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Indusind Bank Ltd
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Ladies and gentlemen, good day, and welcome to IndusInd Bank Limited Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumant Kathpalia, Managing Director and CEO, IndusInd Bank. Thank you, and over to you, sir.
Good evening, and thank you for joining this call. Let me start with some macro commentary and then go into the bank specific details. Economic activity gained momentum during the quarter and is visible from various high-frequency indicators, such as PMI. Monetary policy post was extended with CPI inflation easing below 5% level and liquidity conditions in the banking sector improved over the quarter. .
Bank credit growth stabilized around 15% with personal loans category contributing as the main growth areas. Deposit growth picked up, helping to bridge the gap with higher credit growth.
On the demand side, private consumption and public investments help support activity. The strong ongoing pickup in the services sector is supporting urban demand, recovery in rural demand and improving conditions for capital formation would help growth remain reasonably strong. Relatively, bright growth prospects easing inflations and overall macroeconomic stability has revised foreign investor interest in India with net inflows in debt and equity surpassing INR 10 billion in the last quarter.
Coming to quarter specific developments. Our focus areas for the quarter were loan growth momentum. We maintained a healthy growth of 22% year-on-year and 4% quarter-on-quarter, driven equally by consumer and corporate business. Our vehicle business maintained a 21% growth. Diesel originated loan growth improved to 14% year-on-year, other retail growth remained strong at 27%. We are thus seeing loan growth momentum across segments, maintaining the positive traction.
Our retail deposit growth as per LCR accelerated to 21% year-on-year versus 19% in the previous quarter. Share of retail deposits improved to 43.4% versus 42.6% in the previous quarter. Our savings account too grew by 6% quarter-on-quarter, reversing the attrition trend for the last few quarters. Overall, we achieved total growth of 15% year-on-year and 3% quarter-on-quarter, driven by granular retail growth.
Continued investment in new initiatives. We continue to invest in our franchise, both in physical as well as digital distribution, scaling our presence in new products and customer segments. Our Affluent deposits grew to INR 44,400 crores, up 22% year-on-year. NRI deposits grew to INR 37,200 crores, up 39% year-on-year. Loan book under merchant acquiring business via Bharat Financial grew 89% year-on-year to INR 4,229 crores. Our home loan pilot has reached INR 665 crores. We have soft launched our digital platform INDIE and open for public access. We have hired around 12,600 employees in our distribution over the last 4 quarters. This is all reflected in the OpEx growth of 24% year-on-year and 6% quarter-on-quarter.
Improving asset quality. Our gross slippages reduced from INR 1,603 crores to INR 1,376 crores quarter-on-quarter that is from 0.59% to 0.4% of loans quarter-on-quarter. Our restructured book reduced by INR 475 crores from 0.84% to 0.66% quarter-on-quarter. Our net NPA is at 0.58% with provision coverage ratio stable at 71%. Our contingent provisions are at INR 1,700 crores with total loan-related provisions at 21% of gross NPAs. Our credit cost has reduced to 33 basis points from 36 basis points quarter-on-quarter.
Sustaining profitability of the franchise. Our net interest margins improved by 1 basis points quarter-on-quarter and 8 basis points year-on-year to 4.29% with effective balance sheet management. Client fee income grew by 19% year-on-year, driven by strong continued retail momentum. Our PPOP margin to loans for the quarter was at 5.5% versus 5.6% quarter-on-quarter.
Steady improvement in return ratios. Our profit after tax grew by 4% quarter-on-quarter and 30% year-on-year to INR 2,124 crores. Our return on assets was at 1.90% and return on equity was at 15.24% for quarter 1. Our capital adequacy ratio remains healthy with CET1 of 16.4% and overall CRAR at 18.40%.
Now coming to individual business. Vehicle Finance. The Vehicle Finance business maintained healthy loan growth of 21% year-on-year and disbursement growth of 18% year-on-year. The segments showing strong disbursements for commercial vehicles, utility vehicles, cars, disbursals were muted in tractors and 2-wheeler segments. The bank has maintained or improved its market share across all vehicle categories. We have also implemented Salesforce Loan Ordinating System across all our locations for cars and 2-wheelers. This should further improve our efficiency and bring down turnaround time for these segments. Historically, first quarter has been a seasonally weak quarter, whereas quarter 4 is a seasonally stronger quarter. The second half of the year contributed large share disbursements as well as recovery. And we expect that trend to continue this year, too.
The gross slippage in big vehicle improved to 0.77% from -- versus 1.1% year-on-year, where is higher than 0.61% quarter-on-quarter due to seasonally weak quarter versus quarter 4. The slippages are expected to come down as the year progresses. The restructured book in vehicle finance also reduced from INR 1,475 crores to INR 1,182 crores quarter-on-quarter. The collection efficiency of these customers remain comfortable with bulk of the reduction happening through upgrades and recovery. The weaker portfolio has now shown strong disbursement for 2 years. This also reflects into increased share of new loans and repayments drag coming down steadily. The loan growth thus should now move broadly in line or ahead of the disbursement growth. The asset call issues improve from there with seasonality benefits coming in the rest of the year.
