IndusInd Bank Limited Q1 FY-15 Results Conference Call

Transcription

1 IndusInd Bank Limited Q1 FY-15 Results Conference Call July 09, 2014 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 17

2 Ladies and gentlemen good day and welcome to the IndusInd Bank Q1 FY15 Results Conference call. For the duration of this conference all participant lines will be in the listenonly mode and 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. Managing Director &CEO at IndusInd Bank. Thank you and over to you, Mr. Sobti. Thank you and good afternoon to you all. Thank you for joining the call. I am just going to take two minutes to talk about the operating environment specifically the parts that apply to us and then we will go in to the numbers and then we will break into the Q&A session. So I think post the elections while a lot of political capital has been created because of the clear mandate to this right of center sort of government and we have seen a buoyancy in both the rates and the equity markets; as far as the Reserve Bank of India is concerned I think the only sort of sympathetic step that was taken in the credit policy was a reduction in the SLR by half percent. So overall I think the interest rate environment does not seem to have improved. Neither have sort of conditions to actually bring about a reduction in the interest rate scenario. So our stance on drop in rates in the coming quarters remains as skeptical as it was about a quarter ago and we do not think that rates are going to drop in a hurry. Markets have otherwise been liquid in the sense that after being elevated especially in the period of March-April, we are now seeing for instance in June itself a drop of about 25 basis points in the CD rates. So liquid market with some perceptible drop being experienced now more than I think last quarter that is really what hits the markets. I think there are a couple of regulatory developments that will impact results of all banks this quarter and these developments actually hit banks as late as June and I think the biggest one of them is really the provision requirements that now are mandatorily required for un-hedged exposures of corporates on the books of banks. And these un-hedged exposures are linked to the fund based outstanding that you have. I think banks have had only 20 or 25 days to really figure out what the un-hedged exposures are and that is a process of either certification or determination by individual relationship managers who go and meet corporates and things like that. We will talk about how it affected us and what it meant to our net profit for the quarter. But I think it will be worth watching out how the whole banking system shapes up on this issue of the provision on un-hedged exposures. Linked to that is of course the capital usage that is now been mandatorily required because to the extent of un-hedged exposures certain percentages of around 25% increase in risk weighted assets will also happen which means it has an impact on the capital that banks are holding. That is rolled out and the last one of course is the CVA which is the Credit Value Adjustment for derivative exposures which also has an impact on capital usage and capital adequacy for banking system. I will talk about how it has impacted us. So let us start with the bottom-line for us and the bottom-line shows a net profit growth of 26% for us year-on-year and 6% quarter-on-quarter. But I think factoring in this thing you have got to normalize for this charge that I talked about. As far as we are concerned there was a charge of about Rs. 10 crores on account of un-hedged exposures but we took a conservative provisioning and actually provided for Rs. 20 crores just Page 2 of 17

3 to make sure that the data that we have got is integral which of course will be checked out over this quarter. So if you really take this Rs. 20 crores back, which was really happened suddenly in June, then our Net Profit growth actually came to around between 29% and 30% which is the run rate that we are used to for the past sort of 24 quarters. Otherwise I think the key performance vectors have remained stable in spite of I would say a stagnant operating environment; while I think my own sensing is that the perception on the environment has run about two quarters ahead of reality. So while there are expectations that there are lot of things will change and the budget tomorrow will also fuel some of that expectation. What we have seen on the ground is that and also speaking to some of the larger banks for instance credit growth have been pretty sluggish but let us see how things roll out. But we still sustained a credit growth of 24% during the quarter but we will explain on how this credit growth came about. The credit growth really came out of the corporate bank which grew about 38% and the retail part grew about 8% and this 8% growth in the retail also has happened out of the non-vehicle finance portfolio that we have built up over the last two years. So LAP and credit cards and gold loans and business loans and things like that. So 24% credit growth has happened for us at least. I think the highlight for us during the quarter of course was the consistent growth in fee income which has grown 30% again year-on-year. The Core Fee Income has grown actually 38% not 30% I think and I think for the first time our Non-Interest Income to revenue has crossed 40% and was now at 42% and it has steadily crept up from 30% to almost 42% over this thing. There was some impact on NIM against 3.75% last quarter we came at 3.66% and I think that can be attributed almost entirely to the change in the loan-mix that we have had retail versus corporate. The corporate part of our portfolio actually now accounts for 57% of the loan book and the retail part is now slightly less than 43%. So during the quarter itself about well slightly over 2% to 2.5% shift has happened in the balance between the two portfolios and that itself accounts for about 6-7 basis points on account of the margins. So that is the only reason I think why the NIM has not come up to the expectation that we had because we thought that we will see an uptick for instance on the vehicle finance businesses. So while things remain positive in terms of indicators I think the financing part of the vehicle sector is yet to see an uptick. Other vectors are certainly looking good. We will talk a little bit more about that. Just for your information we have all the business unit heads and the entire management team here so whatever questions you have specifically on this subject you can address to them. So I think that the expected rebalancing of the book that we thought will start in Q1, did not happen. Now of course there is a monsoon so Q2 also I think will be same, well we hope it will be better than Q1 but we really expect the things to change from September onwards. So I think the rebalancing of the portfolio will really happen September onwards and slowly I think we will creep back the percentage of our retail portfolio and that has implications both for NIM as well as for the overall gross yield that we get on this thing. So other than that I think the Non Performing Assets have remained steady; gross NPA is slightly down I think about one basis point or so. Net NPA is flat at 33 basis points. Provision Coverage Ratio has not been compromised, we have kept the PCR at 70%. The restructured book has grown slightly from 33 Page 3 of 17

