Axis Bank Ltd (AXISBANK) Q3 FY22 Earnings Concall Transcript

Axis Bank Ltd  (NSE:AXISBANK) Q3 FY22 Earnings Concall dated Jan. 24, 2022

Corporate Participants:

Amitabh Chaudhry — Managing Director & Chief Executive Officer

Puneet Sharma — Chief Financial Officer

Ganesh Sankaran — Group Executive, Wholesale Banking Coverage Group

Munish Sharda — Group Executive, Bharat Banking

Analysts:

Mahrukh Adajania — Elara Capital — Analyst

Kunal Shah — ICICI Securities — Analyst

Gaurav Kochar — Mirae Asset — Analyst

Sumeet Kariwala — Morgan Stanley — Analyst

Nitin Agarwal — Motilal Oswal Securities — Analyst

Adarsh Parasrampuria — CLSA — Analyst

Rahul Maheshwary — Ambit Asset Management — Analyst

Anand Dama — Emkay Global — Analyst

Sameer Bhise — JM Financial — Analyst

Alpesh Mehta — IIFL Securities — Analyst

Nilanjan Karfa — Nomura — Analyst

Abhishek Murarka — HSBC — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Axis Bank Conference Call to Discuss the Q3 FY22 Financial Results.

Participation in the conference call is by invitation only. Axis Bank reserves the right to block access to any person to whom an invitation has not been sent. Unauthorized dissemination of the contents or the proceedings of the call is strictly prohibited and prior explicit permission and written approval of Axis Bank is imperative.

As a reminder all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions at the end of the briefing session. [Operator Instructions] Please note that this conference is being recorded.

On behalf of Axis Bank, I once again welcome all the participants to the conference call. On the call, we have Mr. Amitabh Chaudhry, MD and CEO; and Mr. Puneet Sharma, CFO.

I would now like to hand the conference over to Mr. Amitabh Chaudhry, MD and CEO. Thank you, and over to you, sir.

Amitabh Chaudhry — Managing Director & Chief Executive Officer

Thank you, Janice.

Wish you all a very happy new year and good health. Apart from me and Puneet, we also have on the call, Ravi Narayanan, Group Executive, Retail Liabilities and Products; Sumit Bali, Group Executive, Retail Lending; Ganesh Sankaran, Group Executive, Wholesale; and Amit Talgeri, Chief Risk Officer.

There were battle against COVID, it’s not over yet. We have to keep our guards up, but we are confident we’ll take this wave in our stride. We saw strong growth in the economy in the past couple of quarters. We expect this to continue aided in part by rise in consumption, spending by the government and start of a capex cycle by the private sector.

At Axis Bank, we looked at the disruption brought about by the pandemic as an opportunity to redraw the baseline in multiple segments. We use this period to invest and gain market share in these areas. Our quality performance moves us forward on the trajectory we have been on in the past two years. Our asset quality taken together is best in class. We are demonstrating consistent growth across all segments with specific identified areas leading the way, and we are consolidating on our operating profits and margins. There is confidence in accelerating our progress as we look ahead.

I will take you through our business performance in quarter three and Puneet will go into the details of financial performance later. Like I mentioned earlier, the business momentum was strong in quarter three. We delivered deposit growth of 22% year-on-year and 3% quarter-on-quarter on quarterly average balance basis and added 2.15 million new customer accounts. Advances grew by 17% year-on-year and 7% quarter-on-quarter. The growth was strong across all three segments of retail, corporate and commercial bank. The impact of digitization and streamlined customer journeys is bearing results, and we find greater customer engagement and conversion.

At 0.77 million, we achieved highest ever credit cards acquisition in this quarter. We became the second largest merchant acquiring bank in the country too. Our Burgundy franchise is one of the top brands in wealth management with an AUM of INR2.67 lakh crores. We saw a growth of 37% year-on-year and 3% quarter-on-quarter. Our mobile banking app is among the highest rated banking apps on Apple Store, rating of 4.6 and Google Play Store, again a rating of 4.6. We successfully executed industry first blockchain enabled domestic trade transaction. We are also one of the first private banks to have gone live on the national portal of Indian customs to collect custom duty payments. We also successfully concluded structured derivative transactions under the new RBI regulations.

Our asset quality is top notch. Slippages and credit costs further declined in quarter three on year-on-year and quarter-on-quarter basis. The balance sheet buffers are an all-time high. Margins improved 14 basis points quarter-on-quarter and fee income grew 15% year-on-year and 3% quarter-on-quarter. The combined nine months financial year 2022 PAT of our domestic subsidiaries stood at INR872 crores, higher than full year financial year 2021 earnings. Our operating profit grew by 17% year-on-year and 4% quarter-on-quarter. PAT was up 224% year-on-year and 15% quarter-on-quarter.

We continue to make significant investments in building digital and tech capabilities, invest in new age talent and work on transformation projects across our businesses. Our near-term costs remain slightly inflated because of this. We are at the back end of this investment cycle now. We are seeing the returns on these investments flowing through gradually, but surely.

I’ll take you through the business performance of key segments now. On the liability side, we continue to build granularity and focus on premiumization. CASA deposits on a QAB basis grew faster at 25% year-on-year and 7% quarter-on-quarter. The CASA ratio stands at 44%. Last year it was 42%. Customer acquisition was strong on back of implementation of our key transformation projects. I have already mentioned 2.15 million new liabilities accounts open in quarter three, up 29% year-on-year. Total 6.2 million accounts have been opened so far in the nine months, up 28% year-on-year. 1.76 lakh saving accounts were opened by digital VCIP compared to 1.22 lakhs in quarter two, up 44%. 37% year-on-year and 9% quarter-on-quarter growth in new current account customers.

We continue to focus on deepening relationships across the government business. During the quarter, we signed MOUs with Indian Army, Indian Navy, Kolkata Police and Maharashtra Forest Department, among others. Our focus on premiumization continues with 67% year-on-year and 8% quarter-on-quarter growth in QAB balances for Burgundy and Burgundy Private accounts.

The consolidated wealth management business has grown to be the fourth largest in India in a reasonably short period of less than three years. The evolution of the Burgundy franchise is a great example of the strength of our One-Axis approach to serve our customers by bringing the bank and its subsidiaries as a single unit to offer a range of solutions. Burgundy customers have grown at a compounded annual rate of 22%. As of December 2021, we have 1.9 lakh Burgundy customers spread across India and other countries. The Burgundy AUM at INR2.7 trillion has grown at a compounded rate in excess of 27% over the last three years.

On credit cards and payments, I’ve already mentioned we added 7.77 lakh cards in the quarter three. This is the highest ever for any quarter and up 174% year-on-year and 40% quarter-on-quarter. There are more strategic partnerships they were entering into, and we see better risk and spend performance in this portfolio. Also, our organic growth has been strong on the back of new liability account growth that we have seen. A significant portion of this growth today is also driven by the advanced rule engines built by the analytics team. 40% of credit cards were acquired through known to bank partnerships across Flipkart, Google Pay, Freecharge and others, up from 21% in financial year 2021 and 6% in financial year 2020. We have 1.72 billion Flipkart Axis Bank credit cards in force, making it one of the fastest growing co-branded portfolios since its launch in July 2019.

