AU Small Finance Bank Ltd (AUBANK) Q1 FY23 Earnings Concall Transcript

AU Small Finance Bank Ltd (NSE:AUBANK) Q1 FY23 Earnings Concall dated Jul. 20, 2022

Call participants:

Aseem Pant — Vice President, Investor Relations

Sanjay Agarwal — Managing Director and Chief Executive Officer

Uttam Tibrewal — Executive Director

Gaurav Jain — Head of Tech Initiatives

Sandeep Agarwal — Naredi Investments — Analyst

Praful Kumar — Dymon Asia — Analyst

Mayank — InCred Capital — Analyst

Hiral Desai — Anived PMS — Analyst

Prince Tiwari — Financial Institutions Group, Investor Relations

Vikrant Jethi — Head of Collections

Ashlesh Sonje — Kotak Securities — Analyst

Deepak Jain — Chief Risk Officer

Ankit Bihani — JM Financial — Analyst

Ronak Ajit Jain — Jetavat Advisors — Analyst

Bhavik Dave — Nippon Mutual Fund — Analyst

Rishi Dhariwal — Head of Group Branch Banking

Shibani Kurian — Kotak Mutual Fund — Analyst

Shantanu Prasad — Chief of Treasury and Wholesale Liability

Naman Garg — WestBridge Capital — Analyst

Prakhar Agarwal — Edelweiss — Analyst

Renish Bhuva — ICICI Securities — Analyst

Nilesh Jethani — BOI AXA Mutual Fund — Analyst

Nidhesh Jain — Investec — Analyst

Pankaj Agarwal — AMBIT Capital — Analyst

Madhu Gupta — Quantum AMC — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to AU Small Finance Bank Q1 FY ’23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Aseem Pant, Vice President, Investor Relations. Thank you and over to you, sir.

Aseem Pant — Vice President, Investor Relations

Thank you, Faizan. Good day to everyone, and welcome to AU Bank’s earnings call for the first quarter of FY ’23. We thank you for joining the call today, and we hope you are well.

For approximately the first 30 minutes of the call, we will have brief remarks by few members of our senior management, followed by 30 to 45 minutes of Q&A. Firstly, we will have our MD and CEO, Mr. Sanjay Agarwal, share his thoughts on the performance and overall outlook for the bank. He will be followed by our ED, Mr. Uttam Tibrewal, who will share his thoughts on assets and liabilities performance for the quarter. And finally, we will have Mr. Gaurav Jain, Head of Tech Initiatives, who will discuss about the progress in our digital initiatives. Besides them, we also have few other members of our senior management to answer any questions you might have. For the benefit of everyone, we would humbly request that the number of questions per participant be restricted to a maximum of two and to join back in the queue or mail us in case you have any further questions.

With that, I will request our MD and CEO, Mr. Sanjay Agarwal, to share his thoughts on the financial performance and outlook.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Thank you, Aseem. Good evening, everyone. Namaskar. Thank you for joining in. Hope you’re doing well.

Q1 of the FY ’23 marks the completion of our 21st quarters of our banking journey. And I’m happy to see the progress that we are making as a team. In these five years, we have been strengthening our foundation for building a sustainable and scalable bank. During this time, we established a retail and granular deposit franchise and grew our deposit at a CAGR of 60%. We also have reduced our cost of borrowings and maintained our margins.

Our assets grew at a CAGR of 35%. We have established new franchise business like business banking, agri banking, dug up our digital business and continue to deliver returns and ratios even during the pandemic. Today, I would like to take you through some key aspects of what makes our business model sustainable and scalable, what are the key focus area for us and what are the challenges that we envisage.

To begin, let me articulate the key principles that makes our business model sustainable and scalable. We as a team has clearly identified target markets, the differentiated approach of garnering deposits from urban markets and lending into core markets, which are primarily semi urban and rural areas and we see a large potential in both the markets.

Our current market share in the banking system deposits is just 0.3%, and we have a long way to go. Our deposit franchise is becoming more granular by each quarter. Our CASA ratio has now reached 39%, and our retail TDM CASA mix is at 70%. We have diversified products and geographic mix serving customers across individuals, senior citizens, homemakers, driven by specific themes like current account, NRI, task, enterprise, salary, etc. In terms of assets, we have robust franchises around four SBUs, namely wheels, SBL, housing and commercial banking, each with a vintage of more than a decade.

I believe that all our asset SBUs have a great potential in coming 10 years to grow as our total market share is just 0.4%. Individually, our market share is 2% in wheels, 0.4% in MSME, 1% in housing finance and negligible in commercial banking. Over the years, we have also build a secured retail assets franchise with crystal asset quality. 92% of our portfolio is secured. 90% of our book is retail, and 64% is less than 25 lakhs.

Lending in rural areas has been mainly for income generation and liability purposes, which also gives us opportunity to cater to the priority sector, which is a core objective as a small finance bank. More importantly, our asset quality has remained resilient since the beginning and we are committed to maintain pristine asset and quality. Even with the pandemic cycle, we were able to demonstrate resilience with our detailing customer connect and solution-focused approach. I’m proud of my team effort, right from sourcing to underwriting to collection with ownership at every level. This is the hallmark of AU.

The entire book, whether it’s a current book, the NPO book or the restructured book, everything remains well in shape. Existing stress is well provided for with a PCR of 72%, and additional provisions for contingency restructured assets.

It is important to note that over the last five years despite the pandemic, our MCL has remained in the range of 0.3% to 0.4%. What we are able to achieve is a fantastic, given the markets we operate in, the customer segment we sell and the yields we command. I would like to reinstate that our sustainability will be strong because we want to follow the same course.

Further, our growth in deposits and asset is supported by expansions of our distribution. We have entered newer markets like South and East India. The instant support and the acceptability in these reasons also reflect the recognition of our growing band. You will hear from Uttam on the progress made in the last quarter on each of these points.

Now let me share with you the current focus area for us. The first one is towards building operational excellence and the formation of SBU structure is a step in this direction. The SBU structure is now well settled with identified leadership at every level. And each SBU has its own field levels. This brings more ownership and accountability, thereby increasing effectiveness and scalability.

Second, to drive sustainable growth from existing segments, we are working on tapping the cross-sell potential of our customers. We are focused on increasing the product per customer metrics. Currently, our cross sell is a mix of insurance, mutual fund, credit card and personal loans. We are working on building the transition banking, wealth management, merchant and other digital products. We’re also working for building our central data warehouse and analytics capability to support all our businesses with better insights.

To make the most of the opportunity, which will be presented by the market in the coming years, we need to raise growth capital. In this regard, we have taken enabling more resolution in the current quarter. However, we will take the call at the right time as our capital adequacy remains north of 19%. Recent credit rating upgrade will make our Tier 2 bonds rated at AA levels, and we will explore Tier 2 opportunities as well. Further, we continue to invest in building a tech-led ecosystem to ensure that we remain competitive in the future. And I’m very happy that way, our credit card, video banking, UPI and AU 0101 teams are shaping up to stick together our tech priorities. I think Gaurav will cover this in further detail.

Being in the service sector, human capital is our most valuable asset. As we manage public goods on the banking platform, we are focused on developing a highly empowered and capable team led by the guiding principles of samajhadaaree, zimmedaree and imandaree. We have built a strong team and continue to invest in them. We are working towards furthering diversity and inform the committee on diversity and inclusion last year, and which is progressing well.

I’m also happy to share that senior management team is very stable with an average vintage of seven-plus year in the bank. We are becoming an employer of choice and our ability to attract talent has significantly gone up. Last year, we hired 80 plus for senior roles in VP and above positions.

Last but not the least, we are working towards strengthening our ESG commitments. So to lead our sustainability mission, a senior industry professional has just joined us. Our 25 year of vintage in core markets and sustainable business model, he has a very strong ESG proposition, while we work towards making ourselves more inclusive, sustainable and diverse.

