, mainly in our growth businesses and technology teams. Operating expenses to average assets stood at 2.32%, higher by 8 basis points Y-o-Y and 7 basis points sequentially.

The acquired Citi business is entirely retail, which understandably runs at higher cost and return ratios. The Citi business will be ROE accretive post integration. The cost ratios will remain sticky till the Citi integration phase is over. Provisions and contingencies for the quarter were INR 1,035 crores.

The bank has not utilized any COVID-19 provisions. This provision is entirely prudent. Annualized gross credit cost at 74 basis points was lower 5 basis points Y-o-Y. Annualized net credit cost is 50 basis points, increased 9 basis points Y-o-Y and 28 basis points Q-o-Q. The sequential increase in net credit cost is attributable to higher seasonal rural slippages and lower recoveries as compared to the previous quarter from prudentially written-off accounts largely from the corporate portfolio.

Subsidiaries contributed 3 basis points to the consolidated annualized ROA and 27 basis points to the consolidated annualized ROE. The cumulative non-NPA provisions as of June 30, 2023, stood at INR 11,848 crores, comprising COVID provisions of INR 5,012 crores, restructuring provisions of INR 708 crores. This includes unsecured retail being provided at 100% and the rest at [ first bucket ] NPA rates. Standard asset provision is at higher than regulatory rates of INR 2,296 crores and [ weak ] assets and other provisions of INR 3,832 crores. Our journey to be self-sufficient on capital that we've articulated previously has been progressing well.

Our capital adequacy ratio, including profits is 17.74% and our CET1 ratio is 14.38%. We accreted 36 basis points of CET1 during the quarter. The prudent COVID provision translates to a capital cushion of 48 basis points over and above the reported CET1 capital adequacy ratio. The RWA of the bank stands at 67% at June 30, 2023. Growth across our liabilities and loan franchise, please refer Slides 18 and 19 for details around the quality of our liabilities franchise and slides in the investor presentation for our loan franchise. Key highlights are our CASA ratio on an NAV basis is 45.5%, improving 182 basis points Y-o-Y. Our CASA ratio on a QAB basis, which is quarterly average balance basis, is 44.2%, improving 151 basis points Y-o-Y and 31 basis points Q-on-Q.

Our loan book is granular, well balanced with retail advances constituting 58% of overall advances, corporate loans at 32% and CBG at 10%. 68% of our loans are floating, 42% of our fixed rate loan book matures in the next 12 months. Breakup of the floating rate loan book by [indiscernible] type and MCLR repricing frequency is set out on Slide 10 of our investor presentation. Retail advances grew 21% Y-o-Y and 2% sequentially. 77% of the book is secured. Our Q1 FY '24 disbursement for LAP grew 35% Y-o-Y.

Small business banking disbursements grew 8% Y-o-Y and PL disbursements grew 26% Y-o-Y. Cards and PL portfolio grew 91% Y-o-Y and 21% Y-o-Y, respectively. The credit card spends for Q1 FY '24 grew 78% Y-o-Y and 28% sequentially. We are progressing well on an endeavor to build a profitable and sustainable corporate bank. Details of rating composition, incremental sanction quality is set out on Slide 35. Domestic corporate loans grew 36% Y-o-Y and 4% sequentially. The offshore wholesale advances are largely trade finance related and primarily driven by our GIFT City branch. 96% of the overseas corporate loan book in GIFT City branch is India linked and 91% is rated A- minus and above.

Commercial Banking. The commercial banking book grew by 24% Y-o-Y. The quality of the CBG franchise we are building is strong and is established through the following parameters. Our CBG card deposits on a monthly daily average balances grew 13% on a Y-o-Y basis. 88% of our CBG loan book is PSL compliant. As our customers grow, we migrated 3.6% of the CBG book at 31st March 2023 to our CRG business. This will be a routine feature going forward.

