Indusind Bank Ltd

NSE:INDUSINDBK

Earnings Call Transcript 2023-Q4

[Sumant Kathpalia, executive]

Welcome to the IndusInd Bank's Quarter 4 Financial Year '23 Results. There are a lot more people in the phone calls on the dial-in, I think, welcome to them. Thank you for joining in. Sorry for keeping you waiting. We will wait -- there's a lot of crowd or rush in Delhi -- Bombay, so people are stuck up in the traffic, and that's why we had to delay it.

Let me start with the -- let me start with some macro, and I think it's very important to start with the macro. And I think Indian economy remains a bright spot in the weak global economic outlook. The regulatory and fiscal support has been very timely and effective right through COVID, post COVID and rising inflation phases of the economy.

Over the year, full credit growth accelerated across the board to 15% from 9.6% in financial year '22, outpacing the deposit growth of 9.6% with incremental CD ratio over 100%. Industry credit growth is expected to moderate due to lagging deposit growth and high interest rates dampening fresh demand. In recent months, financial stability concerns with sharper, higher policy rates in advanced economies have come to the fore, in the background of bank failures in the U.S. and the resultant contagion risks. Financial stability, stability of risk in India contained as RBI has focused more on the macro and micro prudential measures in the recent years to prevent buildup of financial vulnerabilities.

Let me come to the key outcomes of financial year 2024. This is also the last quarter of the Planning Cycle 5, and we will discuss the Planning Cycle 5 and also take you into the Planning Cycle 6. I think we have met all our parameters and what we have communicated to you all along. So I think this is one area where we can clearly say that we met all the measures and all the ratios, which we had committed to our investor community and to our shareholders in what the bank will do. And I think our execution has been in line with our communication.

Overall deposit growth, which is the question of discussion today, was at 15% year-on-year and 3% quarter-on-quarter. The retail deposit momentum continued with 4% quarter-on-quarter, with growth of 43% as per LCR. So we are 43% as per LCR Basel III norms now. Loan growth was at 21% year-on-year and 6% quarter-on-quarter. After almost 11 quarters, we are showing such a growth. And I think we waited for the right time for the growth to come in. And I think all our domains, all our businesses are now showing a very healthy growth as we move forward.

All our retail businesses had strong quarter-on-quarter growth with vehicle at 5%, microfinance at 9% and other consumer at 9%. Within corporate, growth was driven by mid- and small corporates at 7% quarter-on-quarter and large corporates at 5% quarter-on-quarter. Core fee momentum remained robust at 27% year-on-year growth and 8% quarter-on-quarter growth. GNPA and net NPA were down at 1.98% and 0.59%, respectively. Asset quality was healthy in vehicle, consumer and corporate book. Microfinance net slippages were higher by INR 59 crores as communicated to all.

In fact, what we see in microfinance now that a 30-plus book, which is the [ grade ] has now become 1.2% of the overall book. So we are also -- the microfinance issue and the restructured book of microfinance is also behind us. We continue -- the restructured book has fallen below 1% and was at 0.8%. Credit cost for the quarter was at 142 basis points versus 156 basis points for the previous quarter. We continue to scale up our new initiatives. Affluent segment deposits grew by 23% year-on-year and NR grew by 28% year-on-year. The profitability metrics maintained uptrend with NIMs at 4.8%, ROA of 1.9% and ROE of 15.26% and capital adequacy ratio remained healthy at 17.86%.

Now coming to the key financial highlights on the bank. Our net profit for quarter 4 was INR 2,043 crores, growing at 46% year-on-year and 4% quarter-on-quarter. Our quarterly net profit crossed INR 2,000 crores mark for the first time in our history. All key ratios are healthy and stable. We maintained our PPOP margin at 5.6%. NIM's at 4.8% improved by 1 basis points quarter-on-quarter. ROA improved by 3 basis points quarter-on-quarter at 1.90%, and ROE was 15.26%. Our gross NPA and net NPA were down quarter-on-quarter.

Coming to the consolidated P&L for the 4 month -- 12-month period and for the quarter 4, our NII grew by 17% for the quarter with stable margins. Our core income -- fee income was strong at 27% year-on-year, whereas trading income was muted. Our overall revenue growth was healthy at 16%. We continue to invest in physical and digital distribution, the retail growth also comes with higher initial cost. The cost to income, thus, elevated to around 45% for the next couple of quarters as we leverage the retail growth, we should see this coming down and trending more towards 41% to 43%. Credit costs were lower at 142 basis points versus 156 basis points quarter-on-quarter. Full credit costs were at 155 basis points against our expectation from 120 to 150 basis points. We had factored in around INR 1,600 crores of utilization from contingent buffer, but we utilize only INR 1,300 crores.

The year also saw the change in RBI regulation for SR provisioning. We made around INR 500 crores of SR book provision during the second half of financial year '23. Net of these, we were within our range of credit cost. Profit after tax grew at 46% to INR 2,043 crores for the quarter and 55% for the year at INR 7,443 crores. Annualized EPS for the quarter was -- for the year was -- for the quarter was at INR 105.

I think -- let's come to the corporate book. And I think the message around the corporate book was to diversify and granularize the corporate book. Let us say what has happened. The loan mix has changed in favor of consumer, and during the quarter was at 54%. All our retail businesses had a robust quarter-on-quarter growth with vehicle 5%, microfinance 9% and consumer 9%. Corporate growth was driven by mid- and small corporate growing at 7%, while large corporate grew at 9%.

