Axis Bank Ltd

NSE:AXISBANK

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Axis Bank Conference Call to discuss the Q3 FY '23 financial results for the quarter ending as on 31st December 2022. 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 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]

Happy New Year to all of you. We have on the call apart from Puneet, Rajiv Anand, Deputy MD and other members of the bank's leadership team. This quarter, we continued to build the momentum on our GPS strategy. We are gaining market share in our focus segments. We continue to have a disproportionate share in digital channels and products and are now among the best in class on operating and earnings metrics.

We delivered strong and balanced growth in domestic advances led by market share gains in Bharat and SME segments. We got better on granular and premium deposits. Our credit card business has delivered industry-leading performance for 4 quarters now. Neo, our cutting-edge digital product for corporate banking, has seen strong traction among clients and Axis mobile app continues to be the #1 rated banking app in the world.

Delivery across the key initiatives undertaking by the bank is visible, and we continue to invest in [ 19 ] specific bank-wide transformation initiatives whose results are yet to fully play out. We are monitoring the external environment closely. We are well-positioned to take advantage of the trends that are emerging in India, the China plus 1 opportunity, the next-gen public digital infrastructure like Account Aggregator, [indiscernible] and [ ONDC ], and Bharat being an engine of growth for India.

We remain alert to the global macros, and its impact on the economy. We will ensure that the customer focused, consistent and industry-leading performance will sustain through cycles. On balance, we are feeling good and confident. Our financial performance reflects the balance sheet strength with meaningful shift in trajectory in the last 5 quarters. There has been fundamental improvement in ROE, driven by higher NIMs as we stay on course on 3 core areas of execution of our GPS strategy, namely embedding a performance-driven culture, strengthening the core and building for the future.

Let me now discuss each one of them in further detail. On the performance-driven culture side, our profitability metrics continue to improve. Our consolidated annualized ROE for quarter 3 financial '23 stood at 19.81%. And -- While Puneet will provide granular details, let me highlight the key trends. Net interest margins improved 73 basis points year-on-year and 30 basis points quarter-on-quarter to 4.26% in quarter 3 financial year '23, which is a lifetime high.

Operating profit grew by 20% quarter-on-quarter and 51% year-on-year, highest in the last 13 quarters. OpEx growth of 8% and quarter 3 further [ moderated ] from 14% in quarter 2 on a year-to-year basis. PAT at INR 5,853 crores, was up 62% year-on-year and 10% quarter-on-quarter. We lifted the growth trajectory and constantly gained market share. We have strengthened market position across key segments. On advances, we grew faster than the industry with domestic loan book gross of IBPC, which we have sold, up by 18% year-on-year and 5% quarter-on-quarter, higher than the system credit growth.

And credit card, we issued over 3 million cards in the 9 months financial year '23, nearly twice that issued in the first 9 months of last year. We had a 16% growth in incremental SIP market share in quarter 3. During the quarter, we crossed the milestone of 3 million cards in force of Flipkart Axis Bank credit card, making it one of the fastest-growing co-branded credit cards in the country.

The bank's Burgundy Private offering that we launched 3 years back continues to scale greater heights, with AUM of nearly INR 1 trillion, up 22% year-on-year. Burgundy Private proposition now includes 30 of the Forbes 100, which is Indian as its clients, and manages wealth for over 4,400 families across 27 cities and country. Our customer acquisition engine remains strong. In quarter 3, we added 2.9 new customer accounts, a growth of 34% year-on-year and 3% quarter-on-quarter.

Our district level segment strategy to build high-quality deposits is progressing well. This is reflected in 140 basis points year-on-year improvement in share of premium savings segment to overall retail savings deposits. The quality of deposits too saw improvement. The lendable term deposits from retail and small business customers were up 15%, while deposits that attract higher outflow rates were down 20%.

The CA deposits on a QAB basis grew 10% quarter-on-quarter, led by broad-based growth across segments, including branch banking, large corporates and MSMEs. On assets, focus segments delivered strong growth and corporate banking activity increased meaningfully. In quarter 3, we continue to witness strong momentum across our focused MSME segment, which continues to remain a key growth driver for the bank.

The Mid-Corporate book grew 42% year-on-year and 11% quarter-on-quarter. The SME book grew 24% year-on-year and 5% quarter-on-quarter. The SBB segment the Small Business Banking segment, delivered strong growth of 60% year-on-year and 8% quarter-on-quarter. The combined portfolio of [ these 3 ] segments grew 35% year-on-year and now constitute 20% of the loan book, up 510 basis points in the last 8 quarters.

We remain a banker of choice for Corporate India, with our ability to serve across the capital structure. The domestic corporate franchise grew 12% year-on-year and 11% quarter-on-quarter, while simultaneously improving its margins. We are seeing a broad-based growth in corporate loan demand. There's strong activity in segments like renewables, roads, chemicals, urban energy distribution, commercial real estate and health care. Capacity expansion projects are picking up, especially in consumption-driven sectors.

Pricing has seen improvement compared to what we were seeing 2 to 3 quarters back, we continue to choose opportunities that meet our return threshold. Retail loans grew 17% year-on-year and 1% quarter-on-quarter. Unsecured personal loans and credit card advances grew faster at 21% and 39% year-on-year, respectively. We saw market share gains in NEFT payments of 180 basis points year-on-year to 12%. We are also the largest clearing member in the listed derivatives space with a market share of around 18%, while maintaining our leadership in equity capital markets and debt capital markets.

Around fostering a [ winning ] mindset, it is reflected in multiple external recognitions we received this quarter. Like I mentioned earlier, Axis Mobile App as the world's highest-rated mobile banking app on the Play Store with rating of 4.8. It has over 16 lakh reviews, which is the highest across 59 global banks, 8 global neobanks and 50 Indian fintech apps. The app now handles over 65% of all service requests by volumes.