In terms of challenge, inflation remains a key variable for us, which can impact the interest rate cycle as well as increase our opex. In the last quarter, reversal in interest rate cycle led to MTM and treasury losses and our liquidity book bases current outlook and our portfolio mix. We believe that major impact of the rate movement has already been absorbed.

Our endeavor is to manage our cost of funds and NIM around the same level as last year. In Q1, we were able to pass on the increase of 40 bps on our incremental cost of funds to our asset customers by increasing our lending rate by 55 bps to 60 bps. The market segment that we operate in continues to provide us enough room to pass on any incremental borrowing costs to the customer by increasing our lending rates.

Another adverse impact on inflation has been our higher input costs, leading to an increase in opex. We are taking immediate measures to keep the full-year cost to income ratio around 60% or 62%. The impact of inflation on credit demand was not visible in Q1. Rather it remained one of the best quarter in several years. Further, a good monsoon and festive season in Q3 and Q4 are likely to support our annual business plan.

In the end, personally, I think that we have faced, during the pandemic, it was much more challenging, and we were far more hopeful about the coming times and more confident about our business model, delivery and agility. Our endeavor is to ensure that we continue to deliver over a long period on a sustainable basis.

In the end, I’m very thankful to all stakeholders, the government regulators, customers, my team and all our investors for supporting and believing in us.

On this note, I now hand over to Uttam to share on the operational details for the quarter. Thank you so much.

Uttam Tibrewal — Executive Director

Thank you, Sanjay. Namaskar, and good evening, everyone. Hope you all are in good health. I feel happy to share that despite of the turbulent environment, AU has stood strong and delivered a strong performance in Q1, and one of the best first quarters in the past five years, which illustrates the growing strength of our business model, which Sanjay spoke about earlier. We have delivered healthy deposit growth in improving granularity, stable spreads, strong disbursements and collections.

Some key operational highlights for the quarter are as follows. We have made further progress on adding a pan-India presence and made our debut in Jharkhand and have also forayed in Northeast with a branch in Guwahati. We added 2,000 plus employees this quarter. And as on 30 June, ’22, we were a strong team of 29,883 bankers. Our deposits grew by 48% year-on-year to close the quarter at INR54,631 crores.

We continued franchising, retail and CASA-led growth over bulk deposits and achieved CASA growth of 124% year-on-year to reach at a CASA ratio of 39%. Asset AUM crossed a critical milestone of INR50,000 crores, growing by 37% year-on-year. Collection momentum continued to be positive with over 100% collection efficiency in each of the three months. Out of total gross advances of INR49,349 crores, as on 30 June ’22, 73% of book has elevated after March ’20, and 92% of this book is current with only 0.48% of GNPA.

Of the NPA resolved in Q1 FY ’23, excluding write-off, 62% resolution happened through normal collection efforts and about 38% resolution happened on account of security enforcement and settlements, wherein there was POS loss of approximately 34%. Similar trends have been observed during FY ’22. This clearly illustrates the secured and small ticket nature of our book, as well as resilience of our borrower base. Furthermore, it makes us confident that our provision coverage of 72% is quite robust. Additionally, there is provision of INR170 crores against standard restructured book.

Furthermore, bank continues to carry contingency of INR144 crores. The performance of restructured book has also been quite positive with slippages remaining at 15%, much lower than our estimates of 30%.

Under our flagship Royale product program, we launched Royale Business for current accounts and Royale Salary variant for saving accounts. We continue to attract talent across senior management levels with 33 recruitments this quarter of VP and above, including Head of Wealth and Head of Sustainability.

I will now briefly cover some key aspects of our liabilities business.

We continue to focus on building liabilities through granular, retail, individual and transacting customers, which we denote as GRIT. This is predicated on high-quality account acquisitions through better sales efficiency, urban-driven branch expansion and a priority on cultivating an engaged customer base. Our increasing vintage, brand campaign and digital properties are significantly improving our acceptance in new markets, which is resulting in strong deposit traction in our branches in new states. For enhanced customer engagement and deepening, we offer a large fleet of value-added products and our product per customer has been improving and stands at 1.6 for SA customers and 1.9 for CA customers. Here I would like to highlight that we sold 1.13 lakh new policies in Q1 covering life, health, motor and on assets of our customers through our bancassurance partnerships, a 66% year-end growth and corresponding premium growth of 60% year-on-year.

Further our well-regarded and comprehensive AU 0101 super app, as well as attractive running offers on leading platforms and e-com channels, both on our debit and credit cards have contributed to our transactee base at around 57% in savings and 69% for CA customers.

Now coming to our core assets, SBUs. Let me start with the wheels business. As an industry, vehicle sales for Q1 FY ’23 has grown by 27% and semiconductor availability seems to be easing, which bodes well. Our average ticket size around is INR5 lakh on disbursements and INR2.7 lakh at AUM level, excluding two wheelers. During the quarter, we disbursed INR3,351 crores with an IRR of 13.9%, which was an increase of 50 bps sequentially. This also illustrates the ability and strength of our business model, crunching price with volatility. As of 30th June ’22, the AUM of wheels stood at INR18,456 crores through 7.5 lakh loans, which comprises of 53% new vehicles, 36% used, 9% tractors and 2% two wheelers. Asset quality of our wheels business was stable in Q1, and gross NPA stood at 2.4%.

Moving to secured business loans. Our SBL product is uniquely positioned with low ticket size and lending to unorganized MSMEs for business purposes. We expanded our SBL product in 16 new branches in Q1 FY ’23, and have a widespread network of over 450 branches across eight states and two union territories. On the demand side, despite inflation, we continue to witness good demand in segments like FMCG, skilled and semi-skilled services, Laghu Udyog, household good traders, agriculture-related equipments, traders, etc.

SBL AUM stood at INR16,912 crores as on 30 June, ’22, across 2 lakh loans and the disbursements during Q1 were INR1,281 crores with an IRR of 14.6%. The book is predominantly agriculture with average ticket sizes INR10.4 lakhs, LTV at 48%. And it remains one of our most stable and resilient products with a gross NPA of 2.7%.

With respect to our home loan business, strong momentum is expected to continue, supported by rapid urbanization, changing customer behavior, regulatory reforms and then the influence of COVID-19. At present, we are operating in 8 different states with home loans available across 240 branches. Our disbursement in Q1 FY ’23 was INR430 crores. Total AUM as on 30 June, ’22 stood at INR304 crores across approximately 30,000 loans with an average ticket size of around INR10 lakhs. Our GNP was stable at 0.45%. Notably, being an affordable housing book, much of our book is also eligible for long-term refinance from NHB.

Finally, on our commercial banking businesses. All of our core products are shaping up well. Commercial Banking business saw a disbursement of INR1,811 crores within which business banking and agri banking accounted for 70% [Phonetic]. We have an enhanced focus on scaling up these two products as they also help us enhance our banking franchise, as well as in growing our CASA.

As on 30 June ’22, asset quality for our commercial banking book remained stable in Q1 with a gross NPA of 0.5%. We have an enhanced focus on scaling up these two products as it will also help us provide holistic solutions to business customers and enhance this general CASA.

To sum up, we are firmly committed to our philosophy of building a low-cost growth portfolio of liabilities customers. We have identified bright spacing in segments, including small business, merchants, supply chains, traders and retailers, where we can play an active role in enabling them in their journey towards formalization and digitalization. And we aim to target these segments and acquire CASA advantage.

Demand across asset verticals looks resilient with Q1 doing well and second half generally being good quarters for retail aided by festive season. Supply chain and chip issues are easing up. Essential and non-discretion businesses are seeing higher inventory and capex demand, which bodes well for wheels and SBL. Housing is benefiting from a low base bank platform and revival in the real estate market. Each of our commercial banking businesses are reporting better cash flows. This has been aided by tailwinds for MSMEs in terms of triggered down impact of government policy and favorable monsoons and NBFCs are easily coming out of a subdued cycle.