Bharat Financial Inclusion Limited. The year-on-year growth in microfinance and merchant acquiring book accelerated to 14% versus 11% in the previous quarter. The share of nonmicrofinance book increased from 7% to 12% year-on-year. The Bharat Financial Inclusion consists of 3 key segments of Microfinance, Bharat Super Shop and Bharat Money Store models, and I will update on all the 3 segments: Microfinance, we had disbursements of INR 8,406 crore during the quarter, reducing the growth of 12% Y-o-Y. Our new to bank disbursements are up 19% year-on-year in terms of number of borrows historically, quarter 1 is seasonally weaker versus quarter 4 and reflected in quarter-on-quarter reduction in disbursements. MFI book at the end of quarter 1 was INR 3,981 crore, up 9% year-on-year, active borrower base of about INR 78 lakh microfinance borrowers up by 5%. New customers added during the quarter 1 were around 504,000 customers. MFI standard book net collection efficiency for quarter 1 was at 99.2%.
Bharat Super Shop that is the merchant acquiring business. With strong demand and large pockets of growth available, we continue to expand our merchant acquiring business under the banner of Bharat Super shop. Portfolio source through Bharat Financial under this business has grown to INR 4,229 crores, up 89% year-on-year and 5% quarter-on-quarter with 650,000 active borrowers. The total disbursement during this quarter was INR 1,522 crores. The book continues to report healthy growth along with strong asset quality. Our standard book net collection efficiency from this book during quarter 1 financial year '24 was 99.2%.
Bharat Money Stores, the Kirana stock model. We have around 115,000 active Bharat Money Stores providing banking as the dose step in remote areas. Liability book source from customers and service to Bharat Financial increased by 44% year-on-year to reach INR 2,108 crores and to INR 1,545 crores accounts. Our focus remains to be the Banker of Choice for our customer segment in Bharat. Overall, on the asset quality side, MFI gross slippages during the quarter reduced to INR 369 crores as compared to INR 599 crores in quarter 4 financial year '23. We're adding emphasis on recovery with a recovery of INR 52 crores from NPAs and INR 32 crores on ARC return of accounts during the quarter.
The B2 standard 30 DPD book remained stable at 1.1% of loans. We expect disbursements for microfinance to pick up as we progress the year. We continue to work on the diversification initiatives and becoming a micro banker from a micro financier. The asset quality has improved this quarter, and we expect the trend to continue in the rest of the year as well.
Corporate Bank. Our corporate loan book maintained healthy growth trajectory of 4% quarter-on-quarter growth. The overall growth continues to be led by growth in small corporates with small corporates growing by 10% quarter-on-quarter. Within small corporate, our focused strategy on corporate with less than INR 500 crore turnover segment has been bearing results growing at 14% quarter-on-quarter. Growth across large and mid-corporate was 3% quarter-on-quarter and 19% year-on-year, in line with our expectations.
Majority of the corporate loan book is floating rate in nature, and we were able to pass on increased rates for the customer due to reset. Our yield in the corporate book thus improved by 10 basis points quarter-on-quarter. Yield increase hereon will be muted with benchmark is stabilizing or coming down.
The proportion of A and above rated customers has improved from 73% to 76% year-on-year and the average rating improving to 2.61% from 2.63% year-on-year. The gross slippages in corporate book were only INR 43 crores for the quarter. Our corporate restructured book too remains low at INR 327 crores.
Over the last couple of years, we've consciously changed our guidelines, policies and coverage model. We have put in place tighter policy norms for complex transactions, rationalized borrower limits linked to internal ratings and much below the regulatory threshold, conservating capping of sensitive sectors, strengthen post disbursement checks and developed early warning systems, et cetera. Similar coverage models was reoriented with a focus to scale up small businesses and increased wallet share from identified last strategic client groups, thereby improving our risk density and RoRWA. Overall, we continue to progress on the granularization of the corporate franchise through small businesses and diversification. Our small business as a percentage is planned to increase from the current 10% to 20% of the profit book. Within our large and mid-corporate verticals, our focus is diversification across regions and more acquisitions, especially in the mid-corporate segment.
Global diamond and jewelry business. The demand for diamond remained muted with sluggish growth in key consumer markets of U.S. and China. Our diamond book was up 10% year-on-year, but down 7% quarter-on-quarter with working capital utilization coming down. The slowdown, however, does not have any impact on asset quality with number of clients getting into SMA-1 and SMA-2 category. Overall, we remain comfortable on the diamond portfolio, asset quality, while the growth will be dependent on the recovery in the global economy.