4 basis points to 40 basis points but that has not had any major impact on the total credit cost and the total credit cost for the quarter has come out at 15 basis points. I think that is a very broad sort of heading. If you want to go down a little bit more on detail in terms of the overall parameters I said that some of the verticals the vectors have actually improved; the ROA has improved slightly; ROE has now at 19% that has improved; NIM I have already talked about and NPAs I have also talked about. So if you look at broad parameters I think Q-o-Q all lines have grown. Net Interest Income of course for the reason that I mentioned has grown 2% but Other Income 10% Core Fee Income 10% overall revenues 6% and Net Profits 6%. So year-on-year of course everything looks much better but the Q-o-Q vectors which really determine the shape of things to come is also I think in good single digits. Loan book I have already talked about and the breakup as well. Deposits grew by 15% year-onyear and most specifically 6% quarter-on-quarter. So as a consequence of that CD ratio has also sort of remained stable or moderated but I think the deposit accretion during the quarter has been better against previous quarters. It is not that we have stopped depending on our borrowings. The small deduction in borrowings is only because there was a little repayment on the refinance and that will be drawn back again in this quarter. CASA continued to grow well; it grew 28% year-on-year and more importantly quarter-onquarter 8% and I think our star performer on liability side has remained savings. SA has grown by 34% year-on-year and quarter-on-quarter by about 7%. Other than that I have already talked about the loan book etc. In terms of the diversification of the loan book, there is not much movement by and large the loan book remains the same. The rating profile also remains the same. If you look at the Core Fee Income I think all vectors have grown in double digits and also quarter-on-quarter even distribution fee has grown better than it grew in the previous quarter year-on-year basis. So trade & remittance and foreign exchange grew. Foreign exchange actually now for almost seven, eight quarters has now grown very steadily in the 40 s. And other things like general banking, loan processing fees. Investment banking showed nice uptick compared to previous two quarters when we had a slight drop but that has now bounced back very nicely. So fee income remains secular and diversified and good double digits. I have already talked about the NIM so I do not think we need to spend time on that. I have talked about the credit cost. I think that in terms of the large network yes, we have continued to invest in the network. Network grew from 602 to 638 during the quarter and the ATM network has also sort of kept pace with the growth in the branch network. Capital adequacy - if you look at the presentation on slide 23. Capital adequacy (CRAR) overall actually fell from 13.83% to 13.11%. On a quarterly basis that never happens to us. We do not use so much capital but this quarter I have already explained what has impacted on bank s balance sheets. You will find all banks will have to. So what has happened as a consequence of the additional risk weighted assets caused by the un-hedged exposures and the credit value adjustment on derivatives for us that has cost 20 basis points during the quarter but tier 1 still remains pretty healthy. Page 4 of 17

