IndusInd Bank Limited Q3 FY15 Results Conference Call. January 13, 2015

Transcription

1 IndusInd Bank Limited Q3 FY15 Results Conference Call MANAGEMENT: MR. ROMESH SOBTI MANAGING DIRECTOR & CEO MR. S.V. ZAREGAONKAR CHIEF FINANCIAL OFFICER MR. PAUL ABRAHAM CHIEF OPERATING OFFICER MR. ARUN KHURANA COUNTRY HEAD, GLOBAL MARKETS GROUP MR. S. V. PARTHASARATHY HEAD, CONSUMER FINANCE MR. SUMANT KATHPALIA HEAD, CONSUMER BANKING MR. SUHAIL CHANDER HEAD, CORPORATE & COMMERCIAL BANKING MR. SANJAY MALLIK HEAD, INVESTOR RELATIONS & STRATEGY MR. KALPATHI SRIDHAR CHIEF RISK OFFICER MS. ROOPA SATISH HEAD, CORPORATE & INVESTMENT BANKING MR. ZUBIN MODY HEAD, HUMAN RESOURCES MR. RAMESH GANESAN HEAD, TRANSACTION BANKING GROUP MR. SANJEEV ANAND DEPUTY HEAD - CORPORATE & COMMERCIAL BANKING Page 1 of 23

2 Ladies and Gentlemen, Good Day and Welcome to the IndusInd Bank Q3 FY-15 Results Conference Call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing * then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Romesh Sobti Managing Director and CEO at IndusInd Bank. Thank you. And over to you, Mr. Sobti. Thank you. Good Afternoon to you all. Let me start by wishing you all a very Happy New Year and like all of you we also hope that New Year 2015 will transform the way we all expect it to and that the sentiment and confidence that has been built up over the last 6-7-months to translate now into reality. As far as our results go, we do not see too much of the actual market reality in our results in the sense that we have continued the trending that we have seen in our top line and bottom line growth. I think the Investor Presentation is available on the site now. All the vectors show a healthy double-digit growth. So I am going to take you through some of the headlines and highlight some of the features that we want to. I think to begin with, top line growth has been aided both by Net Interest Income but more by Fee Income. Net Interest Income, we were hoping will do more, because we expected loan growth to be higher than the 22% that we actually have come out with, and, of course, we had also expected that there will be a little bit of change in the loan mix, we will talk about it later. Nevertheless, I think NII growth ended up at 18% not only for the quarter but also for the 9-month period up to December Like in all previous quarters, our Fee growth has exceeded Loan growth and total Fee growth ended up at high of 27% and Core Fee growth ended up at growth rate of 22%. So, we have kept the promise that Fee growth will exceed Loan growth as we have done in so many quarters. Other than that, so the total revenue growth has come out to be 22%, Operating Profit has grown 20% but quarter-on-quarter it grew 7% and at the end of the day Net Profit grew 29% and quarter-on-quarter 4%. Other Income, just to go back, actually grew quarter-on-quarter as high as 9%. So I think we are seeing pretty robust double digit growth in almost all the headlines of the profit & loss statement, not only for the 3-month period but also for 9-month period. As far as balance sheet momentum is concerned, we have run ahead of the industry growth by at least 11-12%. Our reckoning is industry grew by around 10.6% in the Page 2 of 23

3 last declared data point. We grew by 22%. But now, as we saw in the last quarters as well, Deposit growth has exceeded Loan growth. So there is a moderation in the CD ratio, and our Deposit growth ended up at 23% as well. If you look at the breakup of the Loan growth then the Corporate Loan book grew 32% and quarter-on-quarter 8%, and the Retail Loan book grew 10% and quarter-on-quarter better than what we did last quarter at 4%. The other highlight, of course, is the growth in our CASA. So CASA momentum has been maintained, within which SA has grown actually faster; SA has grown 32% while CASA has grown 31%. And here also I think what is more material is the quarter-on-quarter growth, SA growth quarter-on-quarter was as high as 7%. Borrowings are now moderating as we move more and more to Deposits and as we see some light at the end of the tunnel in terms of rate reduction there. So borrowings grew about 13%. So I think that is the headlines on the P&L and the balance sheet. Other than that, I think the other vectors that we measure in terms of performance are the Interest Margin, so NIM improved by 4 basis points to 3.67%, as a consequence of which both ROA and ROE have moved up marginally, ROA is now back to 1.9%. Some moderation has happened in the cost-income ratio which has fallen by about 50 basis points and the other vector we see is revenue per employee, which has also moved up slightly during the quarter. Other than this, we look at the loan book that I talked about; the loan book actually last quarter was 57% Corporate and 43% Retail. We were hoping that that will be stable, but actually what we have seen is that during the quarter, Retail went down to 42%, so fell by a percent. So the new ratio is 58% Corporate and 42% is Retail, and within that, of course, Retail side of course is two components; one is the Vehicle Finance side, we will talk about more if you ask specific questions, but Vehicle Finance side after several quarters of either flat or negative growth, we have had a net accrual in our Vehicle Finance book. So at least we have seen some upward movement, and the Non-Vehicle finance book continues to grow pretty smartly and a Non-Vehicle finance book actually is now slightly over 7% of our total book. So that is one vector that we have consciously driven through this downturn. We will talk a little bit more about Vehicle Financing and the quality of the book, etc., and what our expectations are subsequently. Then, of course, in terms of the Loan book diversification that continues the way it was; very-very diversified Loan book. The highest exposure we have is in the Lease Rental Discounting which is about 4% of our total book. On the Other Income side, ended up at Rs.611 crores for the quarter, which was 9% above the Other Income that Page 3 of 23

