Axis Bank Ltd

NSE:AXISBANK

Earnings Call Analysis

Axis Bank shows strong performance in Q1 FY '25

Axis Bank delivered significant growth in Q1 FY '25, highlighted by a 12% yearly increase in net interest income to INR 13,448 crores and a 16% rise in net fee income to INR 5,204 crores. Core operating profit grew by 16% year-over-year, and the bank's consolidated return on equity reached 16.68%. Despite a slight increase in credit costs, the gross non-performing assets (GNPA) improved, declining by 42 basis points year-over-year to 1.54%. The bank's deposits grew by 13%, maintaining a CET1 ratio of 14.06%. For the full year, Axis Bank expects advances to outpace industry growth by 300-400 basis points.

Introduction and Management Overview

Axis Bank's latest earnings call, held to discuss the financial results for Q1 FY '25, highlighted the bank's efforts in becoming a resilient, all-weather franchise. The management team, including CEO Amitabh Chaudhry and CFO Puneet Sharma, underscored their commitment to growth in focused granular business segments, market share gains in digital channels, and technological advancements in GenAI and financial crime intelligence.

Operating Performance

The core operating profit increased by 16% year-on-year and 1% quarter-on-quarter, driven by healthy operating income growth and moderated operating expenses. The bank achieved a 13% year-on-year deposit growth, with savings account balances up by 3%, current account balances up by 2%, and term deposits up by 4% sequentially. Additionally, the CASA ratio and fee to average assets continued to be amongst the best for peer private banks.

Deposit and Savings Account Performance

Axis Bank's deposit growth outperformed the industry with a 13% year-on-year increase. New customer acquisitions, particularly in retail savings accounts, saw significant growth. New corporate salary accounts grew by 39% quarter-on-quarter, with an impressive year-on-year increase in NTB deposits by 20%. Retail new savings accounts opened increased by 8%, and balances per account saw an 11% growth.

Subsidiary Performance

Domestic subsidiaries reported a net profit of INR 436 crores, a 47% year-on-year increase, contributing significantly to the consolidated ROA and ROE. Axis Finance's assets under finance grew by 37%, retail book constituted 46% of total loans, PAT grew by 26% to INR 154 crores, and the entity holds a robust capital adequacy ratio of 19.35%. Axis AMC's quarterly average AUM grew by 18%, while Axis Securities and Axis Capital showed substantial growth in both revenue and profit.

Asset Quality and Provisions

The bank demonstrated strong asset quality with a reduction in net NPA to 0.29% and negligible restructuring. However, the gross slippage ratio for wholesale business increased due to small-value accounts less than INR 100 crores. Gross slippages for the quarter amounted to INR 4,793 crores, with significant recoveries expected over the fiscal year. Net slippages increased by 95% year-on-year, driven by lower recovery and upgrades mainly in the WBCG segment.

Financial Highlights

The bank's net interest income grew by 12% year-on-year to INR 13,448 crores. Net fee income increased by 16%, with a granular fee composition of 93%. Operating expenses stood at INR 9,125 crores, showing an 11% year-on-year increase but a 2% sequential decline. The net profit (PAT) rose by 4% year-on-year to INR 6,035 crores. The consolidated ROA and ROE were 1.7% and 16.68%, respectively.

Guidance and Outlook

Axis Bank remains optimistic despite the challenges in deposit growth and competitive pressures in the market. The management emphasized their well-positioned status in the current macro environment. They project that advances can grow 300 to 400 basis points faster than the industry in the medium to long term. The bank's CET1 ratio was stable at 14.06%, reflecting their strong capital position. The overall strategic focus remains on maintaining profitable growth without compromising asset quality or returns.

Earnings Call Transcript 2025-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 ended 30th June 2024.

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 sent. 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 with us 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, Nirav. Apart from Puneet, we have on the call, Rajiv Anand, Deputy MD; Subrat Mohanty, ED; Munish Sharda, ED and other senior members of the leadership team.

This quarter, Axis Bank continued on the path of becoming a resilient all-weather franchise. We delivered higher growth across our focused granular business segments, gain market share in digital channels and products and improved on key operating and earnings metrics that are best in class now.

We continue to build long-term competitive advantage with investment in technology and analytics with some cutting-edge use case in GenAI and Financial Crime intelligence.

Let me summarize the quarter 1 operating performance. Core operating profit was up 16% year-on-year and 1% quarter-on-quarter, driven by healthy operating income growth and moderation in operating expense growth. Execution of the deposits is on track with sequential growth in quarterly average deposits and new customer acquisitions. I will elaborate further on this in a bit.

Our CASA ratio and fee to average assets conduced to be amongst the best for peer private banks. Our focused business segment delivered 24% year-on-year growth and 1% quarter-on-quarter. The bank is well capitalized with a CET1 ratio of 14.06% with net accretion of 32 basis points in the quarter. We stayed focused on 3 core areas: Execution of our GPS strategy, namely becoming a resilient all-weather franchise, creating multiplicative forces to build competitive advantage and building for the future.

I will now discuss each one of these becoming a resilient all-weather franchise, the quality and strength of our deposit franchise continues to improve through Project Triumph, the bank-wide deposit transformation program. The bank continues to deliver higher than the industry deposit growth at 13% year-on-year. On a quarterly average basis, deposits grew quarter-on-quarter with savings account balances up 3%, current account balance is up 2% and term deposits of 4% sequentially.

We are focused on filing up the news of the bank acquisition engine for the retail savings account franchise. The past 6 months have been particularly strong on this. In this quarter, we saw retail [ SA ]. NTB's deposits are up 20% year-on-year with new accounts opened up 8% year-on-year and balances per account up 11% year-on-year. If you take the NTB savings account opened in the quarter and the balances at the end of it, this quarter was the best in our history.

New corporate salary labels acquired in quarter 1 financial '25 grew 39% quarter-on-quarter. Retail asset sourcing is embedded in the scorecards of every customer facing business of the bank. The asset channels for instance have seen 110% year-on-year growth in sourcing deposits, leveraging their relationship strength.

The productivity of relationship managers in these managed segments have seen an improvement, up 9% in financial year '24 exit over financial at '23 and up 14% year-on-year June '24.

Project Triumph continues to focus on productivity enhancement through tech-led solutions, unlocking the top of funnel through open market sourcing and institutionalized push on resource participation and premiumization.

On the wholesale segment, Project NEO continues to drive higher transaction banking flows leading to better current account balances. Our NFT market share in terms of value has increased to 13% in quarter 1 financial year '25 as compared to 10% in quarter 1 financial year '24.