5 I think that is about summary of the overall sort of results for this thing and of course there were few new events that happened. On the vehicle finance businesses, we have launched our tractor and farm loan equipment loans last month. We will talk about it if you need any more information on that. We have continued our relentless sort of devotion to responsive innovation and we have introduced absolutely new to the market concept of the video branch which is getting pretty good response from the market and if you want to know something more about it we can talk about it as well. New branches I have already talked about so it came to 638 or so. So that is about it I think in terms of summarizing this thing. And we can get in to the Q&A unless anyone of you want to add anything to the same. We can get in to the question and answers please. Thank you very much, sir. Participants, we will now begin with the question and answer session. We have the first question from the line of Mahrukh Adajania from Standard Chartered Securities. Please go ahead. Mahrukh Adajania I just had a couple of questions. Firstly on this un-hedged provisions. This is a quarterly charge fairly spread across four quarters. Is that correct? K. Sridhar Yes. Mahrukh Adajania And just wanted to check most banks give us the feedback that clients have anyway not been very forthcoming with the data. So would it be that most of it would be bulked up in the highest bracket as of now and could change later any such thing means the highest provisioning? No, can we go back to the first assumption that you made. The annual charge is really four times this, you understand, what we have provided. So we have taken Rs 20 crores. We were required to do only nine or ten crores. But we have taken Rs 20 crores. I think some of this is going to come back. We are quite confident that some of this is going to come back. But if you were to work it out on this basis it would amount to Rs. 80 crores. But that is not what is going to actually happen because un-hedged charges are supposed to be passed on to corporates. Secondly, I think we have been over cautious and we have made double provision. So in any case for us the provision should have been about Rs. 10 crores. We believe that as the data becomes more integral and as we get better certification from the companies there is a certain component of this corporates where we do not know whether they have hedged or not hedged because there is not even enough time for doing that. There you have to provide a high 80 basis points. So that is I think that is the situation for us we expect that a lot of this provision that we have made actually will sort of come back in that. So it may not come to that for us for the full year. Mahrukh Adajania But sir, basically was most of the things bulked up in the 80 basis points bracket this quarter or not really? No. Page 5 of 17

6 K Sridhar No, it is only a very small part of our total loan book which went in to the 80 basis points. Mahrukh Adajania And could we have a brief discussion on SMA-2 for you how many JLFs you are part of anyway it may not be big for you but since this is also an important event that everyone is tracking for the industry I mean an important thing that everyone is tracking for the industry? K. Sridhar In terms of SMA-2 there was nothing which was unexpected in the kind of numbers which came in. We had a fair idea about what could come in SMA-2 and what had come out there was largely as expected. Secondly, there have been a few surprises in the sense that there were mistakes made in reporting of SMA-2 so names which should not have been SMA-2 did get reported and then the banks came back by separate letters to various other banks and to the customer saying that SMA-2 reporting was wrong. But at this point of time the SMA mechanism does not allow people to withdraw the names so these names still continue as SMA-2 and there are individual notices that there is an error there. As regards the JLF it is still under discussion. The exact mode of transmission from JLF in to CDR is still not established and by and large it is still work in process. We ourselves are not there in too many of these JLFs at this point of time. Mahrukh Adajania And just one clarification. Your un-hedged exposure provision appears in what line item it is in the loan loss provision? S.V.Zaregaonkar No, it is not loan losses it is just standard asset provision. Thank you. Our next question is from the line of Parag Jariwala from Macquarie Securities. Please go ahead. Suresh Ganapathy This is Suresh Ganapathy. Just quickly on this CAR decline I mean part is explained by what you said and the other would be that you would have not added your first quarter profits, right? Sanjay Mallik No, profits are added because this is a BASEL III disclosure. So profits are added and proportionate dividend is reduced but the fall is the consequence of the usage of credit risk weighted assets and the two factors that were mentioned earlier. Both on the un-hedged exposure and on the credit value adjustment. Suresh Ganapathy But that is only 20 basis points, right? So there is a total 60 basis point decline if I am not wrong, 65 in Tier 1. So partially the other 40 is explained by the other factors you mean? Sanjay Mallik Yes, so it is 20 basis points on the un-hedged I think it is a little bit more on the credit value as well. And the rest is purely on account of higher growth. Suresh Ganapathy And the other two questions is I just wanted a qualitative comment on the CV cycle both on growth as well as the asset quality and the second part is on succession planning where does it stand as of now? No, first we will do the CV part. Page 6 of 17