If you look at the diversification of the book, 42% of our book -- 43% of our book comes from businesses like vehicle finance, diamond, non-vehicle finance. So I think we have domains which are very, very strong in our business and our small corporate, which is 5% of our book, and mid-corporate, which is 16% of the book, are the pillars of growth in the Planning Cycle 6. Vehicle loan book growth accelerated to 22% year-on-year with growth across all vehicle categories. Disbursements for the quarter at INR 12,500 crores were up to 25% year-on-year. The full year disbursements grew by 44% year-on-year and at INR 46,000 crores. This was comfortably the best year for the vehicle division.

The disbursement growth was over 30% in CV, construction, construction equipment, utility vehicles and over 20% in cars, 2-wheelers and 3-wheelers. Gross slippages reduced by 40% quarter-on-quarter in vehicle finance. We will share further details in the asset quality slide. We remain positive on the vehicle growth for the next few quarters, looking at the healthy utilization and demand for used vehicles.

The microfinance business rebounded after a few subdued quarters. The disbursement grew by 30% quarter-on-quarter to INR 11,600 crores. We also saw healthy new customer acquisitions growing by 17% quarter-on-quarter. The merchant acquiring business also crossed INR 4,000 crores mark during -- growing at 30% quarter-on-quarter. We now have 594,000 borrowing merchants onboarded. Merchants acquiring now forms 11% of the Bharat Financial book. It was a very big initiative to diversify this book, and we've started diversifying the book as of now.

We had to take a pause on the Bharat Money Stores to focus on profitability. Our tweaked model turned profitable in quarter 4 and thus has added new stores taking into account 110,000 stores. Liability mobilized through Bharat Financial stands at INR 2,340 crores. Net slippage increased by INR 60 crores quarter-on-quarter. However, the new stress formation in the 30 to 90 book has come off. We will discuss later in the asset quality as to what we feel is the net delinquency formation or net 30 plus formation in the book.

Corporate book is where the challenges were when I joined in, and our aim was to provide for all those losses and move towards recharge the corporate bank into a more granular and higher-rated customers. Our corporate delivered another quarter of healthy growth at 6% quarter-on-quarter. The growth was broad-based across segments with large corporates growing at 5% quarter-on-quarter and mid and small corporates growing at 7%. The segment driving the loan book were gems and jewelry, power, services, petroleum.

Diamond [ book ] is pristine with no asset quality issues. This -- the fee continues to remain granular with negligible share of investment banking fees. The portion of A and above-rated customers is now 73% compared to 71% year-on-year. The weighted average rating too improved to 2.65% from 2.69% Y-o-Y. We saw one restructured account of INR 175 crores turning NPA for not meeting the required covenants in stipulated time. There is no payment delay. Outside that, there was no material slippages in the corporate bank. Overall, we continue our journey of corporate bank driven by higher-rated granular shorter duration loan book.

On the nonvehicle side, I think we saw a robust growth at 7% quarter-on-quarter and 26% year-on-year. We saw healthy quarter-on-quarter growth across business banking, up 8%; credit cards, up 10%; personal loans, up 13%; and merchant acquiring business, up 30%. Our credit card market share by volume was at 2.6% and by value was much higher at 5% as per the latest available data. We're also piloting home loan product, and we will see scale of this up during the financial year.

I think let me go to the deposit side of the screen as they put up the presentation. I think one of our biggest concerns when I took over was the liability side of the balance sheet. We were -- we had a CD ratio of 16%. Our borrowing was about 32%, and there was a concern raised that we have a bulkiness in our book in the liability franchise. I think if you -- as we go into the liability, we have a very healthy share of CASA and a very strong liquidity profile. Those are statements I'm making at the questions, which keep on being asked, is liability profile stable?

Our CASA ratio is at 40% now, and we have debulked the CASA book to a large extent by taking out one large account, which was holding up the granularization of CASA. And we've lost 50%, 60% of the value in that large account. And with that, we are still at 40%. Our retail deposit as per LCR grew by 19% year-on-year, improving the share to 43% of deposits. The CDs now remain a small component of 3% of deposits. We added new branches during the quarter, taking the total branch to 2,606.

We maintain an average -- healthy average surplus liquidity of around INR 42,000 crores during the quarter with liquidity coverage ratio of 123% versus 117% quarter-on-quarter. We continue to remain focused on retail deposits, and we'll take you through our initiatives in the PC-6 discussion a little while from now.

Okay. I think digital is a story where we've not talked about it too much, but I think it's a story which is playing out in the bank slowly and steadily right now. Overall, the digital strategy of IndusInd Bank is geared up to driving 3 major objectives. Build direct-to-client platforms. And I think if you look at our client platform, which is IndusEasyCredit, it's, I think, the best platform ever for the unsecured loans, credit card and personal loans, which we have created. We have increased our throughput by almost 2 to 3x as we've implemented this platform and our cost of running the operations as processing has gone down by 60% as a consequence of this.

Drive superior customer engagement. We continue to believe that while branches will play a very important role, I think doing client engagement at the time and at the moment, which our client wants it, will only come through digital capability. And for that, we've created the tools and the capabilities, which you will see when we launch our platform, which I'll talk to you about. Transform existing lines of business. We've transformed our existing lines of business into a more productive MSME business, credit card business. I think the vehicle finance business, which is about to get completely digitized and will get digitized in this quarter, will completely be a new transformation of how we do businesses.