Having said that, we acknowledge the prevailing uncertainties related to macro and geopolitical situation. As always, we remain highly engaged with the customers on ground to gauge demand and dynamically calibrate and optimize ourselves. All in all, I remain excited and confident about our business model and execution capabilities, optimistic about the opportunities and potential and yet watchful.

I look forward to sharing more with you in the coming quarters. Stay healthy, stay safe. Thank you.

I now invite Gaurav to share his thoughts on our digital initiatives. Take care.

Gaurav Jain — Head of Tech Initiatives

Thank you, Uttam. Good evening, everyone. I will now provide an update on our tech initiatives, including credit card and UPI QR. Tech is an area of key focus for the bank, and we are investing across all aspects: digitization, data, infra and security. We’re developing our digital proposition with the objective of growing our deposit franchise, developing unsecured lending capability and building out our digital distribution.

In order to make our digital proposition more exciting for the customers, we added a number of new innovative products and features in this quarter. Highlight was the launch of LIT credit card, India’s first customizable credit card, aimed at millennials and Gen Z. LIT Card gives customers the power to customize card features as per their spending pattern and maximize the benefits by using only one credit card. For example, a customer who loves traveling could choose the airport lounge benefits for the holiday season and switched to the cash back offer benefits for the festival shopping season. Response from the market has been highly encouraging with over 10,000 cards sold in the first 20 days of launch.

Other notable product additions were launch of corporate credit card, digital personal loan for non pre-approved customers and cash health insurance policies through AU 0101. For customer engagement, we launched deal-of-the-day proposition on AU 0101, where a curated offer valid only for a day is shown to customers on logging to the app. For customer servicing, we enabled video banking service for NRI customers, which together with our Royale World product makes our NRI proposition really powerful.

There are a number of other initiatives that our team is working hard on including digital banking app for merchants with a comprehensive range of features, integrations with Open where we are a wave 1 implementation partner and a stronger wealth and personal finance management proposition. Our mobile app AU 0101 and video banking continued to gain traction and are scaling well.

At the end of Q1, we had 11.9 lakh digital customers with 6.7 lakh monthly active users. 98% of customers’ financial transactions and 88% service requests were executed digitally. Our digital products and acquisition channels are helping us expand our distribution capacity. 43% of new customer acquisition in Q1 was through digital channels or products.

In this quarter, we added over 55,000 savings accounts, which were 37% of total savings accounts sourced at the bank. We are taking a calibrated approach to focus on quality of acquisition, which is reflected in customers’ average balances. We’ve also added over 80,000 credit cards and over 1.7 lakh UPI QRs. We disbursed personal loans of INR120 crores, 100% of which was sourced digitally.

During the quarter, we also expanded our pre-approved offers program with over 20 lakh free approved offers provided to 10 lakh customers across credit card, personal loans and wheels. Around 1.6 lakh customers have availed these pre-approved offers since the launch of AU 0101 in June ’21, and around 43,000 customers took up the offer in Q1.

Personalized offers like these are an important tool for us to engage our customers and improve customers, taking it over time. Over the last 15 months, monthly transacting customers as a proportion of total active savings account customers has increased from 46% to 57%, and average monthly transactions per transacting customer has increased from 18% to 26%, an increase of 44%.

Video Banking-as-a-Service channel continues to improve with the aim of making AU 0101 plus video banking a complete replacement of a branch from a customer perspective. In Q1, video banking RMs received around 50,000 servicing and engagement calls and increased total relationship value of digitally sourced savings account customers to INR720 crores. This was an increase from around INR460 crores in the previous quarter, an increase of 56%.

One of the metrics we track is the branch visit data for digitally acquired savings account customers. Only 6% of these digitally acquired customers visited branches in the six months to May, compared to 34% for customers sourced through physical channels.

Moving over to credit card. We have issued over 2.4 lakh credit cards and are at a monthly run rate of 30,000 cards, putting us amongst the top 10 card issuing banks in India. Of the total cards issued, over 60% were issued to existing bank customers and around 42% were issued to first-time credit card users. Our key credit card metrics are in line or better than industry average, with 83% of our customers having activated their cards and 51% customers being 30-day purchase active.

Now a brief update on our merchant solutions business. At the end of the quarter, we had 6.6 lakh UPI QRs installed at merchants. During the quarter, we installed 1.7 lakh UPI QRs, including around 46,000 to new customers. With over 1.25 lakh daily transactions, UPI QRs continues to help us in engaging and deepening our merchant customers. Average monthly balances in CASA have increased by 76% post UPI QR install.

We’re also cautiously building out our digital unsecured lending program for merchants. Total unsecured loan disbursement to merchants amounted to INR50 crores in Q1. We have been investing consistently in order to maintain cutting-edge technology. To further strengthen our technological capabilities, we have taken a number of initiatives this year, such as upgrading our core banking platform to the latest version, cloud migration and application modernization and implementing data platform to drive business intelligence and analytics.

Cybersecurity remains an area of key focus. We have a comprehensive security framework to ensure that customer data remains safe and secure. And this framework is constantly reviewed and supplemented with new tools and technologies as required.

Finally, to execute on all these initiatives, we have a 600-plus strong tech team, which we continue to build. We onboarded 250-plus lateral hires in last one year and 50 new graduates from premier institutes in the last quarter.

To conclude, tech is a top strategic priority for the bank. Our initiatives have shown a good initial traction, and we continue to build on the strong foundation that we have created.

With this, I will now hand over to Aseem for Q&A.

Aseem Pant — Vice President, Investor Relations

Faizan, we can now go to Q&A.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] First question is from the line of Sandeep Agarwal from Naredi Investments. Please go ahead.

Sandeep Agarwal — Naredi Investments — Analyst

Hello.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes, hi.

Sandeep Agarwal — Naredi Investments — Analyst

Thank you, sir. congratulations for the good results. Sir, I have only one question or comment that we have not seen that many committed to this Board Meeting to consider financial results. So just what message you want to give the investor community?

Aseem Pant — Vice President, Investor Relations

Two days. First Board Meeting for institutional investors. We haven’t seen anyone taking two days.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes, Sandeep. So I think this is our track record from the last five years. And we are actually based out of Jaipur and so every Director has to fly to hear, and we want to do a lot many agenda items, which don’t get over in one day. So that is why from historical — for the last five years, the day we got listed, the Board Meetings are generally here for two days in Jaipur.

Uttam Tibrewal — Executive Director

Yes. And the agenda, Sandeep, if I can add to that, the Board Meeting as Sanjay said is spread across two days with the agendas divided over two days. The financial discussions, as well as the audit discussion will happen on the second day. And accordingly, the results get declared.

Sanjay Agarwal — Managing Director and Chief Executive Officer

After today. Yes.

Sandeep Agarwal — Naredi Investments — Analyst

Okay. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Praful Kumar from Dymon Asia. Please go ahead.

Praful Kumar — Dymon Asia — Analyst

Hi. Good evening, Sanjay-ji and team Congratulations on great numbers. Sir, just two questions. One, in terms of now universal banking license, what are you thinking, sir? It’s been three years, five years. What are the plans today? How is the interaction with RBI? And what’s the feedback? That’s question one. And in terms of the CEO tenure, what’s the RBI stance now? When do we apply for an extension for yourself? These are two broad questions. Thank you.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes. So I think the first question is difficult to answer because the regulator need to notify all the rules or the method where they’ll allow SFB to transit to universal bank. So whatever we have discussed, so that is under the discussion with the internal RBI. And so whenever they will notify it, we will see it. And the Board and the overall mechanism will take their own course to decide whether we want to apply or not. But as of now, we are very happy the way we are building our SFB. And so that’s the side from the universal.

In terms of my tenure, in total it is allowed 12-plus — so next extension, right? The discussion is next extension, right? So I have the approval in next April, April ’24 — ’23, April ’23, right? And then I need to have extension for another three years. And overall, I have nine years to work with.

Praful Kumar — Dymon Asia — Analyst

Got it, sir. All the best, sir. Thank you so much.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes.