4 we showed in the previous quarter. And that of course is composed of Core Fee, which grew by 22% and other trading income that grew by about 65%. Within Core Fee, all the vectors showed an upward movement except in quarter-on-quarter Investment Banking which as you know is a lumpy business. So if you do not get one or two deals then I think the revenues get sort of spilt over. Other than that whether it is trade and remittances or Foreign Exchange or Distribution, in fact, I would like to highlight quarter-on-quarter Distribution grew by 16%. And I think that reflects the improvement in the sentiment especially in the mutual fund industry, where we are certainly seeing a strong momentum on Mutual Fund sales as part of our Distribution Income. The other parts of it, Loan Processing, General Banking still showing good double-digit growths. Investment Banking year-on-year grew only by about 1%, but that is to be expected because this is not a business that is an annuity-based and there is as I said lumpiness to this business. The Interest Margin we mentioned was up by 4 basis points as our cost of funds fell by 11 basis points and our yield on assets fell by about 7 basis points. So overall we saw a 4 basis point increase in our Net Interest Margin. As far as credit cost go and the quality of the book goes, I think gross and net NPAs have actually slightly improved; gross NPA is down from 1.08 to 1.05, net NPA is almost flat, 1 basis point down, but we have sustained our provision coverage ratio. You will notice that over the last 4-5 quarters, as there has been stress in the system, many banks have dropped their Provision Coverage Ratio. There are only I think 3 or 4 banks left now who have a provision coverage ratio above 70% and we are one of them and we continue to maintain 70%, and to maintain 70% sometimes we have to provide additional provision just to keep our percentage at 70%. This quarter also there was some extra provision on that score. The credit cost for the quarter came at 17 basis points and net credit cost was actually 16 basis points as compared to 10 basis points in the last quarter as we made some additional provisions on our existing NPA book, where we felt that there was diminution in the value of the security, so we made some extra provisions. And of course there were some movement on the gross NPA book and some slippages on the Corporate side as well as the CFD side. Net slippages during the quarter were about Rs.18 crores. So if you look at the 9-month period, our net credit cost has come to 37 basis points, gross is 39 basis points. So we are well on track to be well within the budget that we have set for credit cost for the year which was 60 basis points. Looks like we will probably end up in the early 50s in terms of the basis points credit cost. If you look at more detailing in the Vehicle Finance part of our book, in the Commercial Vehicle part, which is MHCV, our gross and net NPAs actually fell Page 4 of 23

5 during the quarter. Also there was an improvement in the Two-Wheeler side; there also we have improved our gross NPAs by about 6 basis points. But in Utility Vehicles and a little bit on the Construction Equipment, the gross and net NPAs went up slightly, but in absolute terms the materiality is small - Utility Vehicles just about Rs.5 crores, and in the small CV is about Rs.3 crores. So by and large I think a stable book and as predicted in the MHCV part we are seeing an improvement in the delinquency profile of the book. Finally, I think the CRAR is about 12.4% against 12.96% in the last quarter. Tier-1 is 11.5%, so I think we still have room to grow with existing level of Tier-1. The only other point that I would want to make is that in the 9-month period YTD we opened 127 branches. So we were 600 when we started, we are now 727 branches. There are about 30-odd-branches which are almost ready to be onboarded and so therefore we are on our way towards this 800 branch network that we actually said we would have in the last quarter. I think that is the summary really of the quarterly performance. So overall I think satisfying performance. Market conditions still remain, I think the operating environment still remains pretty challenging in the banking system. I think the stress wave is yet to start abating. It is quite likely that accompanying the low credit growth, there would also be I think a stressful performance from the industry as a whole. So under circumstances it is a satisfying quarter. Any other remarks from anybody else here on the table? And with that I think we will open the floor to questions. Thank you very much, sir. Ladies and Gentlemen, we will now begin the questionand-answer session. The first question is from Vishal Goyal from UBS Securities. Please go ahead. Vishal Goyal: Congratulations, my question is actually relating to capital and your risk weighted assets. So we are obviously seeing a much higher growth in risk weighted assets versus your loan assets; in last quarter also there was roughly 20 billion additional risk weighted asset which was added up similar to last three quarters. This is all because of non-funded or CVA or UFCE or mix of everything? If you look at the breakup between the Corporate and the Retail, Retail generally has a lower risk weightage, and if we are schematic lending which is EMI lending, then you will probably have risk weightage of about 75% and most Corporate would have a risk weightage of about 100%. So I think the trending that you have seen in our growth in risk weightage over the last say 3 or 4 quarters is pretty reflective of the Page 5 of 23