Our digital adoption of merchant acquiring, which is again a new platform, and the SME continue to improve. So I think we've launched into the business owner segment in the branch banking side, the merchant acquiring and the MSME, and you will see a very good improvement in our scale and capability in those platforms. The monthly active mobile active customer base continues to grow at 30% year-on-year. We're now in the final stages of individual app launch, which is under CUG currently. We plan to launch in the current quarter.

We are launching a banking -- complete differentiated banking proposition for individual segment in the first quarter of this year, where we believe that we will be able to scale up 8 million clients in 3 years with the business [ footage ] of around INR 50,000 crores. So I think this is a challenge which we've accepted, and we think that it will change the way we've ever done a business in the banking side of the business. We will talk about our digital initiative further in the PC-6 slides when I come into that.

Our fees has always been very granular, and it is 1.9% of our overall assets. I think it is one of our strengths, and we continue to believe will continue to be our strengths as we move forward. 72% of our -- 74% of our fees come from consumer bank, 23% comes from corporate and 3%. And this is this quarter. Ideally, 68% to 72% is from Consumer Bank; 18% to 20% is from corporate; and the balance is from global markets, where -- because we have a very nice global markets as a consequence.

I think our core fee continues to remain strong at 27%, driven by cards, distribution and loan processing. Retail share improved due to healthy fee momentum as well as lower trading income. Our fee income is well diversified across the various segments of the business. Overall fee remained steady at 1.9% of the assets fee.

I think if you look at our yields, I think both the assets and liability sides got repriced, which has resulted in the NIM what we've got. Yield on assets improved by 21 basis points with the corporate book repricing by 32 basis points as well as the retail share improving to 54%. Cost of fund increased by 20 basis points lower than the increase in cost of deposits due to lower pricing of the borrowings.

Overall, margins continue to remain stable around our guidance rates. We have always said that our NIMs will be in the guidance of 4.15% to 4.25%. We've remained within that range. We were this quarter at 4.28%, but we have been range bound in our guidance, and it has always been in that range over as the cost of deposits have increased and the repricing of deposits happen. That is an advantage which our book has.

We have a 49% book, which is floating, and 51% fixed rate book. I think once the cost of deposits play out, I think our fixed rate book will give us the advantage because we've booked the loans at a higher rate. And I think you will see the advantage lasting in a NIM for a long time as we move forward and the stability of NIMs for a long time.

Now comes the topic of discussion, which we are having, on the nonperforming assets. I think our gross additions -- to the gross flows addition were at INR 1,603 crores higher than the last quarter. And I think there was a discussion about why this is higher. Let me give you -- I think there are 2 reasons why this is higher. We had INR 200 crores extra flows in our microfinance business. From INR 300 crores, it went to about INR 590 crores, INR 290 crores extra. And we had one account in corporate bank, which had to be classified at INR 175 crores as NPA because of technical reasons. So those are the only 2 reasons why our gross flows are higher. Otherwise, our vehicle gross slippages reduced by 40% and net slippages by 76% quarter-on-quarter to just INR 99 crores for this quarter.

Microfinance net slippages was INR 60 crores as communicated due to delinquency in eastern geographies. The 30 to 90 DPD book in microfinance has reduced from 2.1% to 1.1%, and I think implying lower fresh stress formation. So I think the worst is behind us. And we told you that in quarter -- by quarter 4, we would have absorbed what we needed to absorb, and we have absorbed everything what was a painful thing in the microfinance business.

Corporate saw one restructured accounts slipping into NPA, I've talked about it, for not meeting covenants, it was not because the customer had not paid. It was a technical NPA because of the restructuring as part of the restructuring, it moved into NPA. There was no meaningful stress outside this. The restructured book, which was once a debatable point for us, because we had the highest restructured book in the industry, saw a healthy reduction and closed at 84 basis points.

Bulk of the restructured book now is in vehicle and secured retail assets. Our net SR book reduced to 0.34% of the loan book versus 0.56% quarter-on-quarter. We have made a INR 300 crore provision for security receipts during this quarter. Our SMA-1 plus 2 book has now been steady at 0.32% of the loan book.

Loan-related provisions, I do need to -- we continue to carry strong loan-related provisions. Our PCR on GNPA remains healthy at 71%. We had said that we will use around INR 1,600 crores of contingent provision towards restructured slippages. We used only INR 1,428 crores during the year and carry INR 1,900 crores of excess contingent provision into the next year. We will maintain conservative positioning approach and build countercyclical provision ahead of the formation.

CET1 was at 15.93%, and CRAR was at 17.86%. Our credit risk-weight assets grew at 16% year-on-year versus loan growth of 21% Y-o-Y. Sequential growth in RWA is higher due to operational RWA addition in quarter 4. Capital utilization remains efficient with improved risk density and strong internal capital generation.

Now I'll come to -- this is for the quarter 4. Now I'll come to what we've done in Planning Cycle 5, a little bit of sneak into Planning Cycle 5 and where we have and what we have done so far. I think just to back up a little I think the purpose of planning and the objectives of Planning Cycle 5 was scaled with sustainability, scale was important and sustainability because of what we were going through. I think the broad 3 were leapfrog digital banking, fortifying liabilities, scaling up domains of expertise, investing in new growth engines and conservative and robust practices.