The credit card sprints in quarter three were up 52% year-on-year and 22% quarter-on-quarter, faster than industry and now trending well above pre-COVID levels. The card advances were up 10% quarter-on-quarter. We are also now the second largest merchant acquiring bank in the country with an installed base of 8.42 lakh terminals. We have gained an incremental market share of 42% till November this fiscal. The merchant business is another example of the One-Axis approach with innovative offerings to grow the business across deposits, lending and fees. We are the first bank to lead with a feature rich and pocket version Android terminal for retailers. We are building a network of partners also to grow this business.

On advances and disbursements, loan growth was strong at 17% year-on-year and 7% quarter-on-quarter, led by strong all-around performance across the business segments. The overall loan book continue to trend upwards sequentially for the sixth consecutive quarter. The risk parameters continue to trend down during this period. The corporate loan book grew 13% year-on-year and 7% quarter-on-quarter, as our domestic loans picked up 7% year-on-year and 8% quarter-on-quarter. Mid corporates, our area of focus, was up 44% year-on-year and 17% quarter-on-quarter. The growth in the corporate segment is spread across different sectors driven primarily by organized retail, engineering, petrochemical, industrials and real estate.

The retail and SME segments continued their strong sequential uptrend for second straight quarter, growing at 18% and 20% year-on-year and 6% and 9% quarter-on-quarter basis, respectively. The Bharat Banking focus is working well. Bharat Banking segment delivered a strong 56% year-on-year and 50% quarter-on-quarter growth in disbursements in quarter three. We witnessed one of the best quarters in terms of gold loan disbursement also.

Moving on to tech transformation and digital banking, I mentioned in the past calls about the transformation of our technology stack. Our 1,500 plus tech and digital colleagues are working on 30 plus initiatives that are transforming the core and building future ready capabilities. We now have go-live with 25 plus new tech or digital capabilities every quarter on the back of this initiative.

On cloud, our leadership continues. We have established the largest VDI setup in Indian banking with 2,300 plus virtual machines. We already have 55 plus of our critical applications on cloud and the migration is getting quicker every quarter. On APIs, the bank is committed to its open ecosystem proposition to build dedicated partnerships using a market leading API strategy. We have deployed more than 300 APIs across retail and corporate channels.

Specifically on digital business this quarter, in consumer loans, digital lending grew 33% quarter-on-quarter. It contributes upwards of 52% to key product lines such as personal loans. Axis was among the first banks to go live on the account aggregator framework, the first products to go live are auto loans and personal loans with international traffic reviving a bit in quarter three, our digital forex cards issuance saw good growth. In quarter three, digital contributed 40% to overall FX card sales.

Digital investment and wealth journeys continue to see strong growth. The digital MFs in nine-month financial year 2022 growing nearly 2x year-on-year. We launched a new digital savings account aimed at millennials that offers digital rich features and 10% to 15% cashback for purchases on the leading e-commerce platforms. Our D2C savings account acquisition saw growth of 50% in this quarter as a direct result of this new digital savings account. We also witnessed best ever monthly active users on our mobile app this quarter.

On WhatsApp, we crossed 3 million registered users in quarter three. Last quarter I spoke about project Neo that aims to build a world-class corporate digital bank. We have made strong progress, and we expect the first journeys to be in beta phase in quarter four. On UPI, our market share stood at 15%, and we managed more than 22 million transactions daily with minimum rate of technical declines for remitter transactions. We now have 5.4 million non-Axis Bank customers using our Axis Mobile and Axis Pay apps.

A few updates on our progress on ESG strategy that we outlined last quarter. During the quarter, we entered into a USD300 million loan guarantee program, with GuarantCo towards accelerating the e-mobility ecosystem in India. This program that was announced during COP26 event in Glasgow will also support our commitment of incremental financing INR30,000 crores to sectors with possible social and environmental outcomes by financial year 2026. The bank also won the award for Best Sustainability-linked Bond issued by a Financial Institution for its USD600 billion Sustainable AT1 Bond issuance in September 2021 at the recently announced The Asset Triple A Country Awards.

In closing, we continue on steady upward movement on business and financial metrics across all the lines of businesses along with the positive cultural change within the bank. We have made significant investments in technology, digital and multiple business transformation initiatives. This has meant a near-term rise in costs, but has set us on the right trajectory to deliver on our GPS strategy. We are optimistic and confident about our future.

I will now request Puneet to take over.

Puneet Sharma — Chief Financial Officer

Thank you, Amitabh. Good evening, ladies and gentlemen. Thank you for joining us this evening.

I will discuss the salient features of the financial performance of the bank for Q3 FY22, focusing on our operating performance, capital and liquidity position, growth across our deposit franchise and loan book, asset quality restructuring and provisioning. Our operating performance is robust, improvements are reflected in NIM, continued build-up of granular fee and our PAT growth.

Net interest income for Q3 FY22 stood at INR8,653 crores, representing a YoY growth of 17% and a QonQ growth of 10%. NIMs for Q3 FY22 stood at 3.53%, increasing sequentially by 14 basis points and declining 6 basis points YoY. The same quarter last year, we had interest on income tax refund aggregating to INR153 crores, contributing 8 bps to the net interest margin. Adjusted for this, the YoY NIM grew by 2 basis points. Improvement in NIMs over the medium term will be driven by balance sheet mix shift from investments to loans. Within loans, the currency segment and product composition towards better yielding assets continued improvement on in the low cost deposit base and quality of our deposit franchise and reduced share of low yielding RIDF bonds currently standing at 3.8% of our assets.

The improving liability franchise has resulted in cost of deposits declining by 49 basis points YoY and 9 basis points QonQ. The bank has been improving the risk profile of its loan book. Our NII as a percentage to average risk weighted interest earning assets stands at 7.25%, improving 39 basis points YoY. Net interest income for Q3 FY22 stood at INR3,840 crores, representing a YoY growth of 31% and a sequential QonQ growth of 1%. Our fee income stood at INR3,344 crores, growing 15% YoY and 3% QonQ. 92% of the fee is granular. 65% of our fee is from the retail business and the balance from the wholesale franchise.

The fee for the quarter is after giving effect to some customer focused actions taken by the bank including reducing fees across many charge types mainly in the retail liability area. The reduction in fee in the long term, but we do believe that it is the right thing to do as we build the sustainable franchise. Fee from cards grew 21% YoY and 8% QonQ. Fees on third-party distribution grew 33% YoY and 13% QonQ. Fees from our digital channels grew 20% YoY and 3% QonQ.

Our operating expenses for the quarter stood at INR3,631 crores, growing 25% YoY and 10% on a sequential quarter basis. Staff cost increased by 16% YoY and remain stable QonQ. We’ve added 9,250 people from the same period last year, mainly in our growth businesses and technology. We have continued to maintain the social security code provisions. Other operating expenses grew 30% YoY and 15% quarter-on-quarter, mainly attributed to higher business volumes, higher collection expenses, IT expenses and statutory costs comprising PSLC and DICGC premium being higher.

The YoY increase in rupee crore operating expenses can broadly be bucketed to the following reasons. 24% of the increase in expenses is volume linked. 41% is attributable to investing in the future growth of the franchise and technology. 21% is attributable to collection expenses, COVID expenses and statutory expenses. And the balance 14% is BAU growth. The sequential QonQ increase in rupee crore expenses can be attributed on a very similar pattern. 21% to volume growth. 50% for future growth and technology spends. 8% is attributable to collection expenses, COVID expenses and statutory. And 21% to BAU growth.

