AU Small Finance Bank Ltd (AUBANK) Q2 FY23 Earnings Concall Transcript

AU Small Finance Bank Ltd (NSE:AUBANK) Q2 FY23 Earnings Concall dated Oct. 19, 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

Vivek Kansal — Deputy Vice President & Cluster Head, Retail Branch Banking

Rishi Dhariwal — Group Head, Branch Banking

Vimal Jain — Chief Financial Officer

Yogesh Jain — Group Head Strategy, Treasury, FIG & DCM

Analysts:

Renish Bhuva — ICICI — Analyst

Ratik Gupta — Guardian Asset Management — Analyst

Prabal Gandhi — Ambit Capital — Analyst

Anusha Raheja — Dalal & Broacha — Analyst

Dhaval — DSP Mutual Fund — Analyst

Darpin Shah — Haitong India — Analyst

Nilanjan Karfa — Nomura — Analyst

Shardhar — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to AU Small Finance Bank Q2 FY ’23 Earnings Conference call. [Operator Instructions]

I now hand the conference over to Mr. Aseem Pant from IR team. Thank you and over to you sir.

Aseem Pant — Vice President, Investor Relations

Thanks, Faizan. Good day to everyone and welcome to AU Bank’s earnings call for the second-quarter of FY ’23. We thank you all for joining the call and we hope you’re well. As usual for approximately the first 30 minutes of the call we will have brief remarks by few members of senior management, followed by 30 to 45 minutes of Q&A. Firstly we will have our MD & 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 the assets and liabilities performance, and finally we will have Mr. Gaurav Jain, Head of Tech Initiatives and Distribution Strategy, who will talk about our progress in digital initiatives. Besides them, we will also have few other members of our senior management to answer any other questions — any questions you might have. For the benefit of everyone we would humbly request that the number of questions per participant be restricted to two and to join back-in queue or mail us in case you have any further questions.

We’d also like to take this opportunity to announce that our third AU Insight Session is scheduled for the November 3 and will be held virtually. We will share further details in due course and we look-forward to your participation.

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

Sanjay Agarwal — Managing Director & Chief Executive Officer

So thank you Aseem. Good evening everyone, namashkar. Thank you for joining in. Hope you’re doing well. To begin with, I just want to wish everyone a very Happy Diwali and very happy festive season.

This quarter, makes us 22 quarters old in our journey of banking, and I’m amazed to see the progress that we’re making as a team. In this 5.5 years we have been extending our foundation for building a scalable and a sustainable Bank and we are on course, of course. We have managed to grow the Bank to a network of more than INR10,000 crores and both asset and deposits have crossed that typical milestone of INR50,000 crores by serving 30 lakh plus customers. I would like to express myself that each passing quarter increases our confidence, that we are on the right path, going the right way with right purpose, right strategy and right attitude. I’m very excited about the road ahead of us, as the banking system will see tremendous opportunities and in the coming decade as India prepares to become $5 billion economy.

In terms of Micro, global economic activity has been slowing down due to the adverse impact of geopolitical tensions, tightening global financial conditions, persistently high inflation and sharper than expected monetary tightening by central banks globally. Consequently, India too is facing intensified pressures due to the global interest rate trends, weakening global demand and high volatility in portfolio flows. Despite these headwinds, India has emerged as bright spot with GDP expected to grow 7% this fiscal. I am very hopeful about a decade ahead as India stands to benefit immensely from the tailwinds of reforms implemented over the recent years, favorable demographics, ongoing digital revolution and realignment of global supply-chain.

Based on the recent data, banking system credit growth looks healthy at 16.4 year-on year and we continue to see growth in digital [Indecipherable] too. Notably, uncertainty over rates and liquidity has risen significantly in recent months while inflation still remains about the comfort zone of policy makers.

Coming to the AU, the last quarter was amongst the best quarter as the Bank, where we got most of the things right. We have launched 27 touchpoints in this quarter. We grew our deposits by 49% year-on year. Our CASA ratio reached 42% and CASA plus retail deposit mix reached 73%. Our cost of money was 5.78 for six month period. I would like to congratulate the team for doing such a wonderful job of raising the deposits during the quarter without any increase in our deposit rates. The credit market also saw good pickup with festive season coming a bit early this year. The asset business saw disbursement of INR9,200 crores, growing 68% year-on year and it’s first of all is continuing to see improvement. Similarly the collection efficiency and asset quality continued to hold with average collection efficiency at 108% for the quarter and gross NPA coming at 1.9% and net NPA at 0.56%.

Our asset quality, which is one of our core strength has remained resilient across cycles and we are committed to maintaining pristine asset quality. The pandemic days reinforce our faith in our customer segment and we are convinced that we are serving the right customer segment. In fact, the asset quality of post-pandemic book is even better, 77% of our book was originated post-pandemic, where gross NPL is around 0.55%. Meanwhile, our balance sheet size grew by 46% year-on year, network grew by 49% year-on year and our capital adequacy is around 23.4%. In August, we raised capital of INR2,500 crores with INR2,000 crores of Tier 1 and INR500 crore of Tier 2 bonds. LiT was launched amid challenging market condition, I’m overwhelmed by the support that we received from all the participants and would like to convey my heartfelt gratitude to everyone who supported us. Thank you so much. This has enabled us further strengthen our balance sheet and allow us to continue investing for the future. Notably this quarter also we got the upgrade from a third rating agency, so now we are AA/Stable by all three, CRISIL, India Ratings and CARE. Thank you so much.