6 change in the loan mix and this moderation would only happen when the Retail part of our businesses starts growing. So I think you cannot really pinpoint a particular sector that we have chosen as a consequence of which RWAs are growing as fast as you have mentioned. It is partly non-fund based, it is also essentially because of the corporate profile of our Loan growth over the last few quarters. Vishal Goyal: In last particular quarter, was there any adjustment leading to CVA or UFCE? CVA was in the Q1. Vishal Goyal: Already behind? K. Sridhar : We did have a slight increase in CVA compared to last quarter. The first CVA hit us in the first quarter and there was an incremental CVA impact in this quarter as well. Vishal Goyal: Even the unhedged foreign currency? K. Sridhar : Not on the unhedged, there we did not have any. Vishal Goyal: Nothing. So I think the bulk of the increase in this quarter is related to loan assets, is that a fair view? That is right because for the unhedged portion the run rate is built into even previous quarters. Vishal Goyal: Your Tier-1 is 11.5% - that I presume is including profits? Yes that is Basel-III. Vishal Goyal: Last time you raised the money was at around 11% Tier-I. So, are we close to any capital raise now because of that? There are options. First of all I think before we hit 11% we have a couple of quarters to go. You can easily go for a couple of quarters, because normally we would see if our Retail starts growing, then normally we will consume about basis points in a quarter. Of course, there is also the possibility of raising Additional Tier-1 and if you do Rs.1,000 crores or a 1,200 crores odd of AT-1, I think that itself boosts your Tier-1 by about 100 basis points, right. So I think we still have the choice of when we want to do the equity issuance, when do we want to go to market. Of course, we have always felt that we should keep high threshold on Tier-1 and I think our actions in the next whatever 3 to 6-months will be in line with that particular requirement. Page 6 of 23

7 Vishal Goyal: On the Consumer Banking yield, which has also improved a tad actually in this quarter, but I think you are growing Home Loan and LAP book mostly if I look at your Retail breakup. So where is this yield pickup coming from? There is no Home Loan at all in our portfolio. Vishal Goyal: All LAP? Not only LAP, LAP actually is a lower end of the food chain in terms of pricing, but the other elements like Sumant Kathpalia: We have grown Credit Cards a little bit, we have launched PL and we have launched BL, which actually come at about 16% to 18% yields. BL is Business Loans. Sumant Kathpalia : So there are products which are giving you that type of a yield. Vishal Goyal: So I think it is PL and BL, because Credit Card is very small? Sumant Kathpalia: Yes and plus we also participated in the DDA funding which we got a yield of about 19.6%. Thank you. The next question is from the line of Prakhar Agarwal from Edelweiss Securities. Please go ahead. Nilesh: Nilesh here. On the Retail business, if you can just give some sense on the disbursement trajectory, how that has shaped up, because on the loan book, we have kind of stabilized? You mean to say on the Vehicle Finance side? Nilesh: Yes. S. V Parthasarathy : As you mentioned the advances remain more or less at the same level. Disbursement grew by about 17% in all quarter-on-quarter. In that there has been a significant growth in Commercial Vehicle vis-à-vis the last quarter, which is about Commercial Vehicle industry grew by about 50% and we also grew by 50%. We have outgrown every segment in the market in all the areas where we are present. This is the first time we have recorded something like close to about 17% growth after some lull period of close to about 3-4 quarters. Page 7 of 23

8 Nilesh: What is the absolute number of disbursements for the quarter? The vehicle disbursements, Nilesh, are Rs.4,112 crores. Nilesh: The Corporate yields have come off to about 10.9% roughly. I am assuming that is probably closer to the base rate that we have and the incremental business has been loans to small businesses. So just wanted to understand, how that is shaping up and what is the outlook going forward, because the gap with Corporate and Retail yields has again widened. So, going forward, if we are looking at the Retail inching up, can we assume that there could be significant delta in terms of the overall yields going up? If you look at the corporate yield in Investor Presentation, Corporate yield for the quarter is 10.93% which is below the base rate, so base rate is 11%, so there has to be something else happening in the book to explain that and that is essentially that the book is composed of a Rupee loan book and a foreign currency loan book as well. So while our Rupee yield has remained almost stable quarter-on-quarter, the addition of the foreign currency loan book which has actually grown in the last two quarters actually brings down the blended yield. It does not impact so much on the margins but brings down the yields because the spread there on the foreign currency book is also pretty decent, otherwise we would not be doing the business. So that component is now about 20% of the total Corporate book and that has actually grown in the quarter as well and that is why you re seeing this sort of a distortion in the yield only because of that. There are some banks who want to disclose their Rupee and foreign currency yields separately, but that is the story. Nilesh: But you mentioned the spreads are similar. Because when we compare that with the other banks, there is a big variation between the domestic and the international foreign spreads. So if you can just elaborate on that, if we were running at Corporate yields at about 10.9%, and the assumption is that the domestic yields could be if you are talking about 20% being international, roughly around % would be a fair number for the domestic yields? No no that is the INR. Domestic yield is about11.9%, that is right. Nilesh: Is the spread similar between the two businesses? It is not exactly same, but the point is if the spreads were dilutive, then you should have seen a reduction in our NIM. So no reduction in the NIM so we do selective lending where we are very particular about the spread. So if you look at our landed Page 8 of 23