If you look at our retail liabilities, I think 74% of our liabilities came from retail as a consequence. And I think that is a very important parameter, I think, which we should bring and our retail share of deposits are now at 43% against 31% at the start of PC5. We have also lowered our dependency on the bulk deposit and reduced the concentration risk. Certificates of deposits are at 3%. Top 20 depositors have reduced to 16% from 23% at the beginning of Planning Cycle 5 and 74% of incremental deposits are from retail and CASA. Also, what is more important is the certificate of deposit reduction. And I think that's very -- and I think we continue to invest in our brand distribution as we granularize our liability base.

I think on the -- I think on the corporate banking, I think we've -- this was a key focus area for start of the PC5, and we have realigned the corporate bank approach and steadily pivoted towards growth. Share of A and above rated paper increased to 73% from 63% in March '20. Corporate slippages are below pre-COVID levels. Fees are more granular with negligible investment banking fees.

On the rural banking, I think the book is now 19% rural [indiscernible] and is made up of tractors, microfinance as well as KCC and agribusiness Group. We continue to leverage our deep rural distribution network with holistic offering in Bharat Financial and Bank. The share of rural loans now start at 19% of the loan book. We are cautious on microfinance during pandemic, we now see growth coming back. We have also diversified Bharat Financial into various other businesses and merchant acquiring is the first diversification, which we did, which is now 11% of the Bharat Financial book.

Our domains have continued to do very well and deliver strong risk-adjusted returns across credit cycles, and this period was no different against multiple macro challenges. We saw recovery of growth in following asset quality performance and domains now contribute 42% of our loan book. Growth in vehicle loan book now is at 22% year-on-year. Microfinance growth is coming back with the recovery in the rural economy, though the growth was sluggish this year, but I think the quarter-on-quarter growth was very, very good. Domination in gems and jewelry continues with market leadership and no SMA formation of SMA-1 and 2 in this segment.

We had added new growth boosters, 5 of them. If you look at, I think are PC4, affluent banking, NRI banking, tractor finance, affordable housing and merchant loans were the new growth boosters, which we added. Affluent NRV at INR 67,000 crores and deposits at INR 42,900 crores and a fee of INR 465 crores. So affluent as a business runs as a cost-to-income ratio of 21%, does a fee of INR 465 crores and is almost growing is NRV at a rate of 25% to 28% CAGR. Merchant loans crossed INR 4,000 crores, and we've piloted this program for 2 years before we scaled it up. I think in PC-6 , this will be a very big play, which we are going to do as we grow. This comes at a yield of 25% and a 4% upfront fee.

NRI deposits at INR 34,200 crores contributing to 3.16% market share. We were at 1.6% market share and now have moved to about 3.16% market share. Tractor loan book saw a 2x growth in 3 years. We're now a 9.5% market share in tractors and coming to a domain specialization of 10% and above. So I think tractors has done very well for us, and it comes at a yield of 15.8% to 16%. Affordable housing could not succeed where our growth lacked than our expectation, and I think we're putting corrective measures in place so that we can scale up this business as we move forward.

This is what our ambition and what our outlook was. Loan growth of 15% to 18%. In PC5, we did a 17% CAGR growth. And there's -- our CASA ratio greater than 40%, it's 40.1%. Our revenue growth exceeds balance sheet growth, 13% versus 12%. Our PPOP loan greater than 5%, we're at 5.6% to 5.7%. Our branch network of 2,500, we are at 2,606. Our customer base was -- to be at 45 million, doubling the base, we could only grow by 34 million. This was because our microfinance business took a hit during the COVID and we slowed down the microfinance business at that point of time.

If you look at the sustainability metrics, I think in all areas of sustainability, credit-to-deposit ratio, we said less than 95%, we are at 86%; certificate of deposit, less -- 5% to 10%, we're less than 3%; retail LCR, 45% to 50%, we are at 43%; unsecured retail, less than 5%, we are at 4.8%; PCR greater than 65%, we are 71%; and lower nonfunded ratio, we were 3.15%, we're at 2.77%. So we have achieved all our ratios on the basic -- on back of this.

And this is how our financial metrics look. Capital, we were at 13.22% CET1 and CRAR of 15.04%, we are at 15.93% and 17.86%. Our RWA over assets was at 84%, we are at 74%. On asset quality, we were at net NPA of [ 0.91% ], we're at 0.59%. And our provision coverage ratio was 63%, we are at 71%. And our contingent provision, which was negligible, we are INR 1,900 crores.

Our liquidity, our LCR was 112%, we're 123%. Our credit deposit ratio was 102%, we are at 86%. Our certificate of deposits -- over deposit was at 15.8%, we are at 3.2%. Our returns, we are NIMs of 4.28% against 4.25%. Our ROA was 0.4% against -- we are 1.9% now, and ROE of 3.7%, we are at 15.26%. I think share of retail deposits, we were at 31%, we are at 43%. Our concentration on top 20 deposits at 23%, we are at 16%. And borrowings over, we were at 20%, we are at now at 11%.