Our margin for the quarter expanded at 6.2% from 5.9% quarter-to-quarter. Profit rose by 23% to INR343 crores with RoA of 1.8% and RoE at 15.3% despite a higher capital base in quarter two. This makes our business model very sustainable. We’ve always been a customer-centric bank, built on first principle of simplifying banking with a strong focus on delivering customer delight. I’m happy to share that we have added over 3.4 lakh customer in the AU family than last quarter. Our Bank campaign Badlaav Humse is furthering our reach. More on the quarter, highlights will be covered by Uttam.

Further on our tech-led business, because of our customer convenience, I’m very happy of the way our Credit Card, video banking, UPI QR and AU digital team are shaping up to stitch together our tech priorities. We continue to invest in our tech-led businesses. Simultaneously we are keeping a close eye on the tech infra to run the Bank where cyber security is an important priority too. Gaurav will cover this in further detail.

In our sustainable journey of building the Bank, robust governance mechanism has been the backbone of our growth since the beginning. I would like to say that the reappointment of Varma sir, the Chairman has recommended by the Board and has been sent to RBI for approval. To our — two of our veteran Board members, Mr. Ashish sir, and Madam Narang are due for retirement in March 2023, after a long fruitful and very impactful aiming [Phonetic] at AU, for which we are deeply grateful. The Board will be joined by more Independent Directors in times to come.

We have built a strong leadership team at various levels and continue to invest in them, while attrition remains a challenge, but as this structure as further followed us to attract and facilitate leaders with ample space to express themselves, and build coercive and motivated team, which also helps with subsequent planning. They are increasingly becoming an employer of choice and continue to do more every quarter on our employee engagement propositions. The journey of last five LLTLs have cultured show us towards pursuing holistic growth and development. They are working on every aspect which makes us more purposeful from focusing on ESG to embracing diversity, and furthering financial inclusion to building a Digital First which I think is a great equalizer for all of us. Furthermore, the way we have grown in last 5.5 years has given us hope that we will able to manage the current uncertain environment and navigate through the unknowns.

I would also like to share you a key learning from last 12 — from the last two or three quarters as a Bank. First of all, we strongly believe that the platform is — this platform is public growth, which we deeply respect and are building carefully. We are embedding the key principles of banking of Samajhdari, Zimmedari and Imandari every year wise. We are not working with the quarter-to-quarter mentality and setting — focusing on the long-term horizon which is required to build a Bank of sustain and predictability. Governance is first, always first. We have put in place robust mechanism to manage our risks which makes us more sustainable and trustworthy. More importantly we are ready for short-term pains for long-term gains. And we try not to be too short-term noises for long-term — long-term voice. And the way forward, in my opinion, the journey of AU for next five years would be more exciting as we are — we not only implement the learnings from these early years, but also benefit from newer growth opportunities. We are giving impetus on scaling the current account channel and focusing on SMF small and marginal farmers lending. To cater the growing demand of wealth products in the coming times, we are building our wealth management vertical. We have also decided to add ICICI Lombard as our newest bank assurance partner, I welcome them. The way the regulatory landscape has evolved in last six months around digital and cryptocurrency will only benefiting the banking industry. Recently the regulator also has allowed SFB to apply for AD1 license as a government [Indecipherable] business and we are evaluating both as it will be a significant boost to our platform.

In the near-term, we navigate this uncertain environment, we continue to remain focused on executing our strategy, leveraging our strength of understanding the borrower’s cash flow and assessing their business resilience amidst challenging landscape. The current environment is not as severe as the pandemic, but we are keeping a close eye on the evolving situation and we’ll calibrate our approach according to growth in manners. Specifically, we will be prioritizing, optimizing our cost of funds, consolidating our deposit franchise, preserving our risk-adjusted yields and continue to have growth trajectory in a sustainable way.

Overall, I can assure you that as in the past, in everything we do at the Bank, the endeavor is to build a highly sustainable and creditable bank which is predictable, consistent. In digit energy terms — near to my heart, we have managed to back well in the initial overs despite some initial swing and see movements. And we are now in the middle overs where the team needs to consolidate the innings to play long and to build a sizable scope. And in-line, I am very thankful to all stakeholders, Government, our regulators, our Board, our customers, our investors, the analyst community, [Indecipherable], all the unsung heroes for supporting and believing us. Thank you so much.

I hand over to Uttam for the operational highlights. Thank you so much.

Uttam Tibrewal — Executive Director

Thank you Sanjay. Namaskar and good evening, everyone. We are amidst of festivities, I hope that the auspiciousness of this period rubs off on all of us. I wish you and your loved ones a very happy Diwali and prosperous new year. Over the last 5.5 years at AU Small Finance Bank, we have charted our course carefully. I’m happy to share that in Q2 FY ’23 we continue to deliver consistent business growth while keeping our margins intact. As Sanjay said, the focus is to implement the learnings of our yields as a Bank. To maintain our credit filters and quality of book, focus on granular customer acquisition, customer engagement, cross-sell and CASA growth. We continue to be optimistic about opportunities and align our strength for keeping our market position intact.

To start with, I would like to cover some key operational highlights for the quarter. In line with building a diversified presence, the Bank has made deeper inroads with 27 new touchpoints added this quarter, out of which 15 are liabilities branches. Eight of them being in our emerging markets in UP, South and East India. With a view to bolster customer accretion in urban markets, 13 of the 15 liability branches are located in metro cities like Chennai, Bengaluru, Hyderabad, Kolkata, etc. Maintaining our pace from the first quarter, we have expanded our deposit book by 7% in this quarter and increased our CASA ratio from 39% to 42% on a quarter-on-quarter basis. Similarly, our CASA plus retail TD mix now contributes 73% of total deposits. CASA deposits have grown 109% year-on-year and 16% quarter-on-quarter. Against our reported increase of 190 bps, our incremental cost of funds increased by 70 basis points during H1 FY ’23 and our overall costs reduced by 17 bps during the same period.