9 cost on MIBOR plus whatever, and then we do our spreads and on that basis we find customers who are willing to take that. So we are not doing spreads of 2% and 2.5% on this one as well, otherwise makes no sense to do that. Nilesh: Is there any internal cap to what level do we want to take this business up to, is there a number to that? Not really, point is that any loan accretion has to be accretive to my interest margin. The cap is really dictated by how much foreign currency we can raise. I think that is more as far as we are concerned, if the quality of the risk is the same, if we are able to raise money, then I do not think there is so much of a cap, because we are not taking any currency risk at all. Thank you. The next question is from the line of Manish Ostwal from KR Choksey. Please go ahead. Manish Ostwal: On your Core Fee item, one is FOREX income, second is Investment Banking Fees. If you look at the quarter-to-quarter growth in the overall Core Fee, these two lines contributed apart from some transaction-related fees, other lines like trade fees, they are continuously seeing moderation. So could you comment on overall composition of growth driver in the Core Fee income? This composition has not changed so dramatically, say quarter-on-quarter. So trade is still giving us Rs.62 crores. Distribution Fee has actually improved even more; Distribution Fee is now almost Rs.98 crores. General Banking Fee is steady, Loan Processing Fee is steady. So there are some components which are steady contributors. Some components that move up and down, so for instance, Distribution Fee if you saw 2-3 quarters ago, Distribution Fee was hardly growing quarter-onquarter. Now Distribution Fee has started growing and Distribution Fee is a pretty large component of my total fee, it is almost 20% of the total fee. That has happened because of Mutual Fund sales have actually picked up. On the other hand Life has gone down. So certainly I think Foreign Exchange income plays a big role. This is all client-related income, so there is no Trading Income here. Trading Income is shown separately, not part of a Core Fee income. So I think the trajectory in the future is by and large going to be within these 6-odd lines. Some may grow faster than the others. That is a function of what is happening in the market, for instance, Life as I mentioned has shown a decline, but that was made up partly by Health Insurance that we picked up and partly by Mutual Fund distribution. Investment Banking Fee is a question of how many deals you can book during the quarter, and if in a quarter one deal spills over, your Investment Banking Fee growth year-on-year, quarter-on- Page 9 of 23

10 quarter sort of falls. But still we are showing Rs.50-odd-crores of Investment Banking Fee. So I think the future trajectory is by and large going to be between these 6 lines. One or two may go up and down or one or two may grow faster than this thing, but by and large we stick and it is pretty well disbursed. Manish Ostwal: On the Corporate pricing power, because we have seen very strong growth in Corporate segment and as we are aware, yield in Corporate side that is lower, so in terms of overall profitability contribution from that segment, should be dilutive to overall ROA than otherwise. So how do you see the trend in terms of profitability per se, especially price in Corporate segment for next couple of quarters given the subdued credit demand in the system? If you are talking about our yield, you have seen as I just explained to a previous question that yield is a function of the combination of foreign currency book and rupee book, but the yield on our Corporate book still remains pretty healthy, I think it is in the range of whatever 11.9% odd. So we expect that this yield will remain in that 11.5% or 12% range. You are right that at the top end of the Corporate world, lots of players are chasing the same sort of Corporates and therefore yields have fallen there. So even without cut in the base rate the margins over base rate have actually moderated but that is for a limited set of Corporate clients. In the mid-market and at the lower end of S of SME, we are not seeing any moderation of rates yet. That moderation of rates will happen only when the base rate is cut, because only then they will get the benefit of that. So going forward I think over the next quarter or so we do not see too much change there, but over a 12-month period certainly I think all yields will moderate whether it is Large, Mid or Small Corporate. But that will be accompanied by a corresponding drop in the cost of funds, and therefore I think margins will be sustained, in our case we hope that margins will grow as we increase the Retail component of our Loan book. Manish Ostwal: Two small data points; one is what is your proportion of wholesale funding of the Term Deposits? And the average Saving Bank Deposit cost in Q3 FY15? We do not disclose the savings rate. We have seen a downtrending, and as you might know we recently reduced rate on the Savings Bank accounts less than Rs 100,000 from 5.5% down to 4.5%. So that will certainly see some downtrending on the Savings Bank rate. To your first question, CASA is 34% and our Retail Term Deposits are closer to about 25% or 26%, so rest is Wholesale Deposits. Thank you. The next question is from the line of Ashish Sharma from Enam Asset Management. Please go ahead. Page 10 of 23