We have seen all-around growth across businesses, and we have seen market-leading growth in our focus segments. Our better yielding focus segments, including select retail, SME and mid-corporate segments, together grew by 24% year-on-year and now constitutes 42% of the total advances, up by 1,300 basis points in the last 4 years. We will continue to focus on driving growth across our business segments while following capital efficient RAROC model.

We also continue to strengthen the core. We have significant -- we have made significant investments in core information technology, which is on [ BankTech ], architecture modernization, cybersecurity and fraud control. Our proprietary regional tech capabilities is reflected in Open by Axis Bank, being continued to be recognized as one of the top-rated mobile banking apps in the world with a rating of 4.8. We have created future ready and scalable platforms to replace fragmented legacy systems, demonstrated through a successful launch of NEO for corporates and integrated treasury management. NEO for business, our MSME proposition now has 80,000 customers onboarded over the last 3 quarters.

In quarter 1, financial '25, we won 6 awards for Project NEO, 3 from Infosys Finacle Innovation Awards, 2 from The Asian Banking and Finance Awards and 1 from Digital CX Awards. We continue to build industrial stand resilient core tech platforms, the Salesforce journey that we embarked upon last fiscal is helping us standardize end-to-end retail lending workflows by creating 40-plus reusable capabilities across 20-plus products.

We became the first Indian bank to be ISO certified by -- for AWS and Azure cloud security practices with a 99% [indiscernible] financial '24. We now have strong dedicated Financial Crime Intelligence division that combines analytics, digital monitoring and fraud control capabilities to safeguard the bank.

Second leg of our execution was creating multiplicative forces to build competitive advantage. We believe we are well placed to contribute and lead on the broader economic trends of the next decade in India. The multiplicative forces that we have built through One Axis, digital capabilities and a prudent operating model differentiates us and gives us the right to win.

Citibank consumer business integration has been completed successfully. We completed the final migration of Citibank customers in July 14, 2 months ahead of schedule that we have promised back in March '23. The integration involving complex tech migration with 2.1 million customers across multiple products from a franchise other than India for over 100-plus years. We have ensured a smooth and seamless transition for these customers. We came out ahead of schedule for all interim milestones during this period, and the data and systems transition has gone as per our expectations.

We have designed products for customers to bring them the best of both organizations and further improve their banking experience through our superior product offerings and technology.

For a small set of customers with queries, complaints, and social media escalations post the event, we have a dedicated post-migration hypercare setup to effectively resolve the same. This transaction and the success of our integration program are important markers of our capabilities and our aspiration to create the gold standard in consumer banking in India. We thank all the stakeholders for their faith and support.

We are also grateful to RBI and the supervisory team for their continued and proactive guidance during the transition period. The business momentum of this franchise remains healthy and ahead of our internal Board monitor targets and adoption trends across products remain better than expected.

We have stronger momentum as expected within 5 days of migration with 7-lakh plus New to Bank customer registrations across active Internet and mobile banking platform. We have seen 9.5 lakh unique logins within first week. Transaction volume levels across IMPS, RTGS, NEFT, checks and cards are in line with BAU trends premigration. While customers are getting used to the new digital platforms, we have received appreciation across the board for our intuitive and future-rich mobile application open.

Our third leg of execution, building for the future. Our journey to be future-ready continues to progress, led by our focus on distinctiveness elements, namely digital, Bharat banking and customer obsession. Digital banking performance continues to remain strong. Our Open by Axis, which is a digital banking app, balance sheet continues to deliver strong growth with 55% increase in deposits and 58% increase in loans.

In this quarter, we introduced new FD journeys, including for nonliability customers and also launched upgraded journeys for UPI, loans, savings account opening, et cetera. The bank has witnessed significant growth in bill pay volumes on the back of various initiatives. Refer to Slide 54 on progress on personalization and nudges. These initiatives have shown significant lift in customer response.

The bank has made good progress on RBI introduced platforms. On CBDC, the bank continues to be among leaders in terms of innovation and volumes. On the bank-wide programs to build distinctiveness, our bet on Bharat is going from strength to strength. The rural advances grew 24% year-on-year and deposits from Bharat branches were up 9%, thereby aiding the PSL and profitability metrics. The balance sheet as is in the last 24 months, June 20 to 24 is nearly 2x the size of the balance sheet added in the previous 4 years within these parameters and with better asset quality outcomes.

We have expanded our multiproduct distribution architecture to 2,511 branches complemented by 69,000-plus CSC VLE network across 683 districts and 80-plus partners across the industry.

Sparsh, our customer obsession program, is helping improve relationship and transaction intensity with our customers. The program has been instrumental in driving higher Net Promoter Scores led by enhanced process automation and significant digitization. The retail bank NPS score has jumped to 148 from a baseline of 100 in the past 2 years. Adi, our GenAI conversational bot is now live for 61,000 frontline employees and powering them to efficiently address the customer queries. We have now entered the next phase of Sparsh, which focuses on a completely new slate of initiatives.

In closing, we find favorable macros backed by a strong and stable domestic policy environment, which bodes well for the banking sector. We expect the deposit growth to remain a factor influencing growth in advances in the near term. We retain our stance of policy rates staying higher for longer and foresee the system credit growth to converge towards deposit growth of around 13% for the fiscal. We'll continue to be differentiated and distinctive in our journey towards building an all-weather institution.

I'll now request Puneet to take over.

[Puneet Sharma, executive]

Thank you, Amitabh. Good evening, and thank you for joining us. The salient features of the financial performance of the bank for Q1 FY '25 across our operating performance, metrics, capital and liquidity position, asset quality, restructuring and provisioning is as follows: In Q1 FY '25, our operating performance was stable across NIM, fee and expense lines. The key metrics are as follows: interest margin 4.05%, flat sequentially. Net interest income at INR 13,448 crores, Y-o-Y growth of 12%, Q-o-Q growth of 3%. Net fee income of INR 5,204 crores, Y-o-Y growth of 16%, granularly fee constitutes 93% of our total fees.

Our expenses for the quarter were INR 9,125 crores Y-o-Y growth moderated to 11%, and sequentially, operating expenses declined by 2%. Core operating profit at INR 9,637 crores, Y-o-Y growth of 16%. Cost of assets at 2.54%, declined 1 basis point sequentially. We delivered a positive job for the quarter. Net credit cost of 0.97% is up 47 basis points Y-o-Y. The net credit cost annualized for Q1 FY '25 is not indicative of our expectation of full year credit costs as Q1 FY '25 net private cost is impacted negatively by certain timing differences.

Gross slippage ratios in retail and CBG have declined year-on-year. Apart from the seasonality of agri loans, 55% of the Y-o-Y increase is attributable to lower upgrades and recoveries from NPA accounts and potentially a written off accounts largely from our wholesale segment, which we believe is a timing difference, i.e., we should be able to get some of these recoveries back through the rest of the fiscal year.