After avoiding raising rates for entire of last quarter, with effect from 10 October, ’22, we have increased the FD rates by up to 60 basis points for retail deposits taking our peak rate to 7.5% for regular customers and 8% for senior citizens. With this hike, the Bank is offering one of the most competitive FD interest rates, thereby providing an opportunity to customers particularly senior citizens to get inflation getting returns from their fixed deposits. We have been focusing on improving the product mix, and cross-sell to all with an aim to increase urban balances. Our product per customer has reached 1.6 [Phonetic] for saving accounts customers and 1.97 for current account customers excluding dormant and BSBDA accounts.

Our cross-sell efforts including — include disbursing 10,000 plus life and insurance policies, adding 8,600 plus three-in-one trading accounts and adding 12,000 plus Mutual Fund SIPs during Q2 FY ’23. Additionally, during the quarter we disbursed INR728 crores via cross-selling of asset products to our branch banking customers, a growth of 64% quarter-on-quarter. Another key expect of our branch banking strategy is sourcing of quality customers and hence in the last quarter 66% of all savings accounts sourced by branch sales team excluding salary accounts were from premium category of Royale and Platinum accounts, up from 59% in Q1. We have just launched our newest product for our current account customers called Platinum Business account. This is a premium product with industry leading features designed to provide a lot of flexibility to our small business customers with plug-and-play features around cash, QR codes, digital solutions and pricing. This will provide added momentum to our current account journey, where 37% of our card customers already hold high value variant of our current accounts.

Our digital initiatives, AU 0101 App, Video Banking, Credit Cards and UPI QR have played an important part in improving customer experience and engagement. On saving accounts, our transacting customers have increased to 56% with an average of 28 transactions in a month. Further approx 72% of the current account customers were active on Internet and mobile banking in Q2. This reflects a shifting preference of customers for primary banking with AU. Another engagement tool, AU Shopping Dhamaka is now in its fourth addition and is currently live with very attractive offers across platforms for this festive season, helping us engage more with our customers.

Moving to our asset SBUs, let me start by updating you on our Wheels Business. As an industry vehicle sales in Q2 FY ’23 has grown by 16% year-on-year with most segments displaying major growth particularly the passenger and commercial vehicle segments. Our average ticket size is around INR5 lakhs on disbursements and INR2.6 lakhs at portfolio level excluding two-wheelers. This quarter we disbursed INR3,542 crores with an IRR of 14.29%, which was an increase of 35 days sequentially. This also illustrates the ability and strength of our business model to transition price volatility. I’m pleased to share that as of 30 September, 2022, the wheels portfolio hit a milestone of INR20,000 crores, through INR7.81 lakh live loans, comprising of 53% new vehicles, 35% used and refinance, 10% tractors and 2% two-wheelers. Out of this INR16,000 crores is contributed by the new book generated post April 2020, which continues to display a robust asset quality at GNPA of 0.65% in line with our expectations. Overall collection efficiency for wheel business was 107% for the quarter. This also led to improvement in GNPA to 2.24% from 2.30% sequentially, and from 4.31% a year ago.

Moving on to secured business loans. As on September 30, 2022, our SBL portfolio stands at INR17,471 crores with a weighted IRR of 15%, growing 22% year-on-year. We have 1.74 lakh unique customers with GNPA of 2.8% as on 30th September. This quarter we added 12,000 plus customers with 76% new to bank with an average ticket size of INR11.2 lakhs. For a total disbursement of INR1,459 crores, which has increased 49% year-on-year and 14% quarter-on-quarter. Collection efficiency for SBL business continues to be robust at 112%.

Moving on to the older but new list [Phonetic] on the block, our home loans SB. Currently operates out of our eight major states and our total actual portfolio was INR3,365 crores as on September, 30, 2022. A growth of 12% quarter-on-quarter, our disbursement in Q2 FY ’23 was INR498 crores. Comprising of approx 34,000 loans with an average ticket size of around INR11 lacks. Our GNPA on this portfolio continues to be stable at 0.44%. Notably, being an affordable housing book much of our book is also eligible for long-term refinance from NHP. Geographically, we are seeing greater demand from both urban and semi-urban rural areas, which remains strong with the on set of the festive season.

Commercial banking is a franchise business, which we started on the banking platform and our two main product lines under this are business banking and agri banking. On business banking, the portfolio has reached INR3,837 crores as on 30 September. A growth of 18% quarter-on-quarter, with disbursement of INR938 crores during the quarter. Further, our portfolio is 98.5% current and GNPA was reduced to 0.17% on September 30, 2022 from 0.34% as on September, 30, 2021. Agri Banking business has reached INR3,000 crores portfolio mark, and is growing with stable asset quality. This quarter we saw an incremental disbursement of INR486 crores due to several conducive factors including growing our footprints in newer geographies, newer product initiatives like financing to FPOs, which is farmer producer organizations have started contributing to the small and marginal farmer book of the bank.

Summing up, we are in the rising interest rate, where inflation is proving to be more resilient than initially estimated. We shall continue to monitor our competitiveness and calibrate deposit rates accordingly, with focus remain on garnering low cost CASA and retail deposits. The festive season has historically accounted for good business in second half of any financial year and we are witnessing increased demand across most of the business segments this year as well. We continue to focus on growing our asset business sustainably with yield optimization and keeping our credit filters intact. While we are bullish on India, we are conscious to not get carried away by the turn of the credit demand post the two years of pandemic. Till we ascertain if this is pent-up or a sustainable demand, we will continue to focus on our strengths and reinforce processes and [Technical Issues]. To prepare for the next [Technical Issues] period of India yet been watchful of the demand situation. As always, we remain highly engaged with customers on ground to gauge demand and dynamically calibrate and optimize ourselves. I remain confident that our business model execution capabilities, optimistic about the opportunities and potential and yet watchful.

