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Indusind Bank Ltd
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Ladies and gentlemen, good day, and welcome to IndusInd Bank Limited Q4 FY '22 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. Let me start with some macro commentary and then get into the bank's specific details. Over the course of quarter 4, the economy was hit by a third wave of pandemic, which ebbed by March, helping by improving pace of vaccination.
Latest official estimates suggest the economy surpassed its pre-pandemic size by end of quarter 4 with real GDP growth of 8.9% over financial year '22 as major components of GDP went past its pre-pandemic level.
However, pace of recovery got impacted by Russia-Ukraine conflict with sent commodity prices, including our oil spiraling upwards. India, however, is much better positioned to deal with the negative external spillovers and improved macroeconomic stability profile, government CapEx push, external sector buffers and our broadly supportive fiscal and monetary policy environment would help sustain recovery momentum.
Much improved health of the banking sector, significant deleveraging by the corporate sector and gradually improving capacity utilization reinforced the case of an investment cycle over the next 3 to 5 years.
Coming now to the bank's performance. We completed second year of Planning Cycle 5 strategy in quarter 4. I will spend a minute on PC5 update before going into our quarter specific developments. We have also added a few slides in the investor presentation, providing a status update on PC5.
The financial year '22 proved to be a challenging year due to internal as well as external factors. While we saw spread of COVID second wave during the first half of the year, we faced whistleblower allegations in the second half followed by a COVID third wave.
The bank responded with measures to address these concerns comprehensively through slower growth in first half, focus on collections, building conservative contingent provisions ahead of the slippages, conducting internal and external review on microfinance operations and maintaining traction on consumer, corporate and digital initiatives. With these concerns getting behind us, we steadily pivoted towards growth with loan growth improving every quarter from 3% in March '21 to 12% in March '22. We also progressed on our key initiatives for PC5.
Retail liability search. Momentum on retail liabilities were maintained with the share of retail as per LCR increasing from 37% to 41%. CASA ratio improved from 41.7% to 42.7%. And top 20 deposit concentration fallen from 22% to 17%.
The COD at 4.6% is at the lowest level in our journey over several years. Fine-tuning corporate bank approach. Corporate Bank saw a growth of 20% after last year sell-down and net slippages of around 60 basis points, witnessing one of the best years in recent past.
We have seen improving -- improvement in average rating improving from 2.76 to 2.69, granularity in fees and reduction in long-term loans as shown in the investor presentation.
Holistic rural banking. Rural banking franchise saw a scale up of Bharat Merchant stores, agri business along with the recovery in vehicle and microfinance. These improved shares of rural loans from 19% to 20% this year. Our domains. Our domains contributed 43% of the loan book and have outperformed the industry during COVID waves.
Our disbursements in vehicle finance and microfinance have picked up well after a brief slowdown due to COVID 2. Diamond portfolio too participated in the strong growth in exports.
New growth boosters. We progressed well on scaling up our new initiatives such as affluent banking, NRI, tractor financing, small corporates with less than INR 500 crore turnover, merchant acquiring, affordable housing and digital 2.0.
Overall, we navigated an otherwise turbulent year with outcome broadly in line with our communication throughout the year. We had consistent improvement in return ratios as well as growth metrics every quarter, and our balance sheet continues to be at its strongest level in the last several years.
Coming to the quarter specific developments. Acceleration in loan growth. We achieved 5% quarter-on-quarter growth, driven by 5% quarter-on-quarter growth in consumer, 4% quarter-on-quarter growth in corporate segments. The year-on-year loan growth book improved to 12% from 10% previous quarter.
All retail products, including vehicles, microfinance and consumer saw one of the healthiest disbursement ever during quarter 4. The corporate book has been maintained steady momentum driven by small corporates. This broad-based disbursement growth was a key outcome for the quarter.
Our deposit mobilization continues apace driven by granular customers. Our deposits grew 3% quarter-on-quarter and 15% year-on-year, including CASA growth of 5% quarter-on-quarter and 17% year-on-year.
The growth in retail deposits as per LCR accelerated to 6% quarter-on-quarter and 26% year-on-year. The growth in deposit is achieved along with the reduction in cost of deposits by 6 basis points quarter-on-quarter and 43 basis points year-on-year.
Digital 2.0. During the year, the bank created digital center of excellence, investing in building new capabilities and talent base. We launched Indus EasyCredit, merchant acquiring and vehicle finance portfolios and are being scaled up. The other 2 individual and SME offerings are planned for the launch in the current year. The digital transactions continued to grow from -- forming 92% of the total with strong growth in mobile transactions up 33% and WhatsApp Banking 2x Y-o-Y.
Asset quality. We saw a reduction in both gross and net slippages during the quarter across consumer, vehicle and microfinance business. Our net slippages have come down from 0.9% to 0.6% quarter-on-quarter.
Our restructured book has reduced from 3.3% to 2.6% quarter-on-quarter and continues to perform well specifically in vehicles. While we saw slippages from corporate restructured book, we have not written back any provisions from contingency buffer.
Our GNPA was down from 2.48% to 2.27% and net NPAs reduced from 0.7% to 0.64% quarter-on-quarter. Our contingent provisions are at INR 3,328 crores with total loans related provisions at 152% of gross NPAs.
Healthy profitability continues to remain. Strong retail disbursements and falling cost of deposits aided improving our net margin to 4.2%. Our client fees continued momentum growing at 8% quarter-on-quarter.