Coming to the performance of our subsidiaries. The detailed performance of our subsidiaries is set out on Slide 68 to 74 of our presentation. The subsidiaries reported a total Q1 FY '24 net profit of INR 303 crores, growing 16% Y-o-Y. The return on investment on domestic subsidiaries was 45%.

Axis Finance delivered strong growth as a full-service, customer-focused franchise, offering retail as well as wholesale lending solutions. Overall AUM for Axis Finance grew 28% Y-o-Y. Retail book grew 1.5x and now stands at 43% of total loans. Q1 FY '24 PAT grew 29% Y-o-Y to INR 123 crores and the capital adequacy ratio is healthy at 18.6%. Strong asset quality with a net NPA of 0.38% and negligible restructuring reflects the strength of the balance sheet of Axis Finance. Axis AMC overall AUM grew 13% Y-o-Y to INR 252,203 crores, Q1 FY '24 PAT grew 4% Y-o-Y to INR 91 crores.

Axis Securities broking revenues for Q1 FY '24 grew 24% Y-o-Y, PAT grew 14% Y-o-Y to INR 45 crores. Asset quality, provisioning and restructuring. Asset quality continues to improve with declining gross NPA and largely flat net NPA. Slippages, GNPA, NNPA and PCR ratios for the bank and segmentally for retail, CBG and corporate are provided on Slide 59.

Q1 FY '24 gross slippage ratio annualized stands at 1.87%, declining 18 basis points Y-o-Y. Gross slippages for the quarter was INR 3,990 crores, higher by 8% Y-o-Y, mainly relating to the retail book. Our CBG and CRG slippages are contained or improving both on a Y-o-Y and Q-on-Q basis. Further, for the quarter, 38% of the gross slippages are attributable to linked accounts of the borrowers, which were standard when classified or have been upgraded in the same quarter.

Net slippages for the quarter were INR 1,685 crores, of which retail was INR 2,028 crores, CBG was INR 64 crores and wholesale was a negative INR 407 crores. Recoveries from written-off accounts in the quarter was INR 554 crores. Net slippages in the quarter adjusted for recoveries from written off accounts was INR 1,131 crores. Office Retail was INR 1,639 crores, CBG was negative 10% and wholesale was negative INR 498 crores.

To summarize, the Axis Bank is progressing well to be a stronger, consistent and sustainable franchise. Our franchise is strong and resilient and getting more sustainable, visible through organic Axis-driven CET1 accretion in the quarter of 36 basis points. Our COVID provision buffer of 48 basis points of CET1 capital, overall coverage of 145% of GNPA and limited restructuring at 0.21% of our gross customer assets. Our consolidated ROE at 19.44% improved 388 basis points Y-o-Y. We have now consistently delivered an ROE in excess of 18% over the last 4 quarters through disciplined execution.

We have made a good foundation for our liability franchise. The improvement journey is progressing well. Our Q1 FY '24 QAB and MAB CASA ratio stood at 44.2% and 45.5%, improving 151 basis points and 182 basis points, respectively, on a Y-o-Y basis. Out flow rates have declined by 480 basis points, showing the significant improvement in the quality of the liability franchise. Improvements planned over the next 7 to 8 quarters should deliver results with some inter-quarter fluctuations which are normal for a business our scale and size. We are well placed in the current macro environment. We continue to focus closely on the geopolitical environment, inflation, liquidity and cost of funds and its impact on our business. We would be happy to take questions now.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] We have a first question from the line of Mahrukh Adajania from Nuvama.

[Mahrukh Adajania, analyst]

My first question is on OpEx. Sir, you clarified on the integration expenses. And last time also you had called out a number for integration expenses. And if you add the both, then the integration expenses work out to roughly INR 350 crore, INR 380 crore per quarter. Is that the run rate we continue to expect in the next few quarters?

[Puneet Sharma, executive]

Mahrukh, thank you for the question. Slide 13 of the investor presentation clearly calls out integration expenses for the quarter. It is INR 385 crores. We have said that we expect to incur integration expenses over a period of 18 months aggregating to INR 2,000 crores pre-tax, INR 1,500 crores post-tax. That number stands. You may see some inter-quarter fluctuations but we stand by the gross number of INR 2,000 crores. And for the quarter, it is INR 385 crores.