7 Suresh Ganapathy That is fine, sir. SV Parthasarthy CV story remains more or less the same. Same kind of optimism prevails but the business does not take place. Everybody is under the impression the manufacturers, customers as well as the market is under the impression that the market is more or less bottomed out and the replacement market and other markets will have to start working. But it did not take place for the first quarter. It is not expected to take place for the second quarter also primarily because June and August are predominantly months where because of the monsoon and also it is July- August has a fair amount of inauspicious period in which not many truck operators take vehicles. Traditionally July-August does not end up in good volumes. We do expect from September-October the market should improve primarily because, I would rather believe that today looking at our portfolio and looking at our customer base and things like that, the stress on earnings is more or less I mean I would not say it is gone but the earnings are better and people are able to meet the installments much better than what they used to do couple of quarters before. And we had several discussions with various manufacturers all are in the opinion that the recession or the stagnancy has been there for fair amount of time which is almost nearly one-and-half years the market has absorbed the excess capacity fully and every new load will have to supported by fresh vehicles and the market is expected to start the uptick which is expected to start in the tipper market especially on opening up of the mines and other related areas. Suresh Ganapathy Okay fine. And second issue was that there is a question I think what we have articulated on succession still stands. RBI has not yet come out with any policy as far as the age bar for private sector banks is concerned. But we understand that they are working on a policy and that we should have one shortly sooner than later and once that policy comes then we will know what happens in the future. So as things stand today the extension is for one year which is still January of 2015 but we expect I think in the coming weeks I would say if not months we would expect RBI to come out with some sort of a policy framework which will create lot more clarity. Suresh Ganapathy No, but the board does not have a policy to actually find out the successors because in case RBI says in November that we are not extending your tenure you cannot search around in November who is going to be the next guy, right? So is there a particular? That is not the way the organizations work. Succession planning happens long before I think the maturity of the tenure. So it is not that you start suddenly working in November I mean the board has applied its mind very diligently on this subject not today but 12 months ago if not more longer. So they have full clarity on plan B, right? So it is not that you will suddenly spring up one day and say alright who is the next successor? I think there is full clarity in the minds of the board and the nomination committee on how succession will happen and the overriding theme of succession is that there should be continuity of thought and action and I have articulated it several times not only in the media but to individual investors that it is the Page 7 of 17

8 responsibility of the board and management that there will be continuity of thought and action irrespective of what actions are prescribed by RBI. Suresh Ganapathy Thank you Sir Thank you. Our next question is from the line of Prakhar Agarwal from Edelweiss Securities. Please go ahead. Kunal Shah This is Kunal Shah. Sir, most of the questions have been answered so but sir, again dwelling upon this question of provision on un-hedged so finally when we look at the credit risk so credit risk is actually moving up by almost like Rs. 6,700 odd crores in the risk weighted assets as compared to that of say Rs. 3,500 crores kind of quarter-on-quarter increase in the loan book. So even if I do say 80 basis points kind of a provisioning assuming like say Rs. 40 odd crores what you are suggesting is the cost then I presume like Rs. 5,000 odd crores is the exposure which would get qualified in the say the borrowers which have un-hedged FOREX and say 25% of that would be again like Rs. 1,250 odd? No, before you go any further because you are not on the right track. It is not linked to your exposure. You first go and find out un-hedged exposures, in un-hedged exposures you then multiply by a volatility factor you come to a certain amount that amount has to be taken as a percentage of the EBID, earnings before the interest and depreciation. And according to that depending on the percentage there are different slabs. Kunal Shah Yes, may be 30, 75 more than 75. And that is the thing but it is not linked to ultimately yes, it is linked to your exposure to that particular corporate. Certain percentage of that will prescribed and risk weighted assets will go up by 25% on that un-hedged portion, not on the whole risk weighted assets, only on the unhedged portion of this thing. Kunal Shah So this increase in credit risk which is there off say Rs. 6,700 crores so may be some proportion is definitely coming because Rs. 3,500 crores is the increase in the loan book as well. But besides this how much would be say on account of say the non-funded one how much would be say on account of this risk adjustments on derivative and how much would be on account of say the un-hedged FOREX if you can just give a broader break up? No, we cannot. That information is not in public domain. Kunal Shah But I think very low proportion would be assigned to un-hedged? Yes, in our case. And that may not be true of all banks. Kunal Shah Yes, that may not be true of all banks. And in our case may be rough cut when I am doing the calculation would you like to say more than 20% of our corporate exposures would be some in wherein that is the un-hedged FOREX? Page 8 of 17