Our costs accelerated due to business revival as well as investments in technology and distribution resulting in cost-to-income ratio of 42.6%. Overall, our operating profit remains healthy at 5.8% for the quarter.
Steady improvement in return ratios. Our profit after tax grew 13% quarter-on-quarter and 51% year-on-year to INR 1,401 crores. Our return on assets improved to 1.51% and return on equity was at 11.9% for quarter 4.
Continued improvement in return ratios and lower risk density has ensured a healthy capital adequacy ratio at 18.42% versus 17.38% Y-o-Y.
Now coming to individual businesses. Vehicle finance. Our vehicle finance disbursements for the quarter were at INR 9,986 crores, reflecting 13% quarter-on-quarter and 19% year-on-year growth.
Our full disbursements at INR 32,000 crores surpassed previous COVID level despite weak quarter 1 due to COVID second wave. Within vehicle categories, we saw healthy disbursements across commercial vehicles, construction equipment, utility vehicles, tractors and cars. Disbursements in 2- and 3-wheelers remain subdued.
We have gained market share in light commercial vehicles, construction equipment, tractors and cars during the year. We have seen activity levels across the customer base increasing during the quarter. The vehicle supply constraints have ensured adequate capacity utilization for existing vehicles. This has also helped customers to pass on increasing fuel prices, burden without considerable impact on their viability.
The smaller road transport operator segment has seen good freight demand during the last couple of quarters. The segment refrained from exuberant vehicle purchase since pandemic resulting in near normal capacity utilizations now. This should pave way for fresh demand once fuel prices ease down. Two of our weak product segment that is bus and the 3-wheelers have also seen utilization improving as COVID restrictions are withdrawn to a large extent.
Three-wheeler segment is quickly getting back to normalcy, including demand for fresh vehicles after a long time. But that segment, too, is expected to see fresh demand a couple of quarters down the road. As a result, our vehicle finance restructured book has reduced from INR 3,769 crores to INR 3,298 crores quarter-on-quarter. The collections from the restructured book improved further to 90% during the quarter. Collection efficiency from the rest of the book is back to normalcy.
Overall, we remain optimistic about the vehicle finance business outlook for the current year. The segment has withstood increased fuel prices till now. We continue to add to our distribution, invest in our digital ecosystem and maintain rationale pricing to ensure growth and risk adjusted returns across the cycle.
Microfinance. We were cautious on microfinance disbursements in quarter 3 due to potential third COVID wave, focused on collection and completion of business reviews. As you know, we shared findings of independent review in March. With these issues getting behind us, our microfinance disbursals bounced back nicely during the quarter. The microfinance book grew to INR 30,612 crores with 16% year-on-year growth.
Our standard book collections, excluding restructured loan book, improved further to 99.1% in March '22 compared to 97.5% in December '21, while the collection efficiency of new clients sourced during financial year '22 was at 99.5%.
The net slippage during the quarter was INR 696 crores and cumulatively for financial year '22 was INR 2,547 crore. This was broadly in our line -- in line with our slippage expectations for the year, and we saw severe impact of COVID second wave specifically in rural India.
We are carrying over 90% coverage on gross NPAs. Our 30 to 90 DPD book has fallen from 5% to 2.6% during the quarter. With this reduction in overdue book, limited impact of COVID third wave on the portfolio and focus on collection, we believe the credit cost in microfinance should get back to normalcy too.
Our merchant acquiring business managed by BFIL has scaled up impressively during this year despite multiple macroeconomic challenges. The loan book outstanding grew to INR 1,943 crores from INR 1,463 crores quarter-on-quarter. The number of borrowers under this book increased to 324,000 from 260,000 quarter-on-quarter.
The merchant acquiring book has been consistently reporting net collection efficiency of more than 98% for the past 3 quarters, and the credit cost has been less than 1.5%.
IndusInd bank, through BFIL has been taking banking to the doorstep of its customers and we feel there is a large untapped potential in terms of liability sourcing in rural India. While still small, we are -- we still are happy to share that we are able to mobilize INR 1,400 crores from the clients served by Bharat Financial.
We are looking at various means to reach the last mile and efforts are on to make IndusInd the primary banking customer of our valued -- our valued customers. Overall, we believe microfinance business is steadily coming back to normalcy after a severe second wave. The activity levels are consistently improving and with expectation of another year of good monsoon, the business is expected to show steady performance in the coming year.
Global diamond and jewelry business. The Indian diamond cutting, and manufacturing industry had a healthy growth recovery during financial year '22, showing a 50% growth in exports. Our diamond book too grew by 29% year-on-year on the back of strengthening exports and diamond prices.
The business so far has not seen any material impact, except for reduction in business volumes due to ongoing Russia-Ukraine conflict. As you know, we are a working capital provider at the top end of the diamond and diamond studded jewelry manufacturing customers in formal economy. We are engaged with all stakeholders and monitoring the situation closely.
On the base case, remains that the conflict may result in slower growth in diamonds business, which although may not create an asset quality issue, but may impact growth in assets and income in the short term. The business, however, is only 4% of the loan book and thus overall impact on the bank should not be material. There has been no NPAs or restructuring in this segment.
Corporate Bank. Our corporate loan book has maintained a steady performance, growing around 5% quarter-on-quarter consistently throughout the year. We had realigned the stock as well as flow of the corporate book towards revised underwriting framework. This has played out well during the course of the year. The growth was driven largely by large and mid-corporate growing by 20% year-on-year.