I look forward to sharing more with you in the coming quarters. I now invite Gaurav to share his thoughts on our different initiatives. Thank you and take good 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 cards and UPI QR. Tech remains an area of key focus for the bank and we continue to execute on our Tech strategy with the objective of growing our deposit franchise, developing unsecured lending capability and building out our digital distribution. We soft launched AU 0101 in June ’21 and did a full commercial launch in August ’21 in the middle of the pandemic. Since then, our digital capabilities and key metrics have progressed significantly.

I’ll take a moment to talk about three key highlights around digital adoption, acquisition and engagement. First on digital adoption. Our digital adoption is 3 times or June ’21 levels with 14 lakh digital customers of which 8 lakh are monthly active. 98% transactions and 90% of service requests are being executed digitally. Second, on Digital acquisition. Customer acquisition through digital products has increased significantly, accounting for 42% of total customer acquisition in Q2 versus 0% in June ’21. Since the launch, we have opened over 2 lakh accounts using video banking, issued over 3 lakh credit cards, disbursed over INR500 crore of digital personal loans and installed over 8 lakh UPI QR. Digital acquisition is also helping us lower our cost of acquisition. For example, digital savings accounts were acquired at 50% lower cost of acquisition compared to our branch channel. These Digital Savings accounts accounted for 38% of total savings accounts acquisition in Q2. Third, on digital engagement. Our digital proposition has also increased as our customer engagement meaningfully. We have extended pre-approved offers to over 5 million customers since June ’21, of which over 2 lakh customers took up the offer. Monthly transacting customers as a proportion of total savings account customers has increased from 47% to 56% and average monthly transactions per transacting customer has increased from 17% to 28%, an increase of 65%.

I will now give a brief overview of our three digital units. First, video banking. Video banking as a distribution and service channel continues to improve with the aim of making 0101 plus video banking a complete replacement of a branch. In Q2, video banking team opened over 50,000 savings accounts, received around 80,000 servicing and engagement calls and increased total relationship value of digitally sourced savings account customers to INR870 crore, an increase of 21% quarter-on-quarter. Average relationship value of a digital savings account customers stands at over INR40,000. Combination of video banking and 0101 is also driving reduction in branch visits, which propensity of digital savings account customers to visit branches being one-third as compared with customers acquired through branches.

Moving over to Credit Card. We issued over 90,000 credit cards in Q2 and crossed INR500 crore of monthly spend in September. Our Credit Card proposition is helping us attract new to bank customers with 47% of total cards being issued to new customers. We continue to innovate with new product launches. Let India’s first customizable credit card, which was launched last quarter continues to be very well received in the market and is now our highest selling card variant. Our key credit card metrics are inline or better than industry average with 86% of our customers having activated their cards and 53% customers being 30-day purchase active.

Now a brief update on our merchant solutions business. During the quarter we installed 1.5 lakh UPI QR taking our installed base to 8.1 lakh. With over 1.5 lakh daily transactions, UPI QR continues to help us drive engagement and deepening of our merchant customers. 85% of transactions by value were credit to linked AU CASA accounts. This has helped increase average monthly balances by 83% post UPI QR install. We are also cautiously building out our digital unsecured lending program for merchants. Total unsecured loan disbursement to merchants amounted to INR86 crore.

In addition to customer initiatives which I just spoke about, we are also investing in a number of areas around digitization, core technology stack and cybersecurity. Some of these key projects include, upgrade of our core banking platform which we expect to go live in the next few months. Implementation of data platform, which would unify all of bank’s data in one place and enable development of next level of analytics capability in the bank. Implementation of a new loan origination system for wheels business on the Salesforce platform, which would better equip our wheel’s team to faster onboarding of customers. And finally, our cloud migration project, which would be an ongoing initiative for next couple of years and include both migration of selected existing applications to cloud as well as onboarding new applications on the cloud. To conclude, Q2 was another quarter of solid execution, and we continue to progress in our digital journey.

With this. I’ll now hand over to Aseem for Q&A.

Aseem Pant — Vice President, Investor Relations

Thanks, Gaurav. Faizan, we can start the Q&A.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Renish from ICICI. Please go ahead.

Renish Bhuva — ICICI — Analyst

Yes, hi, sir. Congrats on a great set of numbers. So sir [Technical Issues]

Operator

Sorry to interrupt you sir. Your audio is breaking from your line. Please check.

Renish Bhuva — ICICI — Analyst

Is it better [Technical Issues]

Operator

Still the audio is breaking sir. Sir, still the audio is breaking, request you to be in a network area.

Renish Bhuva — ICICI — Analyst

Hello?

Operator

Yes, sir. Please proceed with your question.

Renish Bhuva — ICICI — Analyst

Yes, hi, sir. So, sir, just couple of questions. One is on the disbursement number. So which has been stagnant at around INR8,000 crore from last couple of quarters and when we look at the sequential growth in the wheels and the SBL Portfolio, which is almost 75% plus portfolio is around 2% growth. So, sir, what is happening on the disbursement side, I mean why it has been stagnant? And particularly within the segments, why wheels and SBL is still sort of showing the muted growth?

Sanjay Agarwal — Managing Director & Chief Executive Officer

We don’t think that business disbursement segment, because we have one yearly plan in place. And at — by that numbers we are growing every quarter and of course wheels and SBL both businesses had some size. And we have grown so much well in last five years. So we just want to take the whole, the risk management and the whole controls and all those things to really see that we don’t build a wrong book in a good time, right? So I think we are absolutely on track, because we have not much — many books to offer, right. We do wheels, we do SBL, we do home loans, we do commercial banking, credit cards, so we need to figure out, and that’s why we started all those different products, so that we will have a very balanced growth, right. So absolutely on course of the yearly numbers, I would say that generally in the first six months we do around 40%, 45% of business, right. So in that sense I would say you will see a lot much growth happening in next six months, in comparison, right, in comparison.