Operator

The next question is from the line of Mayank [Phonetic] from InCred Capital. Please go ahead.

Mayank — InCred Capital — Analyst

Hi. First one from my end —

Operator

Sorry to interrupt you, Mr. Mayank. The audio is not clear from your line. Please use the handset mode.

Mayank — InCred Capital — Analyst

Okay. Is it better now?

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes.

Mayank — InCred Capital — Analyst

Hello. Yes. So first request is to avoid — can you avoid our call with other banks? Currently, IndusInd also is having at the same time. So it is very troublesome for the analysts to manage both the calls.

Uttam Tibrewal — Executive Director

Mayank, again, you’ll appreciate that so many banks have to announce the results with between two weeks. So there is likelihood that some calls will clash. But yes, when we make the announcement and when we make the decision because you would realize that the both numbered schedules is blocked — pre-blocked months in advance because as Sanjay already said earlier, they all traveled down to Jaipur. So honestly, it’s kind of difficult to reach out to other banks, but yes, we’ll try and do our best.

Mayank — InCred Capital — Analyst

Thanks. And my question is basically, what I’m trying to understand is on technology front, we are trying to provide the services as the big banks are providing, which are basically 10 times to 15 times larger than on both the payment and balance sheet front. So how are we planning on a strategical opex front? Because our opex would definitely be more given towards the technology we are trying to get in. So how do we try to manage that?

Sanjay Agarwal — Managing Director and Chief Executive Officer

Gaurav, you want to answer this?

Gaurav Jain — Head of Tech Initiatives

Yes, sure. So I think — I can’t compare about the other banks, but I’ll talk about sort of what we are trying to do, right? So we — I think one thing is, we are highly focused on what we are trying to accomplish through the digital initiatives, right? So as I mentioned, the number one priority is to grow our deposit franchise through that, right? So we are sort of very calibrated in terms of where our investment dollars are going and what outcomes we are expecting, right?

So just to sort of reiterate as an example, right, so we have invested money in UPI QR. And the benefit that we are seeing there helps us in our liability franchise because the customers where we have invested, where we have installed the UPI QRs have ended up increasing balances significantly to us, right? So that’s how we are stitching it together.

And in terms of the overall investments, right, so we do take into account the overall budgets and stuff, right, and sort of return targets and then calibrate sort of where the investment goes to the highest priority items within digital.

Sanjay Agarwal — Managing Director and Chief Executive Officer

And just to add on, right, because I don’t think that there is a choice to ask that whether we want to invest or not because if you don’t become a tech-led bank or we don’t create a tech-led ecosystem internally, I think after 10 years, we won’t be able to survive, right? And it’s not more about costs. It’s about the capabilities of vendors, your own internal team, your purpose, how you want to really design everything.

So I think there, we have done a decent job because the kind of reception we have got on our 0101 app, the kind of credit card performance is coming, our video banking is doing very well and internal digitization, the kind of data and data analytics we want to do. So we are making ourselves future-ready. So having any restraint to do all those things is worth doing that.

Mayank — InCred Capital — Analyst

Right. Last one final question if I can ask. So what kind of change in —

Operator

Sorry to interrupt you, Mr. Mayank, the audio is not clear from your line.

Mayank — InCred Capital — Analyst

Hello. Is it audible now?

Operator

Yes, sir.

Mayank — InCred Capital — Analyst

Okay. So last question from my side. So what kind of change in AUM mix we are expecting in the next three years because we are currently focusing on all our non-traditional products?

Sanjay Agarwal — Managing Director and Chief Executive Officer

No, I think we are not projecting any change in our asset mix. We are very well on course to build our wheel book, SBL, housing, which remain our part of retail story. So next year also, all three will command around 70% of our total assets and followed by commercial banking around 20%, 25%. Unsecured should be around 5% to 10% range, right? So I think largely, we are saying that we will be on course of our very traditional product. And the way we have performed in last five years, that is the testimony that we won’t change in future also.

Mayank — InCred Capital — Analyst

Thanks. That’s all from my side.

Operator

Thank you. The next question is from the line of Hiral Desai from Anived PMS. Please go ahead.

Hiral Desai — Anived PMS — Analyst

Hi, Sanjay. Thanks for the opportunity. I just had one question. If I look at the repayment number for this quarter, so in Q4, our AUM was about INR48,000 crores. We have disbursed about INR8,500 crores in this quarter. And the AUM is still at about INR50 odd thousand crores, right? So the repayment rate seems to be like almost 50% in this quarter. So is that some kind of idiosyncrasy in this quarter, which is causing that? And on a long-term basis, what should the repayment number be, given that most of the secured businesses are, let’s say, about three years or thereabouts? Mortgages would be slightly longer. So just wanted to get that.

Prince Tiwari — Financial Institutions Group, Investor Relations

So Hiral, this is Prince here. So see, I don’t think the repayment fashion per se has changed. We generally see a runoff of about 40% every year, right? So that continues and that will continue in this year as well. What has happened was last year we had — because of the entire liquidity scenario in the country that it was, we had some surplus liquidity available on the balance sheet at a very lower cost. And to that extent, we had deployed in certain short-term products on the lending side, which actually had two impacts.

As you saw last year, our incremental yields were also down a bit because these were very clearly tactically deployed short-term liquidity on which we were making a spread. As we move into a higher interest rate regime, we have kind of slowed down on some of these assets. And that’s why you see, even though the traditional assets have done well in terms of disbursements, the AUM hasn’t really gone down — gone up that much. But going forward, because those assets have run-off or we are running them down, you’d start seeing the normalized increase in terms of AUM.

Hiral Desai — Anived PMS — Analyst

And generally, on the MSME side, some of the stress sectors which were there earlier, things like school, retail, apparel and those kind of businesses, how are they coming back and have we started fresh lending to some of these businesses?

Sanjay Agarwal — Managing Director and Chief Executive Officer

So Hiral, we have our Collection Head, Vikrant on the call.

Vikrant Jethi — Head of Collections

Yes. Hiren, Vikrant here. So as far as repayment of the education sector is concerned, we have seen normalcy resuming in this sector. And even with regards to the wheels business, where we had a portfolio of school buses, there also the repayments have been pretty normal.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes. So Hiren, largely both the sectors has recovered well, and the tourism, the school, the school-related activities, the school buses and everything has become as good as pre-COVID level. And we have also started doing new funding, but with a lot of credit underwriting standards reinforced around it. So it’s not that free way to do that. But yes, if there is some merit in doing business, we are doing that.

Hiral Desai — Anived PMS — Analyst

Got it. Got it. And Sanjay, just lastly on the opex. Obviously, the number is a bit elevated since we are investing on the digital capabilities. But just wanted to understand. So let’s say, post this year, which is FY ’23, is there an absolute number that you’re looking at as we go along into FY ’24, FY ’25? Because the cost to income gets a bit difficult to assess. So is there like an absolute growth number post FY ’23 in opex?

Sanjay Agarwal — Managing Director and Chief Executive Officer

Hiren, to be very honest, very difficult to predict two years from here. What I can tell you is just that — and we have shown in our presentation also that all our assets, the cost-to-income ratio is below 50%, right?

Hiral Desai — Anived PMS — Analyst

Right.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Where we are investing is only on branch banking, and you know that it takes some more time to stabilize that. And we are investing in our digital capabilities. And maybe from here next two years, you will see credit cards coming up and making money for us. You will see UPI QR code making money for us. Video banking become profitable for us.

So I think in the longer run, if you ask me as a CEO, I would say that our costs won’t be so high. But to give a number around it is difficult in this kind of environment. But I’m pretty sure that the whole investment we are doing, we are doing with a lot of strength around it. Every penny we are spending is well-thought-out. So I think I would just want to assure everybody on this call that opex little bit high for this quarter. And the reason is that we also don’t have — we had an MTM loss, which also elevated our cost of operations. But overall, it has just passed our comfort level, crossed just our comfort level, but we will see that in our overall year, we remain around 60% to 50%. And in the long run, of course, we need to maintain it below 50%.