9 None of these numbers you can deduce that. It is effectively guess work and how will you calculate that number it is impossible for you to do that. Kunal Shah No, because if Rs. 40 crores is the provisioning which I am making on my total credit exposures to that entity. Yes, but how do you know which bucket it falls in to something will be 20% and something will be 40%; something will be 80%? Sanjay Mallik I think we should take this discussion offline. Also I am not clear what you are trying to get at. Kunal Shah No sir, just wanted to get the sense as to off the corporate exposure in our case how much is say wherein there is the un hedged FOREX? So is it 25%; 50% of the corporate exposures? You would not get that information. You are lucky that we are giving you the information on how much we have provided. Kunal Shah Ok Sir, thank you Thank you. Our next question is from the line of from Barclays. Please go ahead. I had one very quick data question and two substantive questions. One is if you could give your weighted average SA cost the equivalent of 6.6% in the previous quarter? And the two data sort of more substantive questions. One is the loan processing fee has gone up very substantially on a year-on-year basis at a time when consumer disbursements are pretty low. So at least other bank say that in the corporate segment if you are doing clean sort of very low risk working capital lending fee levels are very low. So why is the loan processing fee up that much? And in this context I also going through your BASEL disclosures at least for last quarter because this quarters are not upon the website yet there was a pretty substantial increase in construction exposure and also power generation exposure and actually also steel exposure. So there is at least those segments are seem to be risky. Could you sort of talk about credit risk the nature of lending in corporate and loan processing fees? And secondly, on the investment banking fee again that is could you talk a little bit about how many deals you are doing and if possible what are the larger deals that you have been involved in? Okay so there are at least four questions if I get it right. I will pick up one of them which is really this thing on processing fee. See the loan processing fee is not just a function of fresh disbursements and fresh growth it is also a function of renewals. Secondly, if our credit growth is 24% at least for the corporate side it has happened 38%. So it is a combination of these two. There were renewal fees that happens irrespective of whether there is an increase in exposure or not. And secondly, I think there is the fact that corporate exposures have grown that is also resulted in the processing fees. The point is, just a second, vehicle financing is not that there is Page 9 of 17

10 zero disbursement, we are still disbursing Rs. 1,100 crores to Rs. 1,200 crores on vehicle financing. There also we have got processing fees. So on almost every part every asset class there is some processing fee linked. Even again loan against properties, we do that there is a processing fee. So all these adds up to this figure that you are seeing today. No, no so the question is the loan processing fee is there even if on renewals but then the total amount is not growing then the renewal fee will not grow, right? That is already in the base? That is alright. But then there has been growth of like almost 60% in loan processing fee? Yes, so then the growth of 38% also this also see the growth in the corporate book is 38% plus renewals plus CFD disbursements. So I think this figure do not try to please correlate to anything this figure is the actual figure coming out of the book. Next question is on the SA cost. Sanjay Mallik Yes, so the SA cost Anish is 6.3% for the quarter. So it is come down from last quarter. Then there were three exposures which had increased last time which was power generation, construction and steel which were up and in power. And last time you mean last quarter or you mean from last quarter to this quarter? So this quarter s numbers are not yet on the website. So I am looking comparing FY13 with FY14 power generation. FY13 so you are now taking me back three months? No, FY13 to FY14 that is. This year to this year? Yes. FY13 to FY14 March not June? March, so March the power generation there is non-funded exposure increased from Rs crores to? Sanjay Mallik Look at the whole thing in perspective we are talking about individual industries where our exposure is 2% or 3%, right? Even if I do a small transaction it will go up in percentage terms in the overall there is no concentration being created, right? Page 10 of 17

11 No, the book is also Rs. 30,000 crores, right? So if I add up a power generation non-funded exposure plus real estate exposure I mean all these are Rs. 5,000 crores to Rs. 6,000 crores cumulative increase it is not a small increase, right? Yes, the quarter-on-quarter there is nothing you are going back one year and looking as a number. You are looking at one year over the other year yes, sure I mean these numbers are what they are. So one year growth I mean it is going to happen. K. Sridhar But in general we have not really financed any power generation company or we have not done any proper project finance kind of thing. Yes, on power generation I can tell you that most of the exposure is on actual producing companies it is not project finance mostly it is working capital for power generators not people who are setting up power plants. And lastly, if you could just talk about investment banking fee? The investment banking is actually quite steady we do between 6 and 10 transactions on a quarterly basis and it has been like that for the last six -seven quarters. And sometimes what happens all deals do not close in the same quarter so last quarter it was slightly low but this quarter it is back to its usual run rate and we do between 6 and 10 depending on the quarter. These deals take quite a long time to conclude. And any data in the public domain that you? If you look at day before yesterday s Economic Times on the front page you will see eight deals listed those are in the public domain you will know who they are and what kind of transactions they were. Ok, thank you Thank you. Our next question is from the line of Vishal Goel from UBS Securities. Please go ahead. Vishal Goel My question is on CASA pretty strong growth congratulations. One part I think on the CA especially there has been a significant increase in this particular quarter which is sequential increase of almost 10% and which is on the back of quarter 4 which was also pretty strong so any color on that? Sumant Kathpalia I think the current account growth is happening as a consequence of three items.#1. Our current account acquisition has got ramped up. We have created a separate channel on high value current account and we have focused on high value current accounts. We have implemented transaction banking model in the lower level current accounts and that is where we are getting Page 11 of 17