Operating expenses to average asset stood at 2.15% for Q3 FY22, higher by 19 basis points YoY and 3 basis points in a sequential quarter basis. Operating profits for Q3 FY22 is INR6,162 crores, growing 17% YoY and 4% QonQ. The bank has not utilized any of its COVID provisions in the current quarter. Provisions and contingencies for the quarter were INR1,335 crores, declining 64% YoY and 23% QonQ. 61% of the NPA provisions on loans for the quarter are from flow forward provisions towards aging of assets recognized in previous quarters.

Annualized credit costs for Q3 FY22 is 0.44%, declining by 258 basis points YoY and 10 basis points QonQ. Packed to that INR3,614 crores growing 224% YoY and 15% QonQ, annualized Q3 FY22 ROE stood at 14.19%, improving 928 basis points YoY and 147 basis points QonQ. Nine months annualized ROA and ROE stood at 1.12% and 12.01%, respectively.

The strength of our balance sheet is reflected through the cumulative non-NPA provisions at INR13,404 crores, comprising of COVID-19 provisions of INR5,012 crores, restructuring provisions of INR1,569 crores at first bucket NPA rates, weak assets and other provisions at INR6,823 crores. The standard assets cover defined as all non-NPA provisions by standard advances stands at 2.03%. Our provision cover defined as all provisions NPA plus non-NPA divided by GNPA stands at 130%, improving 1,406 basis points YoY and 576 basis points QonQ.

The bank is well capitalized and is carrying adequate liquidity buffers. Our total capital adequacy ratio, including nine months profit, stood at 18.72% and our CET 1 is 15.33%. The bank called back INR3,500 crores of tier 1 capital with requisite regulatory approvals during the quarter. The impact of this callback to tier 1 capital is 50 basis points. The prudent COVID provision of INR5,012 crores translates to a capital cushion of 63 basis points over and above the reported regulatory capital adequacy ratio. Our average LCR for the quarter was 113% and our excess SLR was INR82,935 crores.

The RWA of the bank as at 31 December 2021 stands at 63% compared to 66% as at December 2020. The improvement in RWA percentage is reflective of the quality of business being done by the bank. Growth across our liabilities and loan franchise, Amitabh discussed the strong progress made on the liabilities franchise in his opening remarks. I would request you to please refer Slide 7 to 10 of our investor presentation for further details.

Our overall loan book grew by 17% YoY and 7% sequentially. Our loan book continues to remain balanced with retail advances constituting 55% of overall advances, corporate loans at 35% and CBG portfolio at 10%. The retail book represents healthy characteristics with 80% of the book being secured. Domestic retail loans grew 18% led by secured products like home loans 20% YoY growth, LAP 28% YoY growth and small business banking 51% YoY growth. Retail disbursements grew 37% YoY and 19% sequentially. Disbursements to unsecured products continued to grow with personal loan disbursements growing 39% YoY and 15% QonQ.

We are progressing well in our endeavor to build a profitable and sustainable corporate bank. The wholesale book grew 13% YoY and 7% QonQ. Details of rating composition, incremental sanction quality is set out on Slide 28 of our presentation. We continue to have strong positioning in GST and RTGS payments with a market share of 8% each. The offshore assets grew 44% YoY. The growth in our overseas corporate loan book is primarily driven by our GIFT city branch exposures. 94% of the overseas standard corporate loan book in GIFT city branch is India linked and 91% is to A-rated corporates and above.

The commercial banking business grew 20% YoY and 9% QonQ. The commercial banking card deposits on a quarterly average balance basis grew by 15%. The overall fees from CBG increased 14% YoY. CBG customers contributed to 19% of our Burgundy franchise. Each of these reflects the strong quality of the relationship led franchise that we are building in this segment. Our ECLGS share is low dominated by ECLGS 1 and 2. Asset quality metrics in the CBG segment have held up very well with net slippages of just INR40 crores, negligible restructuring and substantially improved TCR in the segment at 74% as of December 2021 versus 52% as of March 2020.

Coming to the performance of our subsidiaries, detailed performance of our subsidiaries is set out on Slide 55 to 62 of the investor presentation. The One-Axis strategy is playing out well. The domestic subsidiaries reported a net profit of INR872 crores for the nine months FY22, up 61%. This translates into a return on investment of 64% on a stand-alone bank basis. The subsidiaries profit now accounts for 8% of the consolidated profits and accrete 9 basis points to consolidated ROA and 84 basis points to the consolidated ROE.

Axis Capital continue to maintain its leadership position in ECM, completed 43 transactions in the nine months ended FY — nine months FY22. Axis Finance is built out — the build out of the retail franchise is on track with the retail book growing 3.6 times YoY and now constituting 29% of the overall book as compared to 13% a year ago. Axis Finance’s book quality continues to be strong with near-nil restructuring and net NPA of 0.9% and an ROE of 19.8%. Axis Mutual Fund overall quarterly average AUM grew 43% YoY in Q3 FY22. Its overall average AUM market share in Q3 FY22 stood at 6.6%, up from 6% in Q3 FY21. Axis Securities during the quarter added 0.13 million customers, up 47% YoY. Its ROE for the nine months FY22 was 43%, up 90 basis points on a YoY basis.

Asset quality provisioning and restructuring. Overall asset quality has been improving sequentially for the bank as we had indicated last quarter. The GNPA, NNPA and PCR ratio for the bank and segmentally for retail SME and corporate are provided on Slide 45 of our presentation. GNPA percentage was 3.17%, improved 138 basis points YoY and 36 basis points QonQ. The net NPA was 91 basis points or 0.91%, improving 29 bps YoY and 17 basis points QonQ. Our PCR is healthy at 72%, improving 186 basis points QonQ.

The gross loan slippages for the quarter were INR3,332 crores, lower than Q2 FY22 by 38%. Retail gross slippages declined 44% QonQ. Gross loan slippage ratio for the quarter stood at 2.08%, improving 304 basis points YoY and 131 basis points QonQ. Net loan slippage for the quarter was an absolute INR97 crores, down from INR676 crores in Q2 FY22 and a decline of 86% QonQ and 98% YoY. Net loan slippage in retail were negative in the quarter. For the commercial banking group, it was INR40 crores and for the wholesale banking segment was at INR151 crores. The net loan slippage ratio for the quarter annualized is 0.06%, improving 380 basis points YoY and 38 basis points QonQ.

In addition to loan slippages, the bank has classified during the quarter INR812 crores of pass-through certificates rated AAA as at 31 December 2021 as NPI. The originators of the retail pools underlying the PTC had requested the bank for permission to grant moratorium to the underlying borrowers to which the bank had consented in accordance with the PTC terms. Since the PTC is an investment and not a loan, a technical position has been taken that moratorium could not be granted and hence these PTCs have been classified.

The bank has recovered in FY22 an amount of INR764 crores from these pools and none of these pools are overdue after factoring for moratorium. We do not expect any loss from these pools. 21% of the outstanding will be further repaid in FY22, 58% will be repaid in FY23 and the last 21% will be repaid in FY24. Provisions in the quarter against the slippage, which aggregates to INR203 crore and it translates to 11 basis points on credit cost has been charged to the P&L for the quarter.