Other retail assets. We saw another quarter of growth momentum in other retail loan book growing by 7% quarter-on-quarter and 27% year-on-year. The growth was broad-based across business units, the secured assets, including LAP, business banking grew 5% quarter-on-quarter, while unsecured assets of credit card and personal loans grew by 10% quarter-on-quarter. The secured asset growth has bounced back as with pickup in the new to bank acquisition, the momentum grade gathered in quarter 4. We are scaling up home loan pilots with the book is growing to INR 665 crores. We will go full stream the marketing plan during the course of the year as the profile is stabilized. Our digital lending platform for all business segment was launched for loan and non-fund products for easy credit last quarter.
With this, we have a full inclusive attitude on digital platform for less than INR 2 crores segment. The stack is fully enabled to process sanctions with a single day back by [indiscernible], banking and GST backed data for the small business customers.
On unsecured side, the credit growth was driven by new card acquisitions and highest ever quarterly spend. Credit card spend were at INR 2,189 crores, growing by 20% year-on-year. Overall, the focus on brand sourcing and digitization of small ticket acquisition, we expect growth momentum and retail business to continue in the current financial year. We do, however, remain watchful of inflationary economic conditions, particularly on the unsecured consumption spends.
Now coming to liability. Our deposits grew 15% year-on-year and 3% quarter-on-quarter. The growth was driven by granular acquisition with repair deposits as per LCR growing by 21%. The share of retail deposits improved to 43.4% as we progress towards our ambition of 45% to 50% by PC-6. Our savings account deposits to showed a reverse growth of 6% quarter-on-quarter, reversing the attrition seen in the last 3 quarters. Current accounts moderated as some of the quarter end flows of the previous quarter ran off.
Overall, CASA was stable at quarter-on-quarter at 14%. Our affluent segment deposits grew 22% year-on-year to INR 44,400 crores during the quarter. Affluent [indiscernible] was also up to INR 68,750 crores, showing a growth of 17% year-on-year. Our NR deposit grew 39% year-on-year and 9% quarter-on-quarter to INR 37,200 crores. We continue to gain market share in the nonresident segment, with market share above 3% as of listed available data. We have 30 branches -- near 30 branches launched ready currently and around 27 leases finalized. We will aim to be adding to 250 to 300 branches during the course of the year.
We reduced volume during the quarter by 7% quarter-on-quarter. The borrowings form only 10% of the liabilities and almost all are long term in nature. We continue to carry healthy liquidity situation position with LCR at 132% and average surplus liquidity at INR 44,000 crores for the quarter. Overall, we remain focused and comfortable towards achieving our retailization objectives. The liquidity in the system has improved during the year and rates in certain buckets are coming off. The continued investment in physical and digital distribution, along with maturity of branches, will aid our retailization drive going forward.
Digital traction. Banks continue to register strong growth in its mostly active user base on both Indus Mobile and Indus Merchant Solutions, 30% year-on-year and 20% quarter-on-quarter, respectively. Mobile transaction volumes for the bank grew 82% year-on-year. On retail and MSME business across products, most of the business is now digital. In some products like savings, wealth, credit card is almost completely digital, while in MSME, it is still about 65% to 70% digital. Share of digital assisted direct-to-client acquisition continues to grow. In card, it is 25%. In liabilities, that is 40%. In personal loan, it is 15% in terms of loans to new to bank launch preapproved customers with real-time decisioning. Banks continue to focus on optimizing digital platform, marketing and across products, we sell digitally.
Customer acquisition costs have come down substantially year-on-year. In loans, it has come down by 60% to 70%. During the quarter, bank also launched its CBDC app and joined other pilot banks in RBIs administrative on digital currency. Last but not the least, the bank has soft launched in is digital aging platform open for public access. INDIE has seen an installed user base of 50,000 plus and a customer base of 20,000 on the app. We will do a full-scale launch during the quarter.
Coming on ESG. We committed to integrate ESG principles deeply into our business product risk and management and operations. We are proud to announce that all our Pioneer branches have achieved lease status certification showcasing our commitment to environmentally-friendly operations. Additionally, we have moderate -- mandated a leading [indiscernible] consultant to formulate our strategy to IBL carbon neutral by 2032. We are honored to have been recognized as the best bank in India for ESG by Asia Money for financial year '23. This prestigious award received for the second consecutive year is a testament to our dedication to environment and social responsibility. We extend our heartfelt gratitude to all our partners for this invaluable support in helping us achieve this remarkable milestone.