PAT at INR 6,035 crores increased 4% Y-o-Y. GNPA 1.54%, declined 42 basis points Y-o-Y. Net NPA at 0.34%, declined 7 basis points Y-o-Y. PCR at 78% was flat sequentially. Our standard asset coverage ratio is at 1.2%, and all provisions to GNPA ratio is at 150%.

Our consolidated ROA for the quarter annualized is 1.70%, consolidated ROE is 16.68%. Subsidiaries contributed 5 basis points to consolidated ROA and 42 basis points to consolidated ROE this quarter.

Some call-out items which are specific to the quarter, pursuant to the new investment circular, the bank transferred INR 1,219 crores net of tax to general reserves. This adversely impacted ROE for the quarter by 82 basis points and ROA by 7 basis points. Given the transfer was 2 general reserves, it positively impacted CET1 by 14 basis points.

Bank CET1, including Q1 profit stands at 14.06%, thereby accreting net of consumption 32 basis points of CET1 capital in the current quarter. In addition, the bank has prudent other provisions of INR 5,012 crores, largely to be utilized for ECL transition. This provision has not been recognized in the capital competition and translates to another 40 basis point cushion over and above the reported capital adequacy ratio.

The bank assesses its capital position on 2 pillars: growth and protection. We reiterate we do not need equity capital for either pillar. Net interest margin 4.05 flat Q-on-Q. Yields on interest-earning assets has improved by 29 bps year-on-year. This increase was offset by cost of funds increase on a year-on-year basis, resulting in a 5 basis point drop year-on-year, no change sequentially. The seasonally high interest reversal in Q1 FY '25 as compared to Q4 FY '24 was offset by interest on income tax refunds for which orders were received in the current quarter. Our progress on structural net interest margin drivers continue with improvement across variables on a Y-o-Y basis.

Improvement in balance sheet mix, loan and investments comprised 88% of total assets at June '24, up 54 basis points Y-o-Y. INR denominated loans comprised 96.1% of total advances at June '24, including 40 basis points Y-o-Y. Retail and CBG advances comprised 70% of total advances at June '24, improving 225 basis points Y-o-Y. Low-yielding RIDF bonds declined by INR 9,851 crores year-on-year. RIDF comprised 1.4% of our total assets at June '24 compared to 3.3% of our assets at June '23.

Our quality of liabilities measured by outflow rates has improved by 400 basis points over the last 2 years. Our quarterly average balance CASA ratio is at 40% flat Q-on-Q. Our MEB CASA ratio at 42% has declined sequentially.

Our fee performance was good, reflected in a fee growth of 16% year-on-year. Our fee to assets improved by 3 basis points YoY. Total retail fees grew 18% year-on-year. Total wholesale fees grew 12% year-on-year, better than growth in advances, reflecting improvement in the quality of the wholesale franchise and its transaction capability.

Trading profit and other income at INR 5,580 crores was largely flat year-on-year and declined by INR 548 crores sequentially, mainly on account of DCM and trading performance and lower positive MTM on our bond book and lower treasury income.

Operating expenses for the quarter stood at INR 9,125 crores, growing 11% Y-o-Y, declining 2% sequentially. We added -- we opened 50 branches in the quarter. The year-on-year increase in rupee crore expenses can be attributed to 34% linked to volumes, 30% technology and growth related and 38% to BAU expenses. Technology and digital expense grew 39% year-on-year and constituted 10.4% of our total operating expenses.

Staff costs have increased 16% year-on-year. We added 9,702 people for the same period last year, mainly through our growth businesses and technology teams. The Q-on-Q decline in operating expenses is largely attributable to a reduction in other operating expenses. Our staff costs grew by 7% Q-on-Q. We added 194 people in the quarter.

Provisions and contingencies for the quarter was INR 2,039 crores, higher 72% Q-on-Q and 97% Y-o-Y. The cumulative non-NPA provisions at 30th June 2024 is INR 11,732 crores, comprising provisions for potential expected credit losses of INR 5,012 crores, restructuring provision of INR 491 crores, standard asset provision at higher than regulatory rate at INR 1,878 crores and weak assets and other provisions of INR 4,351 crores.

To discuss the performance of our subsidiaries, our detailed performance of our subsidies is set out on Slide 69 to 76 of the investor presentation. In Q1 FY '25, domestic subsidiaries reported a net profit of INR 436 crores, growing 47% Y-o-Y. The return on investment of domestic subsidiaries was 54%.

Axis Finance overall assets under finance grew 37% year-on-year. Retail book constitutes 46% of total loans. Q1 FY '25 PAT for Axis Finance grew 26% Y-o-Y to INR 154 crores, and the entity has a healthy capital adequacy ratio of 19.35%.

Strong asset quality with net NPA of 0.29% and negligible restructuring reflects the quality of the Axis Finance franchise. Overall, quarterly average AUM of Axis AMC grew 18% year-on-year to INR 2,91,967 crores, Q1 FY '25 PAT stood at INR 116 crores, growing 27% Y-o-Y. The revenues for Q1 FY '25 for Axis Securities grew 118% Y-o-Y to INR 426 crores and PAT grew 171% Y-o-Y to INR 121 crores. During the quarter, we infused INR 250 crores into Axis Securities as new equity capital pursuant to the rights issue.

Axis Capital PAT grew 220% Y-o-Y to INR 49 crores, and the entity executed 22 investment banking grew successfully in Q1 FY '25. We've completed the investment of INR 1,612 crores that was announced in Max Life in the previous quarter. With this investment, the Axis and its subsidiaries hold 19.02% of the share capital of Max Life.

Asset quality provisioning and restructuring, our gross and net NPA in percentage terms declined year-on-year -- the slippage, percentage and value terms declined year-on-year. The slippage GNPA, NNPA and PCR ratios for the bank and segmentally for Retail, CBG, Corporate are provided on Slide 60 of the investor presentation.

To reiterate, the gross slippage ratio for retail CBG and Bharat banking segment declined year-over-year. The gross slippage of our wholesale business increased year-on-year on account of small value accounts. All accounts were less than INR 100 crores in individual size. This resulted in the bank's gross slippage ratio analyzing 1.97%, increasing 10 basis points Y-o-Y.

We continue to monitor our retail unsecured portfolio closely and have taken -- proactively taken risk actions on growth and underwriting filters as and when required. Gross slippages for the quarter were INR 4,793 crores, gross slippages segmentally were INR [ 4,229 crores ] retail, INR 178 crores CBG and INR 386 crores for our wholesale segments.

For the quarter, 32% of the gross slippages are attributable to linked accounts of borrowers, which was standard and classified or have been upgraded in the same quarter. Net slippages for the quarter were INR 3,290 crores, increasing 95% Y-o-Y. 50% of the increase in net slippage at the bank level is due to lower recovery and upgrades, mainly in our WBCG segment.