Net slippage ratio at the bank level on an annualized basis is 0.55%, improving 346 basis points YoY. Incremental implemented COVID restructuring during the last reporting period was INR287 crores. Total outstanding restructuring under COVID 1 and 2 in aggregate stands at INR4,463 crores and is 0.63% of gross customer assets. Overall provision coverage on restructured loan stands at 24% with 100% provision on unsecured retail loans. The BB and below pool of the bank declined sequentially. More details on BB and below pool and restructuring are provided on Slide 46 of the investor presentation.

As I close, we summarize that the bank’s journey so far and the broad outlook on key performance drivers. Our balance sheet resilience is visible through strong capital adequacy, legacy NPA issues being behind us with net NPA at 0.91%, limited COVID restructuring at 0.63% of GCA and provisions by GNPA at 130% and gross NPA ratio at 3.17%. Consistency and quality of granular liability growth is visible. The average CASA balance to average deposits ratio has improved to 44%. Growth is healthy in our granular businesses, both secured and unsecured. Focus growth segments in wholesale comprising SME, mid corporate, which yield better RAROC continue to grow faster at 20% and 44%, respectively.

In the nine months FY22, domestic subsidies have exceeded full year profits for the last financial year. In Q3 FY22, the delivered NIM is better than the guidance given last quarter. We maintain that Q4 FY22 NIMs will be better than the NIMs reported in H1 and should be in the range of 3.45% to 3.5%. We will continue to invest in the franchise we expect to exit FY22 at a 2.20% cost to assets ratio, higher than our earlier estimate. We stay committed to our 2% cost to assets target on an FY23 exit basis. The intensity and impact on lives and livelihoods, length of time of COVID wave 3 and resultant government policy action remain a key monitorable.

We would be glad to take your questions now. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from the line of Mahrukh Adajania from Elara Capital. Please go ahead.

Mahrukh Adajania — Elara Capital — Analyst

Hello, congratulations. My first question is on operating expenses. You shared a fair bit of detail. But on operating expenses for the quarter, could you share what percentage of opex is to expense.

Amitabh Chaudhry — Managing Director & Chief Executive Officer

Puneet?

Puneet Sharma — Chief Financial Officer

Mahrukh, thank you for the question. The way to think about it is technology spends to total opex will be in the range of 7.8% to 8% of total expenses for the bank.

Mahrukh Adajania — Elara Capital — Analyst

Okay, thank you. My next question is on credit cards. Of course, asset quality has been very good and your credit costs have declined substantially. What is the outlook from here on? Has been that you are quite have normalized range of credit cost, but would we see credit costs lower than normal in the short term, given that you’ve already provided a lot in the year, quarter?

Puneet Sharma — Chief Financial Officer

Mahrukh, we don’t provide specific guidance on credit costs. As I have previously said, the way to think about credit costs or Axis Bank is we have a longer term average credit cost that the bank has. There are pluses and minuses to that long-term average. The lumpiness of the wholesale business has disappeared. Therefore, from the long-term average, given the quality and the granularity of the wholesale business, we have built out the credit costs should move down. We have moved our PCR percentages, which is the provision cover on the rule engines we now operate by 15% to 20% higher than where we used to previously operate. In the long-term average, we used to operate at a PCR of 50%, 55%. Our rule engines are now resulting in a PCR of 70% thereabout. So you need to factor we incremental provisioning at least in the short term in terms of how you think about our credit costs. And lastly, we have articulated that we feel comfortable growing our retail unsecured book. It will give us better NIMs. It will accrete to credit costs. On a risk adjusted basis that book will continue to be profitable and additive to the bank. And a amalgamation of these four factors is how I would request you to think about our credit cost outlook as we move forward. We don’t have a specific guidance that we put out.

Mahrukh Adajania — Elara Capital — Analyst

Thanks a lot. And I have one last question, which is slightly long term that when you think of M&A, so what would you actually medium-term ROE outlook and when you think of M&A, which is kind of bigger — which is kind of big for your balance sheet size, what will be the ROE? There are maximum ROE dilution that you’d be comfortable within the short term. So what would be our medium term target? And how do your M&A plans fit into that?

Puneet Sharma — Chief Financial Officer

So Mahrukh, I have previously called out the fact that our aspirational ROE target is 18% and the we have visibility that I have called out in the past to 16%, 16.5%. So I stay true to those statements. In terms of our M&A strategy, I would simply say that the way we think about M&A is capability, and we will evaluate opportunities, individual opportunities as they present themselves. There is no framework that I can offer to you that a given structure on ROE is what will be acceptable or not. There are many aspects that go into an inorganic acquisition or an M&A activity. One of it is financing. We will be cognizant of our variables as we make choices in the future.

Mahrukh Adajania — Elara Capital — Analyst

Thanks a lot. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.

Kunal Shah — ICICI Securities — Analyst

Yeah. Congratulations. So two questions. Firstly, in terms of the opex, even though it was covered, but when we look at it I maybe in terms of the future and the related to digital agenda, what would be the nature of that because the sequential uptick? Also, you mentioned like 40% is coming in from there. So is it more related to acquisition? What would be the nature of those incremental opex? So that was the first question and second is in terms of the movement of double BB and below, if you can give — if there are any slippages coming in from there? And what would be the upgrades in that entire moment wherein BB and below has actually come off? Yeah.

Puneet Sharma — Chief Financial Officer

So Kunal, thank you for your questions. I think on the digital agenda, we have multiple unique digital properties that we continue to build. Amitabh in his opening comments spoke about open as an architecture and the integration that we are looking to do with all of our partners. We are working on end-to-end digital journeys both on the retail and the corporate side. We have the Neo bank initiative that is running in parallel, plus we are incurring expenditures in hollowing out the core, moving a lot of our technology stack to the cloud. So the tech investments is both around ensuring that we have a resilient operating franchise and building for future. And then for those investments are likely to continue in the foreseeable future in so far as the bank is concerned. I hope that covered your —

Kunal Shah — ICICI Securities — Analyst

Yeah. Sorry, just to interrupt. So as you mentioned, this will continue as well, but maybe the intensity would also be similar in terms of the increase or we are done with the larger part of it will front-end. And now it should come off of a bit.

Puneet Sharma — Chief Financial Officer

So Kunal, the way I would address that question is instead of speaking specifically on technology spends and how they will play out, I think technology is an evolving field. It will need continuous investments. I would rather leave you with a overall comment on costs. What we feel reasonably comfortable on is on in FY23 exit basis, we should revert to a 2% cost to assets number that we have previously demonstrated is reachable for us. So the mix of the spends may continue to change, but you will see a moderation in overall cost to assets.

Amitabh Chaudhry — Managing Director & Chief Executive Officer

Sorry, Puneet. I’ll just add Kunal, Amitabh here. We have close to 18 large projects, which are being managed directly by our management committee members. And when you think about costs, as the benefits of these projects start flowing through, they obviously speak to your expenses too because then you can drive more volumes, hopefully, with better productivity and lower customer acquisition costs. So get that benefit. But at the same time, it also gives you the leeway and headroom to continue to invest in digital technology transformations analytics and stuff like that. So we’re trying to balance both and based on whatever we see today is the kind of guidance, which Amitabh is giving to you. So I hope it gives you a bit of insight.

Kunal Shah — ICICI Securities — Analyst

Sure. Yeah, thanks. And the second question —

Puneet Sharma — Chief Financial Officer

And Kunal, the second question —

Kunal Shah — ICICI Securities — Analyst

Yeah.