Now coming to the financial performance for the quarter. Net interest income grew by 18% year-on-year and 4% quarter-on-quarter, in line with our loan growth. Net interest margin improved to 4.29% versus 4.21% year-on-year and 4.28% quarter-on-quarter. The net interest margin was supported by repricing on the asset side as well as active management of the liability. The cost of fund as well as yield on assets increased by around 40 basis points each during the quarter, resulting in the stable margin quarter-on-quarter.
Other income grew by 14% year-on-year and 3% quarter-on-quarter. Core client fees, excluding trading income, grew by 19% year-on-year and 2% quarter-on-quarter. We had positive noncore income of INR 91 crores during this quarter. Share of retail fee improved to 73% from 70% year-on-year.
Our total revenue for the quarter was INR 7,077 crores with 17% year-on-year growth. Operating expenses grew by 6% quarter-on-quarter with cost-to-income ratio of 45.9%. The OpEx growth was driven by employee addition, investment in distribution, technology spend for the new platform launches and preparing for annual appraisal actions. The operating profit for the quarter was at INR 3,831 crores, growing 12% year-on-year and 2% quarter-on-quarter. The PPOP margins to loan continues to be healthy at 5.5%. Core PPOP growth was at 14% year-on-year and 1% quarter-on-quarter.
On the asset quality and provisioning front. Our provisioning for the quarter have reduced to INR 991 crores and are below INR 1,000 crore mark for the first time in the last 3 years. The annualized provisions to loans are thus down to 132 basis points now versus 142 basis points from previous quarter and INR 155 crores for the previous year.
As expected, we saw a reduction in gross deficits from microfinance, corporate and other retail segments. The vehicle finance unit saw increases in slippages given quarter 1 is seasonally weak than quarter 4. On the restructured book, the retail slippages were down quarter-on-quarter, and there was no corporate slippages. The restructured book was reduced by INR 475 crores during the quarter from 0.84% to 0.65% quarter-on-quarter with bulk of the relation due to upgrades and recovery.
The net security receipts have reduced from 51 basis points to 44 basis points. The bank made additional provision of INR 129 crores towards the SR book during the quarter. Overall GNPA for the banks were at 1.94% and the net NPA was stable at 0.58%. We have maintained provision coverage ratio of 71%. Our contingent provisions, excluding specific provisions were at INR 1,700 crores. Total slippages from the restructured book in the last 5 quarters were at INR 2,324 crores. We have utilized contingent provisions of INR 1,628 crores during the same period. With this, we expect that the utilization of contingent buffers to be behind us, and we'll aim towards adding into the buffers with support from operating environment.
Total loans related provisions are at 2.4% of loans and 121% of GNPA. Our SMA-1 and SMA-2 were at 4 basis points and 19 basis points, respectively. Profit after tax for the quarter were at INR 2,124 crores growing 4% quarter-on-quarter and 30% year-on-year. Our CRAR, including profits remained healthy at 18.4%. Return on assets was at 1.9% and return on equity at 15.24%. Overall, the first quarter of our planning cycle fixed strategy saw progress in toasted objectives. Loan growth was at 22% against our expected range of 18% to 23%. Seasonally, the first quarter is softer quarter for vehicle and microfinance business and seasonality should support the loan momentum during the rest of the year.
Retailization of liability continues with 21% growth in retail deposits as per LCR and healthy 6% quarter-on-quarter growth in our deposits. The share of retail deposits as per [indiscernible] improved to 43.4%, and we aim moving towards 45% to 50% in '26. Asset quality improved in all businesses except for vehicle due to seasonality. The annualized sales costs are down to 132 basis points inking towards our expected range of 110 to 130 basis points for the year.
All key profitability metrics across NIM, PPOP margin, ROA and ROE have maintained healthy position in line with our communicated aspirations. We continue to scale up new initiatives like affluent, NRI, tractors, merchant acquiring, home loans and digital launches. These provide further growth avenues for the bank. We have thus begun well on the PC strategy execution and are committed to the ambition laid down -- outlined in our strategic plan.
And with this, we can open for question and answer.
[Operator Instructions] The first question is from the line of Nitin Aggarwal from Motilal Oswal.
A few questions from my side. Firstly, look, we have seen a sharp rise in cost of deposits over the past 1 year. So how are you looking at the deposit repricing over the next few quarters? When will this likely peak out? And if you can also give some color on what has driven this strong SAR mobilization and how sustainable this growth rate is?
So our cost of deposit, I think you see the peak out in quarter 2. And I think what has happened in quarter 1 is a lot of maturities, which are coming in, which are contracted at a lower price at reprice in the retail side of the book as well as on the wholesale banking side of the book. That's number one. And of course, the renewal process, which has happened at a higher rate because our rates on the term deposits were higher.
So that's the reason. And I think you should start seeing a stabilization or a bit rise in the quarter 2 and then a stable pace and a decreasing cost of deposits as we get into quarter 4. So we've always said that by quarter 4, we should see a cost of deposits declined by 10 to 15 basis points, and you should see that.