The growth was backed by increased disbursements and working capital drawings, specifically in our strategic customer growth. This quarter was characterized by high activity levels with good disbursement as well as prepayments due to deleveraging. Small corporates grew 26% year-on-year, albeit on the small base. There are corporates with turnover -- these are corporates with turnover less than INR 500 crores, especially in SME, some supply chain finance program. The proportion of A and above rated customers has also improved from 68% to 71% Y-o-Y with weighted average rating improving from 2.76 to 2.69.
During the quarter, our corporate restructured book reduced from INR 17 billion to INR 9.6 billion. We saw restructured exposure in the construction segment of INR 5.8 billion being repaid. We also saw restructured exposure in a retail group of INR 1.4 billion slipping into NPA and fully provided for.
The restructured book also includes around INR 4 billion from other entities in the same group which are performing as of now. The bank is carrying provisions towards these restructured as well as NPA accounts from the retail books.
Our exposure to stressed telco was at INR 30 billion as of March '22, which subsequent to the quarter end saw a meaningful reduction of INR 1,150 crores in April. Our exposure as on date stands at INR 18.5 billion, including fund-based exposure of [ INR 10 billion ] and balance nonfund-based exposure. Overall, we remain confident on the lookout for the corporate sector -- banking credit growth. Our interactions with corporates do indicate rekindling interest in private CapEx.
Government spending on infrastructure, manufacturing boost through production-linked Incentives, rising new economy companies, stronger balance sheets et cetera are all point towards likelihood of a fresh CapEx cycle across the country. We having weathered challenging times over the last 1 to 2 years, are now well positioned to capitalize the market opportunity.
Other Retail Assets. Our retail asset loan book accelerated to 6% quarter-on-quarter driven by secured as well as unsecured assets. The retail asset business saw recovery in disbursements post COVID in Q3, which was further strengthened in quarter 4.
Credit cards continued to deliver strong performance as the spending of INR 13,800 crores for March reflecting 42% year-on-year growth. Our business banking segment has shown 5% quarter-on-quarter growth. We had been cautious on this segment due to COVID as well as loan pricing issues. We are now comfortable on both the fronts resulting in strong disbursements.
Our new customer acquisition run rates nearly doubled from financial year '21 as COVID impact receded and distribution led strategy picked up.
The loan against property book also grew 2% quarter-on-quarter after being stagnant for a year. The growth was achieved by increasing disbursements and easing competitive pressure on pre-payments.
We expect growth momentum in 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 Liabilities. Deposits grew 15% year-on-year and 17% year-on-year growth in current and savings account respectively and retail deposits as per LCR grew by 26% year-on-year.
The growth is achieved along with the reduction in cost of deposits. Our cost of deposits reduced to 4.60% from 4.66% showing a decline of 6 basis points during the quarter and 145 basis points cumulatively in 2 years.
We reduced concentration of Top 20 deposits from 22% to 17% year-on-year. The Certificates Of Deposits has remained a small component of 3% of our overall deposits.
Affluent segment total AUM stood at INR 60,000 crores, including deposits of INR 35,000 crores. Affluent business also contributed to fee of INR 350 crores for the current year growing 50% year-on-year. Deposits from NR segment have been holding up well at INR 26,800 crores despite weak fresh NRI deposit inflows in the country.
We resumed branch expansion after COVID 2 eased in second half of the year taking branch count to 2,265 from 2,015 from September. We plan to add another 200 to 250 branches during the year.
Our savings account was also recognized as the best savings product by Financial Express Best Bank Awards 2022.
Our seamless client servicing with minimal client disruption throughout the pandemic was recognized by the Digital Banker Award for Outstanding Response to COVID-19.
Our retail deposit mobilization has been a cornerstone of our PC5 strategy. We have seen a sea-change in deposit franchise from deposit attrition in March '20 to massive surplus in March '22 coupled with strengthened deposit profile. Overall, we remain committed to liabilities led growth strategy with emphasis on retail deposits.
The deposit mobilization is likely to see increasing competition due to tightening liquidity as well as potential pick up in credit growth. Our investments in physical as well as digital distribution should help us maintain deposit momentum. The growth will also be aided by increasing market visibility as well as the new segments such as agency business.
Digital Traction. The Bank has created a Digital Center of Excellence and is taking a comprehensive view to deploy new age digital platforms and build end-to-end digital client value propositions.
We have built new capabilities and infused a lot of specific talent in digital. We have setup a digital factory which is now a 100-member team across digital product, advanced analytics, digital marketing, digital partnerships, digital revenue and growth roles driving our digital agenda along with our technology partners.
As mentioned at the beginning of the year, we are focused on 5 areas namely: easy credit for unsecured retail loans, digital ecosystem for vehicles, particularly in the used segment, merchant solutions, differentiated payments and finance solution for individuals, SME trade and credit stack.
During the year, we launched 3 of these 5 initiatives as follows: IndusInd EasyCredit for individuals is one of its kind end-to-end omnichannel digital journey. This solution provides instant sanction and disbursal capability enabling superior client, employee and channel partner experience.
We already have close to 200 off-line partners live on the platform and several online partners in the process of integrating into the stack. Consequently, 84% of the card origination business is now digital, up from 37% a year ago. The cost of origination too is down by 60% versus traditional model. The stack will be soon extended to personal loans as well.