Hiral Desai — Anived PMS — Analyst

Got it. Fair enough. Thanks a lot.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Thank you, Hiral.

Operator

The next question is from the line of Ashlesh Sonje from Kotak Securities. Please go ahead.

Ashlesh Sonje — Kotak Securities — Analyst

Can you just talk about the experience on deposit and upgradations during the last quarter, first quarter? And how are we seeing it evolve during the second quarter?

Aseem Pant — Vice President, Investor Relations

Ashlesh you said, you asked about the upgrades during the last quarter, right?

Ashlesh Sonje — Kotak Securities — Analyst

Yes, recoveries and upgradations, yes. How was the experience there? Which segments are we seeing recoveries coming from?

Aseem Pant — Vice President, Investor Relations

So I think we had mentioned that in the SMB speech that the recoveries that we have seen during the quarter, 65% of them has been normal resolution, primarily through customers coming in, settling down or repaying their debt obligation, whereas the balance 30% had gone through the asset reinforcement route. But if you ask specific segments, I think Vikrant can probably answer that, segments.

Vikrant Jethi — Head of Collections

Sure. Is it broad-based?

Sanjay Agarwal — Managing Director and Chief Executive Officer

It’s broadly same for both wheels and ag segment.

Aseem Pant — Vice President, Investor Relations

So broadly it has been same for both wheels and agri segment.

Ashlesh Sonje — Kotak Securities — Analyst

Okay, okay. And can you just break up the reductions into write-offs, recoveries and upgradations?

Aseem Pant — Vice President, Investor Relations

So we’ve not given the data. We’ll get back to you. Write-off, we’ve written off around INR34 crores during the quarter. in terms of recoveries and upgrades, I’ll get back to you with that data point.

Deepak Jain — Chief Risk Officer

Ashlesh, Deepak Jain this side. So reduction during the quarter is INR164 crores across all the products. Of this total, INR34 crores goes into technical write-offs and INR10 crores is due to rundown due to repayment. This is the total amount.

Ashlesh Sonje — Kotak Securities — Analyst

And my second question is on the slippages. Can you give us some color on it? Specifically, how much of the slippages are coming from the restructured book and outside of restructured, which segments are contributing to?

Sanjay Agarwal — Managing Director and Chief Executive Officer

So from the restructured book, the slippages were around INR80 crores out of the total slippages of INR260 crores. Ashlesh?

Ashlesh Sonje — Kotak Securities — Analyst

Yes. Okay. Perfect. Thank you.

Operator

Thank you. The next question is from the line of Ankit Bihani from JM Financial. Please go ahead.

Ankit Bihani — JM Financial — Analyst

Hi, sir. Congrats on a good set of numbers. I have only one question. So what explains the decline in net interest margin by 40 bps quarter-on-quarter? Because we are seeing the net interest income grow by 4% Q-on-Q, but we see the NIM has declined by 40 bps. Could you please explain, sir?

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes. Ankit, that’s a generally quarter-on-quarter NIM is not really comparable because there is a seasonality factor on Q4 and Q1. Generally, you realize that we do a lot of business in Q4. And to that extent, the base impact comes into play. So seasonally, if you see, Q1 would always be lower than Q4. But as we had said that for the full year, we are looking to maintain our margins similar to full year FY ’22.

Ankit Bihani — JM Financial — Analyst

Okay, sir. But when I calculate — back calculate, so the net interest income has grown 4% Q-o-Q. But on that, if I calculate the average interest earning assets, that has grown by 12% Q-o-Q. So could you please explain that?

Sanjay Agarwal — Managing Director and Chief Executive Officer

Interest earning assets have grown, right?

Ankit Bihani — JM Financial — Analyst

Yes, 12% Q-o-Q.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes. That has kind of subdued the margin.

Ankit Bihani — JM Financial — Analyst

Yes. Right.

Sanjay Agarwal — Managing Director and Chief Executive Officer

So that’s what I mentioned. That typically what happens is you do a lot of business in March. If you go back and see Q4, generally, the disbursements are very, very high. And to that extent — and last quarter was very good for us. So to that extent, the interest — the denominator grows much faster as compared to the numerator. So it’s seasonally not being comparable historically. Even last year if you see, our first quarter margins had come at about 6%, whereas our overall — for the year, margins were at about 5.7%.

Ankit Bihani — JM Financial — Analyst

Okay. Thank you.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Ronak Ajit Jain from Jetavat Advisors [Phonetic]. Please go ahead.

Ronak Ajit Jain — Jetavat Advisors — Analyst

Sir, I just want to ask you regarding the revenue plan, your plan of future next five years to increase your revenue, like? Are you going to open the branches?

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes. We are having the five-year plan for branches.

Uttam Tibrewal — Executive Director

I’m sorry. He is asking five years.

Aseem Pant — Vice President, Investor Relations

So he’s asking what’s the plan for growing the revenue for the next five years? Is it by opening your branches or –?

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes. So I think it’s business as usual, to be very honest. If we need to grow ourselves, we need to have more states, more geographies, more branches. So — and of course, the digital will also play a very important role there. But I think that strategy remains very, very solid or very straightforward that for deposits, we want to go in the urban markets and that too in pan-India. And for the lending, we want to really focus more on the comarket, so existing states, more deeper and deeper. And of course, digital allows us to expand the entire country without much opex around it. So I think we have sorted our strategy of growth very well, and we want to be on that path only.

Ronak Ajit Jain — Jetavat Advisors — Analyst

Okay. Yes. Fine.

Operator

Thank you. The next question is from the line of Bhavik Dave from Nippon Mutual Fund. Please go ahead.

Bhavik Dave — Nippon Mutual Fund — Analyst

Yes, hi. Good evening, sir. Thank you for the opportunity. Sir, couple of questions. One is on a very granular question. You’ve started to disburse digitally personal loans at INR122 odd crores that you mentioned in the presentation. Who are these customers? Are these the liability customers? Or what exactly — what are the ticket size, how do we so like — sorry, what are the yields that we charge here, how does this book work and how has the experience been? Because you just started, I just want to understand how we’re going about it.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes. Bhavik, Gaurav will answer this.

Gaurav Jain — Head of Tech Initiatives

So this INR120 crores book, right? So this is 100% to existing liability customers, right? So we have only personal loans for our existing two franchise customers, right, and mostly around deposit customers. The average ticket size is just north of 1 lakh, and the yield would be around sort of 18-odd percentage, right? In terms of the customer profile that reflects largely the profile of our sort of deposit franchise, right, which obviously, as you know, most of the money is from the urban markets, but in terms of the customer split, it’s 50:50 between core and core and urban, right? So it reflects sort of that spread.

And then finally, right, so in terms of asset quality, it’s still early days, but it’s been very, very strong so far.

Bhavik Dave — Nippon Mutual Fund — Analyst

Got it. Second is on the deposits. So I just want to understand, sir, you’re already offering a reasonably high interest rate on the savings account. Is there any thought of maybe going up further from here to garner deposits? Or we are comfortable with the kind of deposit growth that we have, considering our asset growth is reasonably strong?

Rishi Dhariwal — Head of Group Branch Banking

Yes. So Bhavik, Rishi here. See, the branch network that we have added in the last couple of years and we’ve given some details on urban and core markets in the presentation this time, where the urban market branches have almost doubled over a period of two years. And we have gone to new geographies as we have been updating earlier also.

We are getting good traction in those markets and the addition of branches will largely keep pace with the requirements of the asset business. So yes, our — I mean, the growth of branches will not really be very linear because video banking adds to our ability to grow our footprint significantly. But yes, this year also, we should be able to add a few more branches given the footprint that we have so far established in UP, South and East. So a few branches will come in those markets. And the branch expansion will depend really on the asset growth required and therefore, whatever the retail deposits that we need to mobilize for the bank.