Renish Bhuva — ICICI — Analyst

All right. Yes.

Sanjay Agarwal — Managing Director & Chief Executive Officer

Yes. So that’s the franchise we really want to build where every product want to contribute in the journey of growth.

Renish Bhuva — ICICI — Analyst

Got it, sir. And sir, secondly, on the business banking and agri SME. So this book has been growing at a pretty faster clip from last six, seven quarters. So if you can just throw some light in terms of, let’s say the tenure and the kind of customer segments where we operate. Because when we look at the yield on the business banking, it is around 10, 10.5. So I would say it is one notch below than what leading sector banks are tapping. So maybe if you can just throw some light on the customer segment, and the latest maybe the collection trend or any data point which you can highlight?

Vivek Kansal — Deputy Vice President & Cluster Head, Retail Branch Banking

Yes. Hi. It’s Vivek here. So both business banking and agri banking both are primarily working capital book and the average ticket size are for both vertical ranges from INR80 lakhs to INR1 crore kind of thing, right. So it has both fund base and non-fund base. It’s a very pretty normal working capital business where most of the facilities are renewal one year, it has a smaller component of capex loans, which typically are down [Phonetic] sort of expansion or some equipment and machinery purchases kind of a this thing.

Renish Bhuva — ICICI — Analyst

Okay.

Vivek Kansal — Deputy Vice President & Cluster Head, Retail Branch Banking

But broadly, it’s a business where we also did lot of cross-sell opportunities within the same customer base. Has good amount of deposits from the same customers, right. And as far as the yield is concerned, it is — we have to look at from the spread perspective because these are low opex businesses right. Just wanted to add on your — like these are not one notch below the other private sector bank customers because you know the lot much formalization has happened after GST last five years. And here also we are using our distribution, right, because you know we are more dominating the core, which is the semi urban, rural areas. We are also — we have seen lot much formalization happened, people didn’t have any kind of leverage on their balance sheet, but in last five years, their business has come everything on a formal side. They require cash credit and all those things. So, and we are able to price the risk and we are able to actually price our positioning as a franchise. So I would say that again — I won’t say that it’s a below level of any private sector bank because our net NPA in business banking book is around 0.16% right at the rate of 10%.

Renish Bhuva — ICICI — Analyst

Yes.

Vivek Kansal — Deputy Vice President & Cluster Head, Retail Branch Banking

So, I’m very comfortable in this kind of positioning and I strongly believe that India in MSME and SME and like brigade [Phonetic] can do very — will do wonders, will do wonders.

Renish Bhuva — ICICI — Analyst

Got it. And sir, is there any geographical, let’s say, concentration maybe business banking and agri SME, Rajasthan, outside Rajasthan if you can give some data point around that?

Vivek Kansal — Deputy Vice President & Cluster Head, Retail Branch Banking

Typically our asset business are distributed between Rajasthan, MP, Delhi NCR, Punjab, Haryana, Gujarat and Maharashtra. So that is where it is spread out. As new geographies are very, very new and wherever the branch banking business would be a brand category, right. So wherever the branch banking franchisees would progress, these businesses would follow the suite.

Sanjay Agarwal — Managing Director & Chief Executive Officer

So, Renish two points, on the first question. You have to also understand, we also securitized about INR700 odd crores during the quarter from the wheels business.

Renish Bhuva — ICICI — Analyst

Correct.

Sanjay Agarwal — Managing Director & Chief Executive Officer

So that will also impact the [Indecipherable] gross advances and as far as what Vivek ji said that the entire business banking, agri banking, geographically, it will be very similar to the broader overall book.

Renish Bhuva — ICICI — Analyst

Yes, that’s what I just wanted to reconfirm. Okay, I’ll back [Phonetic] it, sir. Thank you. Thank you very much sir.

Operator

Thank you. The next question is from the line of Ratik Gupta from Guardian Asset Management. Please go ahead.

Ratik Gupta — Guardian Asset Management — Analyst

Yes, so, sir, we have reductions during the period of approximately INR234 crores. So I just wanted to understand how much will be the write-offs or the recovery from this, if you have the breakup?

Sanjay Agarwal — Managing Director & Chief Executive Officer

This data has been given on slide number 26. We have done a INR23 crore write-off.

Ratik Gupta — Guardian Asset Management — Analyst

INR23 crores write-off. Okay. And I wanted to understand if we have a deposit being — rate being fixed and with the increase in repo rate we still don’t see cost of funding not at that increased level, so how — I just wanted to understand a picture of it. So how is the incremental cost of funding going down while the repo rate has been increased?

Sanjay Agarwal — Managing Director & Chief Executive Officer

No, so incremental cost of funds hasn’t gone down, right. Incremental cost of funds have gone up by…

Ratik Gupta — Guardian Asset Management — Analyst

No, cost of fund, I meant.

Sanjay Agarwal — Managing Director & Chief Executive Officer

See, total cost of fund, there is a base effect, right. There is a AUM and the overall cost has been coming down for us, if you look at for last two years. So prior to pandemic, we were at about 7.5. Last full year the cost of funds were about 5.95-ish. So an incremental cost of fund if you see we started the year at about 5.3. So to that extent, it is just being a mathematical adjustment.

Ratik Gupta — Guardian Asset Management — Analyst

Okay.