IndusInd EasyCredit for business owners provides digital journey for MSME clients seeking secured/unsecured loans up to INR 2 crore. It's a completely digital process where we are leveraging advanced analytics to give an in principle sanction to MSME clients within 15 minutes for loans and up to INR 2 crores in the form of unsecured term loans or secured overdraft. The stack will be extended to other MSME offerings as well.
Indus Merchant Solutions app is all in one stack for retailers with to bring their payments, lending and banking needs together under a single umbrella. We went live in quarter 3 and are seeing a good traction already with close to 60,000 user base and 75% of the users being new to bank, another 20% of existing clients of the bank wanting to avail payment proposition on the back of the digital merchant stack.
Vehicle business launched Indus Easy Wheels portal which hosts ancillary services like roadside assistance, mechanic services, insurance which is the first of its kind in the market. This portal also hosts the repossessed vehicles of the bank for auction and provides a smooth user experience for anyone who are looking for preowned vehicles.
We are proud to share that the EasyCredit was recognized as the Best New Product Launch for the year loans by the Digital Banker and at the Global Retail Banking Innovation Awards and Indus Merchant Solutions was awarded outstanding Digital CX SME award in the recently concluded Digital CX Awards 2022.
The other 2 initiatives of Digital 2.0 millennial and SME offerings are planned to launch in the current year.
During the year, we also strengthened our partnership adding new strategic partners to our platform. Our mobile app continues to see strong user penetration growing by 20% year-on-year and our monthly active users and mobile transactions increased by 33% year-on-year.
On WhatsApp Banking, we continued to see healthy traction with monthly active users and transactions increasing nearly 2x year-on-year. Overall, 92% of our transactions are digital and nearly 70% of the service requests are processed digitally.
Now coming to the financial performance for the quarter. Net interest income for quarter 4 was at INR 3,985 crores grew 13% year-on-year and 5% quarter-on-quarter in line with our loan growth.
Net interest margin improved during the quarter from 4.10% to 4.20%. The improvement was driven by continued reduction in the cost of deposits from 4.66% to 4.60%. Other income grew by 7% year-on-year and 2% quarter-on-quarter. Core fees excluding trading income grew by 8% quarter-on-quarter and 9% year-on-year. Share of retail fees has improved from 58% to 64% of total fees. Operating expenses grew by 15% driven by recovery in retail businesses, investment in technology and distribution growth. Our branch network saw addition of 162 branches during the quarter taking the branch count to 2,265. Our overall cost to income ratio increased to 42.6% versus 41.6% quarter-on-quarter.
On the asset quality and the provisioning front. Our stressed pool has seen meaningful reduction which includes gross and net slippage have come down quarter-on-quarter driven by reduction in microfinance and vehicle finance. Net slippages for the quarter were at 0.6% of loans versus 0.9% for previous quarter. Our restructured book has seen a reduction of INR 1,359 crores and moved from 3.3% to 2.6%. Around 53% of this book originates from vehicle finance where performance has been as per our expectations with collection efficiency of 90% for March.
The microfinance collection efficiency on standard book excluding restructured was at 99.1%. The collection on new loans in financial year is healthy at 99.5%. The restructured book carries contingent provisions. Exposure to stressed telco has now come down from 3 billion -- 30 billion to 18.5 billion along with multiple positive developments in the telecom industry. Overall, gross NPA for the bank has moved down from 2.48% to 2.27% quarter-on-quarter and net NPAs were down from 0.71% to 0.64% quarter-on-quarter with a PCR of 72%. While we saw slippages from restructured book during the quarter, we have made fresh provisions through P&L rather than using -- utilizing contingent provisions. Overall, our contingent provision excluding specific provisions remains at constant at INR 3,328 crores. Our loan related provisions are at 3.5% of loans or 152% of the gross NPAs. Our SMA-1 and SMA-2 book was at 43 basis points and 16 basis points respectively. Collectively SMA-1 and SMA-2 have reduced from 84 basis points to 59 basis points quarter-on-quarter.
Net security receipts reduced marginally from 85 basis points to 83 basis points quarter-on-quarter. Profit after tax for the quarter was at INR 1,401 crores growing 13% quarter-on-quarter and 51% year-on-year. Our CRAR, including profits remains healthy at 18.42%. Return on assets crossed 1.5% mark during the quarter and return on equity improved to 11.9%.
In conclusion, we completed the second year of this 3-year strategy cycle. We have closed the year putting behind most of the external -- internal and external concerns and steadily pivoting towards growth. While the operating environment remains volatile due to Russia-Ukraine conflict, we are committed to achieving our Planning Cycle 5 ambitions.
Our priorities for the coming year would be maintaining disbursement momentum. Our areas of domain expertise that is vehicle, microfinance and diamond has seen good recovery in disbursements. The impact of increased fuel prices has not been evident yet including this month so far. Our corporate and consumer business too are contributing towards growth. Overall, we would aim to achieve our PC5 growth ambition of 15% to 18% compounded growth for the financial year '21 to '23 period.
Retail liabilities. We continue to believe and execute on liabilities driven growth strategy, particularly through retail deposits. We are investing in our physical as well as digital distribution to maintain our liabilities momentum.
Digital. We launched 3 out of the planned 5 initiatives. Indus EasyCredit, merchant acquiring and vehicle finance portal. These will be scaled up during the year. The other 2, millennial as well as SME offerings are planned for launch in current year.