Puneet Sharma — Chief Financial Officer

So your second part of the question, the slippage from the BB pool was INR800 crores. It includes one technical slippage of INR160 crores, which is downgrade and upgrade in the same quarter, partially. The upgrades from NPA to BB pool is INR355 crores and all other downgrade plus balance reduction of movement would be the balance INR194 crores.

Kunal Shah — ICICI Securities — Analyst

Sure. Yeah. Thanks. Thanks a lot.

Operator

Thank you. The next question is from the line of Gaurav Kochar from Mirae Asset. Please go ahead.

Gaurav Kochar — Mirae Asset — Analyst

Yeah. Hi, good evening, and congrats for a good quarter. Just wanted to press a little more on the other opex part. If I look at other opex to total income, it was it around 35% this quarter. If I look at 1H, it was 30%. And if I look at other banks, the other large private banks, so there the other opex to total income has been in at around 24%, 25% mark. And if you look at Axis Bank’s FY17 to FY21 other opex to total income, it is already at 28%, 29% on an average. So just wanted your thoughts that we have already been spending between FY17 to FY21, spending 400 bps higher than the peers, the large peers. What — in terms of now that gap has increased from 400 basis points to almost 800, 900 basis points. So what has been these bench for given that historically, you also have been spending more than peers on this per rupee earned. And when do we see the bank reaching at 25% mark in line with the other large peers? That was the first question.

Puneet Sharma — Chief Financial Officer

So Gaurav, thank you for the question. I think the dimension it differently for you and then answer your question directly. There are two variables that we can look at from an expense ratio perspective, one is cost to assets and the second is the cost to income, okay? The cost to assets number is being steady and the growth that you have been in our cost to assets, give or take, what do you see for your larger peer bank competition, we are in the same range both on a relative shift as well as the absolute number that we are operating at. So yes, there had been a cost escalation for the large banks within 5 to 8 basis points, they are at 8 basis points and other banks maybe at 5. So we’re not really seeing any divergent cost escalation to assets as the denominator or earning assets as the denominator, whichever way we look at it.

The metric that you are comparing is cost to income. Now there will be multiple impacts on the income of the bank and especially since you’ve looked at a time series. For example, we chose not to restructure. Therefore, we had the higher interest reversal impact that came through on the income line. And we ourselves have called out the fact that there has been an improvement that we need to undertake. So there is an income effect that is playing out in the ratio that you’re looking at.

So while all franchises continue to invest, our ratio of other opex to income looks higher as both opex moderates, the 2% cost to assets and my earlier commentary on the call saying, we have a NIM trajectory that we are working towards, you should see positive traction on that number, assuming that we’re able to deliver both the statements that we have made in the course of this conversation. So my request is, please, for the moment, stay focused on cost to assets because that’s a variable we are focused on in driving our business.

Gaurav Kochar — Mirae Asset — Analyst

Sure. But even if I look at cost to assets, some of the peers have seen moderation in cost to assets. The larger banks have seen cost to assets moderating for them. So even if I compare the absolute delta, maybe from a longer-term time series FY18 to FY21 or 9 months FY22, the cost to assets for us hasn’t gone down as much as for our peers, if I were to you look at it BB you are saying. Even in that case, the point remains that the other opex seems to have been higher versus peers for a long period of time. So is it only tech spends that you would attribute it to over the last 3 to 4 years?

Puneet Sharma — Chief Financial Officer

So Gaurav, again, I think maybe we probably need to look at the numbers in a little more detail, but I mean If I was just to offer you a comment, again, I will go to total cost rather than other opex to total assets. There is and I will go into total cost very simply is the staffing mix of different entities could be different, okay, that could cause one differentiation, then you pick up only one element of the cost structure. So insource versus outsource. The insource will sit in staff, outsource will sit in other opex.

There have been certain conscious calls that we have made for example social security could debit that we have taken ahead of peer set, which will be sitting as part of our expense number escalation. So I think there are nuances to it at least our reading of the numbers, if we are in a tight range on an incremental cost to assets of 5 to 8 basis points with the exception of one large private bank, and we’re not seeing a very large differentiation being called out in incremental expenses. That’s how we see it. Like we said, we continue to remain focused on getting the cost to assets back to 2% on an exit basis in FY23 and if you are able to achieve that, you will see moderation in the ratios there, you have just called out.

Gaurav Kochar — Mirae Asset — Analyst

Sure. That’s helpful. And just next question on, if I look at absolute borrowing, that is up around INR20,000 crores sequentially. If I look at the CD ratio, that is up 200 basis point, but it is still down from pre-COVID levels of 90% that we used to have. If I look at LCR, it’s still around 113%. And if I look at excess SLR that you’ve disclosed in the PPT that stands at INR82,000 crores. So any reason for this incremental borrowing? Is it locking fixed rate borrowings in anticipation of rising rate environment? Is that how we should see it?

Puneet Sharma — Chief Financial Officer

Gaurav, it’s a mix of three things. The first is we’ve raised long term infra bonds, which has contributed to increase in borrowings. They are tactically a good instrument to have. They don’t attract some of the regulatory descriptions, don’t attract aid in the NBC competition. Second will be a period impact because what you’re seeing is a point in time number, not the average number. And three is structurally as the balance sheet grows, we could have these borrowings to balance out the balance sheet. The other reason on an overall basis is you will notice that our foreign currency trade book has gone up and that is typically aided by offshore borrow books. So as that book increases, which is short term in nature, you will see an impact to these three borrowers. So it’s an amalgam of these four factors that have resulted in the borrowings increase. I think it is the normal course of business, nothing exceptional I need to call out for you.

Gaurav Kochar — Mirae Asset — Analyst

Perfect. Just this last question, if I can squeeze in —

Operator

Excuse me, sir, sorry to interrupt. May I please request you to rejoin the queue for your follow-up, as we have many people waiting for their turn.

Gaurav Kochar — Mirae Asset — Analyst

Sure. Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Sumeet Kariwala from Morgan Stanley. Please go ahead.

Sumeet Kariwala — Morgan Stanley — Analyst

Yeah. Hi Amitabh. Hi Puneet. Congratulations on very good set of numbers. I had this question on LCR, which is more graded 213% versus 128% in last quarter. Just wanted to understand what’s driving this? If I look at your report, that’s quite decent. But I do so, maybe it’s to do with term deposits where quite a bit of growth has come from the wholesale side. So that’s one. And second is something that we’re trying to do only overseas loan book is that also weighing on LCR. And third is even on CASA, is there some growth which is coming from the government side and it has higher run-off rate and which is why LCR is not accreting. So just some touch on that. Thanks a lot.

Puneet Sharma — Chief Financial Officer

So Sumeet, thank you for your question. We have discussed the quality of our liability and the journey that we are on the quality of our liability franchise build out. Many parts to your question like majors each part. In our investor presentation, we have called out the government SA growth is at 49% YoY. I has — it is off of a smaller base than retail SA, but it has grown at a heavy pace. And it has a outflow profile that is slightly different from pure retail SA. So yes, your assumption that if we have an impact on LCR does exist, but overall that liability is profitable and deployable just given the cost of funds at which it comes flow from a bank’s standpoint. So it is accretive to the business, may not be accretive to LCR from a long-term 8 to 12 quarter journey that we’ve spoken of in improving our LCR profile in terms of outflow.