Sanjay Agarwal — Managing Director & Chief Executive Officer

So lot of lost — lot of old money is still there, right, because of that by cost is coming down, but if you will see when we started our year, we started from around 5.65, which is now 5.80. So in six months, our overall cost had increased but since we have low cost old money in system, so that is why my overall cost is still 17 basis points below than what it was in last year.

Ratik Gupta — Guardian Asset Management — Analyst

Okay. Got it, sir. Yes. Thank you.

Operator

Thank you. The next question is from the line of Prabal from Ambit Capital. Please go ahead.

Prabal Gandhi — Ambit Capital — Analyst

Thank you. Congrats sir on the good numbers. So my question is on the card deposits. So very strong growth sequentially year-on-year. But if you see the monthly growth in the balances as well, that is also very strong. So just want to understand what is driving this. The increase in the balances per customer are also able to see mobilization of more customers basis.

Rishi Dhariwal — Group Head, Branch Banking

Yes. So Rishi Dhariwal here. See, we continue to acquire customers in our Royale and Platinum offering products, right. And which is what is finding good traction with customers. The second is that we have increased our branches in urban markets by almost 130 branches over the last two years, so which is what is helping us to reach out to customers in newer geographies and the expanded distribution adds to our ability to source more and more savings account. The third is that the savings customer and the deposit customer are to very — I mean they are two different groups of people. There are different groups of people who typically keep money in savings. The customer who typically book deposits are the ones who are senior citizens and people who want to save money for slightly longer term. So we have been able to sort of ramp up our savings account acquisition and which is what is showing the growth in savings.

Prabal Gandhi — Ambit Capital — Analyst

Okay. And what would be our cost of card deposits? If you have the number?

Sanjay Agarwal — Managing Director & Chief Executive Officer

5.5%.

Prabal Gandhi — Ambit Capital — Analyst

5.5% okay. Sir, and the question on opex front. So we had seen employee reduce, whereas our employee cost has gone up, I think 15% Q-on-Q. What explains this? [Technical Issues]

Operator

Sorry to interrupt you, Mr. Prabal, the audio is not clear from your line, please check.

Sanjay Agarwal — Managing Director & Chief Executive Officer

Prabal the question was…

Prabal Gandhi — Ambit Capital — Analyst

Now is it better now? The question was that we have seen reduction in employee, whereas the employee cost has gone up by 15% Q-on-Q? So what can explain that.

Sanjay Agarwal — Managing Director & Chief Executive Officer

So, obviously employee cost is more a function of — there’s annual appraisals and those things happen, predominantly for us it’s happens in Q2. So that would be part of the reason. But nothing extraordinary there, of course, in terms of overall capacity addition point of view, we had some excess capacity during the COVID days. So because of that, we have obviously been looking at focusing a lot on productivity and rationalizing some of those manpower, looking at the overall environment. And then inflation has always played a role, right, because the appraisals typically would follow in this quarter and given the inflation that’s happening, given the entire talent crunch that’s happening across, you would see a natural cost increase. So that’s what it is, nothing else to read into it.

Vimal Jain — Chief Financial Officer

Prabal, Vimal this side. In addition to that, actually you are comparing the cutoff date numbers, where as total cost paid for the employees is around 700 more than average of the last quarter. So that’s why the cost is increased. So closing number is 1,200 number, but in average, it’s 700 more than last year quarter — last quarter.

Prabal Gandhi — Ambit Capital — Analyst

Okay. So is it fair to say that INR450 crore number is not sustainable and can improve quarter-on-quarter from here on words?

Vimal Jain — Chief Financial Officer

No. So, what we are saying is that ultimately — see, the employee wage bills would typically follow the inflation cycle and the way the entire employee base is going to grow. What Vimal ji, just mentioned that the reduction in the employee base has happened towards the quarter end numbers that you are saying. If this sustains going forward, then obviously you will see some amount of impact. But in case, depending on the business environment — requirement and how the overall environment shapes up, if we decide to further increase our hiring, then will obviously that will also have an impact, right. So we’ll have to see how we go along.

Prabal Gandhi — Ambit Capital — Analyst

Right. And on the other opex, so any target on the cost to income net because now that is almost around 4.5% — total opex is 4.5% to average assets. So I understand the…

Operator

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

Sanjay Agarwal — Managing Director & Chief Executive Officer

We don’t need to look at…

Prabal Gandhi — Ambit Capital — Analyst

Is it better now?

Vimal Jain — Chief Financial Officer

Prabal, if I understood your question. Cost to assets is typically something that we don’t track. We track cost to income ratios, which we have already talked about in the presentation. And also given a guidance and touched upon in MD speech. It’s definitely outside of our comfort zone and we are working on it and you would see there has been a reduction quarter-on-quarter and we will continue to do our best to bring it down to our guidance range of about 62-odd percent.

Prabal Gandhi — Ambit Capital — Analyst

And the 62-odd percent would be because of the improvement in income and not because of the reduction in the cost of the investment side sir?

Vimal Jain — Chief Financial Officer

No. Both actually, because in the first quarter also, if you see there was an impact on the income, right.

Prabal Gandhi — Ambit Capital — Analyst

Right, okay. Thank you, sir. All the best.

Sanjay Agarwal — Managing Director & Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Anusha Raheja from Dalal & Broacha. Please go ahead.

Anusha Raheja — Dalal & Broacha — Analyst

Yes, thanks for taking my question. Just want to understand over the next two to three years…

Operator

I’m sorry to interrupt you ma’am. The audio is very low from your line.

Anusha Raheja — Dalal & Broacha — Analyst

Yes. Am I audible now?

Operator

Yes. Please go ahead.

Anusha Raheja — Dalal & Broacha — Analyst

Yes. I’m saying over the next two to three years when you feel that operating leverage will kick in and you will have material reduction in the cost to income ratios?