The bank also won APAC Innovation Award for India for digital transformation and cloud native development during the quarter. We also retained our leadership position in rupee-denominated corporate bond issuances for the 16th consecutive year based on Bloomberg League Table for India bonds. As far as strengthening the core is concerned, the strong balance sheet with self-sustaining capital structure has been one of the areas we've been focused on. Our balance sheet remains resilient. Our asset quality is now among the best in class with net NPA of 0.47%, high provision coverage of 81% and standard asset coverage of 1.53%. Our internal accruals is now largely sufficient to fund the business growth with CET1 capital accretion of 195 basis points in the last 9 months as compared to 164 basis points of growth-related consumption during the same period.

We are building the next-generation technology architecture for wholesale digital banking. With client-centric design at its heart, Neo is enabling multiproduct, multichannel end-to-end digital experience for our corporate clients. About 100-plus open banking APIs are now operational across the product suite. Neo allows us to integrate various API product suite via an ERP-agnostic single utility.

We have partnered with leading fintechs to offer connected banking experience. Within a short span, we have 1,000-plus corporates on our access API developer portal. I'm bullish on what Neo is doing and what it can do to transform our transaction banking expertise. We continue to build for the future, too. Our digital banking unit is now operating at scale, while our current digital banking platform has delivered strong outcomes, Axis 2, our NextGen mobile banking platform, is beginning to fire at minimum viable product stage.

Axis 2 is a significant lead, both on technology and business model. It will focus on true digitally generated businesses with zero paper, zero touch and zero intervention. Axis 2 will operate as a digital bank within the bank. CASA balance through Axis 2 source accounts has grown nearly 2x to 3x on a year-over-year basis. [ FD ] have grown by 61%. Similarly, the overall loan book of Axis 2 has grown 52% in the same period.

On digital lending, we introduced several new capabilities on Account Aggregator based underwriting, ENaC and eSign based approvals. The bank today is underwriting a loan or a credit card to any citizen of India digitally without any physical documents or any human intervention. Also, we have built very successfully [ digital ] partnerships that we spoke about during the Analyst Day. We are setting up and scaling a few more strategic partnerships.

We continue to work on bank by programs to build [ distinctiveness ]. Bharat Banking continues to grow from strength to strength. As a result of our focused approach, we delivered 27% year-on-year growth in rural loan book, while the deposit growth in Bharat market stood at 16% year-on-year. During the quarter, we added 6,000 village level entrepreneurs to take our overall CSC VLE network to 16,200 plus, they would act as extended arms for our 2,065 Bharat branches.

The disbursements through CSC network were up over 5x year-on-year in quarter 3 financial year '23. Our subsidiaries continue to create significant value. The One Axis approach now is reflected in robust performance of our subsidiaries. The total annualized PAT of our domestic subsidiaries for 9 months of financial '23 stood at INR 1,252 crores.

During the quarter, we further strengthened our presence in the Retirement Solutions segment with the launch of Axis Pension Fund, Capitalizing on One Axis approach, the company has become the fastest private pension funds to cross INR 1,000 crores of AUM.

On Citibank Consumer business integration, Citibank acquisition and integration process is progressing well. Customer base and business performance remains steady and on expected lines. We are extremely happy with the response received from Citi customers and employees alike. We already have 96-plus percent acceptance rate from the employees of Citibank who will be joining us shortly.

We look forward to adding this high-quality customer base and workforce to the Axis family. The opportunity to build on this base is tremendous on the back of our fast-growing wealth and cards franchise. In closing, the domestic demand and economic activities continues to remain resilient when global economic growth is staying at a slowdown. Our leading indicators suggest that economic momentum remains strong with minor moderation, despite the rapid transmission of the repo rate hikes and liquidity tightening on a broad spectrum of interest rates.

The economic resilience, particularly for the micro and small businesses, is presently surprising. We at Axis Bank remain optimistic on the growth of policies in the Indian economy and our ability to support and take advantage of them. I will request Puneet to now take over.

[Puneet Sharma, executive]

Thank you, Amitabh. Good evening, and thank you for joining us. We continue to make progress on our endeavor to be a stronger, consistent and sustainable franchise. I will discuss the salient features of the financial performance of the bank for Q3 FY '23, focusing on our operating performance, capital and liquidity position, growth across our deposit franchise and loan book asset quality, restructuring and provisioning.

Our operating performance remains strong. We have now shown consistent NIM improvement delivered through robust growth in NII, growth in granular fees controlled our operating expenses. The resulted core operating profit growth coupled with relatively benign credit costs resulted in a strong Y-o-Y improvement in our ROA and ROE.

The net interest income for Q3 FY '23 stood at INR 11,459 crores, growing 32% Y-o-Y and 11% sequentially. NIMs for Q3 FY '23 stood at 4.26%, growing 73 basis points Y-o-Y and 33 basis points Q-on-Q. Domestic NIM stood at 4.41% just for the quarter. Reported net interest income and NIMs for the quarter include a onetime interest recovery on restructuring of an existing NPA account aggregating to INR 149 crores. This contributed 5 basis points to the current quarter NIM.

We had clearly articulated the drivers of our NIM improvement journey. The progress against the key drivers in this quarter is as follows: improvement in balance sheet mix, loan and investments comprised 87% of total assets at December '22 as compared to 84% at December '21, improving 300 basis points Y-o-Y. INR-denominated loans comprised 93.3% of total advances at December '22 as compared to 90.4% at December '21, improving to 90 basis points Y-o-Y.

Retail and CBG advances comprised 67% of total advances at December '22 compared to 65% at December '21, improving 195 basis points Y-o-Y. Low-yielding RIDF bonds declined by INR 8,425 crores Y-o-Y and INR 3,246 crores sequentially. RIDF comprises 2.7% of our total assets at December '22 compared to 3.8% at December '21. We currently estimate to be PSL-compliant across all subsegments at the headline level in FY '23.