Having said that, I think our savings accounts, I think the growth -- we always said that the savings account growth was affected because the bulkiness on our portfolio. And there was one such account where the bulkiness of the portfolio was there. And I think once that bulkiness in the portfolio, the acquisition ramp up as well as has helped us grow the savings account. And I think what we have seen in the last 3 quarters is the bulkiness of the portfolio is moving. And I think the growth has come back. Even if you look at the LCR growth, you would see that the LCR growth is about INR 7,000 crores to INR 8,000 crores as a consequence of that.
Right. And if I look at Slide 20, we have a 10-odd basis point increase in the wholesale banking field and another 8 basis points in consumer banking, but our total yield has gone up by 22 basis points. So what am I missing here?
That is because of the mix change of retail. Quarter 4, if you remember, there was microfinance, strong disbursements. So during the course of this quarter, averages were higher for retail compared to last quarter.
Okay. And Sumant, one more question on the cost income ratio. This ratio has been increasing over the past 2 years. We have now close to 45% now. So how should we look at this as you go on to add more branches and invest in the business?
I've said that this year, we will end the year at 45% cost-to-income ratio. And that is what we said going up to 41% to 43% in year 2 and stabilizing at about 40% to 41% in year 3. That's what we will be rising up. Don't look at this, I think while we may go at the end of the year, you will see us stabilizing at 45% and we'll come back to 41% to 43% by year 2. We have some initiatives and of course, the salary. So this quarter has the salary appraisal part also. So that is all stabilized.
Right. And one clarification, like have you got any RBI circular in respect to overdue ECLGS loans in the MSR segment, any impact that you have seen from that?
Loans, we don't have a significant book there, which impacts us.
Okay. But did you see some downgrades because of that circular this quarter?
No, we don't have any significant impact because of that. The numbers reflect the -- all the circulars that are out there.
Right. And lastly, if I can squeeze in one more question. Any thoughts on the promoter shareholding plans because this has been in the news for some time. And so where is the application really with RBI, what state it is? And any color as to what are the promoter plans in terms of increasing stake if you can give some color on this?
The promotor has issued a press release, and we can only talk what is in the public domain that they want to increase the stake. Now as and when the bank does not need the capital as of now. We also know that the process is still continuing, and there is no approval from RBI from -- on the format as of now. So we have to wait for the formal communication of the form, which is the due diligence form from RBI, and that's a process which takes 3 months, almost 2 months are over. And I think they should be -- we have to wait for that announcement from the RBI or from the promoter.
Next question is from the line of Adarsh from CLSA.
Congrats on good numbers. A couple of questions. One on the cost of fund. I just wanted to understand...
Adarsh, sorry to interrupt you. You're sounding a little distant. May I request you to speak a little louder?
Yes. So hopefully, this is better. On the cost of funds, Sumant, just wanted to understand from a deposit maturity and a renewal perspective, where are we in that journey? Like is it 50% done broadly, any sense that would help because you said maybe one more quarter of cost of fund increase. So where are we in that journey?
I think you would see that the yield curve between 90 to 1 year is almost flat. And it has come down from what happened in March was Magnus and we had to raise some borrowings also as a consequence of the effect which happens happening in the U.S. market in the liquidity market, we raised cost of borrowings at a little bit higher cost and that impact you were seeing happening. I think with the deposits now bulk deposit rates stabilizing and our retail journey growing I think over a period of time, I think maybe this quarter, I think you should start seeing the stability in the cost of deposit as we go forward into the years as in the quarter 3 and quarter 4. So you should start seeing that. And I've said that you should start seeing a 10 to 15 basis point decline in our cost of deposits as we go forward.
And if I use that data with the fact that our loan mix is improving, it then looks like our margin guidance is kind of conservative, right? We are already at the higher end. And if it's a quarter more of cost of fund increase with improving loan mix, is there any upside risk to the margins? Or what are we missing here?
Adarsh, we have always said that margins will be between 4.2% to 4.3%. Don't forget, we have a book which is 45% corporate, 44% to 45% corporate book. On this book, you would see a margin suppression as because the MCLR or the EBLR will continue to change as we go forward. If they don't, I think you will start seeing the margin expansion. Otherwise, you will see what we've said, 4.2% to 4.3%. We are assuming that there will be a decline in the corporate yields as we move forward into quarter 3 and quarter 4. But yes -- but those will more or less be substituted by the gains which we will get in the cost of deposits. So in our opinion, I think our margins -- and if you look at 6 quarters in the presentation in the investor, we've been very stable and will continue to be stable in our margins.
Got it. And my second question is on capital consumption. You risk weight assets have come down in the quarter with a decent balance sheet growth. So if you can explain that and your credit risk weight to loans are probably lowest I've seen for many years so.