Launch and scaling up of new initiatives. We are adding new growth boosters across assets and liabilities businesses. Assets side should see launch of home loans, scale up of tractor, affordable housing, merchant acquiring and small corporates. Liability side should see scale up of affluent, NRI, agency business, and wealth management.
Improving financial metrics. We have aligned our balance sheet towards rising interest rate scenario. We will thrive towards maintaining our healthy NIMs and operating profit margins. The provisions should come down with COVID impact getting behind us. We believe that the coming year should see underlying profitability of the franchise with improved growth.
We can open the floor for questions now.
[Operator Instructions] The first question is from the line of Mahrukh Adajania from Edelweiss Financial Service.
I just want to check on your outlook on margin.
Mahrukh, we believe we've always given a guidance of -- 2 margin guidances, which we've given. One is on net interest margins. We've given 4.10% to 4.25%. And that's where we are overall for the year. And we've given a PPOP guidance of greater than 5%. We ended the year at 5.8%.
Got it, sir. And irrespective of the rate cycle, that should be the margin guidance, correct?
Yes, that's what I said. I think we believe that we will be range bound on the -- in these -- we will be range bound in these 2 margins irrespective of the rate cycle as of now because we have the ability to change our product mix of the portfolio mix.
Got it. And sir, just in terms of credit cost. Obviously, you are feathering the balance sheet by providing more and not growing up. But at what point in time do you start drawing down?
We have to wait for the right opportunity. I think we've not done it this quarter. Who knows that we were -- once we see that the flows are happening from the restructured book at that appropriate time, we will take a call. It's not necessary that we will drop. We may just keep the contingent provisioning holding on. It depends on how we are seeing the float, and we've given a guidance on the credit cost of 120 to 150 basis points. And I think you will start seeing that range bound activities from us going forward.
Sir, there's a last question, you were sounding constructive on private CapEx, which is not the case with other banks. So I mean, when do you see that pitching in?
So we've said that it will happen over a period of time. We've not said it will happen immediately. So we -- so why we see some green shoots coming up here or there, but I think the public CapEx will come up before the private CapEx. But we do see in private sector also some 1 or 2 proposals keep on coming to us. We have Sanjeev Anand here. He can answer that question. Sanjeev, would you?
Yes. So actually, we have been speaking to a lot of our clients and everyone over the last 4, 5 months, I would say at least 60%, 70% of the large strategic clients has spoke to us talked about CapEx now because they're pretty much reaching their capacity utilization. So definitely, in the coming 5, 6 months, we will see a big boost out there.
[Operator Instructions] The next question is from the line of Kunal Shah from ICICI Securities.
Yes. Congratulations for good set of numbers. So firstly, in terms of -- for the entire deposit, okay, the way the environment is shaping up, liquidity is going to be tight, and in fact, many of them are raising rates as well. So -- and so how should we look at our retail plus -- no doubt you have alluded in terms of affluent, NRI to be the focus segment, but how should we look at the overall retail and, should we see like there will be reliance on the bulk deposits in case we get towards our growth guidance of 18-odd percent, yes?
We are very clear, Kunal. We want to get our retail franchise correct. And we've given our guidance on PC5 to be between 45% and 48% on our retail SPA -- LCR ratio. I believe that we are on again. If you look at our rates start-on deposit rates is still higher than the 4 private sector banks. And I think we will continue to be at that range. And I think while people may catch up, I think, we will -- we've also positioned ourselves correctly in the 2-year plus maybe mobilizing deposits in the 2-year plus bucket to make sure.
And I think we've got some initiatives behind it to make sure that our retail growth and liabilities is enough to catch up. Our bulk deposits are today at 21% of our overall portfolio, and we want to continue to believe that we don't want to raise that. In fact, maybe it should go down. And we believe that we can -- managing the margins and the NIM in the range which we have set.
So overall, even in a rising interest rate environment, the way our book is more skewed towards, say, the fixed rate given the vehicle plus maybe on the MFI still we would be confident in terms of no impact in terms of the lagged repricing being there.
See what happens is if the interest rates are rising and we are rising, also the MCLR or the external benchmark rate does, right? So there may be a 30- to 60-day gap, but you may catch up with that over a period of 2 months or 3 months. That's number one.
Number two, the new fixed rate book, we are also seeing in the vehicle as well as we're seeing a rate increase and cautious rate increase happening in that segment. What was gone down to 7%, 7.5%, is now at 8%, 8.5% happening already on the commercial vehicle side. Number three, the mix of the mix -- mix on the fixed rate book is also changing. So on the vehicle side, for example, used vehicles and used cars are coming up to make up the mix change.
In microfinance, you've diversified the microfinance into merchant acquiring business by INR 2,000 crores is now at 23.6%. So you continuously change the mix to make sure that your margins are taking care of.
And in case the environment gets tight in terms of deposits and mobilization of the deposits, what would be our priority? Would it be in terms of sacrificing some growth retaining the margin or maybe investing more in terms of the scaling of the franchise and still try to get towards the growth guidance which is there?
I think we are looking at long term. I think we will continue to scale up our franchise. We will continue to invest in our franchise. We are going to launch our new initiatives on the liability front, which is on the digital capability completely. And hopefully, we should be able to launch in the next 7 months, which should give another impetus to our growth in the liability business. So we are cautiously and doing a lot of things to make sure that we are ahead of the curves in liability as we go ahead because we've been a little bit behind.
Sure. And one question in terms of MFI. So how is the leadership of that now post maybe we saw the change which has been there? And how should the entire business be now doing going forward here?