Composition of our liabilities measured through average CASA percentage improved by 18 basis points Y-o-Y. Quality of liabilities measured by outflow rates improved 400 basis points Y-o-Y. The bank continues to improve risk return profile of its loan book. Our NII as a percentage of average risk-weighted interest-earning assets stands at 8.14%, improving 89 basis points Y-o-Y and 39 basis points quarter-on-quarter. Our fee income stood at INR 4,101 crores, growing 23 basis points -- 23% Y-o-Y and 6% sequentially. 93% of our fee is granular.

Total retail fee grew 30% Y-o-Y, 8% quarter-on-quarter. Fee on cards grew 44% Y-o-Y. Conventional transaction banking fee grew 25% Y-o-Y. Trading profit for the quarter stood at INR 428 crores compared to a loss of INR 86 crores in the previous quarter and a profit of INR 367 crores for the same quarter last year. 46% of the profit for the current quarter is attributable to reversal of MTM losses previously recognized on our corporate bond portfolio due to rate movements.

This is in line with our previous commentary that we do not expect an economic loss on our corporate bond book. 85% of the corporate bond book is rated AA+ and above and 99% is rated A- and above. Operating expenses for the quarter stood at INR 6,847 crores, growing 8% Y-o-Y and 4% sequentially. The Y-o-Y increase in rupee crore expenses can be attributed to the following reasons. 12% is linked to volume growth, 40% is technology and growth-related expenditure, 30% is wage increase and the balance, 18%, is BAU.

Technology and digital expense grew 11% Y-o-Y and constituted approximately 8% of our total operating expenses. Staff costs increased by 18% Y-o-Y and 5% sequentially. We added 1,309 people from the same period last year, mainly in our growth businesses and our technology team. We continue to maintain the social security code provisions. The cumulative social security code provision in the books of the bank stands at INR 227 crores.

The cost income ratio for Q3 FY '23 stood at 42%, improved 822 basis points Y-o-Y and 358 basis points Q-on-Q. Operating expenses to average assets stood at 2.24%, higher 9 basis points Y-o-Y and declining 1 basis point sequentially. Given the strong momentum across our businesses, we remain committed to consciously invest in our focused business segments, lower credit costs over the past few quarters have provided some headroom to run operating expenses at slightly elevated levels. We remain committed to achieving around 2% cost to assets in the medium-term.

Operating profit for Q3 FY '23 at INR 9,277 crores, increased 51% Y-o-Y, 20% Q-on-Q. Core operating profit for Q3 FY '23 was 8,850 crores, growing 53% Y-o-Y, 13% Q-on-Q. Provisions and contingencies for the quarter were INR 1,438 crores, up 8% Y-o-Y. In the current quarter, the bank made nonrecurring onetime/prudent provisions aggregating to INR 340 crores or equal to 24% of the provisions and contingencies for the quarter.

Excluding such prudent onetime nonrecurring provisions, provision and contingencies would be down 18% Y-o-Y. The bank has not utilized any of its COVID provisions. This provision is entirely prudent in our assessment. Annualized credit cost for Q3 FY '23 is 65 basis points. Adjusted for nonrecurring prudent provisions, it would be 54 basis points. Profit after tax stood at INR 5,583 crores, growing 52% Y-o-Y, 10% sequentially.

Consolidated ROA for Q3 FY '23 stood at 2%, improving 57% Y-o-Y and 13% Q-on-Q. Subsidiaries contributed 8 basis points this quarter. Consolidated ROE for Q3 stood at 19.81%, improving 465 basis points Y-o-Y and 91 basis points Q-on-Q. Subsidiaries contributed 47 basis points to the consolidated ROE. The cumulative non-NPA provisions as of 31st December 2022 stood at INR 11,633 crores, comprising COVID provisions of INR 5,012 crores, restructuring provisions of INR 928 crores, unsecured retail restructuring is provided at 100%, and the rest is the first bucket NPA rate.

Standard asset provision at higher than regulatory rates of INR 2,146 crores and weak asset provision of INR 3,547 crores. Our provision coverage represented as all NPA provisions, plus all other provisions divided by GNPA stands at 139%, improving 952 basis points Y-o-Y. The bank is well capitalized and is carrying adequate liquidity buffers. Our journey to be self-sufficient on capital is progressing well. We accreted CET1 net of consumption of equivalent to 41 basis points for this quarter and have net accretive 31 basis points over the 9 months FY '23 period.

Based on the current capital position and RWA intensity of our existing business, CET1 consumption on the Citibank acquisition is estimated at 180 basis points. We raised INR 12,000 crores of Tier 2 capital in the form of bonds in the current quarter. This improved our overall capital adequacy by 150 basis points at December 2022. Our capital adequacy ratio, including profits for the 9 months ended 31st December 2022, is 19.51%. Our CET ratio is -- CET1 ratio is 15.55%. The prudent COVID provision translates to a capital cushion of 55 basis points over and above the reported capital adequacy.

Our average LCR ratio for the quarter was 116%. Our excess SLR was INR 60,568 crores. The RWA percentage of the bank as of 31st December stands at 65%, improving 61 basis points Q-on-Q. Growth across our liabilities and loan franchise, Amitabh has discussed the progress on customer acquisitions, growth in liability and loan franchise in his opening remarks, please refer to Slides 20 and 21 for details around the quality of our liability franchise and our loan franchise in the investor presentation.

Our CASA ratio on a QAB basis was 44.1%, improving 18 basis points Y-o-Y and 48 basis points Q-on-Q. We continue to improve the quality of our core loan franchise. Our loan book continues to get more granular and balanced, with retail advances contributing 56% of overall advances corporates at 33% and our commercial banking business at 11%. 68% of our loans are floating. 45% of our fixed rate book matures in the next 12 months. Breakup of the floating rate loan book by benchmark type and MCLR repricing frequency is set out on Slide 11 of our investor presentation.