Net slippages segmentally were INR 2,919 crores, retail, INR 84 crores CBG and a positive INR 287 crores WBCG.

Recovery from written-off accounts for the quarter was INR 591 crores. Net slippages for the quarter adjusted for recoveries from written off pool was INR 2,700 crores. Segmentally, retail was INR 2,456 crores, CBG was INR 13 crores and wholesale was INR 231 crores.

To summarize, we have been progressing well to be a stronger, consistent and sustainable franchise. Consolidated ROA and ROE for Q1 FY '25 is 1.7% and 16.68%, respectively, an outcome of disciplined execution. The bank has ample and sufficient liquidity visible in average LCR ratio of 120%.

Given the increased regulatory focus on CD ratio as one of the multiple metrics to be tracked, deposit growth could be a key constraint to growth in advances in the short-to-medium term. In the medium-to-long term, we believe our advances can grow 300 to 400 basis points faster than industry. We are well placed in the current macro environment. We continue to watch the geopolitical environment, inflation, liquidity, cost of funds and its impact on our business.

With this, we conclude our opening remarks, and we'll be very happy to take questions.

[Operator]

[Operator Instructions] The first question is from the line of Chintan Joshi from Autonomous.

[Chintan Joshi, analyst]

If I can start off with asset quality. And you gave us a lot of numbers, a lot of details, so thank you for that, will be helpful when we look at the transcript. But if you kind of look at what went wrong this quarter, is it mostly lower recoveries? And is that election linked? If you could give us some color around which products specifically led to that increase in slippages and whether this is -- whether this is an industry trend as in -- when you talk to credit bureaus, you are seeing it across the industry. Those kind of commentary would also be helpful. So number of threads to pull on here. I'll leave it to you on what way it is best to explain this development?

[Puneet Sharma, executive]

Chintan, thank you for the questions. Let me synthesize all of the data I provided earlier in the call in 2 key messages. The first key message is the Q1 FY '25 annualized net credit cost is not reflective of the credit cost we believe as the franchise we will run through the full year because it's impacted by timing differences. I think that's the first key message we want to convey.

What are these timing differences, if I were to emphasize, roughly 55% of the increase in net credit cost as happened because of lower recoveries and upgrades in the corporate loan portfolio. Please appreciate that corporate loans recoveries are episodic in nature. We do expect the recoveries to happen, the timing of which could move between one quarter to a second quarter.

So 55% of it is explained by lower recoveries and upgrades, and the first message that I indicated [indiscernible]. I hope that gives you a clearer picture of what we are trying to indicate through all of the data we have provided.

[Chintan Joshi, analyst]

And is there any deterioration in any segment that you see, either in your data or an industry data?

[Puneet Sharma, executive]

So Chintan, we have been saying this for a while. The industry as well as us have been running at credit costs that are well below through cycle levels. We are seeing increase in credit costs across the retail unsecured portfolios, which is to be expected given that you can't remain at trough levels on a through-cycle basis. The way we measure our portfolios is we have risk benchmarks for lending that we do. We said this last quarter, we maintained it in the current quarter. For our portfolios, we still haven't reached our internal risk benchmark yet.

Therefore, yes, there is an increase in -- or there is a deterioration in asset quality across some parts of the book, but not concerning enough because they have not reached our risk thresholds.

Please also appreciate that we've called this out previously. We may not have like-to-like comparable numbers because as a bank, we provide 100% on unsecured retail loans on day 91 and therefore, my credit cost for the same level of slippage may not be reflective of same level of slippages of another peer bank. So I think you should keep that in mind as you do number comparison.

[Chintan Joshi, analyst]

And then the second question was on your NII and NIMs. Could you call out the interest on tax refund element and excluding that, how should we think about the NIM outlook for the remainder of the year?

[Puneet Sharma, executive]

Chintan, the way I would request you to think about it is because of the seasonality of slippages, there is more than normal interest reversal in the quarter 1 as compared to quarter 4. And if you look at what we put out on Slide #9 of our investor presentation, you will see that the extra interest reversal on seasonality has been offset by the interest on income tax refund. So on a core business basis, we've seen a 1% -- 1 basis point compression in margins is what we have seen play through in the current quarter.

[Chintan Joshi, analyst]

And the outlook?

[Puneet Sharma, executive]

Chintan, the outlook has that I consistently provide is we do not have guidance on margins on an annual basis or the short term. Our structural guidance is 3.80% on a through-cycle basis. We have now operated at a 25 basis point cushion above through-cycle margin for a couple of quarters. We will make all efforts to ensure we retain as much of the margin as we possibly can. But we are watchful of the competitive intensity in the market space for deposits as we get into the rest of the fiscal year.

[Chintan Joshi, analyst]

Sorry, that was occupational hazard.

[Operator]

Next question is from the line of Mahrukh Adajania from Nuvama.

[Mahrukh Adajania, analyst]

So again, on asset quality, you called out in the presentation, your BB and below has increased by [ INR 6 billion ], any sector or any vintage of this loan because there's an increase in stress investment as well, right? And then some of it is in loans. So is it the same account or any particular sector?

[Puneet Sharma, executive]

Mahrukh, thank you for the question. Mahrukh, a couple of things you must note that the investments -- for us, if an investment has been made and remains unrated, it will go into the BB and below category. On the loans, there is effectively very, very small effect. And the third item you must understand is, the investment circular forced us to mark-to-market the investments. In fact, you would be surprised to note that my BB and below mark-to-market was a positive mark-to-market, which has resulted in an increase in the BB and below book.

So actually, the value of the investment was higher than its carrying cost. The circular required me to recognize the MTM. I've recognized the MTM and consequently, the BB and below book has moved up. There is nothing that is to be read into those numbers. It is for the 2 effects, unrated equity investments fall under BB and below and the transitional reserve impact, which I called out earlier, has resulted in the rupee increase.

[Mahrukh Adajania, analyst]

Got it. So basically, the only increase in BB is what we see in the loans, right? Or is that correct? No?

[Puneet Sharma, executive]

Thanks, Mahrukh. But that's a very small amount and a very granular loan. It's very small. It is very granular loans and average ticket sizes of that book is sub INR 40 crores. So that is BAU. I don't think there is anything that indicates wholesale asset quality in any shape or form.

[Mahrukh Adajania, analyst]

Got it. And my next question -- so I have 2 questions. One is on the interest on income taxes. If you see the other interest, that's roughly gone up by INR 200 crores. Would that be the interest on tax refunds or that's not the way to calculate?

[Puneet Sharma, executive]

That will be a good indicator, Mahrukh.