11 Ashish Sharma: We sort of have seen a stable NIM for the last couple of quarters. But from a longerterm perspective where do you see the normalized NIMs will stabilize? Do you see from the current levels there is some headroom for increasing it closer to 4% level just from a longer-term perspective? Yes, certainly, that is the target we are aspiring for, and aspiration is based on 2 or 3 assumptions. One is of course that our Loan book change happens. So when we go Retail from 42% to back to 50%, the difference in yield between Retail and Corporate today is 400 basis points, so if you move your balance sheet by 8% in favor of Retail, on which you get 400 basis points then the arithmetic works out to about 30 basis points on the improvement in margins only on this account (in reference to our loan book). This is of course pre-tax, post tax that means another say 20 basis points, that is one aspect. Second aspect is that we have a fixed rate book on the Consumer side of our businesses. As your bulk deposit rates falls and as your CASA grows then I think the margin on this fixed rate book should also be beneficial to us. The third of course is the growth in our CASA, as CASA percentage keeps growing that should be accretive. So I think if you put these 2-3 factors together, then our aspiration to move up towards that 4% is fully justified. Ashish Sharma: That you would take a couple of years, would it be a fair assessment? In couple of years we do not know who all of us will be here, so our timeframes are much shorter, I would say, that we should look at the next 12-months. Ashish Sharma: On the Digital strategy, we have sort of rolled out a lot of innovative products. Could you just throw some color on further new products and innovations from IndusInd Bank side or we are more or less done away with, it is now how the market will shape up? Sumant Kathpalia: No, I think our Video branch has been a super success in my opinion, and I think we have been able to have 500 calls a day now on our call center and we are getting about 8,500 downloads a month on the application. That was just the first introduction. We have a full payment strategy in place, so how do we want to participate in the payment world, and I think that is something which is happening, plus I think on the online platform we have a full strategy including alliances with other institutions. When will it take off? I think in the next 6-months you will see a lot of roll outs but this is confidential information and we would not like to share the product and the roll out strategy as of now. But, yes, we have a road map, in next six to nine months, and over a period of the second next month, the next month, you will Page 11 of 23

12 see a lot of roll outs happening in the payment and in the online space which will start happening in the bank. Thank you. The next question is from the line of Hasmukh Gala from Panav Advisor. Please go ahead. Hasmukh Gala: As you said that the operating environment still remains very challenging in India, what kind of deposits and advances growth do you look at over the next couple of quarters from what we have been experiencing now? I think that correlation between GDP growth and credit growth has to sort of come back at some time or the other. If you are saying GDP growth at say 5.2% then you are seeing credit growth at around whatever the 11%. I think if GDP growth moves to 6% next year, then you could see credit growth in the vicinity of 15-16% and likewise, plus there is of course a lot of suppressed demand because of the unleashed locked up projects. So I would imagine that in the next fiscal, credit growth should go back into that 15% to 17% range and I think the fiscal after that it should go back into the 20% range as your GDP towards around 8% level. That correlation is the only sort of formula that you have to really drive what credit growth is going to be. So this quarter 11%, but now I think the oil companies have paid off some Rs.40,000-oddcrores, so you may see a little bit of dip on that account, but if you look at a fiscal next year, I would say that we would go back to the 15-16% growth rate. Hasmukh Gala: Do you expect RBI to move on to reduce the rate and all that as it is demanded by all the sectors? We all hope that RBI does that, but RBI has a very strong rationale for holding on to a stance. Their rationale is based on the fact that they want a very clear roadmap on how this country is going to manage its finances in the future, how it manages its balance sheet, how it manages its fiscal deficit, and, of course, very-very steady downtrending on the inflation side of the business. So I would imagine that the Governor would probably wait to see the steps being taken by the government and those steps will be enumerated in the budget. So I think there are expectations that rate cuts will happen only after the budget. But we could have a surprise in the first week of February when we have the next policy you could have a rate cut as well. Hasmukh Gala: That maybe after the budget? We expect it will be after the budget, but next credit policy is on 3 rd of February, so who knows it may spring a surprise. Page 12 of 23

13 Hasmukh Gala: As far as our finances are concerned, the Fees Income and Other Income constitute a very large portion of our PBT, and I think that has been there for last several quarters. What is the reason that we are not able to get a higher NII, Net of Interest expense? If you compare it with say some other well run banks, I think that ratio is something around 45-46% whereas in our case it is 35%, that means your Net Interest Income to Gross Interest Income. Essentially what drives Net Interest Income, one is Loan growth, second is yields and third is the cost of funds. So if you take the Loan growth, our Loan growth has moderated, so we used to grow in that 25-30% range, now we are growing from 20-24% range, so that is one reason in the moderation of our Interest Income. Then, of course, in our case is the change in the Loan mix. The higher yielding Retail book has fallen from 50% odd to 42% and the lower yield in Corporate book has risen to about 58%. Third of course is the cost of funds as the CASA is growing I think that is moving along lines that we wanted to grow. So that is why you see our Non-Interest Income is now as high as 41.5% of our total income. But I think that once we stabilize and rebalance our Loan book, I think we would get back to that sort of a mix. Hasmukh Gala: As far as the Fees Income is concerned, how confident are we that we will be able to sustain the Fees at such a high level? The confidence can only be derived from 28 quarters of performance. So if you see 28 quarters we have shown that our Fee growth has exceeded Loan growth. So this question was asked after 2-years also and then it was asked to us in the 3 rd year, 4 th year, 5 th year, 6 th year and 7 th year. But, seriously, I think that the DNA of the bank is such that we are Fee-oriented. So the way we plan the expansion of our branches, the way the branch manager thinks, he thinks only Fee and CASA, his mind is not cluttered with so many other things. Thirdly, of course, there is a strong linearity between branch network and Fee and CASA right. So fee is there in almost everything. So when you look at the corporate relationship manager, he does not have volume targets, he has income targets right, and he has a Return on Asset target. The return on asset can only come when he gets Fee Income with lower capital usage. That is why the DNA of the bank has actually been framed in such a way that the emphasis on Fee will always remain. So we are not following anybody s model right that we should also be or We want our Fee model is our Fee model. Hasmukh Gala: Out of say Rs.522 crores that we have earned this quarter, Rs.169 crores is the foreign exchange income. So that would be more pertaining to the LCs and things like that? No, actually we have earned Rs.611crores. Page 13 of 23