Bhavik Dave — Nippon Mutual Fund — Analyst

Sure. Sir, my question was more regarding the savings account rate. Do we intend to — do we need to increase that rate even further if need be for growth? Or even only branch addition is good enough for meeting the advances growth requirement?

Rishi Dhariwal — Head of Group Branch Banking

I think the savings rate is fairly optimized. And you would know that we offer different rates across different buckets, which may helps us to optimize our overall savings rate at around 5.5%. We don’t think that we will need to revise this at any point of time. We don’t need to sort of change the saving rate at this point of time.

Bhavik Dave — Nippon Mutual Fund — Analyst

Sure. And sir, one related question to liabilities is like, I see your video KYC and I see the number of average balances that you have there is reasonably good, right? Like INR35,000 to INR40,000 is on average SA balance is what I see in the numbers, which is very, very healthy. So what’s your take on this, right, that we are able to like capture — sorry. We will get customers. Hello? Can you hear me?

Operator

We are checking the line. Mr. Dave, please go ahead.

Bhavik Dave — Nippon Mutual Fund — Analyst

Am I audible?

Operator

Yes.

Bhavik Dave — Nippon Mutual Fund — Analyst

Hello?

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes, Bhavik. Go ahead.

Bhavik Dave — Nippon Mutual Fund — Analyst

Yes. Sorry. So I was trying to understand like the video KYC, I see your average savings balances are quite healthy at INR35,000, INR40,000 odd which is very, very healthy. So just want to understand what’s leading to this and are incremental customer addition totally digital and via this video KYC route?

Gaurav Jain — Head of Tech Initiatives

So Bhavik, in terms of the healthy sort of average balances, that’s a reflection of our acquisition strategy where we’ve been highly focused on acquiring only quality customers and especially sort of the channels, the digital marketing channels through which we acquire those customers. So that’s reflecting in that average ticket size. So the profile is again sort of, I think we’ve given out that on Slide 34. So I think largely sort of, I think 80% is urban, around 50% is salaries and around 0.75% is sort of young between 20 to 35 years of age.

Bhavik Dave — Nippon Mutual Fund — Analyst

Right. Understood. And last question is on PSLC. This time around the PLSCs have been a little muted. What’s your outlook on this? Because I think the growth in the system was quite strong. So I thought requirement of PLSC would be reasonably high. So what — how do you think about it? Like the number is quite small versus even last year, first quarter?

Sanjay Agarwal — Managing Director and Chief Executive Officer

So PSLC, that has seasonability sector, right? So we have excess portfolio of 11%. And last year, first quarter also, it was around INR18 crores. So this quarter, we have INR13 crores. But this quarter, we feel that premiums were subdued and demand were also subdued. So we’ll time ourselves and maybe in next quarter, we will see the position in premium and accordingly, we will figure out our PSLC.

Bhavik Dave — Nippon Mutual Fund — Analyst

Perfect. That’s very helpful. Thank you so much.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Thanks, Bhavik.

Operator

Thank you. The next question is from the line of Shibani Kurian from Kotak Mutual Fund. Please go ahead.

Shibani Kurian — Kotak Mutual Fund — Analyst

Yes. Hi. Good evening. My question is more — that was asked earlier in terms of margin. So again, just delving a little deeper in terms of the margin trajectory. Just wanted to understand what is the share of floating rate loans and fixed rate loans in our mix? And related to that, if you look at our loan growth, our loan growth has been extremely healthy and that has been matched by deposit growth. So incrementally for us, again, this is possibly a repetition of the earlier question. Do we see the need for interest rate hikes, especially where deposit mobilization on the retail side is concerned? And on the CASA, are we at optimal CASA level? Or do we have scope for CASA to move up from here on?

Shantanu Prasad — Chief of Treasury and Wholesale Liability

Okay. So I’m Shantanu Prasad here, Head of Treasury from Bombay. So with regard to the pricing of deposits and if you see that, we had taken about a 90 basis increase in our deposit rates from February onwards and the last hike we took was 15 basis. And our present deposit rate is about 6.90%, which is standing good as against the peer competition. And as what Rishi also mentioned around the SA that we had 7% as a peak rate and we don’t intend to change.

Our cost of funds, which was about 5.95% last year, as we have mentioned in the slide, we endeavor to remain around those levels in this year. We are aware that rates are on the rise, but our deposit accretion is largely driven by the CASA growth. If you will see, that last year, year-on-year, our CASA was 26%, which has jumped to about 39%. So major incremental growth is around — in the deposit is around the SA balance. We are also driving the CA now with a very focused approach. And I think with this, overall cost of money should be under control.

Shibani Kurian — Kotak Mutual Fund — Analyst

So do we envisage further improvement in CASA ratio under current interest rate environment? Or do we think that CASA would remain largely stable at the present levels?

Shantanu Prasad — Chief of Treasury and Wholesale Liability

Yes. So we have — if you actually look at the kind of customer who pays retail deposits and the customers who have transacting accounts like what Uttam had mentioned that we acquire what we call a great customer, which is granular retail individual and transacting customer. So what we have seen is that the customers who pays deposits in a slightly different segment than the customers who actually opens a savings account with you. And likewise, for current accounts, we have mentioned that there are small traders and merchants who love to bank with us. And that’s a white space that we understand is there in the market.

Now we are very comfortable in our ability to drive our teams to source specific types of business. So if I want to drive CASA, I will drive CASA. If I want to drive deposits because the volume of money required is more, then I will drive deposits. In the current environment, our priority is to ensure that our cost of deposits is maintained. And therefore, our drive will be to push more of CASA. And therefore, we should see — I mean, we do see a lot of headroom to — I mean that will automatically lead to increase in the CASA ratio. The incremental growth in deposits should largely happen through CASA is what we would strive for.

Shibani Kurian — Kotak Mutual Fund — Analyst

Sure. And just —

Sanjay Agarwal — Managing Director and Chief Executive Officer

Shibani, Sanjay, this side. Yes. So I think on your first question that our fixed book is around 70% — sorry, 74% and our variable book is around 26%, last quarter, there is around 90 bps in repo rate change, which has resulted us by cost of AUM going up by 6 basis points. Our rate was around 6.68%, which is now 6 — sorry, 5.68%, which has now gone to 5.72%. So — and we are envisaging that there might be 100 bps more repo going up in next six months to seven months. So that also has been accounted, and we strongly believe that by building more CASA, which is Rishi was explaining. And it depends on our whole competitiveness around the other banks and the tier banks, how they perform.

So I think our CASA rates are absolutely on track. I think we need to play around with our FDR rate, which Shantanu just spoke. So largely, we will be able to manage our cost of money to the last year level.

And in our asset side, on the 25% book, we have already increased the rates as we move forward. And incrementally also, we have increased our rates by 50 basis points, 60 basis points, right? So I think in a year term, I think that’s the sense that there will be a level where our AUMs will start going up. On the assets, the rates going up and our cost of money will get stabilized at around 5.85%, 5.9%. So we’ll protect our NIM.

Shibani Kurian — Kotak Mutual Fund — Analyst

Sure. Thank you, Sanjay-ji. That’s really helpful. The other question, if I may, one more question is, of course, your loan growth so far has been extremely strong, and you’ve exhibited your ability to grow faster than the industry. So in the medium term, do we continue to expect a similar sort of a loan growth trajectory? And of course, given the fact that you have new product lines that you have added, so this kind of loan growth trajectory is possible for us at least for the next few years?

Sanjay Agarwal — Managing Director and Chief Executive Officer

So our stated growth rate is around 30%, Shibani. And we really want to be on that course. So here it happens more than that because of certain reasons, but I strongly believe that we need to protect our margins. So the idea is to really build an asset at a decent IRR, right? So we don’t want to build in a book where we don’t have a decent IRR or decent yield. So I think we will play our balancing play where we have a higher AUM, which we can manage little bit of higher cost. So I think I would say a 30% here and there is there.