Retail book. Retail advances grew 17% Y-o-Y, 1% sequentially. Unsecured disbursements constituted 12% -- 22% of the total disbursement for the quarter. Cards NPL portfolio grew 39% and 21% Y-o-Y, respectively. The retail loan book represents healthy characteristics with 89% -- 79% being secured. The credit card spends for Q3 FY '23 grew 42% Y-o-Y. 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 37 of our presentation.

Corporate loan book, gross of IBPC sold, grew 12% Y-o-Y and 9% quarter-on-quarter. We found profitable opportunities to lend within the risk framework that we have chosen to operate in. Our Mid-Corporate business grew 42% Y-o-Y. The offshore wholesale advances are largely trade finance related and primarily driven by GIFT City branch. 97% of the overseas standard corporate loan book in GIFT City branch is India linked and 95% is rated A minus and above.

The commercial banking book grew 24% Y-o-Y and 5% sequentially. The quality of the CBG franchise we are building and the strong relationship-led approach is reflected through CBG card deposits on a quarterly average balance basis growing 22% Y-o-Y. Overall CBG fees increased 16% Y-o-Y, 87% of our CBG book is PSL compliant. Detailed performance of our subsidiaries is set out on Slides 65 to 71 of the investor presentation. The domestic subsidiaries reported a total annualized net profit for the 9 months of INR 1,252 crores. This translates into a return on investment of 50%. Axis Finance delivered strong growth as full-service customer franchise offering retail as well as wholesale lending solutions. In Q3 FY '23, overall AUM grew 38% Y-o-Y. Retail book grew 2 times and now constitute 44% of the total loans, up from 13% 2 years ago.

AFL's asset quality continues to be strong with a net NPA of 0.37% and negligible restructuring. [ AFS ] 9-month PAT grew 35% to INR 340 crores with an ROE of 17.7% and a healthy capital adequacy ratio of 22.2%.

Axis AMC invest portfolios grew 17% Y-o-Y to take the total investor base to $13.1 million. Its 9-months PAT grew 16% Y-o-Y to INR 292 crores. Axis Capital PAT for 9 months stood at INR 110 crores and Axis Securities, 9-month new client acquisitions were up 71% Y-o-Y, broking revenues were up 10% Y-o-Y and PAT stood at INR 151 crores. The slippage GNPA, NNPA and PCR ratios for the bank and segmentally for retail SME and corporate are provided on Slide 56.

Reported GNPA was 2.38%, improved 79 basis points Y-o-Y, 12 basis points quarter-on-quarter. Reported net NPA was 0.47%, improving 44 basis points Y-o-Y and 4% quarter-on-quarter. PCR at 81%, improved 876 basis points Y-o-Y and 89 basis points quarter-on-quarter. We have not sold any nonperforming loans this quarter, recoveries from written-off accounts for the quarter was INR 608 crores. Reported gross slippages for the quarter were INR 3,807 crores, lower 8% Y-o-Y. This includes slippages attributable to nonrecurring and/or prudent items aggregating to INR 410 crores. Adjusted for the aforesaid, gross slippages by value was INR 3,397 crores, down 18% Y-o-Y.

Further, for the quarter, 36% of reported gross slippages are attributed to linked accounts of borrowers, which were standard when classified or have been upgraded in the same quarter. Reported net slippages for the quarter were INR 1,719 crores. This includes slippages attributable to nonrecurring and/or prudent items aggregating to INR 402 crores. Adjusted for the aforesaid net slippage by value was INR 1,317 crores.

Reported net slippages in the quarter adjusted for recoveries from written-off pool was INR 1,111 crores. On a segment basis, net slippages for retail was 1,040. CBG was INR 26 crores and wholesale was INR 45 crores. In summary, the nonrecurring and our prudent items adversely impacted gross slippages by 22 basis points, reported net slippages by 22 basis points and reported credit cost by 11 basis points. This is more clearly reflected on Slide 56 and Slide 59 of our investor presentation. Details of BB and below pool and restructuring have been provided on Slide 57 of our investor presentation.

To summarize, Axis Bank is progressing well to be a stronger, consistent and sustainable franchise. Our balance sheet is strong and resilient visible through strong capital adequacy ratio of 19.51%. COVID buffer of 55 basis points, overall coverage up 39% on GNPA and limited and better than regulatory provided COVID restructuring of 30 basis points of our gross customer advances. Consistent delivery across our key initiatives and disciplined execution in our focus segments has resulted in the consolidated ROE for the quarter, standing at 19.81%, improving 465 basis points Y-o-Y and 91 basis points Q-on-Q. The franchise is getting more sustainable as visible through net CET1 accretion over the 9-month period of 31 basis points.

Our quarterly average CASA ratio stood at 44.1% as of December 2022 and early improvements in the quality of the granular liability growth is visible through reduction in auto rates. This gives us comfort that we've laid a good foundation for our liability journey. Our assessment is that improvement plan -- that we have planned over the next 8 to 9 quarters should deliver results with some inter-quarter fluctuations, which is normal for a business of our scale and size. While we are well placed in the current macroeconomic environment, we continue to closely monitor the geopolitical environment, inflation, both domestic and internationally, liquidity risk and its impact on cost of funds result in policy action and its impact on our businesses and our clients' business. We would be glad to take your questions now. Thank you.

[Operator]

[Operator Instructions] First question is from the line of Mahrukh Adajania from Nuvama Wealth.

[Mahrukh Adajania, analyst]

Congratulations. So my first question is on loan growth. Now do you get any sense say, mainly from the disbursals in November, December or even in January? If at all, there is a slowdown in secured retail in response to rising rates?

[Sumit Bali, executive]

This is Sumit here. So we have started seeing that customers are taking a longer time from the inquiry to closure of the loan. That's what's been observed in the previous quarter. A similar quarter, early trends are similar in this month also, and we'll have to wait and watch how this progresses further.