14 Hasmukh Gala: No, that is the total, I am talking about only the Core Fee income. No-no, why Core Fee, the other is also fee. The color of Fee does not change, whether it is the Core Fee or Non-Core Fee, it is a fee. One Fee comes from clients, the other comes from non-clients. Out of 600 crores, Rs.160 crores comes from foreign exchange income and that is the way it has been planned. The point is that we have got in a very skilled and expensive Global Markets team 2.5 years ago and they are delivering results, not only at the central treasury level but also in the geographies. So FX income is also part of our DNA, it is in our blood stream that we must make Foreign Exchange Income. Of course, the more you do Trade the more Foreign Exchange you also earn. So Trade income is almost about 10% or 11% or 12% of our total income. Trade and FX are related, then of course there is a Retail trade, Corporate trade and Retail FX, Corporate FX. I think that is the way it has been framed, it is not by accident, it is by design. Hasmukh Gala: Foreign Exchange income has also been helped in this quarter because the rupee depreciated? Arun Khurana: I think a couple of things, you are right, when there is more volatility, there obviously is more hedging done by clients, and plus you had a downward movement in the MIFOR rates which is used to hedge long-term currency exposure. So you did see a lot of activity on both counts in terms of clients hedging long-term exposure which they have contracted over a period of time as well as short-term forward contracts, so that was. Plus also it is not just plain and simple FX, there are simple spot rate forward contracts, there are structured transactions. We have as I said a skilled team now, our treasury is no less than anybody else in the market including the foreign banks. We can stand up to large corporate and show them structures which are as competitive as any that a foreign bank can show. So that is the way this business has been built. Thank you. The next question is from the line of Manish Karwa from Deutsche Bank. Please go ahead. Manish Karwa: On your margins, this quarter we probably would have got 10 basis points of margin savings because of the savings rate cut, and despite that margins have only gone up by 4 basis points QoQ, also, the high yielding products like loans to small businesses, cards, etc., have also grown pretty fast. So, is there some inherent margin pressures which we are seeing in some of the other products? Page 14 of 23

15 First of all, the assumption of 10 basis points coming out of a rate cut in the Savings Bank that needs to be tested, because that assumes that a large part of this book lies in the below lakh rupees. There is some moderation in the cost of SA, but it is not 10 basis points, I can assure you that. As I mentioned in a previous question, at the top end of the corporate world certainly we are seeing pressures and yields are certainly falling there, because if you do not reduce the interest rate they repay you, because some other bank is already offering them low rate. But that is only at the top end of this thing. In the mid market and all, we are not seeing any increase in yields, we are not seeing any drop in yields. So there is a positive accretion in our interest margins at the end of the day. It is not 10 basis points, it is 4 basis points. But the issue here is the only pressure that we are seeing is the change in the mix. So, we were hoping that this quarter our Retail will go up to 44% and Corporate will be 56% frankly, it went down to 42% from 43%. I think that is the only one where is a pressure which is being caused is that. That we hope will start getting reversed slowly over the next 12 months, and that is why we hope that the recovery in margins that we expect will happen. Manish Karwa: After the change in Savings Rate below Rs.1 lakh, have you seen any change in Deposit accretion on Savings? Sumant Kathpalia Not at all. We have not seen any change in our growth rates because of rate change. Manish Karwa: Then should it not make a case for cutting Savings Rate more, especially given the environment when the interest rates are in which ways coming off? There are two ways of doing it one is to wait for rates to fall off and then cut; the other is to do a behavioral analysis of how customers are behaving in every slab. So when we cut the slab up to Rs.100,000, it is not done because one morning somebody felt that we should reduce rates. It was a consequence of the fact that now we have a branch network of so much long, their stickiness, how many products we have crosssold to that section up to Rs.100,000. Similar exercise is happening for the next slab. The exercise is on to see whether we have achieved crosssell in the next slab, say Rs.100,000 to Rs.500,000. And if we have cross-sold, then you assume stickiness and then you take the decision. So, it is very much in our mind, I think the timing has to be decided. Thank you. The next question is from the line of Rakesh Kumar from Elara Capital. Please go ahead. Page 15 of 23