Now we'll come to the Planning Cycle 6 and after a brief review and how do we stack up on the Planning Cycle 6. I think our Planning Cycle 6, the strategy core is market share with diversification. And I think we've taken 3G as the strategic intent, which is growth, granularity and governance. Our key themes, which will play out on these 3 vectors, are continuing the retailization journey, which is work in progress on the liability side, diversifying the domains, I think basically what we have under domains and we are #2 or #3 or #1, I think how do we diversify that. Subscaling, subscale businesses, we have a lot of subscale businesses, which are not market share-driven. I think we need to move towards a market share driven approach out there.

Accelerating digital 2.0 and how will digital look in that area and imbibing ESG into our business as we move forward into the Planning Cycle 6. I think on the liability side, and if you look at our business, we believe that this was a work in progress and while we have come a long way in the last 2 to 3 years. The bank will continue its stark focus on retailization. There was an aim to increase the share of retail deposit from 48% to 50%.

The key initiatives, which will be there, is expansion of branch network, new initiatives, like community banking, scale-up of affluent, NRI and launch of the millennial segment of the digital segment called INDIE as a new product offering in the digital world. We continue to believe that we have the ingredients in place. And with a very differentiated approach in community banking, we should be able to create a very differentiated approach to our liability strategy as we get into Planning Cycle 6.

On diversifying domains, I think there are 3 initiatives, which we are [ taking ]. On vehicle finance, we will continue to build our leadership position across vehicle categories, while diversifying the portfolio and scale-up of used vehicles and affordable housing portfolio. So we've started our used vehicles. We have 20% of our book is used vehicles now. And I think it gives us a better return, specifically in the used cars, where we build it up a INR 3,800 crores portfolio over the last 3 years. We believe we will take a leadership position in the industry and that we have built capabilities around our digital framework on the used car vehicles to get the scale, which we've desired to get this scale.

On inclusive banking, I think we aim to transition Bharat Financial from microfinance into micro banking with an aim to become the banker of choice in rural India. We have distribution, which is much higher than public sector banks, any large public sector bank in the rural India. And I think it is an opportunity for the bank to become a micro banker rather than a microfinance distribution. We see 3 products getting launched there. I think the scooter loans, affordable housing as well as home improvement. So I think you will see those launches happening very shortly.

We're also evaluating whether we should get into large ticket sizes personal loans for our own clients rather than any other clients we are evaluating that. There is no model in place to justify why we should increase the ticket sizes in deep rural and do individual lending as of now.

Gems and jewelry. I think we're going into a community approach, and this will be the first community approach, which we will launch, and we're capturing the entire ecosystem. There are 1 million merchants who work in the gems and jewelry segment. We believe that we are the rightful owner of the salary accounts and all of the products, which they should have. Even if we do 60% conversion of that, we will build a liability book of INR 6,000 crores to INR 7,000 crores as a consequence over 3 years.

There are other 3 or 4 domains. There are big supply chain verticals. There is jewelery verticals abroad. There is now lab diamonds, which are coming into play. So I think we have a very differentiated approach towards the community. And I believe this business will see a very, very strong approach, including leveraging the GIFT city to a large extent in this business, and we believe that this will be a very different business as we go forward in the next 3 years.

On the subscale businesses, I think we've launched mortgages. And I think on the mortgages, we believe there is a 3-pronged approach, LAP, which has struggled for the last 3 years, we will scale up LAP, and we believe that it's a very important business because it gets an entry into the business owner segment and from there, working capital loans comes into play. So I think it's a very, very different business.

Affordable housing. Our client in CFD as well as in Bharat Financial lends itself for us to do the affordable housing. We've not been successful. Our processes and technology is getting revamped as we want to do it. We want to create a large book in affordable housing as we move forward. And home loans, we've just launched. I believe that we are launching it to support our liability business, and we will be operating in the near affluent and affluent segment in this segment. And I believe that we should be able to create a INR 15,000 crore book in the next 3 years to support our liability franchise as we move forward.

On the MSME side, I think these will cover all communities of MSME. And I think we have a multichannel and a multiproduct strategy to address the unique needs of MSME. We are working with a consulting firm called BCG as we develop our capabilities. We've already developed the digital capability. We're now getting the on-ground assessment done as to how to drive and deepen our relationship as we move forward. This business will contribute to about INR 32,000 crores from INR 10,000 crores of our business in Planning Cycle 6.

Scaling up of existing initiatives. Affluent banking, I think you will see a doubling of the book happening on the affluent segment, 60% of that book comes on in liabilities and our fee, which is at INR 460 crores a year, will almost double to about INR 1,000 crores in the next 3 years. Our NRI banking, we want to stated intent to be 5%, and you will see an INDIE launch of the NRI banking as we move forward, and we skin the INDIE app into our NRI app with a very good remittance platform, which we are already tied up with and you will see that happening very soon. And merchant loans, I think we have the best capability on digital on merchant loan. And we believe what we've done in Bharat, you will see -- start seeing it in the urban side of the country as we move forward.

On the digital, our strategy is [indiscernible] into all the segment, individual, SME and partnerships. I believe it's been carved out as a distinct business unit focused on delivering innovative customer-centric solution across individual and MSME segment, with the goal to build a profitable digital bank. This is not a burn scenario. It's a profitable scenario. I've given you what we are thinking about it in Planning Cycle 5.

I think you will see the launch of one of the few things happening in the month of May and June, and you will see the success of what we have created and how differentiated the proposition is as we move forward. And of course, ESG, which is critical to us in all our business, is core to our bank philosophy and continues to take various initiatives on incorporating ESG into our overall business. It's -- we launched products -- we've changed our processes. And I think we have incorporated this into our KPIs as we move forward.