[Mahrukh Adajania, analyst]

Got it. Because the home -- the overall loan growth has been very good, but home loan growth is 2%. So that's why I was just checking.

[Sumit Bali, executive]

Yes. So that's how -- that's the reason I mentioned that.

[Mahrukh Adajania, analyst]

Right.

[Sumit Bali, executive]

And that's what we've observed on the ground.

[Mahrukh Adajania, analyst]

Got it. And the other question I had is that the credit card thing is because of the festive season, right? -- as in that -- so you've mentioned why -- you mentioned a note in your presentation, but the reason why credit card outstanding was flat was because of the festive season being across 2 quarters or...

[Sumit Bali, executive]

Yes, yes, you're right. So the big billion day sale of Flipkart was in September end, that's when we saw a bump up. And during the quarter, we saw festive season in December, it's reverted to normal. It's still up about 40% year-on-year.

[Mahrukh Adajania, analyst]

Got it. And my next question is on the Citi deal. So when we had made the initial presentation, we have talked about [ INR 15 ] billion additional OpEx over 2 years. Would that cause any lumpiness in cost in the fourth quarter? Will a large part of that OpEx come into the numbers in the fourth quarter. I mean you not mentioned any quarters, so I'm just asking.

[Puneet Sharma, executive]

Thanks, Mahrukh, for the question. The INR 1,500 crore number is post-tax. A large part of that is a time linked payment for services that we would receive post [indiscernible]. So it's gradual. We will be incurring some expenses as we ride up to the actual transaction closing, which would get upfronted, but I don't think there will be material lumpiness on the cost as we move forward.

[Mahrukh Adajania, analyst]

Okay, sure. And my last question is again on outlook on deposit and loan growth. Of course, near-term, maybe the next 2, 3 months, but also longer-term in FY '24 now that the system has also hit a very high B.

[Puneet Sharma, executive]

Thanks, Mahrukh. We don't offer short-term guidance. I think we stick by what we've said previously. We feel confident that the franchise will grow at 500 to 600 basis points faster than industry credit growth on advances. We've also said previously that for the current financial year, we expect to grow at or about the industry credit growth. That's the only comment I would offer there. We don't have guidance for the next quarter or multiple quarters thereafter.

[Operator]

Mahrukh, sorry to interrupt you. I'll request you to come back in the question queue for a follow-up question. [Operator Instructions] The next question is from the line of Adarsh from CLSA.

[Adarsh Parasrampuria, analyst]

Congrats on good numbers. Question is again on the mortgage growth. It's not been just a quarter where our mortgage growth has been slow. It's been about 2, 3 quarters since 4Q. So this 9-month YTD mortgage growth is quite slow. And I don't see this kind of trend in most other banks. So I just wanted to understand, have we seen a lot of balance transfers out or disbursement trends are weaker? What is happening, if you can just highlight?

[Sumit Bali, executive]

So there's no -- nothing abnormally high in terms of balance transfer. This quarter, particularly, as I said, we have seen customers taking a longer time to convert an inquiry into the loan. Hopefully, that trend should stabilize and things should improve this quarter, but we'll have to wait and watch.

[Adarsh Parasrampuria, analyst]

Yes. Again, I'm just reemphasizing that the mortgage growth in 9 months was like 4%, 5%. So it's a little bit surprising to see this lower growth.

[Sumit Bali, executive]

First quarter was okay. Second quarter was slightly slower, and third quarter slowed down to about 1% growth. Q4 historically has been good. So let's wait and watch how our Q4 can go.

[Adarsh Parasrampuria, analyst]

Got it. So your sense on market share in mortgages, disbursements, all are doing fine, is it?

[Sumit Bali, executive]

No. So disbursements also have been affected. So that's how the book has not grown the way we expected it to. So it has got impacted.

[Adarsh Parasrampuria, analyst]

Got it. And second question was on OpEx. Puneet and team was sequentially for 3 quarters now, we've had a more stable OpEx after the investments we've done in the last 2 years. So -- and I understand that you have guided to 2%. So when you guide 2%, now does that include the merger or that's just the bank alone and hence, we would see a bump up if you look at post-merger basis?

[Puneet Sharma, executive]

So Adarsh, thanks for the question. What we've said is around 2% and not an absolute 2%. The around 2% is for Axis Bank excluding the Citi acquisition. We did put out pro forma disclosure on what the cost to assets of that business is. And yes, there will be an impact on cost to assets on the integration.

But if you look at the flow-through to the bottom line, we've also called out in the same breadth that the transaction is ROE accretive. So yes, on the cost to assets variable, there will be an adverse impact when we add the Citi franchise. We also need to incur the implementation expenses, which is the onetime cost that we've talked about over an 18-month period, but that's temporary. So those 2 variables will play through the P&L post-integration.

[Adarsh Parasrampuria, analyst]

Got It. I'll just squeeze in one more question is on the corporate growth. When you've seen this kind of growth after kind of remaining low on that business, have the incremental spreads improved quite materially for you to take the call that we will do this business a little bit more proactively now?

[Puneet Sharma, executive]

I think the margins in this business -- I think spreads in this business have certainly improved over the last couple of quarters. I think the way to think about that perhaps, Adarsh, is also that despite the fact that the corporate book has grown, NIMs have improved as well.

[Operator]

The next question is from the line of Nitin Aggarwal from Motilal Oswal.

[Nitin Aggarwal, analyst]

I have one question around the treasury performance this quarter. This seems particularly strong anything which has driven this performance?

[Puneet Sharma, executive]

My apologies, we didn't -- we were not able to catch the question. Would you be kind enough to repeat it, please?

[Nitin Aggarwal, analyst]

So I was asking about the treasury performance we have reported early [indiscernible]. So how do you see this? And what is...

[Puneet Sharma, executive]

Okay. Thank you...

[Nitin Aggarwal, analyst]

Am I audible now?

[Puneet Sharma, executive]

Yes, you are, please.