So a couple of key reasons for that. One is the -- some of the unrated portfolio got rated during the quarter, so that released some of the risk rates. And we also had some of the nonutilized limits getting reduced quarter-on-quarter, both for funded as well as non-funded, which caused some of the release in the RWA.
And we are done with that process?
Unutilized limits say they vary depending on the customer preferences, but unrelated, I think that's behind us to a large extent.
Next question is from the line of Kunal Shah from Citigroup.
Yes. Congratulations for numbers. So firstly, on the stages and the credit cost, ride cost is still at the upper end of the guidance. And when we look at it, in fact, we have utilized the INR 200 crores of contingency buffer as well. And you highlighted earlier, that maybe we have largely learned with the utilization, and we will try to create further buffer as well. So how confident we would be with respect to the credit cost trajectory of 1.1 to 1.3 odd percent? And even on the slippages side, it seems we relatively high, maybe you mentioned because of seasonality in 1Q. But maybe you can just highlight in terms of how much was vehicle and kind of within the same?
So first of all, I think I'm very comfortable with the 110 to 130 basis points, including the contingent reserve of INR 400 crores to INR 500 crores. We will do that repair, and we will add to the contingent resources. We've said that, and we will make sure that we do that. So that's number one. And we are very comfortable with our numbers. And I think with the recovery focus which we put on the MFI, we believe that we will be able to manage that. Having said that, the second question on was on the ...
Slippages from vehicle increased from INR 383 crores to INR 581 crores. We will upload as usual, the segment-wise slippages in our opening remarks when we upload on the website, so you'll get the segment-wise slippages.
Okay. And MFI would be -- sorry, if you can just highlight that number as well.
MFI has come down from INR 599 crores to INR 369 crores.
Okay. So INR 370 crores of MFI and INR 550 crores of vehicle.
Correct.
Okay. And secondly, in terms of, say, the overall OpEx, so not much of addition to the branches, which we are expecting. But staying so is it maybe whatever has been the rise primarily because of the annual incentives in 1Q? Or maybe we see now that the employee cost regularly would be at the current level?
So the employee costs will be elevated. Some of them -- some of it is fixed, but I also believe that we've expanded our distribution, specifically in the micro finance segment, where we've had -- if you look at the cost, INR 65 crores to INR 70 crores of that cost has come from the microfinance segment because we are expanding our distribution in the micro finance to get the business done in a bigger way and get new to client customers. .
And I think on the vehicle finance side also, there's a INR 30 crore cost increase, which has happened because of the [indiscernible]. The other thing is the full cost of the new branches have now got absorbed into the quarter, that has also come in. You remember in quarter 4, we had a huge expansion of branches. That cost has fully got absorbed because it would have come for 30 days or 45 this has come for the full 90 days. So that cost has also come in into this quarter.
Okay. And no brand solution this quarter, but still quite a rise of almost like 7-odd percent in the overhead cost. So what would have led to that?
No. So I have told you, I think there is an increase in number of employees. There is an increase in the digital capabilities and the cost, which we are incurring of that, microfinance expansion, which we are doing I think our cost on the retail assets, which we have grown, I think, at a faster pace at that cost is coming in. And of course, the CFD cost where I think we are expanding our businesses into new domains like affordable housing and two-wheelers, where I think where we're seeing some costs coming in. I think that's a matter of time that you will see start seeing stability of that cost coming in. And I think, like I said, I think you will see 45% to 46% cost in quarter 1, quarter 2, stabilizing to 45% as we end the year. And you should see next year of 41% to 43% cost-to-income ratio.
Okay. And lastly, in terms of MFI. So still, I think in terms of the series compared to where the competitors are, in fact, our growth rates are relatively slow. Maybe last time also you highlighted. But when do we see maybe we were expecting some kind of a sequential momentum in this quarter? And you highlighted that maybe the MFI will be one of the growth drivers. So when do we see that change in trends in terms of sequential momentum catching of [indiscernible] given that investment has also been done in this franchise here?
So we've said the overall micro banking book will grow at 28% to 30%. But within that, microfinance will grow at 18% to 20%, we are at 14% year-on-year. I think you will see an 18% to 20% growth. That should start coming in the second quarter itself. And I think what you will see is the other business is growing at a very fast pace, and we will start seeing that growth also. So in quarter 2, I think quarter 1 is relatively a week to quarter. in the micro finance segment. And I think in the second half of the year where the growth actually comes in, but you will see that in quarter 2 itself . That our growth will be there in the microfinance segment.
And I think in quarter 1, I think we were -- we have implemented a new technology. We wanted to make sure that our collections reduced flows reduced, and I think that's what we wanted to get into. And I think the momentum is now back. And I think we're already seeing in the first 15 days of the month, very good momentum in the disbursements in the microfinance segment.