[Mahrukh Adajania, analyst]

Okay. But that run rate should broadly continue, right? Because I thought INR 500 crore of that INR 2,000 crore will be upfronted sooner than the INR 1,500 crore?

[Puneet Sharma, executive]

So Mahrukh, like I said, I think we said we will upfront some of the INR 2,000 crores in the early 4 quarters. We are working to ensure that integration is smooth and is done in the fastest possible time. So directionally, yes, it's likely to be upfronted and back-ended. So your conclusion there qualitatively is correct. The INR 2,000 crore number stands. The INR 385 crore number for the quarter stands.

[Mahrukh Adajania, analyst]

Okay. Sir, my next question is on deposit mobilization through the rest of the year, right? Some banks still have excess liquidity. A lot of banks have not grown deposits this quarter but it intensifies from next quarter. So how do you view your deposit mobilization in the context of your margins from next quarter onwards?

And also, is the bulk of past repricing over now? So assuming no more rate changes, can we assume that margins have bottomed now?

[Ravi Narayanan, executive]

Thank you, Mahrukh. This is Ravi. As far as the growth in deposits is concerned, it continues to be an effort across the banking sector, no doubt about it. But we continue to stay focused on what we have picked up as some of the elements of execution over the last few months, which is primarily focused on sweating the franchise and the distribution. We have been, as mentioned by Puneet and Amitabh, we have been looking at a district level approach where we are seeing that how do we ensure that district by district, we are focused on increasing our market share in deposits. At the same time, we are working towards the composition and quality of our franchise.

We are not taking our eyes of that. And we continue to ensure that at all points in time, it is a relationship approach that we are taking so that we continue to focus on the customer behind the account. And therefore, create sustainability of the relationship as well as the liability. So overall, as we see, the focus is on sweating the distribution that we have. And continue to focus on how every resource can participate and contribute. As far as the cost of funds is concerned, I'll hand it over to Puneet.

[Puneet Sharma, executive]

Mahrukh, we don't -- as you are aware, we don't offer net interest margin guidance. Therefore, to your comment on where the margins will be at this level for the rest of the year, we can't offer a constructive comment. Qualitatively, on cost of deposits, the marginal cost of deposits have stabilized for the last few months. We expect deposit costs to further increase over the remaining part of the financial year. But the pace of growth of deposit cost is most likely to moderate. So if you recollect, in the Axis context, we had a deposit cost increase take place in quarter 4 of last year, followed by a deposit cost or a cost of funds increase in quarter 1 of the current year. We are seeing the pace of growth is likely to moderate for the rest of the financial year.

[Operator]

[Operator Instructions] We'll take our next question from the line of Kunal Shah from Citigroup.

[Kunal Shah, analyst]

Yes. So a couple of questions. Firstly, with respect to the excess SLR. So we have drawn down...

[Operator]

Sorry to interrupt. Can you use your handset mode, please.

[Kunal Shah, analyst]

Yes. So the question was on excess SLR, wherein you have utilized almost [ INR18,000 ] odd crores, you said like larger part of it could be utilized over next 6 months. So from [ INR 57,000 ] odd crores, how would be the utilization out there? And the second question is on the employees side. In terms of the increase which has been there on a quarter-on-quarter basis, how much would have been on account of the one-off due to the incentives which we have highlighted here?

[Puneet Sharma, executive]

Thank you, Kunal, for the question. Let me start with your second question first on staff cost increase. Since you've asked the question on a sequential quarter basis, there are 3 elements that are playing through on a sequential quarter staff cost increase. One, you would appreciate that we purchased the Citibank business effective 1st March. So the employee cost of all Citi employees in Q4 of FY '23 is for 1 month.