This is what we think Planning Cycle 6 will look like. We believe that -- and we've given range-bound numbers again here because of the macroeconomic environment and uncertainties in the -- around us, loan growth between 18% to 23%, we believe that we should be able to deliver. We're already at about 20% right now. Our retail loan mix at 55% to 60%, we believe that our retail loan books will change. Our domains are coming from the cyclical lows right now. And we believe that there is a huge upturn on cyclical -- on our domains.

Our retail deposit as per LCR, we will cross the 48% to 50% barrier. And once we cross it, because of our domains, we get refinanced from development, we'll have best of the best of the liability franchise as we move forward. Our PPOP loans will be in the range bound between 5.25% to 5.75%. Our branch network will be around 3,500 to 3,750, and our customer base will be greater than 50 million to deliver an [ ROA ] anywhere between 1.9% to 2.2%.

So that's the theme of the Planning Cycle 6, 3G, growth, granularity and governance delivering market share with diversification to double the profits and give an [ ROA ] of 1.9% to 2.2%. Thank you so much. Let's open the floor for questions.

[Suresh Ganapathy, analyst]

So Sumant, so first, to begin with, if you look at some of your peers, the credit cost has already gone down to double-digit basis points. In fact, some of them are having negligible credit costs. Now you are telling your ROA for Planning Cycle 6 would be 1.9% to 2%. You are already at 1.9% with a 1.5% credit cost. So what do you think is going to be your credit cost for the next Planning Cycle 6. And then if that indeed is going to be much lower than 1.5% and somewhere else, it is going to offset because you're already at 1.9%. So that's my first question...

[Sumant Kathpalia, executive]

We will be at 110 to 130 basis points. Our guidance is that. And we believe that with the businesses, which we have, we should be in that range.

[Suresh Ganapathy, analyst]

Okay. So you will also see a reduction in slippages going forward because that's something still been high. I mean we have not seen a sustainable reduction in slippages quarter-after-quarter.

[Sumant Kathpalia, executive]

Suresh, you're absolutely right. I think we've seen the worst of the restructured book, and we've seen the worst of the MFI flows. So I think what you will see now is the gross slippages anywhere between INR 900 crores to INR 1,200 crores. And that will be the sustained flow and which will be 1.7% of our asset book as we move forward, and that will slow down to about 110 to 130 basis points of credit cost.

[Suresh Ganapathy, analyst]

Okay. The other 2 questions is, have you applied to the Reserve Bank of India for the promoter stake increase? Is it...

[Sumant Kathpalia, executive]

For me -- the promoters have applied for me. I don't have to apply. The promoter has applied for me.

[Suresh Ganapathy, analyst]

Okay, fine. So the clarity is still awaited. I mean is it a fresh application that they have done? Or this is the 2 year, 3 year before...

[Sumant Kathpalia, executive]

It's the same application. They have to now -- the directors due diligence is done, the Board of Directors out there that said to shareholders, the due diligence is done by the RBI. That's for me.

[Suresh Ganapathy, analyst]

Okay. And finally, I know this is a tricky question. But some of your peers, of course, have [ winded ] up getting full 3-year approval. Is there -- I mean we can never second judge what RBI thinks, but is there anything, any scope for improvement, what do you think in your organization in terms of compliance, processes, anything that you guys have looked at where there is a significant scope for improvement so that obviously, you give a greater confidence...

[Sumant Kathpalia, executive]

First of all, Suresh, let me give you this comfort that the extension of 3 years versus 2 years, you have to look at a glass half empty or half full. If there was a governance issue or an integrated issue, they would have not given me an extension at all, let's be clear, or a 6-month extension. So please look at it. Yes, there are always work in progress. The liability franchise is still work in progress. I think, like you rightly said, our gross flows are higher on microfinance side. I think these are work in progress, which we have -- and you will see that from quarter 1, all these will go away as a consequence.

[Operator]

I request you to, please, introduce yourself before you ask any question.

[Unknown Analyst]

A good job done by the bank on improving the retail deposit share to 43% and also improving your LCR to 123%. But if you look at the overall deposit traction, it still lags your loan growth, while your loan growth is at a 5% quarterly run rate basis, you are tracking a 3% on the deposit. Where do you see your deposit traction improving on a quarterly run rate basis to run closer to the loan growth?

And the second question is on your branches. On your next Planning Cycle, you alluded to some 3,750 branch target. You opened some 222 branches this quarter. So do we see a front loading of the branch openings this year happening? And the last question is on -- particularly on the SAR deposits. We have seen a reduction in SAR deposits this quarter, both quarter-on-quarter and year-on-year. I think you touched upon a point that there was a bulky SAR deposit, which you allowed to go off. If you can just quantify and give us a like-to-like comparison of how it would have looked like on a quarterly basis?

[Sumant Kathpalia, executive]

First and 3, let me take it together. First of all, the system growth on liabilities has slowed down to 9%, 9.5%, let's be clear, while the credit growth has been higher. I think in a matter of time, I think the system growth and liability by quarter 3 or quarter 4 will catch up with the credit growth, and credit growth will reduce to some extent [indiscernible]. So that's number one.