Shibani Kurian — Kotak Mutual Fund — Analyst

Sure. Thank you very much, Sanjay-ji and team. Wish you all the best.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes.

Operator

Thank you. The next question is from the line of Naman Garg from WestBridge Capital. Please go ahead.

Naman Garg — WestBridge Capital — Analyst

Hi. I just wanted to understand two things. First is I wanted to understand the breakup of our opex. Maybe four, five line items and in terms of percentages and how they are evolved probably year-on-year. That will be very helpful to understand to get the deeper sense on opex.

Sanjay Agarwal — Managing Director and Chief Executive Officer

So I would give you some breakup of this quarter. So we have — this is Sanjay this side. So we have around INR741 crores opex for this quarter. Out of that, INR41 crores is depreciation, INR100 crores is around investment on our initiatives. INR400 crores odd is around employee costs. INR200 crores is around the other expense, which includes travel and other things, right? And so this ratio remains pretty same for last, maybe last three to four quarters because we started investing on our digital properties in last one or maybe last 18 months only. So I think the ratio mix is similar, right? And I would say — so digital, as I told you, is an investment for the future. And we want to continue that.

In terms of the other opex, which is close to INR200 crores, there is an impact of inflation there. It might have maybe a 10% impact there because of inflation. The travel has gone up. The rent has gone up. The other consumers has gone up. So that has impacted this year too. But overall, of course, we are a retail organization. So we need not many people on the ground to manage our full activity. So the pay bill is little high, but that is there, right? So this is overall our opex commentary for the last quarter. But if you need more detail around it, then you need to be touch with the IR team for any kind of data around the previous years, right?

Naman Garg — WestBridge Capital — Analyst

Understood. Okay. That’s helpful. And second, I wanted to understand a bit about the treasury income, which has been decreasing over SA four, five quarters. So what’s the commentary around that?

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes. So Shantanu, if you can help here?

Shantanu Prasad — Chief of Treasury and Wholesale Liability

Yes. So I’m Shantanu again here, Head of Treasury. So you see that — normally, in the first quarter, treasury has the opportunity to book one-time gains on SLR portfolio. So that is what we did last year. And as you would appreciate that this year has been different, where we have seen that there has been increase in repo rates and this has a consequent impact on the market yields. And hence, we did not have that opportunity to book that one-time gains.

Now on the mark-to-market, I would just want to give you a wider perspective as to how do we kind of manage this is that, as a bank, we structurally have a — we maintain a sufficient liquidity cushion. And that is generally parked in our SLR and non-SLR instruments, which is obviously in the A plus category. And the endeavor here is to have an optimal mix, which will give us a better return and a positive carry.

Now our investment in the SLR generally is in G-Secs and T-bills, whereas in non-SLR, we are very, I would say, emphasize on the quality and hence, we invest in this AAA, AA rated corporate bonds, CDs and CPs. And the liquidity cushion that we manage, obviously, is out of experience that in a new franchise of five years and we have also witnessed lot of shocks in terms of the NBFC, the bank crisis, etc.

Now in this first quarter, we thought that the repo rate was hiked by 50 and 40 basis points and CRR rate was also hiked. And that really led to yield spiking up. As a result of which, we booked a loss of INR55 cores broken into INR24 crores for the crystallized loss and INR31 crores of MTM.

Now when this action happened, obviously, we were — as a prudent strategy, we liquidated whatever was a thin position in our SLR and booked our loss. And we also booked some non-SLR losses. Now the first quarter, and what we see is that now the portfolio is fairly now okay. SLR, we do not have any mark-to-market instruments. On the non-SLR, we do have. But we believe that the front loading of the rate hikes has happened. And going forward, with our duration of the portfolio just being around 1%, we do see that this book will progressively run down and the future impact of MTM would be limited from here on.

Naman Garg — WestBridge Capital — Analyst

Got it. Thank you. Thanks a lot.

Aseem Pant — Vice President, Investor Relations

Naman, just to share some data points, our overall treasury yield now is more than our cost of funds.

Naman Garg — WestBridge Capital — Analyst

Got it.

Operator

Naman sir, does that answer your question?

Naman Garg — WestBridge Capital — Analyst

Yes. Yes. Thank you.

Operator

Thank you. The next question is from the line of Prakhar Agarwal from Edelweiss. Please go ahead.

Prakhar Agarwal — Edelweiss — Analyst

Yes. Hi. Just a follow-up on the previous question. So could you give a breakup in terms of what is the quantum in AFS and HTM book? And related question to that is that have we made a one-time transfer this quarter from AFS to HTM or vice versa, which was — which is allowed once a year? And then third, related to this again is that on one hand, we are saying that probably that we are anticipating a further 100 basis point rise in repo. And in that sense, if there are mark-to-market registers left in corporate bond, even if the duration is one year, then also there could be some mark-to-market, which is going to be affected.

Operator

Sorry to interrupt, Mr. Agarwal, sir, there is a disturbance coming from the Jaipur line. Please mute your line.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes. So on the SLR part, you see most of our holdings are in HTM. And you will be aware that RBI does permit a sizable holding in HTM, and we are investing in HTM, which is at a good yield, right, these days. On the AFS, as obviously the interest rate view is slightly hazy. We do not know, which way it is going to go up. But I think our holding is mostly in the non-mark-to-market treasury bills, so there would be no mark-to-market risk there.

On the non-SLR side, we do have a mix of non-mark-to-market and mark-to-market instruments. We have been on the cautious mode in the light that the yields were likely to rise. Our purchases have been mostly non-mark-to-market for a significant period of time. However, our existing book of corporate bonds, which is mark-to-market is there, and we have done some amount of work in terms of assessment. And we believe that most of the rate hikes are already there priced in. And any increase — incremental increase because the book will automatically run down, the impact on that portfolio will not be that significant.

Operator

Thank you. Mr. Agarwal, may we request you to return to the queue.

Aseem Pant — Vice President, Investor Relations

Prakhar, just to add, we have not done any transfer from HTM to AFS or AFS to HTM this quarter. And totally, we have around INR18,000 crores kind of SLR and non-SLR book, including regulatory requirement. Out of that, non-SLR book is around INR2,000 crores having bonds that we keep normally for liquidity. And what Shantanu mentioned that our duration is less than 1/4 of that book. So we see that [Technical Issues] the rate hike has already seen. So we don’t envisage much impact therefore.

Operator

Thank you. Mr. Agarwal, may we request that you return to the question queue for follow-up questions. [Operator Instructions]. Next question is from the line of Renish from ICICI Securities. Please go ahead.

Renish Bhuva — ICICI Securities — Analyst

Yes. Hi, sir. And congratulations on a great set of numbers. So just one repetition on the incremental AUM, which Uttam sir has shared some insights on it. So I just missed some numbers. So Uttam sir has said that 73% of the AUM is sort of originated post March ’21, and I didn’t get the adequate number. So can you please repeat that?

Aseem Pant — Vice President, Investor Relations

The NPA, you are asking about the NPA number, Renish?

Renish Bhuva — ICICI Securities — Analyst

No. So I think sir has said that the 73% of the AUM was originated post March ’20. I think 72% of the book was current and there was some other numbers. So I just missed those numbers.

Sanjay Agarwal — Managing Director and Chief Executive Officer

0.48. So the NPA number on the book, which was originated post March ’20 is 0.48 and 92% of the book is current. And the overall contribution to our book is 73%.

Renish Bhuva — ICICI Securities — Analyst

Got it, sir. That’s it, sir. Thank you.

Operator

Thank you. The next question is from the line of Nilesh Jethani from BOI AXA Mutual Fund. Please go ahead.

Nilesh Jethani — BOI AXA Mutual Fund — Analyst

Yes. Hi, sir. Thank you for the opportunity. So my question was on the competition side. The last few years, the competition focusing on the secured asset and now more comfortable in giving out loans to unsecured are probably the high-yielding assets, which is our wheels, SME, etc. How are wheels as a competition shaping up for us? And how are we confident to continue to keep growing our book at similar run rates for next, say, 2 yeas to 3 years’ perspective?