For Q1 of FY '24, is for 3 months. So in some sense, it's not an equitable comparison. That has contributed to staff cost growth at one level. The second element that has contributed to staff cost growth is, we've offered increments to our employees in quarter 1 as we do annually. And the increments are in line with industry numbers. Therefore, that's a contributor to staff cost increase. And the third element is, we added incremental staff in our growth businesses and technology teams.

So therefore, there is an annualization impact of last year's, specifically quarter 4 hires and incremental hires in quarter that is contributing to the balance staff cost. There is a marginal impact of gratuity that has played through given where interest rates have moved. But those would be the 4 broad components on basis of which staff cost has increased.

Now on excess SLR, you made 1 comment and asked 1 question. My request is, I do not believe that between Amitabh or me, we said we will run through our excess SLR over the next 6 months. So I would just caveat your comment on the time frame. Our LCR numbers are 123%, gives us enough flexibility to grow our loan book as long as we get constructive opportunity. And as we reduce our LCR, excess LCRs will run off. We do not have a targeted guidance to running down excess SLR as a metric.

Kunal, I hope that covers both your questions but if there is something, happy to take a follow-up.

[Operator]

We have our next question from the line of Saurabh from JPMorgan.

[Saurabh Kumar, analyst]

Sir, just 2 questions. One is basically on this NIM slide, Slide 10. So last quarter, you had a 6-basis point impact because of the excess liquidity. So fair to say that the cumulative decline this quarter, including the 6 basis points of excess liquidity, that number should be about 15 basis points? So that's one. And the second is, on this attrition rate, could you have -- I mean, would we expect the staff cost number to persistently remain high now as the attrition rates are going up at the bank? Thank you.

[Puneet Sharma, executive]

Saurabh, thank you for the question. Yes, there has been a [ 5% ] moderation in LCR. But I'm not clear on how that translates to the 15 basis points that, of normalized reduction that you're coming to. On a reported basis, we have declined net interest margins by 12 basis points, 9 basis points of the 12 basis points is [indiscernible] which is cost of deposits being offset by increase in yield on investments and advances. And 3 basis points in the last quarter was a one-off item, which is interest on income tax refunds, which doesn't repeat itself in quarter 1. So the bridge for the 12 basis points is the 9 plus 3 basis points.

[Amitabh Chaudhry, executive]

On attrition, let me say a couple of points. First, there are only very few banks who report attrition numbers on a regular basis. Secondly, I think you are assuming that everyone is reporting attrition on exactly the same basis. And so the attrition numbers are comparable. I do not think so. We have done our analysis and some people are excluding some of their workforces when they report or how they report -- how much time they have spent with the organization before they report the attrition numbers, point #2.

Point #3, our attrition rate has remained in the same zone for quite some time. So I don't know when you say that attrition rate has gone up, yes, it went up last year. It is reflected in our overall staff cost. All the institutions, at least the ones we compete with, are used to this kind of attrition rate and they've been operating quite well through that period without seeing a large jump in staff cost because the attrition rates are high. Frankly, if the attrition rates are high, sometimes it can lead to a lower staff cost because you might replace the individuals who are leaving you with someone who comes in at a lower cost. So I think to attribute high attrition rate to higher staff costs might not necessarily be right all the time.

So in nutshell, we do not expect our staff cost to go up because of a slight movement in attrition number, either up or down. I hope that answers your question.

[Operator]

We have a next question from the line of Abhishek M from HSBC.

[Abhishek Murarka, analyst]

Two questions. One on growth, if you could offer some comments on Housing and LAPs. There's been a little -- the growth has been a little moderate there for a couple of quarters. And is there something in terms of demand that you're seeing, which is leading to this kind of moderation?

And also on the CBG part, where there's a decline this quarter on a Q-o-Q basis. So what would be driving this? So that's my first question. Again, I'll come back for the second.

[Sumit Bali, executive]

Abhishek, this is Sumit here. So last year, we had started on our improvement of NIM journey. And as part of that, we had taken some initiative to rationalize costs. And one is, now our NIMs are where we want them to be. So we will be growing our home loan book. We've already put in place initiatives to grow that book and that will be visible in Q2, Q3 onwards. Net of home loan, every other product is doing well. Home loan, we have a plan in place to grow the book.