Next question is from the line of Abhishek from HSBC.
And congratulations for the quarter. So most of my questions are answered. Maybe I just need a couple of data points. If you can share the weighted average cost of term deposits and I think that will be great.
We don't give those numbers, and I think we've never disclosed that numbers ever.
Sure. Okay. Okay. And all the best for the following quarters.
The next question is from the line of Saurabh Kumar from JPMorgan.
Just one question. So your credit cost guidance this year would factor in any additional provision for the security receipt contingent build-out and the net slippage, right? So that 110 and 130 includes all the three?
So you're asking your question or a confirmation? So we actually believe that all these costs are loaded into 110 to 130 basis points.
Okay, okay. And just in terms of if you were to move to this ECL now, how much do you think you will need buffer?
So our contingent provisioning is what we are doing to make sure that we are ready for ECL.
Yes. But how much would you kind of need?
The active routes are still not finalized by the Reserve Bank of India. So I think it's very difficult. We said that our ECL will be in the range of 1%, 1.5%, 1% to 1.2% of the book. And I think that's what we are working on. It has to be amortized over 5 years. We don't want to wait for it, and that's what we are working on.
Next question is from the line of Jai Mundhra from ICICI Securities.
Yes. Congratulations on a good quarter. My question is, sir, on loan growth, right? So we have delivered 22% Y-o-Y growth, and it is fairly broad-based in terms of large corporate, mid and small corporate and then retail within retail vehicle and everything -- every major segment seems to be doing at 21%, 22%. And the question is, do you see within your broad 18% to 23% guidance, the divergence of retail growing at a faster pace or I mean, when do we see retail growing at a faster pace versus corporate?
So if you look at the retail growth, microfinance has degrown for me. And I think if you add the microfinance growth, I think the percentage shift would have happened to 55% to 56%. That's where I think -- and you will start seeing that growth happening over this next the 2 to 3 quarters. And I think by the end of this year, we should end at 55% to 56% in favor of retail and 44% to 45% in favor of Corporate Bank. We've always said that we want to continue to maintain a very balanced view on our retail and corporate mix. And I think that's the way I think the corporate will be in the range of 43% to 45% and retail will be in the range of 55% to 57%.
Sure, sir. And you had mentioned the security receipts in basis points. And then you had provided some INR 129 crores this quarter. Just to confirm an absolute number that security receipts, net of provisioning would be around -- I mean what would be that number in rupees growth?
INR 1,333 crores.
Sure.
INR 1,300 crores roughly.
Next question is from the line of Param Subramanian from Nomura.
Yes. My question is again on the numbers given on Slide 21. So if you look at the segmental yields across corporate and consumer banking, it's up 8 to 10 basis points. So I think you mentioned the increase in yield quarter-on-quarter, 20 basis points is being driven by mix. But even the mix seems to be stable quarter-on-quarter between corporate and consumer. So could you help us out with what you're missing over there?
No, you are looking at the period-end numbers. So like we explained earlier, last quarter, microfinance disbursements were quite strong, and they happened during the course of the quarter. So if you take the daily average mix this quarter is much better in terms of the retail portfolio and that too, particularly micro finance, which is the highest yielding segment. So that is causing the yield moving the way it has been disclosed. Whatever we disbursed in microfinance last quarter was available full quarter in this quarter.
Okay. Okay. Got that. Okay. And my next question, again, Sumant, you highlighted that in the opening comments, but on the diamonds -- on the [ Gen X ] portfolio, so it has seen some decline. If you could give us some outlook on how business is shaping up over there, both in terms of growth and asset quality as well? Yes. That's it for me.
Sir, the growth is dependent on how the markets revive. We are in the working capital business and we do a site business. So I think we have to wait and watch for the market to revive. And I think that's -- I think it's the second half of the year is when you will see the revival. And we should grow this business at 10% to 12%. That's what the growth of the business is. On SMAs or -- we have no SMA 1 and 2 in this business at all and the portfolio looks pristine as of now.
Next question is from an Manish Shukla from Axis Capital.
Can you quantify the size of the non-MFI micro banking book once it increase?
That's the merchant acquiring book that we disclosed in the loan mix. So it's about INR 4,222 crores.
Okay. On the affordable housing piece, right? So what -- how has been your experience so far? And how do you think this book scales up from where you are right now?
So we've changed the team. I think we've not grown that book over the last 2 years is INR 1,700 crores to INR 1,800 crores. The experience cannot be in such a small book, you cannot define an experience I think we've started scaling up the book now. We've got a team in place. And I think we see that this book will touch about INR 5,000 crores to INR 5,500 crores in 3 years, and that's what our ambition is INR 15,000 crores of mortgages and INR 5,000 crores to INR 5,500 crores of affordable house.