16 Rakesh Kumar: The slippage in the Corporate Loan book for this quarter and if I see the comparative number for the credit cost for the Corporate book for this quarter, that is Rs.49 crores. So, what are the reasons that we had to make higher provisions for this quarter for this book? Basically, Rakesh, a couple of things one is there was a little bit of a deterioration or impairment in the collateral value of our existing NPA book, so we actually up the provisions as a consequence of that, and there were some incremental provisioning for the slight increase in our restructured book. Rakesh Kumar: But if the collateral value, suppose, some portfolio is coming down, then would not be ask for more collateral or like something similar, instead of just making a higher? It s difficult for NPAs practically speaking, you always try, but it is not Once it is an NPA, ability to get traditional collateral is pretty restricted. So we made I think prudent provisions on our existing book. On the other hand, of course, we have also held our PCR - Provision Coverage Ratio also at 70%. That is the explanation for the fact that although the additional slippages are of certain value, the credit cost shows a higher value. Rakesh Kumar: Because of collateral value coming down, there are chances of NPA rise. So can that happen in the next quarter or so of the rise in the NPA slippage of a Corporate book? K Sridhar: These are one-off random movements. So whether it will get repeated next quarter or not, we cannot predict at this point of time. Rakesh Kumar: Secondly, the market risk allocation like that has gone up by Rs.1,000 crores quarteron-quarter. So how should we read this change? Arun Khurana : Market risk components gone up because of the increased activity as I mentioned earlier on hedging of clients portfolio through them using long tenor hedges in the form of derivatives. So that amount gone up quite significantly. Rakesh Kumar: Are there chances that would decrease and we will decrease that hedging going forward so that we can release some capital from there? Arun Khurana: Yes, it just depends on if clients were to unwind or if we unwind the hedges with them, so that is how it will go, otherwise, that is a number that you got to be with, Page 16 of 23

17 right, it may not show such an increase in the future, that is what I am going to say or it will not show perhaps such an increase in the future. Rakesh Kumar: Around Rs.1,000 crores rise was there on the cash balance on a sequential basis. So what is the reason like we are putting so much of extra cash? It is just a point of time event, we manage cash that now we have three going to four currency chest. So we do not like to keep excess cash even in the branches, so that is a monitor able item. There could be some transitory happening, that is why this sort of have happened. It is a dead asset, so we want to minimize it. Thank you. The next question is from the line of Nikhil Bhatt from Barclays. Please go ahead. Nikhil Bhatt: If you could just put up the Basel disclosure on the website, I cannot seem to find it on the website? Yes, it will be done there. Thank you. The next question is from the line of MB Mahesh from Kotak Securities. Please go ahead. MB Mahesh: A couple of questions. One, this cost of deposits that we have seen a decline. Is this a function of the wholesale rates declining in your portfolio or is it the mix between domestic and international deposits that we have? I think it is a function of two or three factors. There is a small decline also in the bulk deposit rates and the CD rates. Then of course, there is an increase in the CASA percentage as well. And in the foreign currency borrowing also I think we have seen some rate coming off, but there are marginal sort of the interest reduction in the cost of funding on foreign currency borrowings. MB Mahesh: If I just extend this, if I keep the current deposit rates in your framework, is it a fair assumption that we will see another 20 odd basis points decline over the next one quarter or do we think we need further rates to come down to see a decline in deposit rates? CD rates have come off, Q3 may not have captured the full extent of the decline, so we would see some of that actually coming into Q4 as well. But whether it is 15 or 20 basis points, difficult to say. Page 17 of 23

18 MB Mahesh: The reason why you chose borrowings as one of the medium for this quarter for growth given the fact wholesale rates was lower, can you explain why? No, that is mostly refinance. MB Mahesh: That is a cheaper source for you at this point of time? There is no stat, so you save the statutory liquidity ratio (SLR) part of the thing and it is longer-term funding, that is more important. This refinance is generated by our Vehicle Finance book, to the extent that we have Vehicle Financing we are eligible. On the cost side the only benefit is that you do not have stat. MB Mahesh: Two questions. One, can we have the Used Vehicle Financing book in the portfolio for this quarter? If I need to see the vehicle finance portfolio to grow at about 10-12%, today, we have seen disbursements growing by about 17%. So, if I have to see the loan book growing by 10%, what is the kind of disbursements that you need is the broad question? S V Parthasarathy : Close to this kind of a percentage increase every quarter, it is about 20% increase in every quarter should mean an annual increase of close to anywhere between 10% and 12%. Used Vehicle Finance disbursement wise it is about 20% and then asset wise it is about 15% of our Vehicle portfolio. Thank you. The next question is from the line of Prashant Kumar from Credit Suisse. Please go ahead. Prashant Kumar: Just on your Retail portfolio, wanted to get a sense on the non-vehicle retail part of it, in the sense that could you give us some color in terms of what is the roll out strategy, how many branches have you already rolled out, what is the sourcing strategy, are you focusing on internal customers, what percentage is being sourced from DSA, and some medium-term targets that, how the mix is going to shift from vehicle loans to non-vehicle loans.- just wanted to get a broader perspective on the non vehicle part of the retail portfolio? Sumant Kathpalia: We have rolled out four products as of now one is LAP, the second is Credit Card, third is Personal Loans, the fourth is Business Loans. We have now rolled out in the last quarter Agri Loans, Loans against Shares and Loans against Credit Card Receivables. Those are the seven products which we have rolled out in the Retail Non-Vehicle portfolio. Today, we are about 10% of the overall Consumer book. We believe that we will be about 15-18% of the total Consumer book in the next Page 18 of 23