So I think I've answered this question before also. And I said that we had a very strong succession planning in place to take care of any leadership issues, which may have come in the microfinance segment. So like I said, I think we have put an Executive Vice Chairman, J Sridharan there, who has managed the business very, very well sitting there.
And I think we've been able to not hire a CEO, but each business has a distinct CEO and has been able to manage. We are still contemplating whether we need a CEO on top of the 3 CEOs and another Executive Vice Chairman. So I think the way the business has stabilized, we've not felt the need for it right now, though we have 2 external candidates.
Secondly, I think on the processes and the governance side, we had our internal resource Srinivas Bonam, who was actually from the microfinance industry who brought stability into the operations and the whole financial accounting and the operations bit of it.
The third thing which we did was I think the in-house senior management team into the bank. And I think that created a lot of stability in the workforce. And there is an opportunity for others also to move inside the bank without taking the agility of the microfinance industry.
Having said that, I think if you -- if anything to go by this quarter has been a representation of how microfinance industry will look. We've seen very good growth quarter-on-quarter and year-on-year on this business. We believe that this business will continue to grow at about 27% to 28% year-on-year, and we believe that the issues of quality of the portfolio are behind us, and we should come back to [ 2.5% -- 2% to 2.5% ] on the credit cost.
Having said that, also I must complement, and I must inform that MR played a very constructive role with us as a consultant. He guided us during this time and his term ended with us on March 31.
He continues to be available if we require him to me but the mutual consent, we said that now that the work is done, we can continue and create a new organization. So I think that's where we are. And I think the organization is now pivoting towards what it was supposed to be process-driven technology-led group as we go forward.
The next question is from the line of Manish Shukla from Axis Capital Limited.
Firstly, on credit deposit ratio, you are significantly below where you were earlier and much below your PC5 target also. So how do you see credit deposit ratio going for you?
So this is a cautious call. I think at one point, we were 116% to 118%, and we were beaten up. So I think we should move -- we've always said our target is to be between 88% to 92% and we will get there as the credit growth comes back. And be aware, what we are pivoting towards growth, you would see us moving to 88% to 92%.
And what part of the asset book would be floating in nature for you today?
Around 50% is fixed rate, as you know, the vehicle finance, microfinance and parts of credit cards. Balance 50% is being predominantly corporate, which largely is a variable rate book. Within that also, there is a short-term book, which by nature is a floating rate. So we are broadly 50% of the book is fixed rate balance is variable.
And the fixed rate book, what will be the average tenure?
So fixed rate you know vehicle finance business average tenure would be around 24 to 26 months. Microfinance is typically a 1-year book.
Okay. Last question is the fresh additions of NPA of [ INR 1,742 crores ] in consumer. That is across segments?
Yes. So let me just give you -- I think -- so I think the slippages on consumer are INR 553 crores, which happened from CFD business. Secured retail was about INR 212 crores, unsecured was INR 162 crores, and MFI was INR 815 crores. And the net numbers were INR 239 crores in CFD, INR 148 crores in secured, INR 116 crores is unsecured and INR 696 crores in MFI.
The next question is from the line of Nitin Aggarwal from Motilal Oswal Securities.
Congratulations on good results. Carrying over on the slippage number, like in the MFI, we still had a pretty elevated slippages. So I just wanted to understand if this [indiscernible] is done? And are we going to see an online slippages from FY '23 beginning? Or is it still on to deadline?
No. We've said that we should be in the range of 2.5% on the credit cost as we move along. That's what our guidance is, and this is where we will be.
But just wanted to understand if this is going to be back-ended improvement or...
No, no, no. So from quarter -- see, what you saw in quarter 3 was the maximum. In quarter 2, you saw -- quarter 4, you saw half of it. In quarter 2, you will see another half of it. So I'm just saying you will just see it going down because there's no -- the 30 plus bucket is INR 800 crores only. So it's just going to go down as we move forward.
Right. And secondly, on the vehicle business, how do you see the growth trends over FY '23? We have been running that covered up the loss that was going on now end up with growth. How is this position go from here?
See, I'll tell you what has happened on the vehicle. If you go back 4 quarters or maybe 2 quarters below, we were not growing at all in the business. And I think we were actually having an issue of excess running down of the book.
I think what we've seen now is disbursements catching up on quarter 3 and quarter 4. And of course, the quarter 4 was a 2% growth. But going forward, I think -- I have Sriram here, who heads us his legal finance unit. He has taken over from Partha. So let him just answer this question for you. It will help you -- get the answers correctly.
See commercial vehicle, we had what we call COVID 2, which was very fatal, and people had a very difficult time running the vehicles. So post that people are running the vehicle quite well, given the -- despite the recent price increase, people are able to run the vehicle.
And people are able to pay more than 1-month installment. Though they are not able to like come back from the entire 3 months deficit to what has been like -- which has happened during the COVID 2 scenario. But they have been paying more than one installment and the portfolio is looking good.
And month-on-month, like the overdues are coming down. But for commercial vehicle, the rest of the field like LCV, construction equipment, they are doing very, very well. Even though our recovery is good and also the people are looking at new purchases, and we are also looking at improving our market share. And presently, we are looking at also affordable housing as a good unit, and we are trying to invest like more money in that segment.
And lastly, on the liquidity coverage ratio now that has declined over 20% over past w quarters...
We are losing your audio. We are not able to hear you properly.