Okay, INR 15,000 crores for mortgages. And this mortgage is -- I'm assuming you don't need to lap and your own?
No, no, no. We are getting -- we -- as I told you, we've got into housing loan segment. We are doing a pilot right now. We have a INR 665 crores. By the end of this year, we should be around INR 4,000 crore to INR 5,000 crore book, and then we will start scaling up the book.
The next question is from the line of Sumit Rathi from Centrum PMS.
Congratulations on the good set of numbers, sir. I just wanted to check or NPLs in the consumer financing book across the product has gone -- [indiscernible] numbers have gone slightly up Q-on-Q, how can we see it going forward? And what could it have an impact on our credit cost prospects of 1.1 to 1.3 percentage?
So I think if you look at the consumer finance book, the nonmicrofinance it's about 14% to 15% of our book. If you look at the numbers which are coming on that, I think we had a INR 280 crores of flow, which happened on that business. And I think the recovery rates are also very high on that business. So I think while I think the credit card is the largest low element in that business.
So I think the credit card is 3% of our book. So I think we should be able to maintain our credit cost. So when we've done our within our calculations of 110 to 130 basis points. We said 44% to 45% of our book will be corporate, which will become at 10 to 20 basis points of credit cost. I think the consumer bank will be around 150 to 180 basis points of credit cost. If you look at micro finance, will be 250 basis points of credit cost. And our vehicle finance business will be at 100 basis points of credit cost. If you compute it will come to 120 to 150 to 120 basis points of credit cost.
On the core finance book, can you dwell a bit on like what is the -- you said you had some early warning systems over there. So what are these early warning systems? And what is the top 10 or top 20 big accounts we have, like what percentage of our book, if you can dwell on that?
So the top 20 accounts on the large corporate side, which we don't disclose, is a very small percentage left of our book at a very high, but it was -- it has now reduced sharply on our book, and I think it's about 12% to 13% of our overall corporate book now. Having said that, I think on early warning indicators, I don't know how to explain it to you. There are 200 attributes which we use. Now I can't explain each and every attribute. There are different attributes which we use to identify early warning indicators. And I think we use them very effectively and manage our portfolio. And we don't -- not even manage our portfolio in the large corporate. We also use it in the MSME and the MSME side of the business or any business on the segment side of our business.
Next question is from the line of Jignesh Shial from InCred Capital.
Yes. Just wanted to check on a couple of things. One, we are seeing that CDs has been inching up sequences right now...
Sorry, to interrupt you, your voice is not coming clearly.
Is it better now?
Yes.
Yes. So our CD ratio has been intense up. And now right now we have somewhere around -- so at what level are we comfortable? Or do you think it can still we have enough room to grow it further? What's -- how comfortable for the CD ratio, overall?
Our comfort level on CD ratio is 86% to 89%.
Okay. Okay. Understood. Understood. Secondly, if you set up, there has been a sequential jump also that we are seeing about on the investment book as well. So anything specific that we did to or it's just generalized and we should see normalizing over coming quarters? Or can you give me -- give us some idea on it?
Yes, Sure. Yes. So the increase in sales book is primarily due to excess cash being deployed in short-term treasury bills. So you all know that the rate cycle is sort of benign at this point in time. So the idea is that the excess cash that we get, we've got to ensure we get ample returns by way of having a secured portion through government securities and that can come in help whenever we wish to -- if we see a higher credit growth.
But having that, I think there are 2 or 3 avenues that you must see, so that's the cash and bank balance the investment book as well as balances in RBI. So you'll see a proportionate increase or a decrease in some of those getting mix or getting a change in mix in that. So it gives me a high yield of around 130-odd basis points.
Understood. Understood. And just lastly, on the corporate banking side, we have been seeing consistent sequential search on the smart corporate portfolio. So want to know proportion or the quantum is still pretty smaller compare large and met. But can you give us some flavor on what kind of lending is happening out here or not? And how much you're comfortable growing it up further? That's it from my side.
Yes. So a small corporate book, 2.5, 3 years back was around 4% of our total corporate book. Today, as we speak, it's around 10.5% and the idea is to take it to around 20% in the next 2.5 years of the corporate book.
Understood. Perfect. But just one adding. Will the yields would be relatively better off compared to mid- and large corporate? Will that be a fair understanding, yes?
Yields are better. Obviously, the granularity is much -- it's much more diversified in terms of the ticket size and stuff like that.
And this is secured.
These are secured, these are all secured.
Thank you very much. I now hand the conference over to Mr. Sumant Kathpalia for closing comments.
Thank you for participating in the call. As usual, me and Indrajit are available for any further questions that you may have. Thank you, and God bless.
Thank you very much. On behalf of IndusInd Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.