[Puneet Sharma, executive]

So Q4 over Q1 drop is -- you would have seen that last year as well. But you'll find that the overall growth on a Y-o-Y basis continues to be quite strong. This is a business that we like. It is granular. It is sectorally dispersed, very profitable. And this is a piece that we are looking to grow and grow quite strongly. So we are not very concerned about the small drop that you've seen on a Q-on-Q basis.

[Operator]

Mr. Abhishek, does that answer your question?

[Abhishek Murarka, analyst]

Yes. That was the first. I've got one more.

[Operator]

Please go ahead.

[Abhishek Murarka, analyst]

Sir, the second question is on cards. So first, can you give a rough mix of revolvers, EMI and whether that would have gone down post the Citi merger? And also, would it be fair to assume that Magnus would have led to, let's say, 15% to 20% of net card additions and also spends? And now after the devaluation, there would be an impact on both of these?

[Amitabh Chaudhry, executive]

So there's actually 3 questions there. I'll just sort of take them one by one. Trend-wise, across the industry, the revolver percentage is coming down but I obviously can't share specific numbers on trend of EMI. EMI is a trend which is increasing. And what we are noticing you will have seen this in the RBI numbers as well, is that our overall spend, which is a reported number, is growing quite well and in fact, growing much ahead of the industry. So that's the first part.

On the Magnus, no, certainly, it would not -- we have not seen any attrition and it will certainly not lead to any meaningful number in terms of attrition, given the [indiscernible] come through. The third part is, I wouldn't refer to the changes in the Magnus or the devaluation because if you look at it holistically, we have actually introduced a product for -- which is tied in with our wealth management proposition for our Burgundy customer which is actually, we believe, even more powerful than the earlier Magnus was.

So we are certainly not looking at it as a devaluation. We are looking at it as a segmentation of our product line, more aligned to the high spenders. And for that segment, which spends about a particular threshold, we know with the math we've done but it is still the most powerful card in the market for that segment of customers. So I certainly wouldn't attribute any meaningful number on attrition too. In fact, we are seeing the spends going up, as I mentioned on the cards portfolio in general and we certainly wouldn't call it a devaluation of the Magnus product.

[Operator]

We have our next question from the line of Adarsh from CLSA.

[Adarsh Parasrampuria, analyst]

So most of my questions were answered. I just wanted to check if you think about the cost base adjusted for the integration cost. I'm sure there is some amount of cost that banks are incurring now, the spend when the going is good. Just wanted to understand what's the trajectory and you guided to it earlier as well but when should one expect this to moderate, right?

What I'm trying to understand is, will it last till the going is good or specifically think that there should be a turning point here.

[Puneet Sharma, executive]

Adarsh, thank you for the question. The environment allows us to continue to make investments today. We have previously demonstrated our ability to pull back costs when we need to. And therefore, if you're directionally asking me, will we have this ability to manage our cost to assets ratio on a go-forward basis post the integration expenses falling away. If the environments were to deteriorate, yes, we do believe that we have levers to manage costs at that point in time. As we stand today, we are constructive about the environment that we operate in and therefore, we'd like to continue to invest in the branches.

[Adarsh Parasrampuria, analyst]

And that medium-term guidance on cost to asset ex integration is something you don't want to still put on a time line to?

[Puneet Sharma, executive]

So Adarsh, what we have said previously and we've reiterated that on Slide 13 of our investor presentation, we have set out a -- around 2% cost to assets on an FY '25 exit basis. If you see the update that we have provided, we've continued to hold that guidance of around 2% FY '25 exit basis, excluding the Citi business.

Please appreciate the reason for the exclusion is, the Citi business operates at higher revenue and higher costs. We had called out the impact of Citi costs on the univariate cost to assets ratio last quarter. Therefore, the guidance that we had offered previously stands, as originally intended. So we are not walking away from that guidance.