Number two, IndusInd has always said that our retail growth will be higher than the asset growth, and we will try and accomplish that. And I think what you will see, maybe not next quarter, maybe, but in -- by the end of the year, our retail growth will be higher than the asset growth. And I think that is what we should track us for because that's our granularization journey and you track us on the granularization journey. And we will start presenting slides on the granularization journey. We will pick up and present to you the slides.

Having said that, I think our branch expansion becomes key as part of our strategy, not because branch expansion for us means more clients walk-in. I think clients do walk-in, but I think it also gives a comfort level to the brand. Wherever we've created density of branches, like in home markets, 16 home markets, we see there is a walk-in traffic, and there is a very good brand record. I think we want to expand that to 23 cities, and we believe that whole market strategy will play out for us in a long way.

We also have other -- so will we front-load our branches? The next question. We will not front-load our branches. We have to manage the cost-to-income expectation. We will front-load our branches only if we see the digital strategy is not playing out the way it has to play out because a lot of our client acquisition and quality client acquisition with the type of proposition, which we have, I think, should start coming out from the digital side, and we will focus on very differentiated offering in the branches as well as in the digital side of the plan. Your second question was on what?

[Unknown Analyst]

The last one was on the SAR. The reduction in the savings deposit this quarter.

[Sumant Kathpalia, executive]

So reduction in SAR, I think, will happen because of 2 reasons. One is migration of client balances into term deposits. And it is not a phenomenon for IndusInd Bank. It's a phenomenon across the board, and you will see that happening as long as the fixed deposit rates are very high, and it went to 7.5% to 7.75% in the market, people did move deposits -- savings account deposits, and I think it will start moderating after some time, and you will start seeing the growth coming back. So it does not worry me that much.

On the second part, which is a large government association account, which we had bulk of our flows for the last 5 years, we started reducing our concentration on that account. And of course, the agency banking guidelines came. And a lot of these guys who get budget release from the government, they're directly going from the treasury. As a consequence, I think the main account, which was there, the current account now does not have any money, which was around INR 7,000 crores to INR 8,000 crores as a consequence with us in the savings account, not in the [ current ], but the other project-related accounts continue to be with us. And I think that will continue because they are more granular, and we manage the granularity of that -- those accounts very well. So I think that's what we did, and that was the flow outflow, which happened on that account.

[Unknown Analyst]

So Sumant so you gave the credit growth guidance somewhere about 18% to 23%. This year, we clocked over most about 21%. Do you see...

[Sumant Kathpalia, executive]

No, last quarter was 21%. I didn't talk about this year.

[Unknown Analyst]

Yes. But ultimately, you ended at about 21% on a full year basis. So why do you think that if you look at our base also is relatively smaller. The other banks have actually grown at a faster pace, like, for example, Kotak has grown at a faster pace than us this year itself. So do you think that the guidance that we have given is to some extent, undershooting ourselves or like you see a risk to that the growth coming in next year?

[Sumant Kathpalia, executive]

So we have given an 18% to 23% guidance, doesn't mean that we'll be at the lower end of the spectrum, number one. I think don't assume such thing. It's the range we have to see the macroeconomic outlook and see how the industry evolves and the economy evolves over a period of time. I don't want to press the accelerator just because I want to press the accelerator. So I think I've always said, and I've given my brief that the bank is a growth bank, and the bank is focused on growth, but it will do a calibrated growth. And I think we are cautiously optimistic on the growth cycle.

[Unknown Analyst]

Okay. Secondly, we have exposure to the telecom account, which is Vodafone yet. The fund-based exposure, I believe, is well provided for. What is the outstanding non-fund-based exposure that we carry? And any...

[Sumant Kathpalia, executive]

INR 730 crores is the outstanding. We've disclosed it.

[Unknown Analyst]

So any plans that basically we have to make...

[Sumant Kathpalia, executive]

It will not go into NP. It's as simple as that. And I don't think the guarantees will be called.

[Unknown Analyst]

Okay. And similarly, we also have disclosed our exposure to the Adani group. And recently, basically, RBI had said that banks need to make some specific provisions on the large corporates at the country level. So does Adani -- I mean, obviously, Adani will also get classified into that. And if so, with the [ case ] of any plans to make provisions on that account?

[Sumant Kathpalia, executive]

We will -- see, it's not about Adani or any. We will be conservative provisions ahead of the cycle. And I think we evaluate all our group exposures on a quarterly basis, on a regular basis, we evaluate that. If we feel that there is a stress, which may come into that segment, we will continue -- we will provide for it. And at that point, we don't wait that it's for 30% or 40%. We provide for it specifically to your Adani Group, and as we've disclosed in the SEBI site, we've always said that our exposure is to operating companies, and we don't see a risk on our operating company, and we have sufficient cash flows to track as to what is happening on those operating companies.

[Unknown Analyst]

But I think the RBI requirement is a respect...

[Sumant Kathpalia, executive]

There is no RBI requirement to make that -- please, there is no such guideline. It came as an article that you reviewed. There is no such guidance from RBI to make a specific provision.

[Unknown Analyst]

Thanks for the presentation and sharing the outline for the next planning cycle. So 2 questions. If you can first comment on how the pricing environment is in the vehicle business. We are seeing a very steady growth for the bank, but at the same time, despite rising funding costs, some of the NBFCs are also reporting very strong disbursement growth. So are banks and in particular IndusInd gaining market share? Or the fight is high on the interest rate part?