[Mahrukh Adajania, analyst]

Okay. Okay. And just one last question. Because of the whole revaluation thing for all banks, including yours, the investment yield seems to have moved up by over 10 basis points. So will that be a stabilized yield now assuming that rates don't change?

[Puneet Sharma, executive]

Mahrukh, I can't speak for other banks. The 10 basis points is not true for us. We are very happy to transparently call out the fact that for us, the investment reserve that we could have potentially recorded through the P&L, but we have taken where the reserve INR 1,700 crores on a gross basis. So let's break this up. It was INR 1,700 crores of P&L that could have been recognized on a realizable basis. Now we'll never come through the P&L.

The accretion and amortization component that you're speaking of, which is accretion and amortization on discounted securities, which could not have been realized under the previous circular, but can now be recognized under the current circular is amounting to roughly about INR 78 crores for us on a first quarter basis. So by no status imagination does that translate to 10 basis points, the number is negligible. I won't...

[Mahrukh Adajania, analyst]

But the yield seems to have moved up, right? No, but the investment yield seems to have moved up, that's why I'm asking. As in the investment income is very strong.

[Puneet Sharma, executive]

Mahrukh, that's a function of the underlying portfolio. So we now have a higher-yielding portfolio for the book that we run. It is not got to do with the master directions on 1st April.

[Operator]

Our next question is from the line of Rikin Shah from IIFL.

[Rikin Shah, analyst]

I have 3 questions. First one is on the loan book growth in this quarter. So if you look at sequential growth, the retail and SME is virtually almost flat and the bulk of the growth or accretion has come from the corporate in this quarter. So just wanted to understand if there is any change in underlying thought process or strategy. So that's question number one.

The second one is on the non-staff operating expense, which is...

[Operator]

Rikin, can you speak a little louder, please? .

[Rikin Shah, analyst]

Sure. I'm hoping that my first question was clear. So I'll repeat the second one. The second one is pertaining to the non-staff operating expense, which has come off sequentially. So would you be able to share which OpEx lever were you able to pull back in this quarter? And should we think this as a beginning of moderation in the OpEx going ahead?

And the third question is on the fee income. So while 1Q, there is some seasonal weakness in the fee income. But even the card and payment fee income seems to have decelerated. So anything meaningful to read into this? Those are my 3 questions.

[Rajiv Anand, executive]

This is Rajiv. I'll take the first one. We are seeing a reasonable amount of opportunities on the corporate side. And as long as it meets our underwriting standards and pricing standards, we are happy to put those on. And sort of if you see the growth that we have seen this quarter, it is fairly broad-based as well.

[Rikin Shah, analyst]

But Rajiv, we hear about a very competitive pricing in the corporates from many banking peers and retail SME was the core strategy pillar, wherein we were growing faster. So I just wanted to understand not only from this quarter, but from a medium-term view, is this something that one should be extrapolating or it is just kind of the opportunities that presented in this quarter and we took that.

[Puneet Sharma, executive]

We have 2 questions there. I think they've always been guiding for the last many quarters that are focus sectors, as we call them, particularly the MSME and mid-corporate sectors. We will continue to see strong growth. Nothing has changed as far as that's concerned. You continue to see strong growth there. It is meeting our underwriting standards. It is meeting our pricing standards and as far as that is concerned, I think you should see the proportion of MSME within our portfolio and MSME plus mid-corporate continuing to grow. I think they're at about 21-odd percent currently. I think that number will continue to grow.

For the rest of the portfolio, I think there will always be -- and this whole issue of is pricing competitive. That's a conversation that we've been having for at least 2, 2.5 years now. I think the corporate sector will always be competitive. But I think there is -- like I said, there's enough opportunities for us to pick and choose such that we are meeting our underwriting standards and pricing standards and be able to grow profitably. And remember that this also brings other businesses to our current account, transaction banking, et cetera. And so therefore, to that extent, is reasonably profitable as well.

[Munish Sharda, executive]

This is Munish Shards. On the retail asset side and also on the SME side since you ask that question, we earlier also called out that we have a well-calibrated risk-adjusted return on capital model, which we used to look at our businesses comprehensively and see where we need to grow, and where we'll get the right returns. So we -- on a retail asset base, if you look at the Page 22, we've grown our retail asset by about 18% this Y-o-Y this -- in this end of 30th June, our preferred segments in some areas like rural loans and SBB, which will make good returns on capital, we have grown at 26%, 24%.

Our commercial banking business where we get many more opportunities with our clients to do deposits and other fee products, et cetera, continues to grow very healthily. And these are some of the segments where we will continue to push forward for more growth. So this is the full view on the asset businesses, including retail assets and the SME business.

[Amitabh Chaudhry, executive]

And boss, normally, first quarter is always slower than the last quarter. So doing quarter-to-quarter comparison might not necessarily be [indiscernible].

[Rikin Shah, analyst]

Yes, Mr. Amit, it wasn't from the overall growth perspective, just the mix of the growth where it's coming from.

[Amitabh Chaudhry, executive]

Yes. So we -- that our consistency on the model was continuous. We will drive businesses, which give us the right return on capital. And given our deposit constrained environment, anyway, we are, in a way, concerned in terms of how much we can grow our balance sheet or the asset side also. So there is a waterfall. We manage the waterfall quite actively. And each of the business leaders know what is possible, what is not possible, and that's how we drive our growth quarter-on-quarter.

[Operator]

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

[Abhishek Murarka, analyst]

So 2 questions. The first one is just going by the explanation that 55% of the increase in credit cost is due to the timing difference. If I sort of back it out, the credit corpus would probably fall by around 30 basis points. But even then, we would be a little higher than the averages we were clocking earlier. In light of this, is this like an ex of the 30 basis points, is this like a new normal? And if so, how do we get back to the 1.8% kind of ROA? Are there any other levers in the P&L. So that was the first question.

The second question is regarding the growth in personal loans, credit cost. Now overall, if you see the industry commentary so far from peers and also yourselves, you are seeing an increase in credit costs in those segments. And within retail, those are right now the growth drivers. So do you see any kind of slowdown in those segments? And if so, which other segments can pick up this lag to keep your overall growth at about 14%, 15%? So yes, those are the 2 questions.

[Arjun Chowdhry, executive]

Abhishek, this is Arjun. I'll answer the question in credit cost and personal loans first. So we are -- I think, Amitabh mentioned this just now, too, we keep calibrating our growth in terms of where we see the best returns and returns are measured by RAROC, as we talked about. So there will be a constant calibration in the composition of the balance sheet.

We also know that the personal loans and cards deliver a higher RAROC if done well. Yes, you're right. We have -- in fact, we've called it out on [indiscernible] this is the first quarter, where we did just under 1 million cards. Otherwise, we have been doing over 1 million cards for the past 10 quarters. So we've taken action where we needed to, based on what we saw both in our portfolio and the industry and what we saw from the bureau. Since both cards and personal loans are unsecured, we are fairly prompt and we have a very dynamic model, which tells us how those portfolios are behaving and we take those actions very quickly.