Sanjay Agarwal — Managing Director & Chief Executive Officer

I think, I’m Sanjay this side. So again, you know that there are — there were so many unknowns in last two to three years, right, due to pandemic and now also you’re seeing lot much uncertainty around the future growth. But we as a Bank need to always capacitize ourselves to really sustain, right. So if you ask me that, whether we will have an operating level in two to three years, I would say, let’s give us another three to five years, right. Because in that time frame, we will have a sizable business in place, there will be more knowns in place and, so I think — I would say not two to three years, but maybe in three to five years, you will see operating leverage helping us to build a better RoE.

Anusha Raheja — Dalal & Broacha — Analyst

I mean, definitely you are in an investment phase currently and that’s positive, but any number to put up over the next three years, what internal number that you’re looking at or any ball mark number to put there?

Sanjay Agarwal — Managing Director & Chief Executive Officer

Give us some more time because it’s difficult to predict as of now because of this continued inflation, we are into investment phase, our credit cards business, video banking business, the whole tech business is coming up to a size and shape. So I think it’s difficult to predict to be honest, but we are not out of the course. We are not running a very high cost around it. If you take our investment cost out, we’re around 55%, 56%, right. So I would say that next three to five years we’ll have some kind of operating leverage there, but it’s difficult to put a number around it as of now.

Anusha Raheja — Dalal & Broacha — Analyst

Okay. Thank you, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Dhaval from DSP Mutual Fund. Please go ahead.

Dhaval — DSP Mutual Fund — Analyst

Yes, hi. Congratulations on the good set of numbers. I just had one question relating to the PSLC income. So in general, like for the first half, we’ve seen a very low number, so could you just comment what is driving this run rate and if you could give some [Technical Issues] year.

Yogesh Jain — Group Head Strategy, Treasury, FIG & DCM

Yes. Hi, Dhaval. Yogesh this side. So PSLC is just a typing market sector, and every quarter we see market, how market is behaving, what are the rates premium available. So If you will see second quarter premiums were very muted. Micro and general were happening on INR0.02, INR0.01, so we decided [Technical Issues] and we’ll see next quarter. So we have PSLC portfolio available, but since rate was not there, we’ll figure out in next quarter. But, as we mentioned in our presentation that we securitize some of our portfolio to get some rate advantage. So we will balance between PSLC and securitization going forward also.

Dhaval — DSP Mutual Fund — Analyst

Understood. And the second half, should we typically like — significantly better than the first half in terms of PSLC?

Yogesh Jain — Group Head Strategy, Treasury, FIG & DCM

There is no such pattern or benchmark because earlier second quarter was better last year. So there is no benchmark we will see each quarter and then accordingly we’ll figure out.

Dhaval — DSP Mutual Fund — Analyst

Understood. Okay, thanks. All the best.

Sanjay Agarwal — Managing Director & Chief Executive Officer

Thanks, Dhaval.

Operator

Thank you. The next question is from the line of Darpin Shah from Haitong India. Please go ahead.

Darpin Shah — Haitong India — Analyst

Yes. Thanks for the opportunity and many congrats on the quarter. First question is on towards growth. While we are talking about uncertain times and key metrics also you mentioned that you want to consolidate deposit franchise, preserve the yields. So should we assume that growth will be slower in next couple of years or…

Operator

Sorry to interrupt you. Your audio is not clear from your line, sir.

Darpin Shah — Haitong India — Analyst

Sorry. Yes, sorry. I’ll just repeat the question. Sorry about it. So my question is towards growth. Now while we’re talking about uncertain times and preserving our yields and consolidating deposit franchise, should one assume that even the loan growth from here on will moderate or we will still continue the way we have seen AU in the previous years?

Sanjay Agarwal — Managing Director & Chief Executive Officer

So I would say that, that’s what we call it uncertain time because you’re are not able to predict. So, and there are certain headwinds like inflation, interest rate raise, liquidity, right. And you know that our asset growth is driven by the deposit growth. We don’t — we can’t grow asset on its own, right, and deposit is pricing now. So we don’t want to raise money at any cost and want to land at any kind of rate. So we really want to protect our names and our RoE and RoA. So that is why we are saying that we want to really see that how we — how the growth happens, that has to be profitable, capacity has some kind of numbers around it, right. And as I told you that, generally we do 40% to 45% of business in first quarter. That makes a very healthy growth rate in this year itself.

So there is a demand, but we just don’t want to rush ourselves, because I strongly believe of my experience 25 years, 26 years that bad books are read in good times, so that we don’t want to do anything like that. And so there is growth, but we don’t want to say that we really want to grow out of the back, right. So that’s our positioning and — but we are growing well and we believe in that any sustainable, reasonable growth can be manageable and sustainable.

Darpin Shah — Haitong India — Analyst

Okay, great. Thanks for that. Just one last data driven question. How much was the slippages from the restructured book during the quarter?

Vimal Jain — Chief Financial Officer

That was INR58 crores.

Darpin Shah — Haitong India — Analyst

Okay, great, thanks a lot, sir.

Operator

Thank you. The next question is from the line of Nilanjan Karfa from Nomura. Please go ahead.

Nilanjan Karfa — Nomura — Analyst

Hi, thank you. I hope I am audible. Just two set of questions. So, sir, I mean, it just seems to me as being a little more cautious quite of — quite a few times we heard, building bad book during good times, which is a fair comment. Therefore on — just get a — trying to get a context of what kind of growth are you actually looking at for this year and maybe the next year as well?