12 some cash mandates in the BBG and SME portfolio which we are getting current account float that is number one. #2. I think we have also done an intervention on the client engagement and the client strategy on accounts of upbringing of the balances and there is a huge team which is working behind it to get the current account because these are 0% cost of deposit floats and we are working very hard on getting this current account business going as on. #3.We did some IPOs and we are part of the IPOs and the dividend warrant where we got some temporary floats coming in. That is the reason why the current account book is growing and you will continue to see this growth happening. Vishal Goel And this IPO float, etc., is it like any number you want to put it because then will it drop off next quarter? Well, that is a quarter-on-quarter we get an average float. It depends on what kind of IPOs happen in that quarter. Only thing I can tell you is that in terms of collecting bankers if you see the league tables we are number one. So collect the maximum amount from any bank in the country. So we have a very good infrastructure for collections. How much we collect is a function of how many IPOs happen. What you will see is that because of our league table position we actually get now collecting banker mandate in every kind of IPO whether it is an NCD; whether it is the tax free bond or it is a regular IPO. So we are in all of those. How much we collect is a function of how many happens in that quarter. So some quarter you will get many bond issues say that two quarters ago you had a huge float on account of various bond issues. Last quarter it was not as much as this quarter. This quarter again there are lots of flows. So that is a deal based thing it is a function of how the market is behaving. Vishal Goel Fair enough, and on savings account how many customers we added last quarter? Sumant Kathpalia We added about 170,000 customers. Vishal Goel And one last question. On your fee income if you look at the breakdown now like compared to last 18 months I think the FOREX and investment banking is roughly 40% of the fee, any sense on that because you think that this kind of proportion would continue going forward from these two streams? If you go back four years you will find a completely different mix. There I say similar question used to be asked on why your distribution income is almost 30% alone. So I think you ride the fee waves as they come and certainly I think the foreign exchange part of it of course one is secular in the sense that we changed the entire team 2.5 years ago. That team has made a huge difference both on the retail side of our businesses. So if you see that this business is not trading income business it is all coming out of clients and may be Arun should take over. Arun is here he is the head of global market to say what is the sustainability of this business and how this business has created foreign exchange. Arun Khurana Yes, I think as what Mr. Sobti alluded to earlier, so this is all client based income and we are pretty much divided between corporates and retail. In Retail, we have taken lots of initiatives to Page 12 of 17

13 gather momentum because this is absolutely sustainable and creates a larger delta more sticky delta going forward as well because the more we expand in branch networks the more sort of e- technology that you have use in order to capture the smaller flows they tend to be sticky and you get on to making the fee income with larger margins as well. So as I said it is divided typically proportionately so it is around 48% retail-52% corporate but going towards the 50:50 mark sooner than later. On the corporate side again if you see we have penetrated deeper into clients and also gone in to larger public sector businesses as well and other counter parties which are financial institutions. So that business keeps growing. I do not envisage any drop in the fee income going forward on account of foreign exchange. Vishal Goel Great Sir, Thank you Thank you. Our next question is from the line of Adarsh P. from Nomura. Please go ahead. Adarsh P. I have an extension of the question which we had on capital not just for this quarter but general as a trend; 80% to 90% of the growth in the last 5-6 quarters has come from the corporate book both large and mid. Just want to understand because of the yields have not moved for that book. What is the kind of risk weights on an average on the large corporate book and the mid corporate book? Because our credit risk over the last 5-6 quarters have increased quarter-onquarter for the last quarter so? We will be able to give you this numbers offline but by and large I think one trending that you should keep in mind as far as capital usage is concerned that the schematic lending that happens under the retail part of our businesses attracts less capital and we have seen that over these last two-three quarters that part has not grown as fast as it used to grow and the other part has grown faster which uses more capital. I think that is the major reason that you are saying that. And we believe that once normalcy returns and the rebalancing of the portfolio happens then the consumption of capital that you see on a quarterly basis that will go down and normalized to the levels that we used to have. So that certainly I think the corporate part of the business uses up more capital and the retail part uses less capital because there the risk weight is I think 75% on the retail EMI based lending. Adarsh P. And any comments that you all can share on the average yields that you have on your mid corporate book versus large corporate because again corporate yields have been gone up as much but the mid corporate book is now like there about 18%- 19% so? I think we have given you a blended yield and we have given you the composition of the portfolio. I think those are fair disclosures. Adarsh P. Just the last question. In the mid corporate you think there is any fungibility between obviously these would be like not multiple banking relationships in a few case as well so do you think Page 13 of 17