You will have noticed that the pace of growth has been tempered to reflect that. That being said, the areas for growth will come by a continued calibration of the balance sheet and continue to grow it to maximize the returns that we deliver on that. So we -- also, categorically, no, we don't see this as a new normal. I can speak only for our portfolio, but I don't see the first quarter annualized number has been the new normal for either personal loans or cards. I talked about some of the calibration actions we've taken. We fully expect that those will play out over the next 3 quarters, along with other actions that we are taking and will show significant improvements from there.

[Puneet Sharma, executive]

Abhishek, thank you for your questions. Let me pick up the math that you're trying to do. And I request you to probably refer Slide 60 of our presentation. I work with the numbers you articulated, so we'll keep it apples to apples. So you said if you backed off the 55 percentage that I spoke of will be about 30 basis points lower, so 97 minus 30 takes us to 67 basis points. I'm presuming you're comparing the 67 basis points to the 50 basis points same quarter last year because that will be seasonally adjusted, and equivalent comparison.

So yes, that is -- that was the purpose of indicating that there is a timing difference. So please do adjust for the timing difference whichever way you compute it. The second aspect I would request your attention to is something that I called out earlier as part of my opening comments. 32% of the gross slippages for the current quarter are linked accounts, which are standard. And please appreciate those accounts will continue to pay us. And as the slippage gets regularized, the linked accounts also get regularized. When the linked account slips, we also create a provision on that linked account. Therefore, that needs to be factored in.

To your last sub part of your question on where do we directionally see credit cost? We have consistently been saying that credit costs for the system and for us, cannot be at the levels they have in fiscal '24. They need to move up, primarily driven first by slowdown of recoveries and upgrades, which we are starting to see. Please appreciate gross slippages across retail, CBG and Bharat Banking are lower on a year-on-year basis.

So is that signs of clear stress on the portfolio? Answer is no. Hopefully, that gives you a comprehensive color of what and how you may want to think about that number. But we are very clearly stating that Q1 FY '25 annualized number is not indicative of full year credit cost for us as of Axis.

[Abhishek Murarka, analyst]

Got it. Appreciate that, Puneet, just one thing on that linked account. So is that also part of the accounts where you're providing 100% or 91% DPD or -- or I mean, the accelerated provision is also kicking in for those accounts? Or is it a different segment?

[Puneet Sharma, executive]

So Abhishek, if the linked account is an unsecured retail loans, it will attract 100% provision. So it is for home -- so let me explain with an example. The home loan was a lead qualifying account, and the personal loan got classified because it was a linked standard account. Home loan will attract home loan product provision and the linked personal loan will attract 100% provision, which is my policy.

[Abhishek Murarka, analyst]

Understood. Understood. By any chance possible to share how much of that 32% is unsecured retail?

[Puneet Sharma, executive]

Abhishek, we don't put that data out. I'm sorry, I won't be able to give you that information.

[Amitabh Chaudhry, executive]

Abhishek, someone said occupation [indiscernible] where we can't reveal enough.

[Operator]

[Operator Instructions] Next question is from the line of Kunal Shah from Citigroup.

[Kunal Shah, analyst]

So as you indicated with respect to the focus on LDR and maybe in terms of the constraint on loan growth. This quarter, we are still seeing some expansion in LDR and that to maybe corporate is something which is driving the growth. So would it be okay to assume in terms of you being comfortable with more than 90-odd percent LDR as well? Or how should we look at it in terms of the growth between deposits and advances?

[Amitabh Chaudhry, executive]

So Kunal, we stated it last time also that we have -- obviously, RBI had reached out to various banks on their LDR strategy. We have gone and submitted our strategy to RBI, which they have accepted, and we are operating within the parameters of the strategy, which we have outlined to the regulator. So this quarter also continues to reflect the flexibility we have, and we believe and we are very sure that we'll continue to operate within those flexible parameters. Let me -- I think Rajiv and Neeraj if you want to add?.

[Rajiv Anand, executive]

I think Amitabh has captured it well. We have basically -- it's well within the norms and the parameters that we have sort of talked about. LCR continues to be close to 120% and thereabouts. And incrementally, as Puneet also mentioned earlier that if the accretion to the deposits, which is driving the asset side of the business, and hence, there is a good sort of calibration between the 2.

[Kunal Shah, analyst]

Okay. So it would be more LCR or still in terms of the LDR, in terms of maybe the strategy that you would have laid out, okay, and the flexibility that is available?

[Rajiv Anand, executive]

I would say both are important at this point in time. Both are important. LCR is a regulatory requirement, LDR is not a regulatory requirement, but it is something that the regulator and the analyst community watches quite closely. So we pay equal adventure to both, and both are in some senses, managed and paid equal attention to.

[Kunal Shah, analyst]

Sure. And the second question is on slippages, particularly within the retail. Any trend which you are seeing in terms of almost like 2% or slippages wherein the SKU is more towards the unsecured compared to thereof secured in this particular quarter?

[Amitvikram Talgeri, executive]

This is Amit here. So we haven't seen too much of a difference in terms of where the slippages are coming from. It's been uniform across, but like Puneet explained, we've been looking at what the industry data is as well with the bureaus. We've seen a spike -- a slight increase in unsecured across the industry primarily driven by high leverage, typically loan stacking that's happening. We've seen some parts of that in our portfolio as well.

But we've been taking proactive risk action for close to 6 to 9 months now. And one of the key leading indicators that we really look at is early risk, and that is well within the guardrails. So the way we've been kind of calibrating our strategy around risk in unsecured is that we have with guardrails across multiple segments. And within that, also, we are looking at both at a portfolio level, early risk at different cohorts, and each of that is within the guardrails. And what we do is, obviously, we keep looking very closely given the increased focus around unsecured, and that's something that we will continue to really watch for.

[Operator]

Next question is from the line of Rahul Jain from Goldman Sachs.

[Rahul Jain, analyst]

Actually, I just had 2 questions. One is perhaps just a doubt. And I try and connect the dots between slowdown in card sourcing this quarter, the slowdown in the PL growth. And the last comment that Amit made about the pickup in unsecured and then, therefore, pickup in corporate loan growth. So what does it imply. Does it imply that the bank will now start changing the loan book mix perhaps as the risks start to unfold in the unsecured?

I appreciate that these are still early trends and early days, but we don't know. I mean the whole system has grown this book at a rapid clip, maybe your growth has stead lower over the last 4 years. But just trying to understand because the messaging has been pretty common this quarter. Appreciate it.