Sorry, am I audible? .
Yes.
Yes.
Sorry, I was asking on the liquidity coverage ratio, that has declined almost 20% over the past 2 quarters. So how do you see this? And can this limit the overall balance sheet growth in FY '23?
We are at 127% average on the LCR right now. And I think it's a question of how much of retail liabilities are we able to mobilize. And I think we said that we've got initiatives and we've done, in fact, in a bad year when the [ NR ] flows were down, we've still been able to grow our LCR. We are able to maintain our LCR. I think we will continue to grow this. The second thing is please understand if you look at our balance sheet, we have an excess cash sitting there of [ INR 50,000 crores ]. I think we are able to manage our business well. And I think we should be able to manage the LCR as we move forward.
Yes. Regulatory requirement is 100%. So if you see all peers, banks also, I mean, they have come off. And there's an average. So it may not translate to the [ INR 50,000-odd crores ] that you see as excess cash because this is done on an average basis. So if you see the ENR, LCR, it will be like 137%. So that's where we are. But like-to-like, yes, we are around 15%, 20% down as what you rightly said, as per disclosures. And I think that's the level that I think, consciously, we are seeing how to utilize our excess cash.
The next question is from the line of Jai Mundhra from B&K Securities.
On -- I have a couple of questions. First, on liability. I think we had earlier stance that loan growth will be preceded by deposit growth. If you can just refresh the guidance on both loan growth and deposits. And do you see a case for higher competition in deposit given the largest private banks are going to get more aggressive in deposit mobilization?
I think there will always be. It's a big market, right? Don't assume that there will not be enough size for everyone. Our asset growth even if we grow at whatever percentage we need to grow. At 20%, they come from a very small base. So I think we don't need so much of growth. And I think we are doing enough initiatives to back the retail deposit growth in my opinion.
So in my opinion, if we are looking at 15% to 18% CAGR growth on the loan, our deposit growth will actually be more than the 15%, 18%. Retail liabilities will be greater than 15% to 18% CAGR year-on-year. So we will continue to grow at that level.
Sure. Understood. Okay. And sir, on asset quality, especially on real estate, would you say that real estate is also a bit of a domain of the bank? Because in terms of size, maybe on a relative basis, that is also as big as gems and jewelry. Of course, you have not put out that as a domain of the bank, but I just wanted to check your view. Are you comfortable growing in that segment? And how would you assess the riskiness of that book at present?
It depends on what you call as real estate. So a lot of people define real estate differently. We don't have a mortgage portfolio today. A lot of banks are much bigger than us on the real estate business. So if you are defining real estate as commercial real estate, I think we are very selective on that real estate book. And I think it has done very well for us, which stood the test of time has stood -- and given us some very profitable growth.
We continue to believe in that segment. And I think -- but we have internal yardsticks and barometers again what our portfolio would be. And that's defined in our Board policy as well as our internal risk guidelines.
Right. So sir, on Slide 11, you have real estate, commercial plus residential, which is 4.05% I believe is your real estate developer because LRD is clearly the separate line item of 2%. So I wanted to check, a, out of this real estate book, which as per last Basel was around INR 8,000 crores. How much is restructured at present? How much is NPA? And is there any other portfolio which is under some sort of a dispensation?
Not at all. There is nothing on the restructure, nothing on the NPA on this book. And I don't know about the restructure. Is there any?
No, on research there's none. There was only one account which had become NPA which was recognized in the past, as of performing. Actually, during the last 1 or 2 quarters, it's been robust that we've been able to reduce exposure, get prepaid in some accounts. We've been able to book better new accounts because there is enough activity and positive activity.
We closely monitor the overall concentration across the different parts, but we have not seen any signs of stress. It's actually been a bit of a robust period, and you would have seen rating upgrades in some of the larger real estate companies itself. Some of them have gone to A category and better because of the large collections they've achieved.
Just to add, whatever our book was on April 20, when COVID hit. Today, as we talk, around 75% of that book has been churn, repaid or whatever it is. So it just shows the quality of the book. So it's -- I mean, we have a very good mix. We have some 110-odd projects across the residential and commercial, and they're all doing pretty well. I mean there's no real concern of.
No concentrations really.
Yes. And no concentration...
That was different regions, different -- good builders and that's a very...
Sorry, I missed the bit on churn. So what did you say, from April '20 to...
Our book -- when COVID came in, in April 2020 when there was this whole concern on that. So since then till now, in the last 2 years, around 75% of our real estate book, both on the commercial and the residential side has been churn. Churn means either repaid, prepaid or we have sold it down, added some new this thing because we have an active sell-down strategy in our real estate portfolio.
So basically, what I'm saying is it's a very good quality book, which we had onboarded at that time also, and it stood the test of time. And today also, it's a pretty well-diversified good quality book.
Right. And sir, on LRD exposure, would it be fair to assume that all of the project's exposure here would be operational and none of them would be under any dispensation sort of a thing, right? So...
So we have 2 types. We have a construction period loan with the right to take up the LRD, but LRD being a highly competitive market, depending on the lessee the rates. If they don't work out, somebody may take it over from us and our construction loan gets repaid.
On our LRD book, which we closely monitor we did see initially some delays and vacancies, but the latest, the portfolio is performing very well. Tenants are back, rentals are back, and there's no account which is in any stress. So promoters also supported during this period when rentals were lower, but now the rentals are back at full swing. And there is demand.