14 there is any fungibility between fees and margins you could like charge 12% interest but a little more on fee say higher renewal fees versus lower rates to those customers? There is a misconception about this thing. These guys who is certainly mid-market guys are equally competitive on pricing and there are lots of people financing them. They are multiple financing. The single financing sort of corporate is rare to be found. So there is hardly any room there to sort of manipulate interest versus fee incomes from there. They are pretty finely priced. Adarsh P. Those were the questions, thanks Thank you. Our next question is from the line of Rahul Ranade from Goldman Sachs. Please go ahead. Hiren Dasani This is Hiren Dasani here. Just one question on the succession planning you did allude that obviously organizations do not function where there is a sudden surprise and happy to know that there is a whole process going on in the background but I just wanted to get the assurance on two parts or rather some clarity on two parts that if and when let us say if RBI does not allow the extension of the current CEO in that case is the board looking at more of an internal candidate or an external candidate? And what kind of an assurance you can give that the senior management cohesiveness will remain going forward as well? I can give you a full assurance on the first part of it. The first part is that everybody who will be involved in decision making process is convinced that succession should be from within. That conviction is definitely there. I think that as far as the team is concerned they are as engaged today as they were six years ago. And I think the motivations are not directly linked to sort of individuals. We have never worked on that basis, always worked as a team. My expectation is that there is more longevity to the rest of the team than perhaps to the CEO. Hiren Dasani That s great to hear, thank you Thank you. Our next question is from the line of Rakesh Kumar from Elara Capital. Please go ahead. Rakesh Kumar Just two, three questions. Firstly, if you see like there is a good growth we have done in the low cost deposits in the CASA on sequential basis. But still there is a rise and there is a cost of deposit from Q4. So what could explain that? I think there are two parts to this. The construct of our book in terms of the maturity profile what matures at what point of time I think during this quarter we continue to carry some more expensive fixed deposits that were raised I think in the period of March and April and those did not mature during the quarter. They are now maturing and therefore we are seeing beneficial impact of that and then also I think if you look at average CA during quarter 4 versus average CA during quarter 1 the end figure is certainly I think in June our CA figures started moving up. The average CAs were slightly lower in quarter 1 than quarter 4. And that is also impacted Page 14 of 17

15 our overall COD which is gone up by about 10 basis points. So I think that this quarter we expect some restoration on the current accounts. We are already seeing good floats in our books I will say plus we are seeing a sort of steady drop in the CD rate. We have already seen what about basis points drop I think from June onwards in the last 30 days or so. So I think that is the sort of explanation for the increase in the cost of deposits during quarter 1. Rakesh Kumar Yes, actually in the earlier question also you have mentioned that on the SA part there is a decrease in the cost from 6.6 to 6.3 but it is still like on the retail term deposit like if you see the card rate it has increased by around 25 bps. But it is reflecting kind of a 10 bps increase just on the quarterly basis even though there is a decrease in the SA part cost? Yes, so it explains by the current accounts. The current accounts have a large impact. Current account ANR has a much bigger impact than a 30 basis points reduction in the SA. So it is really explained by the current accounts. Rakesh Kumar My second question if you see like the corporate book yield on the sequential basis that has come down. But if you see the exposure which has actually like the industrial exposure what you have given in the earlier question it was mentioned also. So like gems, jewelry, power and all those where which are slightly risky and you must be charging higher. So even though the exposure has gone up in that segment industrial exposure. Apart from that if you see like in the commercial banking and the mid and the small corporate also we have done reasonably higher growth actually on the sequential basis. But still the yield on that book is coming down. So it is slightly difficult to put that equation? So I think the answer to that is simple. Even if I go in to a sector which is perceived to be high risk I do not pick the high risk customers. So we pick fairly robust risk and therefore the pricing it does not go in to usually a NBFC kind of rates. We continue to get stable rates and that is evident if you look at the slide on ratings you will see there is hardly any change in the rating profile. So even though I may have done in power sector but like we said earlier we are talking about existing generating companies those guys are not going to pay me project finance rates they will continue to pay me working capital rates which is the same as what we get otherwise. So that is why it does not change. It is actually a reflection of the kind of risk we put on to our books. And I think that you can rate quarter-on-quarter. I think this is what slide 15. If you see over the last few quarters these abstract charts that you see there which really are indicative of the investment grade component of our book that was not changed. So whether we go in one sector or another we are not going into negative selections so that I get better interest rates. Our business is driven by the nature of the risk we want to put on our books not what is the kind of yield we want to get. The yield is a consequence of the nature of the risk that we put on our books. Rakesh Kumar But like again if you look at the credit cost absolute number that has gone up from Q4 to Q1. Page 15 of 17