[Nitin Aggarwal, analyst]

Yes, Puneet. So the question is around the treasury performance this quarter and the outlook, if you can talk about this.

[Puneet Sharma, executive]

So like I said -- like I called out specifically, 46% of the trading profit performance is the write-back of MTM losses that we have recorded in the earlier part of the year when rates had moved adversely on our corporate bond book. At that point in time, also, we have specifically said that the -- we will not incur an economic loss on the portfolio. And the corporate bond book, 85% of it is rated AA+ and 99% is rated A- and above.

So we don't think we will incur an economic loss even for the residual MTM, which is the difference of what we took in quarter 1 versus what we have gotten back because of rates this quarter. Obviously, further MTM write backs will be a function of how rates play out. So difficult to call at the moment.

What I can tell you with certainty is we maintain that we will not incur an economic loss on that portfolio. Also to give you better clarity, the duration of the book we had previously said was 4 to 5 years. So assuming that there is no further movement, that would be the timeframe by which the residual MTM should come back into the P&L.

[Nitin Aggarwal, analyst]

Right. Okay. And secondly, just one small clarification around the standard plus additional provisions that we have in the -- in the press release on Page 3, you mentioned the additional provision standard plus additional other than NPA of INR 5,000-odd crores. So this seems to be like a space number. So if you can just verify this.

[Puneet Sharma, executive]

The INR 5,012 crores that I called out was our COVID provision, which we have either utilized, not [ topped up ] in the current quarter. We believe that the business is entirely prudent.

[Nitin Aggarwal, analyst]

Right. And the total number is?

[Puneet Sharma, executive]

INR 11,633 crores, which is also set out on if you look at the investor presentation, Slide 1 or Slide 2 of the investor presentation.

[Nitin Aggarwal, analyst]

If you just because of like a number that was mentioned for the additional plus standard on Page 3 of the press release, which seems a bit odd.

[Puneet Sharma, executive]

Sorry, just give me 1 second. Sorry, that's -- please take that as a typographical error, please. We'll have a correction issue. The amount is like I called out, INR 11,633 crores. That INR 5,012 crores number that you're reading on Page 3 of the press release should be read as INR 11,633 crores. We will issue a revised press release to that effect. Thank you for bringing that to our attention.

[Operator]

The next question is from the line of Rohan Mandora from Equirus Securities.

[Rohan Mandora, analyst]

Sir, if I look in the Citi Financials for the business that Axis is acquiring for FY '22, the PAT there is around INR 420 crores. And in the presentation that we had issued at the time of announcement of merger, the normalized PAT that we were looking at was [ INR 848 crores ]. So just wanted to understand how should we look at the Is it the cleanup that is happening? And does the bank remain confident on its position for Citi business post-merger? That's first.

And second was on the retail term deposits. And if you look at the last 4 to 5 quarters, the absolute value has not changed much. So what's happening there? Are there any challenges in raising [ retain-term ] deposits because of nonretail term deposit size raising? So those are the 2 questions.

[Puneet Sharma, executive]

So on the Citi Financial numbers, unfortunately, I do not have the INR 400 crores number that you're referencing. But just for clarity, we are buying the Citi Consumer business, which is part of Citibank India NA branches.

[Rohan Mandora, analyst]

Actually, sir, the number that INR 420 crores that I'm taking is from the Citi India Financials where they are giving a separate disclosure of discontinued financials. And there, they are giving that number of INR 420 crores and the discontinued business, which is like you to hold off, that's why they are giving this so I'm [indiscernible] the entire business that Axis is purchasing and that's I think on the second last page of the Citi India Financials.

[Puneet Sharma, executive]

Understood. The only clarification I can offer there at the moment is on the discontinued business, we need to see whether the discontinued business profitability is on a transfer price basis, on an actual profitability basis. I will have a look at the disclosure and come back to you.

The way our pro forma was prepared was it was Citi Bank India branches consumer business plus Citi Finance India Limited, which is the NBFC entity. We are buying both businesses. When we looked at the pro forma therein, ex certain costs. So if you look at the footnote, we had clearly called out that we expect certain costs to disappear.

On top of that, we had called out synergy benefits. That is an INR 840 crores number that we had called out. We'd be very happy to look at this disclosure. And once we've consummated the acquisition, we can build a bridge for you. But at the moment, I can't comment on how Citi has quantified its discontinued business' profitability. We stand behind our pro forma disclosure. We think it was well articulated and thought through, please.

[Rohan Mandora, analyst]

And on the retail-term deposits?

[Ravi Narayanan, executive]

Yes. Thanks for that question on retail-term deposits. As Puneet had mentioned in his opening comments, retail-term deposits also determine the kind of outflow improvement that we have seen. Puneet had talked about 400 basis points improvement there. So we continue to stay focused on ensuring that we use the retail-term deposits to improve the quality of franchise as we go ahead.

Even in the individual term deposits over the 9-month period, we have seen a growth of 13%. So it also indicates that we are moving in the right direction. Having said that, we continue to work hard to ensure that we look at these retail-term deposits as a focus area for us. So the indicators in terms of the way we are moving and the quality of franchise that Amitabh also alluded to in his opening statement, these are the ones where we continue to focus. Thanks.

[Puneet Sharma, executive]

Thanks for your question. Just to supplement your answer while Ravi was on the -- answering your question, I've had a chance to look at the disclosure. I would guide you to look at the segmental disclosure that's referenced in the note. There is treasury profitability which sits there. So that's on a funds transfer price basis, not an actual profitability basis. So that may be the principal reason for the differential. Like we said, we stand behind our disclosure.

[Rohan Mandora, analyst]

Sir, sorry, if you repeat the last part.