The second part of your question on the moderation of the LCR from 120% average to the 113% number, it is a function of both asset growth picking up and, therefore, redeployment from investments to assets and that is primarily one of the causes of the LCR to moderate. We are also seeing the commensurate benefit coming through on NIMs. Overall, we continue to remain focused on getting the quality of our liabilities right. The journey is ongoing. I have previously said it is an 8, 12 quarter journey, and we will see profit there on. So those are the reasons why the LCR has currently moderated. We remain focused on improving that number as we move out.

Sumeet Kariwala — Morgan Stanley — Analyst

Thanks Puneet. And second question is on corporate loan growth. So there is somebody should take up this quarter. You talked about SME, the corporate doing well and those in your focus segments. A large corporate also did well this quarter. Should we expect that to sustain? Any thoughts on that?

Amitabh Chaudhry — Managing Director & Chief Executive Officer

Ganesh, go ahead.

Ganesh Sankaran — Group Executive, Wholesale Banking Coverage Group

Hi, this is Ganesh here. I think we — as we said earlier, we are focused on growth, only on the chosen segments. So our performance is a reflection of our staying on that journey. As already articulated by Amitabh and Puneet, I think we have seen good growth in mid corporate, which has shown a handsome growth CBG, which is our one segment below the mid corporate. We are also seeing some pick up in working capital utilization as economic activity is coming back a small improvement over there. And across the board, we are seeing credit offtake crores renewables, across roads, across industrials, chemicals, a disbursement coming back in NBFCs and the like. So we believe that when we say — we stay this course, we are quite optimistic about sustaining the growth.

Sumeet Kariwala — Morgan Stanley — Analyst

All right, very clear. Thanks a lot. And that’s from my side.

Operator

Thank you. The next question is from the line of Nitin Agarwal from Motilal Oswal Securities. Please go ahead.

Nitin Agarwal — Motilal Oswal Securities — Analyst

Yeah. Hi, thanks for the opportunity and congratulations on good results. So my question is on the provisions that we are having like almost INR134 billion. So when do we really plan to utilize the COVID provision, like COVID wave 1 and 2 we have seen the impact and which has been listening pretty fine, so when do we really plan to use the COVID provisions? And the outlook on the rule this provision also that we do?

Puneet Sharma — Chief Financial Officer

Nitin, thank you for the question. If you break up the INR13,000 crore provision, the INR5,012 crores is the COVID provision. The outlook that we have is, it’s purely prudent, it is not reflective of underlying risk on the book as we see it. To your question on utilization, our current assessment is that there is a risk module that we have. And as a consequence of the risk module, the prudent provision continues to stand. We do not expect it to utilize that provision basis as a result of our risk module in FY22. And on a longer term basis, directionally we believe that we would carry this provision structurally forward to lend stands to the balance sheet, then utilize even post-COVID. The balance provision of the INR8,000 crores that we have is rule based and as the underlying asset quality improves rates, the provisions will get released or topped up on our financial statements. So that’s the overall outlook on the INR13,400 odd crores of provision that we have.

Nitin Agarwal — Motilal Oswal Securities — Analyst

So Puneet, just on that, like this quarter also, we have made rule based provisions, am I right? Because like the asset quality is pretty much, I think very strong this quarter, what we have reported as such overall, and still we have made. So when will clearly with the scenario that we have stopped making or like drawdown on these doing this provisions than? What sort of slippages will that level be?

Puneet Sharma — Chief Financial Officer

So in fact, that is the beauty of the rule based provision and in fact in my opening comments, I had specifically called out a number which was a large part of my provisions for the current quarter are on account of slow forward provisions come prior periods, i.e., an NPA was recognized in the prior period and illustratively under the rule it got provided let’s say 50%. Because of relaxation of time, the provision moved from 50% to let’s say 75% in the current quarter. So the 25% provision that we topped up by the rule engine has gone and hit the P&L.

Like I said, if this asset gets resolved, which is there is either a recovery or upgrade, the provision will automatically end up getting released into the P&L which is the reason why you are seeing zero net slippages or near zero net slippages, but a provision come through on the P&L. It just continues to work better on PCR and continues to strengthen the balance sheet. So we feel very happy with the rules that the currently have

Nitin Agarwal — Motilal Oswal Securities — Analyst

Right. And two data points, if you can share, like how much NPL aging provisions have been made this quarter given higher slippages that we experienced a year back? And secondly, what are the some of the say largest ticket sizes in the BB and below pool average we have disclosed, but what are some of the larger sizes that we have there?

Puneet Sharma — Chief Financial Officer

So effectively from a BB pool absolute size I have always said that there is with the exception of one non-converge facility that is no four-digit crore exposure left in the BB pool. The average is a fair reflection, there are no outliers in that pool as compared to the average number is what I would call out. And to your question on what part of the cumulative provisions for the quarter was slow forward, 61% of the NPA provisions were on account of slow forward. So if I was to dimension the number for you, we give the breakup of the provisions, just give me a second, I’ll tell you the slide number of the presentation. We give a breakup of our provision, Slide 47 of the investor presentation loan loss provisions are INR790 crores, 61% of that provision would have come from prior period slow forwards.

Nitin Agarwal — Motilal Oswal Securities — Analyst

Okay. Sure. Thank you. Thank you so much, and wish you all the best.

Operator

Thank you. The next question is from the line of Adarsh Parasrampuria from CLSA. Please go ahead.

Adarsh Parasrampuria — CLSA — Analyst

Yeah. Hi. If you can give the walk through that you gave for quarterly increases to do the YoY increase in other opex anytime during the call, we really appreciate the INR5,000 crore number is up to INR6,300 crores. So if you can walk through that — walk rather than quarterly if you have? And Puneet, just taking what you have guided to 2.2% in a year, just trying to clarify, did you mention it’s the exit number that you would target for FY23?

Puneet Sharma — Chief Financial Officer

Sorry, Adarsh, I seem to have lost you in the question. Would you be kind enough to repeat it?

Adarsh Parasrampuria — CLSA — Analyst

Sorry, I was asking firstly, if you can give a walk through for the other opex on a more YoY basis rather than QoQ at any time during the call is possible? And the second thing was when you mentioned the 2.2% number on cost going to 2%, was there a guidance for an exit FY23?

Puneet Sharma — Chief Financial Officer

Yes. FY23 exit was 2%, that is the directional comment I made. And to your YoY number, if I look at the YoY cost increase, 24% of the YoY cost increase is volume liked. 41% of the YoY cost increase is related to investing in future growth of the franchise and technology. And 21% is attributable to collection expenses, COVID expenses and statutory expenses. Statutory expenses comprise CSR, PSLCs and DICGC premium and 14% is organic BAU expense growth on a YoY basis.

Adarsh Parasrampuria — CLSA — Analyst

Got it. Perfect. This was helpful. Thanks.

Operator

Thank you. The next question is from the line of Rahul Maheshwary from Ambit Asset Management. Please go ahead. Mr. Maheshwary, you may please go ahead with your question.

Rahul Maheshwary — Ambit Asset Management — Analyst

Am I audible?

Operator

Yes, sir, you are audible now.

Rahul Maheshwary — Ambit Asset Management — Analyst

Yeah. My two questions are there first. As in the opening remarks you had mentioned about the 30 digital initiatives that has been chart out by the Axis Bank. Can you give some insights into the what are the metrics that is helping you to chart out the — what is the output that is coming together in terms of the market share or with in terms of cross sell, stickiness, volume growth? And second question was more about that n doubt every segment is firing for you. But can we expect that going forward as the project finance and the private capex starts taking place, the growth rate into the corporates will mirror the kind of growth rate that would be planning that has been seen into the retail segment also?