16 That is not a function of what assets I am putting on now, right? That is a function of existing assets. Rakesh Kumar Exactly, so what I am trying to say that in the past you must have gone in to such books in an effort to increase your yields. We are in the lending business it is unreasonable to expect that there will be no NPAs or there will be no credit cost and it has nothing to do with industry and the change is two basis points. Thank you. Our next question is from the line of Kashyap Jhaveri from Emkay Global. Please go ahead. Kashyap Jhaveri During the quarter there was an announcement that we are launching now products in tractor and farm equipment loans. Any suggestive framework on that what is the size that we are looking at and an indicative yield on that portfolio? S.V. Parthasarthy See this year we are looking at close to about 10,000 numbers and over a period of time we are planning to do close to about in three years time we are looking at 50,000 numbers. And on yield it will be corresponding the market. The market itself is on tractor the market yields are very, very distributed in the sense that the market is anywhere between 12% and 36% kind of rates. We will be closer to the higher end of the market. Kashyap Jhaveri And when you say about 100,000 equipments it means about roughly about 200 to 250? S.V. Parthasarthy No, I did not say about 100,000 equipments. Kashyap Jhaveri So about 10,000 equipments would be what about Rs. 200 crores to Rs. 300 crores kind of loan book? S.V. Parthasarthy Yes, it should be. See per vehicle average is about Rs. 4 lakhs. We are looking at close to about Rs. 400 crores to Rs. 500 crores for the current year. Next year it will be about Rs. 1,000 crores more and the next year it will be about may be Rs. 2,000 crores more. Kashyap Jhaveri So when you say 50,000 equipments that would be FY16 or FY17? S.V. Parthasarthy Three years from now. Thank you. We will take the last question from the line of Seshadri Sen from JP Morgan. Please go ahead. Seshadri Sen I have two questions; one is on cost. If you see from the second quarter last year your cost growth sort of settled from a base of 29% to 30% growth to about 20% to 23%. I presume a part of this is because your retail growth has slowed down. What do you think would be the steady state level of growth once your retail loan growth also starts to pick up in some of those origination cost kick in. And I will come to the second question as well right away is could you Page 16 of 17

17 give me some color on how your cross selling is moving where are you? Are you satisfied with the way it is progressing and how do you think it will go forward and if possible what implications that has for long term costs? Yes, so cost I presume you are talking about the OPEX? Seshadri Sen OPEX growth, yes that is right. So we had seen a sort of steady marginal sort of down trending for several quarters. In this quarter two large IT systems were commissioned not as large as the core banking system but two very large systems were commissioned on the IT side and that run rate has come into it. Also I think in the first quarter this year we have probably opened more branches than we did in the first quarter of last year. I think that if you see the breakup of OPEX then you see the OPEX is going in to things like rent, taxes, lighting, printing stationary and things like that which really relates to the branch network. Now to answer your other question on what sort of trending you see I mean we do believe that our ambition of course is to trend and keep it below 45%. Our original ambition was to get to 45% now having got to 45% I think over a period of a couple of years or at least in this three year plan we start trying to move it down to the early 40s. That is our ambition but the issue is that we can achieve that very quickly if we stop opening branches. Now this year we are going to open 150 branches which is the highest that we have opened. But a lot of our old branches are maturing and therefore they are generating decent revenues. So I think this is going to be constant. So may be a steady decrease in OPEX and we want to keep it around the 45% and steadily move it downwards towards the early 40s. Sumant Kathpalia Cross sell is the function of the segments in which we operate. So if you look at our high end segments which we call the exclusive we have a five product cross sell out there. If you go a little bit down which is the emerging affluent we are at about 3.8. If you look at our mass we are at about 2.8 to 3 products. So that is something which we continue to invest in and our acquisition strategy helps us keep on doing the cross sell ratio and that is a integral part of our on boarding and channels. We do not create a specific channel. The channel itself does a cross sell and we increase the capacity of the channel as and when the clients mature and increase or as the branch distribution increases. Thank you. I now hand the floor back to Mr. Sobti for closing comments. Thank you and over to you, sir. Well, thank you very much for joining us. Till next quarter then. Some of you will probably meet on a one-on-one basis. Thank you. Thank you. Ladies and gentleman, on behalf of IndusInd Bank that concludes this conference call. Thank you for joining us you may now disconnect your lines. Page 17 of 17