[Puneet Sharma, executive]

Yes. So if you look at the geographic segment disclosure that Citi has put out, which is Page 80 -- Page 70 of document you were referencing, at the head of the document, you will see that the segment is treasury, corporate banking, retail banking, other banking business. So effectively, when you look at all bank segmental disclosures, the businesses are disclosed on a funds transfer priced basis, not actual cost of fund basis. So that's the principal cause of difference. So you would need to read that disclosure holistically with our disclosure, please? Thank you. but we will reemphasize this for you once we integrate.

[Operator]

Next question is from the line of Pankaj Agarwal from AMBIT Capital.

[Pankaj Agarwal, analyst]

Sir, you mentioned that you are PSL-compliant on a marginal basis. So does it mean that on price disbursement you are doing, you are doing 40% in PSL as well?

[Puneet Sharma, executive]

Thank you for the question. What we said is we expect to be PSL-compliant for FY '23. Our PSL compliance is a combination of organic business plus PSLCs.

[Pankaj Agarwal, analyst]

Okay. So there's still a shortfall on PSLCs, right?

[Puneet Sharma, executive]

There is no shortfall anticipated at a subsegment or headline level for FY '23. The compliance will be organic PSL aided by PSLC purchases. So there is no shortfall that we have indicated as of now.

[Pankaj Agarwal, analyst]

Sir, my question was more related to your RIDF bonds. So if you continue to meet your PSL requirements, this number will come to 0 in a couple of years?

[Puneet Sharma, executive]

So we have previously stated that the [indiscernible] maturity of our RIDF portfolio is 4 to 5 years, and therefore, you would have to look at that tenure for the number to get to net zero. Obviously, in the same breadth, what I would say is no large franchise runs at net zero. So we will need to wait and watch, but our endeavor is to get the number to the lowest possible value.

[Pankaj Agarwal, analyst]

Okay. And you said that quality of your liabilities have improved. But if I see on a Q-o-Q basis, your bulk deposits have gone up. So what I'm missing here?

[Puneet Sharma, executive]

So I think what Ravi was indicating is the way we measure quality of liability is outflow rate for LCR purposes. What you are seeing is a change in composition of liabilities. For composition of liabilities, we look at proportion of CASA [ NRTDs ] in the total book. So Ravi's point was the quality of the stock liability has improved. We do take your feedback that NRTDs have grown faster than the core liabilities, but that's a composition effect, not a quality impact.

[Pankaj Agarwal, analyst]

But Puneet, tally that outflow should be a function of your retail and bulk deposits, right? More bulk deposits, more outflow, right? This is how the calculation needs to be done.

[Puneet Sharma, executive]

That is correct. But in bulk deposits, you also have to factor noncallable bulk deposits. And again, if you look at the quality parameter, we have improved on the noncallable bulk deposits side also. Therefore, you will see a cumulative quality improvement.

[Operator]

Next question is from the line of Saurabh from JPMorgan.

[Saurabh Kumar, analyst]

Sir, two questions. One is on your recovery. Was there any chunky recovery in the quarter?

[Puneet Sharma, executive]

Thank you, Saurabh, for your question. No, no chunky recovery this quarter, please.

[Saurabh Kumar, analyst]

Okay. And sir, just on this third-party fees, how should we think about this momentum going ahead? I mean quarter-on-quarter is pretty good. How would you think about the growth here?

[Ravi Narayanan, executive]

I think while it would be difficult to give a future looking guidance on that. But in terms of the fact that as you have seen, we have maintained a robust growth on the third-party fee line. It's a combination of multiple products. So there will be always one or the other at play at all times. And therefore, we continue to believe that what we have demonstrated in terms of the growth indicates the strength of the franchise. Thank you.

[Operator]

Next question is from the line of Prakhar Agarwal from Elara Capital.

[Unknown Analyst]

Just two bits on my side. One, in terms of your slippage that you'd probably talk about one-off of prudential in this year. And in that context, you have made around INR 315-odd crores of provisions as well. This segment does it essentially belongs to -- what I do essentially mean is when I look at your overall retail segment [indiscernible] that has gone up. And in that context, when I look at your LAP portfolio, that has also -- from a growth perspective, that has also gone down. Is there something write-off that we have taken in that segment? If you could just highlight this.

[Puneet Sharma, executive]

Thank you Prakhar for your question. The prudent onetime nonrecurring items are large accounts. So they don't affect the retail segment.

[Unknown Analyst]

Okay. Got it. The second is, when I look at your retail growth, which is around 1% on a sequential basis. And when I look at your fee growth, which probably even existing for this third party, which is around 11%. What is driving? And what is our outlook on that particular line item?

[Puneet Sharma, executive]

So I think Prakhar, the way you should think about retail fees is the product mix that we are delivering. So while the headline growth has been 1% sequential quarter and 17% year-on-year, the mix has seen a positive shift that continues to yield better fees for us. And that's why you're seeing a divergent performance between fee growth and asset growth. And like Sumit said, in our assessment, it is a function of timing of disbursement. And Sumit earlier alluded on the call saying that let's monitor how this progresses through Q4.

[Unknown Analyst]

And just one last bit, if I can squeeze in. On the margin, so -- if we don't expect any further rate hikes from RBI, what -- when do you see your margin is probably picking out of -- probably the other way of saying is when you see a cost of funds taking over probably incrementally negating the benefits of [indiscernible].

[Puneet Sharma, executive]

So Prakhar, we don't offer short-term NIM guidance. But broadly speaking, if you look at the contributors to our NIM improvement, there are 3 big contributors. One is the structural drivers for NIM improvement, which I discussed earlier in the call. The second is the pricing discipline that we have brought through across all of our businesses. And third is the cyclical rate hikes where asset repricing has led liability repricing in this cycle.

We fully appreciate and we ourselves have indicated that we expect deposits to reprice quarter 4 of the current financial year and further in quarter 1 of the next financial year. The outlook that we are offering is we've built a cushion over our structural NIM. 2 of the 3 drivers of our NIM journey still have an ability for us to control and that should serve as some offset to the rate pressure that we see on the deposit side coming forward. That's how I would request you to think about our NIM journey. We do not have specific guidance for a point in time NIM as we speak.