Amitabh Chaudhry — Managing Director & Chief Executive Officer

So as far as the digital part is concerned, we are working on our digital bank across three things. One is we are trying to see what kind of customer propositions we can take to our customer. Second is what we can do about digitizing the bank itself, and third is what we can do about digitizing all the customer journeys for every product and service I take to the customer. So when we talk about 30 plus initiatives, it is across all these three businesses. So for example, digital bank might be working at leading the project on project Neo, it is a project which I mentioned as part of my remarks. And obviously IT will also be involved, business also will be involved, but it was a digital bank, which is driving the project from the front.

And on the other side, digital bank might be — banking might be involved in completely revamping our mobile side by we’re going to launch new version of our mobile app in this quarter, and they will be working on that too. They might be coming out with some very specific new product offering or they might be working on some specific APIs, which will allow us to embrace a completely new partnership. So it varies across the focus is on these three areas. We have certain principle on the basis of which we decide how do we are going to engage and manage these projects. And that’s why the number of these projects has gone from very few to now close to 30 such initiatives.

On the loan growth, you mentioned if the private capex picks up, well, as I’ve said that if the opportunities are there for us at the right price within our overall risk framework, we are going to be aggressive, and we are going to grab those opportunities that come our way and it’s not just for loan growth. It is for bringing the entire wholesale bank and Axis group to those companies. So we’re not going to stop at loan, we’re going to go for all the wholesale banking products, we’re going to go for capital raising. We will try to see if we can do some business on the Axis Finance side if promoter of the support and so on and so forth.

Rahul Maheshwary — Ambit Asset Management — Analyst

Amitabh, just follow-up on this thing, I mean you said that definitely, we are seeing quarter-on-quarter improvement, but the kind of quality of billable that has started to taking place, how confident or can we expect such kind of consistency or sustainability to maintain? I’m not asking for numbers, but directional you would be very helpful.

Amitabh Chaudhry — Managing Director & Chief Executive Officer

If there are no disruptions in the economy and if it continues at the current pace, you should expect something similar from Axis.

Rahul Maheshwary — Ambit Asset Management — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Anand Dama from Emkay Global. Please go ahead.

Anand Dama — Emkay Global — Analyst

Yeah. Thank you for the opportunity. So is it possible for you to give some granularity in terms of capex space, how much visibility it goes for maintenance, how much is the new aspect? And how much do we also capitalize our taxes, because I think beyond P&L there’s a lot of spend that we’ll be doing on these and the like? So if you can give some granular details on that, that’d be helpful.

Puneet Sharma — Chief Financial Officer

So Anand, we don’t really break out our tech spends with that level of granularity. I think we put out two sets of numbers. One is that tech spend as a percentage of our total expenditure is about 8%, that’s one variable that we put out that we specifically call out on tech spend. And then we compute this variable, we factor in the appreciation on capex that has been incurred for technology. So the 8% is all subsumed number, capex is the cash flow, the opex is reflected in the appreciation which has subsequently picked up.

Anand Dama — Emkay Global — Analyst

And how much do you spend, so you said 8%, but how much would be last year, I mean the number to consider?

Puneet Sharma — Chief Financial Officer

So I gave a range to a question I answered earlier that for the current year it’s in the 7.8% to 8% range. It was lower last year. We have effectively said that our tech spends have grown by 40% on a year-over-year basis. So the proportion of the percentage will be lower in the past period.

Anand Dama — Emkay Global — Analyst

So — and one more thing about even in the rural book, so you have seen very strong growth. So what is happening over there? Which segments have you ignored there?

Amitabh Chaudhry — Managing Director & Chief Executive Officer

So Puneet, let Munish answer it. Sorry, I forgot to introduce Munish in the call. Munish, please.

Munish Sharda — Group Executive, Bharat Banking

So in the — we had an excellent quarter in the rural book this in quarter three FY22. Across all product lines, we saw growth in disbursals and balance sheet. This was one of our strongest quarters. Serially, year-on-year, we grew about 56% and this growth came across all our segments, including farmer finance, gold loans, farming finance and microfinance. We also saw growth coming through in the enterprise lending, which is a rule enterprise and MSME lending in the rural markets, there also we saw substantial growth. There is one would we want to grow and you want to also grow other revenue in this line of business, we expect the growth to continue in the coming quarter as well.

Anand Dama — Emkay Global — Analyst

Sure. Thanks. Thank a lot.

Operator

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

Sameer Bhise — JM Financial — Analyst

Yeah. Hi, thanks for the opportunity, and congrats on a good quarter. Just wanted to understand the growth on the SVB as well as the MSME book. Some of your larger peers also have reported strong numbers there. How is the market share shifting or what is driving this secular growth towards some of the larger private names? Your sense there. Is it just newer geographies or some material change in terms of the way these guys are being looked at by you?

Amitabh Chaudhry — Managing Director & Chief Executive Officer

So on the small business banking, we are seeing newer clients also come through in the existing client looking at a full suite of solution from the bank. The growth on this segment has been strong, and we are seeing utilization pick up. This quarter, we’ve also seen the business instalment loan portfolio also pick up. And we are now spread across 145 location and most of the customers, almost 85% have prime scores as per our internal scorecards.

Puneet Sharma — Chief Financial Officer

On the SME side, there’s been something similar. So it’s all about being in the market. We have been growing this. We talked about again the transformation project for SME a couple of quarters back, and we are seeing the impact of that come through. We obviously again want to be very sure that we continue to operate within the risk guidelines we have laid for ourselves. But opportunity is large, and yes, of I think a decent proportion of this business could be coming from public sector banks, but let’s also not run away from the fact that some of this business also comes from friendly competitor banks too. Sometimes the customers are not happy with the facilities or the services they are receiving from the existing bank, and the positives do come every banks, it’s not just us. And if you are in front of the customer with the right transformation, you do get an opportunity to take over the facilities and limits of those customers also across both SME and business banking. So that’s pretty much a part of gateway blocking and tackling which happen in the marketplace.

Sameer Bhise — JM Financial — Analyst

Sure. And I think there is also a statement, which says that it is one of the most profitable segments of the bank. So I mean any quantums you would want to mention like in terms of degree versus a typical retail business, not exact numbers, but some relative numbers there would be helpful.

Amitabh Chaudhry — Managing Director & Chief Executive Officer

You would know there are higher around businesses like them to grow — these are higher around for business as you call them and we would like them to grow faster than the growth rate of the overall business, but it’s easy to make that statement, but we need to do that within the risk guidelines. See, please, we have worked very hard to get there we are in terms of overall asset quality. We don’t want to just give it away, because we have to grow for growth sake. So yes, opportunities are there, our market share advances is not large enough for us to really worry about that whether it is possible to grow or not. I think though the positives exist, but as long as the risk guidelines are maintained, we will go after every possible results that comes our way. And yes, these are all business or RAROC business is high. So we will try to grow it at a faster pace.

Sameer Bhise — JM Financial — Analyst

Sure. Perfect.

Amitabh Chaudhry — Managing Director & Chief Executive Officer

The fact that this is our PSL businesses make it significantly attractive for the bank to pursue.

Sameer Bhise — JM Financial — Analyst

Right. This is helpful. Thank you and all the best.