[Arjun Chowdhry, executive]

Yes. Sure. Thanks, Rahul. This is Arjun here. So I'll try and answer it comprehensively. So the -- there's always a lag between credit card sourcing numbers because the card gets booked first or asset builds up with a lag after that. So if you look at the slowdown in the sourcing numbers right now, then the impact of that in terms of the book growth will be felt some time down the line. As we mentioned, we keep calibrating our book. If you look at the asset spread, particularly on the retail side, we keep calibrating our book based on the RAROC that we see on each of the portfolios, and we take action based on what we see in the mix of that book.

So personal loans and cards are traditionally high RAROC businesses, but they also go through periods of stress being unsecured assets in their nature. So we take a holistic view on that one, and we keep moving it back and forth in terms of what will maximize the returns from the asset pool, which we see on a holistic basis. I hope that answers the question which you had.

So we will continue to change that mix strategically from time to time. And you will see those interstate allocations changing so that we can maximize the returns that we have on a risk-adjusted basis.

[Rahul Jain, analyst]

Sure. Appreciate it. So can I just ask a follow-on question? So Puneet just said 34% of the downgrades happen due to the linked accounts. Can we understand what was the nature of the downgrade, if you can? If not then, generally trying to understand, so does it mean that the slowdown in PLCC could be temporary and next few quarters, we can again start seeing pickup in this portfolio? Or will try and see, again, quarter-to-quarter how things are moving. Because one could be late also, right, in assessing the cycle, you would want to avoid the type [ 2 error ]?

[Puneet Sharma, executive]

Rahul, thank you for that question. I just want to just place an administrative correction. I heard you say I had indicated 34%. I just want to clarify. I had indicated 32% of gross slippages are attributable to linked accounts or have been updated in the same quarter. So I just want to be clear that the number is 32. No, maybe I had articulated it incorrectly earlier. So I just want for good order sake, to set the record right. It is 32% is what we are working with.

I think to your question on how do we think about our portfolio? The principal basis of how we think about our portfolio is risk-adjusted return on capital and that is the driver of capital liquidity on our books. PL credit cards or for that matter, any other product as long as it delivers the right RAROC to us, we will allocate capital and liquidity to it. The RAROC allocation and liquidity allocation is the quarterly exercise at the bank. So we have an outlook for the year, but we plan this on a quarter-by-quarter basis, and that's how you will see us execute in this tight liquidity environment.

[Rahul Jain, analyst]

Appreciate it. One last housekeeping question. So the RWA density this quarter went up by 300 basis points. Can you explain what could be the reason behind it? .

[Puneet Sharma, executive]

Rahul, thanks again for the question. The 300 basis points increase in RWA intensity is, as per the capital adequacy circular, operations risk true-up happens in the first quarter of the year. So effectively, if you are a growing franchise, then your revenues have grown. And if you see in our trajectory, our trajectory has been pretty steep. Roughly, that gives you an uptick on risk-weighted assets. So op-risk adds to risk-weighted assets. So nearly 50% of the increase risk-based is ops risk.

The balance is 2 factors. The balance sheet mix has changed. So cash balances between last quarter and now are lower. And lending to RBI last quarter to now is lower. So the balance sheet mix change has impacted the balance. Direct answer to a question that I think you're looking for is my loan risk rate intensity has not changed between the 2 quarters. I hope that gives you a comprehensive response to what you were looking for.

[Operator]

[Operator Instructions] Next question is from the line of Anand Dama from Emkay Global.

[Anand Dama, analyst]

So now we have completed the Citi integration, is it possible for us to share what is the retention ratio in terms of number of cards, employees, deposits, loans and the integration costs, I think by now is [indiscernible]. So how should we see this cost to asset ratio moving towards over the next 3 quarters?

[Amitabh Chaudhry, executive]

Yes. So look, thanks for the question. But consistent with the earlier quarters too, we don't share specific numbers, but I can tell you now with the integration successfully behind us, that on every metric that we had set out when the acquisition was done, we have met or exceeded that metric, whether it be retention on balances, whether it be retention of customers or employees or even with the spending that we are seeing on the card.

We've also been able to derive significant synergistic benefits by taking the best practices and that was one of the important thesis behind the acquisition in the first place. So we've taken synergistic benefits and the best practices from the hostile portfolio, being able to apply them to a much larger portfolio, whether it be cards, whether it be banking and being able to derive those benefits as well.

So I think in every which way, not just the system migration, which went up quite well on this last few weeks ago. But on every other aspect of the integration as well, it has met or exceeded the expectation, which was set out when the investment case was made.

[Anand Dama, analyst]

Puneet, can you talk on cost to asset ratio?

[Puneet Sharma, executive]

My apologies, I understand the question [indiscernible]. Sorry, I didn't catch the question. Could you help me with that again, please?

[Anand Dama, analyst]

So can you basically, tell us like how the cost to asset journey is going to be over the next 3 quarters? This quarter, we have seen some moderation. So how do you see that on these 3 quarters?

[Puneet Sharma, executive]

So like I have consistently indicated the philosophy with which we manage expenses and what we have delivered in the quarter are in line with our previous articulation. We have said we would like to continue to invest in the franchise, given the opportunity. Where we are required to tighten our belts, we do have the ability to tighten our belts. You have seen some of that happening in the current quarter.

Directionally, what I can indicate on expenses is expenses for last year were growing at the 27%, 29% year-on-year growth range. You will see moderation in growth of costs through fiscal '25 is the broad directional comment I can offer. We do not offer a cost to asset guidance.

[Operator]

Next question is from the line of Punit from Macquarie Capital.

[Punit Bahlani, analyst]

Just one data keeping question. Could you let us know the breakup of term deposits between retail and bulk?

[Puneet Sharma, executive]

Thank you for the question. I would request you to -- I would guide you to a comment I had made in the quarter 4 results conference call. We had clearly said in order to ensure comparability to these market players, we will not be disclosing the RTD NRTD breakup. We will disclose the LCR composition of our deposits and total deposit growth. I will guide you to Slide 7 of our investor presentation. The LCR as proportion of retail term deposits is 57% for the Q1 FY '25, and the total deposits and the average balance of deposits and average deposit growth numbers are on the slide also.

[Operator]

Next question is from the line of Piran Engineer from CLSA.

[Piran Engineer, analyst]

I'm just sorry to belabor on this. But you mentioned that retail gross slippage...

[Operator]

So we are losing your audio.

[Piran Engineer, analyst]

Yes. So just on the retail gross slippages, you mentioned that it was INR 4,229 crores this quarter. If you could just help us how much of that was agri and what would be the comparable Q-o-Q and Y-o-Y numbers?