Sanjay Agarwal — Managing Director & Chief Executive Officer

So, I’m just repeating that, generally we do 40%, 45% of business in H1 and that makes us around 12%, 13% growth itself. We have already delivered, right. So if you mathematically calculate it, it will be around 27%, 28% kind of growth this year. And my point is not that that we don’t want to grow in that aspect. Anything around 27%, 28%, even 30% is good enough. But you know IAS [Phonetic] really grow at some kind of strategy, because we can’t raise money at any cost and we just been lend it at lower rates, right. So we really want to protect our names, our RoA and that is why we are saying that there is enough demand available, but demand has to be profitable for us. So, and in past we have done that, even in my NBFC days, there was a good time but we never ever gone to the market demand. We always try to build our own strategy and work upon those lines. So my sense is that we are on right course, we have a very long-term vision to build this Bank, we need to see the cycles, the team needs to understand, the team needs to hold on and see through every up and downs of the Bank journey to really become a more long-term franchise, right, which makes you very sustainable and predictable.

Nilanjan Karfa — Nomura — Analyst

Sure sir. If I can just kind of expand the question, I mean is this something in the environment that you are a little worried about? That’s the question I wanted to ask.

Sanjay Agarwal — Managing Director & Chief Executive Officer

So, like in my opinion, if inflation remains like this and there is an elevated interest rate and then it will eat up your wallet right. So how the people will pay the EMI. If suddenly the crude goes up INR120 billion, INR130 billion side of barrell, right. Then what we should do because we have — we are running a weaker book. We are running a SBL book, right. So we need to be cognizant with the fact that how inflation remains for next six months, the policy makers are doing their best, but their demand is like this. So, what I want to say you is that, while you want to grow, let’s grow sustainably. So when you have a lot much demand, we can pick and choose, right. So what — we are doing that and in that we really want to calibrate ourselves. Let’s price our rates, let’s understand customer more, let’s see that even on a high inflation, high interest rate cycle, whether it is okay to pay his EMIs, right. So I think that kind of understanding we are building internally.

Nilanjan Karfa — Nomura — Analyst

Perfect, perfect, sir. This is very helpful. The second question is, I don’t know if you will be able to share. In the fourth quarter, we did that opex movement between ’21 and ’22 split out between three or four different components, possible to get it in the first half, how this has moved?

Sanjay Agarwal — Managing Director & Chief Executive Officer

We have given that data. I mean, not in so many words. But the number is definitely on slide number 15, around INR125 crores of the incremental expenses have been towards the investment and the breakup is there on that slide. That’s Q2. And similarly, you can find for Q1 in the Q1 presentation.

Nilanjan Karfa — Nomura — Analyst

Sure, sir. Sorry for that. Thanks so much.

Operator

Thank you. The next question is from the line Shardhar [Phonetic] of an Individual Investor. Please go ahead.

Shardhar — — Analyst

Hi, thank you for the opportunity. My question is to Sanjay sir. So can you give me approximate expense towards the fund raise and what RoE would have been barring this exceptional item?

Sanjay Agarwal — Managing Director & Chief Executive Officer

So I think specific data, right. You want a specific… [Speech Overlap]

Shardhar — — Analyst

Specific, may be approximate would do.

Sanjay Agarwal — Managing Director & Chief Executive Officer

No, no, the exact number is already disclosed in the placement document that is as per requirements of SEBI. So broadly, it was around 1% if I remember correctly. Just a tad above 1%.

Shardhar — — Analyst

Okay. Around INR20 crores, you mean to say, right?

Vimal Jain — Chief Financial Officer

Yes, INR23 crores.

Sanjay Agarwal — Managing Director & Chief Executive Officer

INR23 crores, if I remember correctly.

Shardhar — — Analyst

Okay. My question is to Sanjay sir. So see, I being retail investor. It’s very difficult for me to calculate each and every moving item in P&L. So I just want to get a sense that what our sustainable RoA would be for like two to three years. And then once operating leverage kicks in after three to five years, can you just give a sense a number, a range?

Sanjay Agarwal — Managing Director & Chief Executive Officer

So I would say that you have to see our last five years working, that gives you enough guidance, because we always remain north of 1.7%, 1.8% of RoA, north of 15% initially our journey of last five years right. So, Shardhar, to be very honest, there are so much moving items like, how the interest rates will played out. We are — want to invest in our so much of digital capabilities like pandemic happened and also — and there are not much unknowns which can happen to us in next five years favorably, right. So if you ask me specifically, it’s difficult for me to comment, but I think last five years number, data should give you confidence that this franchise is very sustainable, because we have figured out the asset franchise where to lend, at what rate we want to lend, what are NPAs can be because what not we have seen in last five years. So I think our asset franchise is very solid and very strong. Our deposit franchise last three years has completely gone through a complete change from a wholesale franchise to retail franchise. So that is also enabling us to manage costs in spite of this inflated rate. And then again our digital properties are coming up well. So I think all put together, I strongly believe that anything what we have achieved in last five years should be get on table, right. But anything can happen better from here.

Shardhar — — Analyst

So maybe once operating leverage kicks in 2% plus RoA is also possible, like to 2% to 2.2%, 2.3% something like that?

Sanjay Agarwal — Managing Director & Chief Executive Officer

Difficult to comment for me, but let’s hope for the best.

Shardhar — — Analyst

Okay, maybe I’ll take a hint from that. Yes.

Sanjay Agarwal — Managing Director & Chief Executive Officer

Yes, thanks, Shardhar.

Shardhar — — Analyst

Thank you. That’s it from my side.

Operator

Thank you. [Operator Instructions] As there are no further questions from the participants, I now hand the conference over to Mr. Aseem Pant for closing comment.

Aseem Pant — Vice President, Investor Relations

Thank you everyone for joining us and for your support. On behalf of the entire AU team, we wish you a happy and healthy Diwali. Please reach out to the IR team for any further questions.

Operator

[Operator Closing Remarks]