[Operator]

We have our next question from the line of Nitin Aggarwal from Motilal Oswal.

[Nitin Aggarwal, analyst]

Good evening, everyone. I have 2 questions. One is around the Tier 1. We have seen a good improvement in Tier 1 this quarter despite the rise in RWA to total asset ratio. So what has really driven this, is this one-off or do you think that this is going to steadily improve over the coming quarters?

And in view of this, what will also be the plans that we have on the capital raise?

[Puneet Sharma, executive]

Nitin, let me take the capital raise plan first and then come back to your one-off question on capital. Our current CET1 stands at 14.38%, well above our philosophical rebase level, well above what we need to protect our domestic AAA rating, sufficient headroom for us to grow at 400 to 600 basis points higher than industry credit that we've indicated we would like to grow at. Therefore, we do not have any plans currently to raise capital for the growth outlook that we have for financial year '24. To your second question on, is there a one-off in the net capital accretion that you have seen of 36 basis points, no.

Capital accretion is roughly about 66 basis points, if I take you to Slide 15 of our presentation. About 66 basis points of accretion is on account of profits for the quarter. Across operations, risk and growth has consumed 30 basis points. So the 36 basis points is core organic accretion that we have delivered in the current quarter.

[Nitin Aggarwal, analyst]

Okay. And second question is on the branch expansion plan, while you have a guidance around cost to asset but how are you looking at the branch expansion over FY '24 to '25. And related to the branch expansion, on the liabilities, because CD ratio has been like hitting close to [ 19 ] now, so how are we looking at the liability position and what is your comfort level on the CD ratio?

[Ravi Narayanan, executive]

So on the branch expansion plan, as we have said earlier too, we continue to look at white spaces across the country, both in Bharat and the urban markets. Current financial year, we are looking at around 400 branches incrementally for the year. And we will keep ourselves open for any kind of opportunity which further comes up. Similar numbers would be where we are looking for even possibly, as we go along.

Overall, in terms of the job between the loans and the liability, that continues to be something that is playing out for the industry. We have our eyes closely hooked on to the CD ratio and we continue to make all efforts to ensure that, that is something that is always under control and see how we can bring it up, as we go along. So between the push towards increasing distribution as well as ensuring that the existing franchise is completely sweated out, we continue to be extremely positive about the deposit growth that we have.

[Operator]

We have our next question from the line of Param Subramanian from Nomura.

[Parameswaran Subramanian, analyst]

So on Slide 12, you're showing this, the retail cards and payments within the retail fee mix. So I just wanted to understand, would most of the Citi fee be sitting within this retail cards and payments. And if so, it looks like the Citi business would have been about INR 150 crores to INR 200 crores of fees this quarter. Is that ballpark number, correct?

[Puneet Sharma, executive]

I'm not going to call out or ratify the amount that you've calculated. We've categorically said we are 1 bank, 1 number reported. It is an integrated Axis franchise. Therefore, the Citi fee number is not being called out separately. To your first point out that, is Citi fee is being reported? Part of the Citi fee is being reported in retail cards and payment. There will be fees that will come in third-party products as well as Citi fees applicable in retail liabilities. The recharacterization of the fees is in line with how Axis used to consistently characterize its fee profile. And therefore, there is consistency of this reporting.

[Parameswaran Subramanian, analyst]

Okay. Okay. Got that thing but the last number we got for the Citi business as of [ CY '20 ], when you had given out a broad P&L. So I just wanted to understand if the P&L trends stay in the [indiscernible] fee line, are broadly similar on an accretion basis. Yes.

[Puneet Sharma, executive]

Param, thanks for the follow-up. What we also set out in the pro forma disclosure was an ROE number, which was 19% plus. We do believe that, that number is deliverable post full integration and therefore, the business should be ROE accretive for us. Without commenting on specific lines of income and expense growth, we stay committed and stay true to our comments that this business is ROE accretive post-integration period.

[Operator]

We have our next question from the line of Rakesh Kumar from B&K Securities.