[Puneet Sharma, executive]

Piran, thank you for the question. We don't give that breakup. We report retail as a composite number. And I can give you the retail year-on-year and Q-o-Q number, but we will not split it up by segmental for one quarter alone.

[Piran Engineer, analyst]

That's also okay. If you could just help us with that.

[Puneet Sharma, executive]

Just give me 20 seconds. I will just give you the year-on-year number and the same quarter last year. So we were at INR 3,585 crores Q1 last year, and the equivalent number -- sorry, Piran just give me half a minute, please.

[Piran Engineer, analyst]

Yes, sure. Meanwhile, should I ask my second question or just hang on.

[Puneet Sharma, executive]

Yes. INR 3,110 crores, same, in Q4.

[Piran Engineer, analyst]

Got it. Okay. That's quite helpful. Then secondly, I just wanted to understand better quantitatively, if not qualitatively, what percentage of your PL customers have another PL from another lender in the industry?

[Amitabh Chaudhry, executive]

So look, we do track the level of indebtedness of our customers, as you know, as is everybody else en route, but we're not allowed to put that number out in the public domain, and we prefer to keep it directional.

[Piran Engineer, analyst]

But would it be directionally increasing or stable? If you could just mention that?

[Amitabh Chaudhry, executive]

It's not increasing at any fast pace. It is in line with our expectations. Also, please keep in mind that we make our offers based on a dynamic situation as we assess for every customer because we do continuous refresh of our portfolio with the bureau. So that's a moving and dynamic number. It's not an increasing trend, if that's what you're alluding to.

[Piran Engineer, analyst]

Okay. Okay. Fair enough. And if I may just slip in one last question. Transaction banking fees have been rather tepid for a few quarters. What could be done to improve growth trajectory here? .

[Amitabh Chaudhry, executive]

So look, I mean, transaction banking fees is always a function of the fact that how much of the clients operating cash flow goes through your counter. As the technology quotient in this space has increased, we have also made a significant more of investments in that space.

For example, a lot of large and new-age fintech customers want to integrate with the banks only through API route, and the bank has invested quite considerably in that space towards Project NEO. We continue to sort of make progress in that space through our recently launched NEO for business app. We have considerably revamped our capabilities in the corporate and Internet banking space through NEO for corporate introduction.

So all of these investments and the efforts are basically making sure that we are able to provide best-in-class state-of-the-art solution to our clients. And a lot of the inroads that we have made in the transaction banking space is through a very bespoke client-specific solutioning, not just to the large customers, but also, in many cases, to government customers as well.

So effectively, this space is actually becoming more and more of a technology play as compared to vanilla network or distribution play.

[Operator]

Next question is from the line of Jai Mundhra from ICICI Securities.

[Jai Prakash Mundhra, analyst]

Sir, I have a question as a trade-off between margins and loan growth or deposit growth. So our margins are -- as you said, that we have 25 basis point cushion over versus through the cycle margins, but deposit growth or loan growth, loan growth is slightly below system and deposit growth is slightly above the system. So between the 2, do you see a possibility wherein you can step up on deposit growth or loan growth without compromising too much on the margins? Or do you think only -- how do you think between the tradeoff between the two?

[Puneet Sharma, executive]

Jai, thank you for the questions. We operate our business to grow profitably, which is why we've consistently said RAROC is the base framework on which we plan balance sheet growth. As long as we're getting profitable growth, we will grow it. The overall constraining factor that we have now been calling out for a couple of quarters is deposit growth will constrain advances growth.

As long as deposits are available at the right price and of the right quality, we believe that the franchise has enough distribution muscle to grow 300 to 400 basis points faster than industry on the asset side. That's how we are thinking about our balance sheet. Ultimately, there is a constraining factor, but growth will not come at the cost of profitability.

[Jai Prakash Mundhra, analyst]

Sure, Puneet. But if we look at the advances growth has been actually a bit lower than system, if you adjust for the Citi acquisition in the last 3, 4 quarters, while profitability, of course, has been either on the ROA or maybe on the NIM side has been much protected. So do you think you can do something on the deposit side to step up on the growth or it is too sort of volatile to call out that?

[Puneet Sharma, executive]

Jai, thanks for the question. I think the point you're raising is can I accelerate deposit growth to drive advances growth by compromising a bit of profits? I don't think that's an equation we are agreeable to or we are working towards. Let me break that response up for you. We have worked very hard to improve the quality of our deposit franchise, and which has fed into our net interest margin journey.

The outflow rates on our deposits have fallen by 400 basis points over the last 2 years. That is substitution of bad deposits with good deposits. And therefore, that is a journey that we'd like to stay focused on. Consequently, picking up incremental deposits just to report higher growth is not what we are philosophically aligned to. What we are clearly articulating is as long as we get the right deposits at the right price, the franchise is strong enough to grow faster than market over the medium to long-term, and we feel confident that we'll be able to do that.

I hope I'm being able to address your question, but I think we're very clear in our thinking, and we've been very consistent with our response to how we think about balance sheet growth and profitability for a while now.

[Jai Prakash Mundhra, analyst]

No, no, that helps. And lastly, in the opening remarks, you mentioned that -- and maybe Amitabh mentioned that INR 5,000 crores of contingent provision/prudent provision, we have been -- you also mentioned ECL in the same breath, right? So assuming -- or I mean, is it fair to say that this kind of provisioning will suffice as and when you move to ECL or on a ballpark basis? Or you think you may need something more also?

[Puneet Sharma, executive]

Jai, I think it's impossible to comment on sufficiency of the provision absent a final guideline. What we have done is we used to have a COVID provision. The COVID risk did not play through. We had always indicated we will never write back that provision. We have named asset-specific provision philosophy. We do not carry contingent provisions or floating provisions on our balance sheet. This is the only pool-based provision we have, and what was kept aside for COVID has now been marked -- earmarked for ECL transition. It is no way an indicator of excess or short provision required on actual transition date because we need to wait for the regulators' final guidance on how and when ECL will get implemented.

More specifically, the reason I cannot give you a categoric response is in the draft discussion paper, there was a concept of [ lower ] provisioning apart from model-based outcomes. We'd like to see what the circular states on [ lower ] provisioning, because that will determine or change the quantum of provision the system and we would need as part of the actual transition.

The reason we've kept this funding aside, obviously, is to make sure that the transition impact is minimal to net worth, and that's why we put this funding aside.

[Operator]

Ladies and gentlemen, we'll take that as the last question. I'll now hand the conference over to Mr. Puneet Sharma for closing comments.

[Puneet Sharma, executive]

Thank you, Nirav, for this evening. Thank you, everyone, for taking time and patiently going through the Q&A with us. If any questions remain unanswered, please reach out to Abhijit and the IR team, and we'll be very happy to respond to them separately. Thank you. Have a good evening.

[Operator]

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