Operator

Thank you. The next question is from the line of Alpesh Mehta from IIFL Securities. Please go ahead.

Alpesh Mehta — IIFL Securities — Analyst

Hi, and congrats for the good set of numbers. So I may have missed this, but I just wanted to check on a YoY basis there have been some restatement on the balance sheet, as well as the reported gross NPAs. So what is it regarding? Hello?

Puneet Sharma — Chief Financial Officer

On a YoY basis, the restatement of the balance sheet would have been only on netting down of the leverage FCNRD deposits and loans, which was an accounting position we changed in quarter one of the year and, therefore, we would have carried forward. I do not think we have restated anything on the GNP SA. So the balance sheet has been grossed down on the assets and liability side for the leverage deposit gone up that the bank is looking.

Alpesh Mehta — IIFL Securities — Analyst

Okay, thanks. Got it. Thank you. Thank you so much.

Puneet Sharma — Chief Financial Officer

Before we take the next question, I just want to address Nitin’s question on what was the portion was spill forward. Nitin, I guided you to Slide 47, the INR700 crores is a number net of recoveries, so you should apply 61% to about INR1,400 crores to get the feel forward number. So effectively the entire loan loss charge to the P&L and some more would be on account of your forward. So just want to make sure that — just of the correct denominator to multiply 61% would be your question. Thank you.

Operator

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

Nilanjan Karfa — Nomura — Analyst

Thank you. Just one question. Puneet, I heard that you mentioned, we did some reduction in fee income across some product. Would you clarify which products we incorporated this? Any long-term and short-term view that the management has which necessitated this step? And for these specific products, do you now believe we are similar to comparable lens or lower? Yeah.

Puneet Sharma — Chief Financial Officer

So Nilanjan, thank you for your question. You will recollect that we’re driving a franchise that is getting us closer to the customer and getting to be more customer-centric. What I called out there in my opening comments is that we periodically review charges and as part of our charge scheduled review, we have optimized charges in favor of customers in order to build brand salient bank customer centricity. We think it’s the high thing to do. It is principally across retail liability products. And like I said, it is a one-time correction that we think we’re done with. Review process that internally take place by the management team periodically, but that has been the normal course.

Nilanjan Karfa — Nomura — Analyst

Okay. Just from a clarity perspective, assuming the volume growth remained whatever it is, how much did we sacrifice roughly because of these changes?

Puneet Sharma — Chief Financial Officer

Nilanjan, we are not calling out that specific number. We’re just saying that that effect already sits in the base, the number for the current quarter. And therefore, from here on, the volume effect should be positive, if the transaction volumes improve from a customer standpoint.

Nilanjan Karfa — Nomura — Analyst

Okay. Perfect. Thanks. Thanks a lot.

Operator

Thank you. The next question is from the line of Abhishek Murarka from HSBC. Please go ahead.

Abhishek Murarka — HSBC — Analyst

Yeah. Hi, good evening, and congratulations for the quarter. So a couple of questions. The first one, I’m just looking at Slide 12, where you have given this advances mix by retail. Just clarifying a few things so that that covers the entire loan book, right, the 100% of the loan book?

Puneet Sharma — Chief Financial Officer

Yes, Abhishek, that’s correct.

Abhishek Murarka — HSBC — Analyst

And the 34%, which is REPO linked, that would not have repriced upwards because of the REPO has not moved?

Puneet Sharma — Chief Financial Officer

Abhishek, I’ll let you draw that conclusion, but yes, the REPO rate actually has not moved in the quarter.

Abhishek Murarka — HSBC — Analyst

Yeah. So I’m just wondering that is there anything else that you can change in those loans or contractually there absolutely linked to the REPO, that’s what I wanted to check.

Puneet Sharma — Chief Financial Officer

So Abhishek, the way the product works, which is also within the RBI guideline is there is a marketing trade, which could be REPO or any other market leading benchmark and then there is a credit spread. And the regulator as well as the market practices, if there’s a material change in the underlying credit of the customer, banks do have a right pertains to credit spreads. That’s how the product is designed and that’s how the product is contacted and priced for.

Abhishek Murarka — HSBC — Analyst

Okay. Because what I’m really driving towards this, when I calculate the yield on advances, there is 13 bps QoQ increase. And given that, almost one-third of your book might be linked to the REPO and hence won’t have repriced. Also incremental book, if I look at, there’s more amount of corporate this quarter than last quarter. So I’m just finding it difficult to reconcile an increase in yield on advances sequentially. That’s what else I was just trying to get my head around.

Puneet Sharma — Chief Financial Officer

So the yield on advances sequentially would have improved for — could have or actually has improved for the exchange effect, has improved for currency change effect. Those were the two drivers apart from the drivers that you are looking at from a yield improvement perspective.

Abhishek Murarka — HSBC — Analyst

Okay. I’ll take it offline for that.

Puneet Sharma — Chief Financial Officer

Sure.

Abhishek Murarka — HSBC — Analyst

The second question is basically on rural. Now a lot of — and we’ve seen that actually called out a bit of softness in rural demand and maybe some commentary by other industry players who are also there. Where are you finding the growth it’s entry or base effect or you have some — and there are some pockets of demand where given some other competitors are unable to tap. Just wondering.

Amitabh Chaudhry — Managing Director & Chief Executive Officer

So our growth is coming on the back of 3, 4 things. One is on the back of farming our existing set of customers a bit better in the Bharat market. As you know, we have called out our strategy on Bharat Banking separately, so we’re bringing an inordinate amount of focus in going deeper into these markets and working with our existing set of customers with focus teams, so that’s one. Secondly, we have come out with — we’re doing some new products and some new focused strategy on the enterprise side in these markets with the MSME and agri enterprises that’s where we’re seeing growth. And third, it is — I won’t say it’s a low base effect, but there is a large opportunity in this market, and we need to do a bit of a catch-up in this segment as a percentage of our overall asset strategy. So as we move forward on the back of new products, processes, brand distribution expansion, working with agri-tech and fintech companies and working on some digital model, we think that we will be able to play at a much higher scale in this market.

Abhishek Murarka — HSBC — Analyst

Okay. Thank you. Thank you so much.

Puneet Sharma — Chief Financial Officer

And Abhishek, to your question, since your effort to Slide 12, part of the explanation for the yield expansion set at the bottom right hand table on Slide 12, the 5 basis points of interest reversal lower will also play through the yields.

Abhishek Murarka — HSBC — Analyst

Yeah. Puneet, but I try to calculate that’s actually — so that’s I said I’ll take it offline, it’s coming to 1 basis point for me.

Puneet Sharma — Chief Financial Officer

Sure.

Abhishek Murarka — HSBC — Analyst

So I’ll probably check with you after the call.

Puneet Sharma — Chief Financial Officer

Understood. So happy to work that way. Thank you.

Abhishek Murarka — HSBC — Analyst

Sure. Thank you.

Operator

Thank you very much. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Puneet Sharma for closing comments. Thank you, and over to you, sir.

Puneet Sharma — Chief Financial Officer

Thank you, Janice, for being such a gracious source. Thank you, ladies and gentlemen, for joining us this evening. It’s been a pleasure. We hope we’ve been able to clarify questions that you had of us. We’d be very happy to engage with you if there are any follow-on questions that you would have. Wishing your families and you a safe season, and all the very best. Thank you. Good evening.

Operator

[Operator Closing Remarks]