19 months. That is what our strategy is. We have rolled out all the products which were required to be rolled out and we would see the impact coming in the next quarter or early next year. Prashant Kumar: Just wanted to understand on this Foreign Currency Loan book as well as like could you give us some more details is it Trade Finance Loan or Term Loan and have we grown this portfolio very recently, and when we say that this is 20% of Corporate book, then it is 20% of Large Corporate or the Total Corporate book? 20% of the total Corporate book large, medium and small. This book was always there, it has not suddenly appeared, but the values were much smaller. The book has actually grown over the last whatever 9 or 12 months. It is a mixture of say some preshipment finance which is of shorter tenors and some longer tenors of 12 months or so. So it is a mixture of short term 90, 180-day sort of trade finance pre-shipment, and also a little bit of the 12-months tenors. It is fully matched, it is back-to-back on the funding that we raise. Of course, there is no currency risk that is carried by us at all. We only lend when we get decent margins. Thank you. Our next question is from the line of Nilanjan Karfa from Jefferies please go ahead. Nilanjan Karfa: First question is, you talked about this cross sell based on the behavioral pattern. Just want to find out, where do you book your Savings Account when you do your ALM and if you can talk about how it has changed in the last couple of years? ALM is based on behaviorals in terms of longevity, right, so you do behavioral tests as per RBI guidelines, and we do these tests I think once every six months, we find that actually less than 10% of the portfolio shows volatility, and this volatile portion is therefore in your ALM when you structure liquidity, put into the short-term buckets and the rest of it goes into actually three-year buckets, because that is considered core. Similarly, you do behaviorals for the Current Accounts; the Current Account of course show much higher volatility element, in our books it has been shown to be around 15% odd, so that 15% is taken in the short-term buckets, the rest is in your long-term buckets. Nilanjan Karfa: When you do the liquidity ratios under Basel III, so this short term volatile portions which is essentially what you are saying 10% in Savings and 15% in Current Account, that goes into the net funding ratio calculations, is that right or it is not? Page 19 of 23

20 Yes, that is the way it is, so 10% and 15% goes into your shorter term outflows and the rest is in the longer term outflows. Nilanjan Karfa: Just wanted to get a sense, what is the range of interest lending yields in the business that you do across the portfolio - Consumer and Corporate specifically, I just heard some business is done at 4% I think that is true for a lot of other banks, just wondering what those are? There is no lending below our base rate, that is the first starting point, our base rate is 11%. Now foreign currency lending is not linked to base rate, right. Foreign currency lending is you borrow at LIBOR Plus whatever and then you lend on a match basis, keeping your spreads which we hope are 3% to 4%. If you look at the rupee lending range, the rupee lending range starts from the base rate, because we are not allowed to do that at below base rate and goes up to the high of 24%. So 11% on the Corporate side and 24% on our Two Wheelers within the Consumer Finance and Vehicle Finance business, so that is the range that we have. Thank you. Our next question is from the line of Nitin Kumar from Prabhudas Lilladher. Please go ahead. Nitin Kumar: Having done so well on the CASA, are we looking to like revise our target under Pillar 3 of below 35% that we have for because we have done like 500 basis points improvement over there, so are we still staying at 35%. So you see a subtle change in the slides. Now we have this thing Greater than 35%. So if you remember the previous three year plan, we said that we should get to 35%, now we have said we should go beyond 35%. And aspirationally that should be 40%, jump of at least 5% every plan period. So greater than 35% aspiring towards 40%. Nitin Kumar: What is the outstanding ARC sales that we have today? Outstanding ARC is the same as the last quarter, no change. Thank you. The next question from the line of Pradeep Agarwal from Phillip Capital. Please go ahead. Pradeep Agarwal: I just want to know what has been the restructuring for this quarter? K Sridhar : 55 basis points. We do not talk about specific names. Page 20 of 23

21 Pradeep Agarwal: If you can throw some color, this is in nature of which sectors or the number of accounts? We do not give sectors, it is only 3 basis points, it is not like some huge movement, our entire Corporate book is quite diversified, so you will never see something only coming from one sector. Pradeep Agarwal: So, if I ask you other way, in terms of gross additions, what has been the basis points addition over last quarter, would that be a materially higher number than 3 basis points? No, it is the same, 3 basis points marginally. From Rs.309 crores to Rs.353, Rs.44 crores. Pradeep Agarwal: Secondly, on the provision side, if you can provide the breakup in terms of standard assets and investment depreciation and NPA? S. V Zaregoankar : Depreciation reversal is Rs.38 crores and standard asset provisioning is Rs.11 crores plus. Pradeep Agarwal: Lastly, if you can help me with what has been the Savings Bank account number of client base and how that has moved over the previous quarter? Sumant Kathpalia: We are doing about 55,000 customer acquisitions a month on the Savings Account base and we continue to do an ATS of about 45,000 to 48,000, average ticket size on the customer acquisitions per account. So it is Rs.250 crores to Rs.260 crores of new acquisitions a month. Thank you. The next question is from the line of Vaidyanathan from Kotak Mahindra Bank. Please go ahead. Vaidyanathan: Just wanted to check on the increase in your market risk capital charge, roughly RWA increase of Rs.1,000 crores. You did mention earlier that these were all due to client hedging, but would that explain the entire increase, or are there prop positions which you have taken, on which the market risk charge applies? In the first response to an earlier gentleman, you mentioned your Corporates are mainly at 100% risk weight. Does that mean they are all at kind of BBB category and that is the kind of the average or the median rating for your Corporate book? Page 21 of 23