[Sumant Kathpalia, executive]

So our market share of the disbursement has remained range bound. We lost the market share in quarter 3 to 9.8%. And I think in quarter 4, I think we should be back to 11.5% to 12%. So our market share of disbursements is 11.5% to 12%, and our market share of outstanding is 10.7%.

[Unknown Analyst]

And how are we tackling it from the pricing angle? Are we like competing aggressively?

[Sumant Kathpalia, executive]

Yes. So we have increased the pricing in the microfinance segment in the month of February by 150 basis points.

[Unknown Analyst]

And secondly, in respect to the ARC sales, we have done a small sale this quarter and the consumer assets we have sold. So how has been our experience in respect to those, like recovery from the MFI pool, whatever we have sold because over the last few quarters, we have seen bigger ARC sales happening in the MFI space. So I just want to understand as to how...

[Sumant Kathpalia, executive]

Our MFI recovery from the ARC side was about 8%. Let me be candid. And I think our effort was not that much. Our effort is now [indiscernible]. On the CFD side, our recovery as high as 65% to 70%.

[Unknown Analyst]

Any update on the [indiscernible]

[Sumant Kathpalia, executive]

We want to enter, but we don't have the para banking license as of now. So we need the licenses for us to enter. We are very keen to enter, but I think we have to wait for the RBI approval. No, we have to apply again. No, we have to apply again.

[Unknown Analyst]

Sir, on your PC-6 strategy, you had said PPOP of 5.25% to 5.75%. Right now, we are at 5.7%. Yes, is it like a pressure on your OpEx? Or as usual, the industry margin should be peaking. So what is going into that estimate for PPOP?

[Sumant Kathpalia, executive]

It's a range bound. We have taken into account, suppose the operating leverage does not play out, and that is why we have said because the cost will come in as we open into new initiatives and if the leverage does not come out. So I've just given you a range bound thing. Don't assume ever that we will be at the bottom end of the range. We are already at 5.6%. There's no reason for us to go down. But I think we've just given you a range bound, if the operating leverage does not play out because we are putting investments in a lot of new initiatives, and I hope that the operating leverage plays out the way we've decided it plays out.

[Unknown Analyst]

And on your retail slippages, right, so I think you had mentioned that this quarter, there was an MFI bump up. But I hope this was from restructured book in MFI, right? But if you look at...

[Sumant Kathpalia, executive]

It was from the standard book in the eastern side, which I think we've cleaned it up. That's all. And the restructured book of MFI is about INR 100 crores left; in cards, it is INR 8 crores left. The whole unsecured exposure is completely out of the restructured book.

[Unknown Analyst]

And lastly, on your margins, right? So industry, the banks, which had a very high proportion of floating rate or EBLR rate book, they had seen a huge rise in the margins or yields. Now we have a 50%, as you said, fixed rate book. What would be the median difference in the yield on stock of that fixed rate book and maybe the incremental book that you are creating there? And when do we see that the blended yield moving up at a slightly better pace.

[Sumant Kathpalia, executive]

That calculation, I don't know.

[Unknown Executive]

No, but just to -- see there are multiple things at play. It's very difficult to pinpoint everything. Like if you just take the vehicle finance example, in vehicle finance, [ MSPV ] is at a lower end. And in the last 4 quarters, you would have seen [ MSPV ] has done much better than what it had done in the past. So while you see disbursement incrementally are up by 100, 150 basis points, but the growth has come from the lower heading segment. But on the other side, if you see, even if I'm able to maintain the 13% blended yielding vehicle, but because the longer-term book is being built because [ MSPV ] is a 5-year duration book.

So the runway to maintain the 13% yield for next 2, 3 years on the book is much more positive than the short-term increase in the yields. So it is very difficult to say that whether yield will increase because the 2-wheeler was running down INR 6,000 crore book became a INR 4,000 crore book, which is at the top end of the vehicle. So incrementally, yes, the disbursements are happening at 100, 150 basis points more. But there are other dynamics at the play because of the mix change, the microfinance was shrinking for the first 3 quarters. This quarter, it has grown. So if MFI keeps on doing, now we have taken a price hike also so in the microfinance...

[Sumant Kathpalia, executive]

So what do you think will be our net interest margin range? We've not discussed it. But I can tell you, our net interest margin will be in the range of 4.25% to 4.35% in the next Planning Cycle 6. That's the range we will keep.

[Unknown Analyst]

So you are stepping it up, right, from 4.15...

[Sumant Kathpalia, executive]

4.15% to 4.25%. We will be around 4%. And that will come because of 3 reasons. The mix change towards consumer. And if it changes by 7 basis points and consumer is about 600 basis points higher. There's a 42 basis point increase. Second, our cost of deposits are elevated at this point. I think it should start getting normalized at certain point because we offer very high rates. We come even at 50 basis points higher than the market in our overall cost of deposits, I think you should see a 10 to 15 basis point jump as a consequence. And third, I think the cost -- the risk cost getting downsized because we've taken a lot of hits over the last 2 to 3 years. And you will see that playing out over a period of time.

If there are no more questions, I think what -- if there's anything from the...

[Unknown Executive]

No, they can't.

[Sumant Kathpalia, executive]

Okay. So what we can do is we can cut for tea, and I'm available if there are any more questions, we can do one-to-one sessions. Thank you so much, and thank you for joining, and sorry for delaying the meeting by 10 minutes because of the traffic in Mumbai City. Thank you so much.