[Rakesh Kumar, analyst]

Yes. So sir, firstly question was on the outflow rate for the share calculation, there was an improvement of 460 bps. And that improvement is being utilized in the lower surplus liquidity, so including the asset rate. So just wanted to understand, what is the longevity like how much more we can improve the deposit profile and use that to improve the overall margin profile? So how much -- what is in the degree -- outer degree of that, if you can elaborate on that?

[Puneet Sharma, executive]

Thank you for the question. As we would see on Slide 18 of our presentation, we've called out a June '23 outflow rate of 23.7%. If you look at broadly our peer bank set, we've reached the rates that we have historically operated in and continue to operate in. So the efficiency there would be at the margin because we've seen a significant improvement in the last 24 months. So that lever of NIM improvement is getting optimized. And we have limited to no scope of improvement on a go-forward basis.

[Rakesh Kumar, analyst]

Sir, secondly on the -- you mentioned that there is a seasonality in this overall Citi number and the recovery number kind of has come down. So recovery numbers, we can understand but the seasonality of this rural slippage number. So can we see this number in any other quarter, Q3 or Q4 or like it will happen just in Q1. So if you can help there?

[Puneet Sharma, executive]

Thanks again for that question. Typically, rural NPS is the May-November cycle. So you will see a quarter 1, quarter 3 impact of the rural cycle. The other products typically don't have the seasonality that comes through the rural portfolio.

[Operator]

[Operator Instructions] We'll take our next question from the line of [ Aravind R from Sundaram Alternates ]. Please go ahead.

[Unknown Analyst]

So once the branch -- new branch is open, like how much time it usually takes to reach the desired metrics in terms of -- in your loans and deposits. So that is my first question. And if you can really -- some color on like what is the average yield on credit cards, like. Yes. [indiscernible]

[Ravi Narayanan, executive]

Yes, thanks. On an average, we are now looking at the branches becoming fully profitable in the ballpark of couple of years. Obviously, there will be outliers, some of them may come in faster. Some of them may go beyond. But on a broad basis, couple of years is where we look at the customer base kicking in and a granular kind of approach in terms of getting the profitability. On the cards, I'll have Arjun or Puneet look at it.

[Puneet Sharma, executive]

Thanks for the question. As you're aware, we don't give product-wise deals out. So as you indeed alluded to, how the market has moved, on revolve plus cards loans. But we do not have any particular yield callout on the cards portfolio that we can disclose here.

[Unknown Analyst]

But if I can just ask 1 question, like especially on fixed rate loans, especially in consumer segment, banks have not been able to pass on the interest rate that much. I'm just trying to get your view on like, how do you see like passing on the rates to the customers in the retail segment, especially fixed rate book like in personal loans and other products?

[Puneet Sharma, executive]

Thank you for the question. Like I said earlier, we've seen an improvement on our yield on advances. We are also seeing improvement on yields, on disbursements, which is why we've been able to offset the 31 basis points cost of funds increase. So that's visible in the numbers that we are reporting. Having said that, the market is competitive. We operate in a competitive market space. And consequently, there will be pulls and pressure on pricing for the customer profile that we would like to have. So I think it's a market dynamic. We are a large and active participant. We have meaningful distribution strength as 1 Axis. So we feel comfortable in competing and winning in this space. On your fixed rate loan profile, I had earlier called out that 42% of our fixed rate loans mature over the next 12 months, that should give you an indication of the repricing frequency of that book.

[Operator]

I now hand the conference over to Mr. Puneet Sharma for closing comments. Thank you and over to you, sir.

[Puneet Sharma, executive]

Thank you, Yashasvi. Thank you, everybody, for your time this evening. We'd be very happy to take any questions that remain unanswered. Subsequently, please feel free to reach out to Abhijeet and we'd be happy to take on follow-on questions or engage with you. Thank you very much. Have a good evening.

[Operator]

Thank you, sir. On behalf of Axis Bank, thank you for joining us and you may now disconnect your lines.