[Operator]

Next question is from the line of Rakesh Kumar from Systematics Group.

[Rakesh Kumar, analyst]

Just two questions. Firstly, like how do you -- how do we read this that our total investment portfolio having gone up as a percentage to [ NDTL ] broadly on a sequential basis on the last 5 quarters. And the non-retail deposits has gone up by 21%. So what is happening there, basically on the asset on the liability side. So why so much of frictional liability -- friction liquidity that we are keeping on the book?

[Neeraj Gambhir, executive]

This is Neeraj Gambhir here. So our investment portfolio largely comprises government securities. And there is some bit of corporate bonds as well. It's basically high-quality liquid assets that we need to maintain for our LCR. And if you look at our average LCR over the last 4 quarters, it has been between 114% to 120%, 121% average. So essentially, the size of the book is moving in line with the LCR requirement of the balance sheet, which is a function of how the deposit book grows.

[Rakesh Kumar, analyst]

And secondly, the similar kind of things, if you look at the excess SLR number, that has gone up actually in this quarter on a sequential basis to INR 60,000 crores from INR 55,000 crores. So are we -- like is there any plan to reduce [ IRD ] ratio and increase like [indiscernible] ratio is already on the higher side. So what is your plan? How do we are planning to reduce this IDR?

[Sumit Bali, executive]

Okay. So main distribute -- main decision point on the liquidity is basically the LCR. Excess SLR is basically a disclosure that we give. Now the major driver of liquidity management is LCR ratio. And therefore, I would guide you towards looking at the LCR ratios to look at what is the liquidity of the balance sheet.

As I mentioned over the last 4 quarters, we have been ranging between 114% to 121%. So it's a very well sort of within a range kind of LCR that we maintained.

[Rakesh Kumar, analyst]

And would it be right to understand that this kind of excess SLR we will have to continue considering the previous quarter NSFR number and LCR number of this quarter?

[Sumit Bali, executive]

So the LCR dynamic is different from SLR. SLR is a 6 percentage 18%, whereas the LCR requirements are dependent upon the deposit composition. Depending upon how the deposit composition changes, the LCR requirement moves up and down. Suffice it to say that for most banks, including us, the LCR requirements are higher than what is the kind of government securities are required to be held for SLR.

[Operator]

Ladies and gentlemen, we'll take the last question from the line of Jai Mundhra from B&K Securities.

[Jai Mundhra, analyst]

Sir, first, if you can elaborate this one-off or nonrecurring prudent item, which has impacted slippages and provisioning? Because I remember we had already boxed all the risky assets, and we had provided adequately there.

[Puneet Sharma, executive]

Thank you for your question, Jai. This is not an adhoc provision. The one-off item is illustratively and let me explain one of the items for you, so you get full color. It's an account which is not 90 days past due. This is our risk assessment. We have prudently downgraded that account, and we have applied our role-based provisions to that downgrade.

And therefore, the only prudent decision was to downgrade an account that was not 90 days past due. Other than that, our rule engine kicks in and makes provisions. There is no discretion beyond that. So this is nothing to do with legacy assets. Our legacy assets are fully provided for as we have called out. This is an action that has happened in the current quarter.

[Jai Mundhra, analyst]

And this is funded exposure, right? Nothing to do with guarantee, et cetera.

[Puneet Sharma, executive]

This is funded exposure. There is linked nonfund-based exposure also. And like I said, our rules apply to both, fund plus nonfund, and therefore, provisions would have got triggered for both.

[Jai Mundhra, analyst]

Sure. And second question, Puneet, on the sustainability of the ROE, right? So our GPS strategy also emphasizes a lot on sustainability. Over the last, let's say, 4 quarters, we have seen ROA now coming to 1.9% versus 1.3%, 1.4%. And the same delta has come or even higher delta has come from margins, which are now, let's say, historic high.

As we go forward over the next 4 quarters, probably these margins will decline, then how do you address the sustainability of the headline ROAs.

[Amitabh Chaudhry, executive]

So Amitabh here. Whatever we've been trying to do since we launched the GPS strategy is to build a sustainable business. And what we are very conscious of is that while we had broadly talked about the ranges on NIM, we have never given a guidance on ROA, but we had definitely given a guidance on NIMs and ROE. Our intention is once we get to a certain zone to work very hard to stay there, this is not something that you're trying to do in the short-term and hope that when the numbers come down, we'll do nothing about it.

So we are obviously continuing to work on all our levers possible, looking at what might happen in the market in the future and ensure that we can sustain the overall performance. I'm not guiding ROA, I'm not guiding anything else. I'm just saying that the idea was to hit 18% ROE, and we will work very hard to stay there. We fully well know that there are factors which are working against it also in terms of rising cost of deposits, but we are trying to going to use every possible lever to ensure that we sustain the performance. And again, this is not a guidance for next quarter or next year, just saying what -- how we are looking at the business and how we're sustaining it.

[Jai Mundhra, analyst]

Right. And Puneet, just to understand this one-off, this is the entire exposure you have already put out and have provided 100%. And if you can also mention the sector because this is like on a large scale, this is coming for the first time in the last 1, 2 quarters across banks. So if possible, if you can share the sector of that exposure.

[Puneet Sharma, executive]

Thank you. We don't comment on sector or name specific exposures. To your first question on whether it's fully provided, I will go back to a comment I made earlier. It's been provided as per our rule engine, and our rural engines are reasonably conservative. That's where I leave that response.

[Operator]

Thank you very much. I now hand the conference over to Mr. Puneet Sharma for closing comments.

[Puneet Sharma, executive]

Thank you, Nirav. Thank you, everyone, for taking time this evening to speak with us. It's been a pleasure. If there are any questions that remain unanswered, our teams will be available to assist you with those. Good evening, and have a nice day.

[Operator]

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