Sanjay Agarwal — Managing Director and Chief Executive Officer

So my friend, I have already commented in my opening remarks that all our fou8r SBUs, be it wheels, SBL, housing and commercial banking are absolutely — we are running it from last — more than one decade. And the overall market share is just 0.4%. So there is enough runway available for next 10 years also to build this book. And if you go by the individually market share, it is really just 2%. MSME financing is just 0.4%, Housing is just 0.1%.

And commercial banking, we have just started for the last five years. So there is very negligible market share. And the kind of bank we operate now, the first preference of a customer is to take loans from bank only. And the kind of rates we have, the kind of brand awareness that AU has brought in, I strongly believe that AU will become one of the most exciting retail franchise for the core markets in coming years.

Nilesh Jethani — BOI AXA Mutual Fund — Analyst

Got it. That was my only question. Thank you so much, sir.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes.

Operator

Thank you. The next question is from the line of Nidhesh Jain from Investec. Please go ahead.

Nidhesh Jain — Investec — Analyst

Sir, just one question, sir. This INR100 crores investment impact that you have mentioned, what is the nature of this investment? It is customer acquisition cost, it is employee costs, it is branding cost. What is the nature of the investment that we are doing? Maybe if you can give some more details. And what was the number last year?

Sanjay Agarwal — Managing Director and Chief Executive Officer

You want me to give the detail of INR100 crores?

Nidhesh Jain — Investec — Analyst

I want to know, sir, what is the nature of the investment? It is employee cost, it is branding cost or customer acquisition cost. Where actually we are investing this INR100 crores?

Prince Tiwari — Financial Institutions Group, Investor Relations

Nidhesh, Prince here. So on Slide 15, what we have said is there is INR103 crores of total investment that we did undertook. And these are the investments which are outside of our normal business, right? And typically, we have given that 48% of that has been towards credit cards, QR codes, video banking. 44% was distribution and the rest is towards the brand campaign.

Now when we say that it’s towards credit cards, QR codes, video banking, it basically involves manpower, the infrastructure cost, as well as any kind of — say, for example, in credit card, there are acquisition costs as well. So all of that is kind of built in. So this is the cost, which is appropriated to these businesses, which is likely to generate a return in the future at some point in time.

Nidhesh Jain — Investec — Analyst

Sure. Understood. And what is the number last year, full year?

Prince Tiwari — Financial Institutions Group, Investor Relations

Around 20 — last full year was about INR250 crores, close to INR250 crores that we had given last quarter. Last year same quarter, I think it was about INR25-odd crores.

Aseem Pant — Vice President, Investor Relations

We have given that in the presentation.

Nidhesh Jain — Investec — Analyst

Sure. Thank you. Thank you, sir.

Operator

Thank you. The next question is from the line of Pankaj Agarwal from AMBIT Capital. Please go ahead.

Pankaj Agarwal — AMBIT Capital — Analyst

Yes. Hello, sir. Am I audible?

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes. Hello.

Pankaj Agarwal — AMBIT Capital — Analyst

How has been your experience on asset quality in new markets compared to your old markets?

Sanjay Agarwal — Managing Director and Chief Executive Officer

New markets? Well, I mean we have — I have commented this earlier also that the comparison with Rajasthan is not good for us because Rajasthan remains a very strong market over the years. But if you compare the non-Rajasthan states, it is still the same, be it in comparison between Gujarat, Maharashtra, MP, Chhattisgarh, Delhi, Punjab, largely remains same. And newer geographies, on a bank state forms, it’s even better. So that’s our pan.

Pankaj Agarwal — AMBIT Capital — Analyst

Okay. But like, your growth is roughly 30%, 35% Y-o-Y, plus you are in new markets, plus new process, right? Even that backdrop, do you think you can maintain asset quality the way you maintain over the last decade?

Sanjay Agarwal — Managing Director and Chief Executive Officer

Of course, because we have moved on from Rajasthan in 2008 onwards. So it’s now good 14 years that we are working non-Rajasthan states. And we have been able to build this kind of asset quality throughout the years and throughout the book and throughout the seasons. And that’s why I said complete ownership at every levels is the hallmark of AU.

Pankaj Agarwal — AMBIT Capital — Analyst

Okay. So basically, you’re saying that next decade in terms of asset quality should not be different from what you’ve delivered over the last decade.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Very honestly, next decade, I cannot comment.

Pankaj Agarwal — AMBIT Capital — Analyst

Next five years — but yes, next three years, four years also.

Sanjay Agarwal — Managing Director and Chief Executive Officer

But the last 10 years, it was there.

Pankaj Agarwal — AMBIT Capital — Analyst

Okay, sir.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Last 10 years give us that comfort that the team should manage next year and 10-year also.

Pankaj Agarwal — AMBIT Capital — Analyst

Okay. Fair enough, sir. Thank you.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes.

Operator

Thank you. The next question is from the line of Madhu Gupta from Quantum AMC. Please go ahead.

Madhu Gupta — Quantum AMC — Analyst

Thank you. First of all, congratulations for a good set of numbers. I have two questions. The first question is that you have said that in branch banking, the cost-to-income ratio is still more than 100%, it’s still not profitable. So what is the tenure for the branch banking to become profitable? That is my first question.

And the second question is on, you have a lot of large players increasingly targeting commercial banking, rural banking. For example, HDFC Bank wants to now add 1,500 branches every year, and so they are targeting that segment. So do you think that the competition would intensify in that segment? And in that scenario, how do you — how have you prepared yourself to counter that competition? So those are my two questions.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes. Rishi, you want to answer the first one?

Rishi Dhariwal — Head of Group Branch Banking

Yes. So Rishi here. So basically, branch banking should typically take — if I look at L1 operating level breakeven, that should in an urban market typically happens in 24 to 26 months. But if you have to look at our fully baked in breakeven, that would typically take four years to five years for urban and coal market would be slightly more, but then we’re not adding too many branches in core markets over the last few years now.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes. So I think on the branch banking, the branches become profitable, branch when it is designed right. So I think what Rishi is talking about the branches, right? The older you are, it will become profitable, right? And branch banking typically is very, very different subject.

Generally, when we calculate the profitability, we don’t see the whole size and the importance of the customer acquisition, right? The transfer pricing is done on the basis of the acquisition, right, rather than on a holistic way. You can price the whole life cycle of the customer, then it’s a very different game altogether, right? So I think branch banking may not become profitable at all in your journey of banking, right, but branch is good, the customer is good and the other asset class, the cross-sell opportunity will help us to build very holistic banks, right? So branch banking is so important to acquire customers and to give them the life cycle kind of services to really become a banking franchise, right? That’s our sense.

So having profitability around that is only one sense, but you need to see very holistically around that piece. Second is on commercial banking space, I mean the brand doesn’t work. Your ability, your product and how you deliver is more important. Over the years, we have built our wheel, SBL, housing in those markets, and we are having no NIM in those market side.

And I think we know how to acquire, how to deliver, how to maintain, right? So I think that’s our USP over the years, and we will continue on our USP. India is so huge. The opportunity is so huge. So one bank coming or we coming alone won’t take market very competitive.

So we need to play out on our strengths. And I believe the kind of size we are in our commercial banking for the next 10 years, we don’t have to think much around our competition. We need to think much about our own product range, our team, our delivery, our management around customer service. So that is the more priority for us for next five years to seven years to build a decent asset franchise in those markets.

Madhu Gupta — Quantum AMC — Analyst

Okay. Thank you. Best of luck.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Yes. Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand over to Aseem Pant for closing comments.

Aseem Pant — Vice President, Investor Relations

Yes. Thanks, Faizan, and thanks, everyone, for joining us and your support. Please reach out to the IR team in case you have any further questions. Thank you.

Sanjay Agarwal — Managing Director and Chief Executive Officer

Thank you so much.

Operator

[Operator Closing Remarks]