Actually, we're seeing fresh leasing at better rates. You would have read about that in the -- embassy had given a weak guidance that you're reading. There is good demand again. So the concerns that it may all move towards work from home, and they won't be demand for commercial assets doesn't seem to have played out as much from what you are seeing these times. But it's highly competitive on the rate side, so we will be selective on the kind of transaction we've done.
Great. And last thing, sir, from my side. One is, I mean, if I see a large corporate book, clearly, in rupees, absolute rupees crore, it has moved from, let's say, INR 44,000 crore -- INR 40,000 crore to roughly INR 60,000 crores over the last 4 quarters. But if I look at your credit rating and the risk profile rating mix that you give, there is not too much of a change on Slide 11. So from Y-o-Y 26% of BB and below is only less by 200 basis point. So what does it tell you that on an incremental basis is the same as the outstanding basis? Or there is something else which I might missing out?
No, sir, first of all, there is a -- we have mentioned on the slide that there is a little bit of reclassification on the corporate side. As we have reorganized the business, the slightly affecting large, mid, small is also reorganized and the growth rates, which Sumant mentioned in his opening remarks are adjusted for that reclassification.
So the large has grown 20% year-on-year, that's one. Secondly, the rating profile that we saw show on the Slide 11 includes both fund and non-fund-based exposure. And during the year, we saw some cash-backed guarantee getting repaid.
Plus combined to that, there is a growth in small corporate and gems and jewelry and real estate, which typically come in the BBB side, while the inherent risk is quite low. So those who 2 have contributed into the loan -- the rating mix has been what it has been shown in the Slide 11.
Understood. Understood, sir. And just last data keeping question. We have shown this security receipt portfolio, which is given in the BSE, what is the provisions that we are carrying against that?
So net security retail is 83 basis points, I guess, last quarter, 85 basis points.
Okay. So 83% is net number, right? Is that, sir?
Yes.
The next question is from the line of Nilanjan Karfa from Nomura.
Two questions. One is on data keeping. If you can also give the restructured loan breakup whatever is out I know across those 5 buckets that we historically mentioned.
Okay. Let me just give it to you. So our restructured book is about INR 6,172 crores as of now. CFD is INR 3,298 crores, secured retail is INR 686 crores, unsecured is INR 233 crores, MFI is INR 995 crores and corporate is INR 961 crores.
INR 961 crores? Okay. Okay. Great. When I look at the increment of cost of deposits and cost of funds, at least this specific quarter declined quite sharply by about 18 basis points. Could you highlight what exactly happened when we compared to cost of deposit, which was down only 6 basis points.
Yes, we had some borrowings that were maturing, and they were contracted at abysmally low rates the new volumes that came in. So for 5-year tenure, just to give you an example, we got rates of [ so far ]plus 100 basis points for 5 years tenure. So we had around INR 3,000-odd crores of -- around INR 3,000 crores of maturities on borrowing which got financed at very low rates. I mean the spread would have been at least 2% lower than what they were existing at.
That's interesting, sir. Okay. And on the asset side now on the -- basically, the yield on retail, which is basically flat at about [ 14.80% ].
And since if we look at the loan book is quite a sharp growth in microfinance about 11.5% sequentially and the business banking piece has also grown, right? And the other part, which also, I guess, is a little higher yielding book has also growth. So across other terms, are you seeing a higher pricing pressure?
So there is a pressure on loans against property, which is there. And I think that is also getting normalized because people are now getting back to normalcy at 8.5%, which is growing at 7%, 7.5%. And we did not participate so much in this. So I think that's number one. Number two, in the commercial vehicles, medium and heavy commercial vehicle side, I think there were some competitors who are buying market share at a certain price, which we were not willing to do because the risk-adjusted return did not make sense for us. But I think that's all coming back to normal, and we are seeing normalcy returning back and people getting much more aware of the rising interest rates. Microfinance business, as you know, does not have any -- we do at 19.6%, and there is no problem in that rate at all in the microfinance book.
Right, right. Okay. Great. And then final question, is there some resignations from top management team, but that's still yet to be disclosed or something like that?
No, nothing of that sort. I just told you that one person, which is the -- our adviser, M.R. Rao, did opt for a mutual separation because the work on the microfinance was done. But otherwise, we have not seen anything. Of course, Sanjay Malik, who was on sabbatical for the last 1 year did decide not to join and he's moved on. So that's what it is. Sanjay Malik was our investment adviser. Investor Relations.
Thank you very much. I now hand the conference over to Mr. Sumant Kathpalia for closing comments.
Okay. Thank you for joining the call. I think the bank -- I just want to leave some messages. I think -- the bank is progressing well on all performance metrics, including getting future-ready for the investments in digital and distribution.
The second message is the bank is -- I believe the bank is well provided towards asset quality and domains right up a competitive edge. We said that we will be in the range of 120 to 150 basis points. We will be in that range. Our competitive edge is the 3 domains where you say that big guide survive, we will be the big player in these 3 domains.
The true earning power of the franchise to start reflecting from the current year. So we've had 2 years where we were -- continue to do provisions, and we've not shown our return on assets or return on equity. I think the true earning power of the franchise to start coming back. You've seen quarter 4, we've delivered a 1.5% ROA from 1.31%. I think we are all set to what this bank was supposed to be. And I think the next year should see a lot of what we have committed to the market been delivered.
Thank you so much for your time. And me and Indrajit are available if you need any clarification at any point of time. Thank you.
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.